<PAGE>
As filed with the Securities and Exchange Commission on November 24, 1999
Registration No. 333-87501
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
DIGIMARC CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C> <C>
Oregon 7370 93-1170830
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
One Centerpointe Drive, Suite 500
Lake Oswego, Oregon 97035-8615
(503) 968-2908
(Address and telephone number of principal executive offices and principal
place of business)
----------------
Bruce Davis
President and Chief Executive Officer
Digimarc Corporation
One Centerpointe Drive, Suite 500
Lake Oswego, Oregon 97035-8615
(503) 968-2908
(Name, Address, and Telephone Number of Agent for Service)
----------------
Copies to:
<TABLE>
<S> <C>
Gavin B. Grover, Esq. Alan K. Austin, Esq.
James H. Laws, Esq. Brian C. Erb, Esq.
S. David Goldenberg, Esq. James C. Creigh, Esq.
Charles C. Kim, Esq. David A. King, Esq.
Morrison & Foerster LLP Wilson Sonsini Goodrich & Rosati
425 Market Street Professional Corporation
San Francisco, California 94105-2482 650 Page Mill Road
Palo Alto, California 94304
</TABLE>
----------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of Each Class of Proposed Maximum Proposed Maximum
Securities Amount to be Offering Price Aggregate Offering Amount of
to be Registered Registered Per Share Price(1)(2) Registration Fee(3)
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<S> <C> <C> <C> <C>
Common Stock, $0.001
par value............. 3,450,000 $15.00 51,750,000 $14,386.50
</TABLE>
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(1) Includes shares of common stock that the Underwriters have the option to
purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(a) promulgated under the Securities Act.
(3) $12,468.30 previously paid.
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 24, 1999
3,000,000 Shares
Common Stock
Digimarc Corporation is offering 3,000,000 shares of its common stock. This
is our initial public offering and no public market currently exists for our
shares. Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "DMRC." We anticipate that the initial public offering
price will be between $13.00 and $15.00 per share.
------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 4.
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<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public Offering Price............................................... $ $
Underwriting Discounts and Commissions.............................. $ $
Proceeds to Digimarc................................................ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
Digimarc has granted the underwriters a 30-day option to purchase up to an
additional 450,000 shares of common stock to cover any over-allotments.
------------
Robertson Stephens
Hambrecht & Quist
U.S. Bancorp Piper Jaffray
The date of this Prospectus is , 1999.
<PAGE>
[THE DIGIMARC CORPORATION LOGO WITH THE TEXT "DIGITAL WATERMARKING."]
<PAGE>
[OUR MEDIABRIDGE TRADEMARK WITH A SERIES OF PHOTOGRAPHS DEPICTING THE PROCEDURE
THROUGH WHICH A USER IS CONNECTED TO AN INTERNET DESTINATION USING OUR
MEDIABRIDGE APPLICATION, CONNECTED BY ARROWS AND A PHOTOGRAPH OF AN INDIVIDUAL
USING OUR MEDIABRIDGE APPLICATION THAT INCLUDES THE FOLLOWING TEXT: "BRIDGING
TRADITIONAL AND ONLINE MEDIA," "PRINTED MATERIALS BECOME PORTALS TO THE
INTERNET."]
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Until , 1999, all dealers that buy, sell or trade our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This requirement is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
----------------
TABLE OF CONTENTS
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Page
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<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 4
You Should Not Rely on Forward-Looking Statements Because They Are
Inherently Uncertain.................................................... 14
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Dilution................................................................. 16
Capitalization........................................................... 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 32
Management............................................................... 48
Related Party Transactions............................................... 58
Principal Stockholders................................................... 60
Description of Capital Stock............................................. 62
Shares Eligible for Future Sale.......................................... 66
Underwriting............................................................. 68
Legal Matters............................................................ 70
Experts.................................................................. 70
Where You Can Find Additional Information................................ 71
Index to Financial Statements............................................ F-1
</TABLE>
----------------
"Digimarc" and "MarcSpider" are registered trademarks, and "Paper-as-Portal,"
"MarcCentre" and "MediaBridge" are trademarks, of Digimarc Corporation. This
prospectus also contains other product names, trade names and trademarks of
Digimarc Corporation and of other organizations.
i
<PAGE>
SUMMARY
You should read the following summary together with the more detailed
information in this prospectus, including risk factors, regarding our company
and the common stock being sold in this offering.
Digimarc Corporation
Digimarc is a leading provider of patented digital watermarking technologies
that allow imperceptible digital code to be embedded in the printed or digital
versions of visual content, such as magazine ads, catalogs and product packages
and valuable documents like financial instruments, passports and event tickets.
In addition to code which can be embedded within various types of visual
content, our technologies include reader software which, as a resident
application on PCs, allows PCs to recognize these codes. We believe these
technologies have many potential uses. We are developing products and services
to address what we believe are our two largest near-term market opportunities:
the deterrence of digital counterfeiting or piracy and the enhancement of
Internet access and navigation.
Recent advances in multimedia, digital imaging and printing technologies have
given computer users at every level of sophistication access to highly advanced
image manipulation and reproduction capabilities. This access has led to new
challenges in the areas of document security, counterfeiting and piracy
deterrence by allowing virtually any user to create expert-quality copies of
traditional and digital content. At the same time advances in technology have
introduced millions of people to the Internet, the growth of the Internet has
allowed the Web to become a global distribution channel for unauthorized
reproductions of proprietary content. Our reader software can render scanners,
digital cameras and PCs ineffective for use in duplicating or distributing
proprietary content into which our digital code has been embedded. One area of
critical concern in the field of digital counterfeiting is the protection of
currency where the cost of failure is extremely high and the standards for
imperceptibility and reliability are equally important. Digimarc has been
awarded a multi-year contract by a global consortium of leading central banks
to develop a system to deter the use of PCs in the counterfeiting of currency.
We believe the same core tchnologies can be used to enhance e-commerce. The
increasing volume of Internet content and number of Web destinations has made
Internet navigation and information retrieval more challenging. Despite the
availability of numerous search methods, research indicates that users often
experience difficulty when retrieving information on desired products or
services, causing a loss of potential e-commerce revenue. To address these
issues, we are also using our technologies to develop products we call Paper-
as-Portal applications, the first of which, named MediaBridge, is planned for
release in the second half of 2000. This application is intended to enable
imperceptible digital code to be embedded within magazine advertisements,
articles, direct mailers, coupons, catalogs, bank cards and business cards.
When recognized by PC cameras enabled by our patented reader software, the code
will automatically launch the user to the specific Internet destination chosen
by the producer of the printed content. In this way, we believe that
MediaBridge will deliver more efficient Internet navigation and access to
consumers and more effective means for print advertisers to link readers
directly to a targeted e-commerce point-of-sale. We have entered letters of
Intent with PC camera vendors such as Logitech and 3Com and agreements with
leading magazines and magazine publishers like Wired Magazine and Hearst which
we believe will further our MediaBridge initiative.
1
<PAGE>
We believe that our applications offer strong advantages over other image
commerce and secure documents approaches because our digital watermark codes
are imperceptible, persistent and format-independent, allowing them to operate
in both analog and digital environments. Our applications are relevant to a
wide variety of Internet, computing and communications solutions because
virtually any visual content can contain our imperceptible digital watermarking
code.
We will continue to address both the security and the access problems
increasingly arising as the world grows more dependent on multimedia computing
and the Internet. Our core goals are to establish our patented technologies as
basic components of industry standards for controlling the use of visual
content and to establish Paper-as-Portal as a leading means of Internet access
and navigation. We intend to achieve these objectives by encouraging widespread
adoption of our reader software through marketing and strategic relationships
with leading publishers or advertisers and leading manufacturers of PC cameras
or other personal computer peripheral devices. To this end, we are working with
Logitech and 3Com to bundle our reader software into their PC camera software
packages. We also plan to continue to develop new applications that rely upon
our technology for other potential applications customers in communications,
image processing and electronic commerce. We believe that successful new
applications would further increase demand for our reader technology.
We intend to maintain our technology leadership in digital watermarking
through continued innovation and rigorous intellectual property development and
protection. By broadly licensing our technologies for deterring copyright
infringement, counterfeiting and piracy, and for linking digital content with
the physical world, we intend to build long-term demand for our technologies
and promote public awareness of our brand.
We derived 51% of our total revenue in 1998 and 92% of our total revenue for
the nine months ended September 30, 1999 from an agreement with a consortium of
leading central banks, and any change in, or early termination of, our
relationship with this customer could seriously harm our business. We
anticipate that this agreement will account for most of our revenue until we
are able to generate revenue from the introduction of other new products and
services that we are currently developing, including MediaBridge. We are not
profitable and we expect to continue to incur losses for the foreseeable
future.
We were incorporated in Oregon on January 3, 1995, and we intend to
reincorporate in Delaware prior to the closing of this offering. Our principal
executive offices are located at One Centerpointe Drive, Suite 500, Lake
Oswego, Oregon 97035-8615, and our telephone number is (503) 968-2908. Our Web
site is located at www.digimarc.com. Information contained on our Web site does
not constitute part of this prospectus.
Unless otherwise indicated, the information in this prospectus assumes our
one-for-two reverse stock split to be effected prior to the closing of this
offering, the automatic conversion of all outstanding shares of preferred stock
into 5,584,786 shares of common stock effective automatically upon the closing
of this offering and no exercise by the underwriters of their option to
purchase additional shares of common stock.
2
<PAGE>
The Offering
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<C> <S>
Common stock offered............................ 3,000,000 shares
Common stock to be outstanding after this
offering....................................... 10,983,255 shares
Use of proceeds................................. For repayment of indebtedness
and for general corporate
purposes, including working
capital, expansion of our
sales and marketing efforts,
product development,
expansion of our customer
support organization and
capital expenditures. See
"Use of Proceeds."
Proposed Nasdaq National Market Symbol.......... DMRC
</TABLE>
The number of shares of common stock to be outstanding after this offering is
based on the number of shares outstanding as of September 30, 1999 and
excludes:
. 30,000 shares of common stock issued subsequent to September 30, 1999
upon exercise of options;
. 2,262,461 shares of common stock issuable upon exercise of options
outstanding as of October 31, 1999 at a weighted average exercise price
of $1.20 per share;
. 2,235,606 shares of common stock reserved for future issuance under our
1995 stock incentive plan, our 1999 stock incentive plan and our 1999
employee stock purchase plan; and
. 150,000 shares of common stock issuable upon exercise of warrants
outstanding as of October 31, 1999 at an exercise price equal to the
initial public offering price.
Summary Financial Data
The pro forma basic and diluted net loss per share data in the statement of
operations data below and the pro forma data in the balance sheet data below
reflect the automatic conversion of all outstanding preferred stock into common
stock effective upon the closing of this offering. The pro forma as adjusted
data reflects adjustments to the pro forma data to show our receipt of the
estimated net proceeds of $38.0 million from the sale of 3,000,000 shares of
our common stock in this offering at an assumed initial public offering price
of $14.00 per share, after deducting estimated underwriting discounts and
commissions and estimated offering expenses.
<TABLE>
<CAPTION>
Nine Months Ended
Period from September 30,
January 3, 1995 Year Ended December 31, (unaudited)
(inception) to ------------------------------- --------------------
December 31, 1995 1996 1997 1998 1998 1999
----------------- --------- --------- --------- --------- ---------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenue........... $ -- $ 236 $ 186 $ 984 $ 691 $4,185
Gross margin............ -- 229 60 (596) (177) 2,309
Total operating
expenses............... 840 1,900 3,999 2,890 2,201 3,142
Operating loss.......... (840) (1,671) (3,939) (3,486) (2,378) (833)
Net loss................ $ (874) $(1,578) $(3,979) $(3,442) $(2,321) $ (824)
Basic and diluted net
loss per share......... $(1.01) $ (0.71) $ (1.88) $ (1.50) $ (1.02) $ (0.35)
Weighted average shares
used in basic and
diluted net loss per
share.................. 869,478 2,226,519 2,120,477 2,288,442 2,284,642 2,342,732
Pro forma basic and
diluted net loss per
share.................. $ (0.53) $ (0.12)
Weighted average shares
used in pro forma basic
and diluted net loss
per share.............. 6,447,228 6,793,518
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999
(unaudited)
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents....................... $ 8,039 $ 8,039 $46,031
Working capital................................. 7,219 7,219 45,211
Total assets.................................... 11,274 11,274 --
Long term obligations, net of current portion... 182 182 182
Redeemable convertible preferred stock.......... 17,266 -- --
Total stockholders' equity (deficit)............ (9,753) 7,513 45,505
</TABLE>
3
<PAGE>
RISK FACTORS
An investment in our shares involves risks and uncertainties. You should
carefully consider the factors described below before making an investment in
our securities. In addition, you should keep in mind that the risks described
below are not the only risks that we face. The risks described below are the
risks that we currently believe are material risks of our business, the
industry in which we compete and this offering. However, risks not presently
known to us, or risks that we currently believe are immaterial, may also harm
our business.
Our business, operating results and financial condition could be adversely
affected by any of the following risks. If we are adversely affected by these
risks, then the trading price of our common stock could decline and you could
lose all or part of your investment.
Risks Related to Our Business
We have a limited operating history and are subject to the risks encountered by
early-stage companies
We incorporated in January 1995. Accordingly, we have a limited operating
history, and our business and prospects must be considered in light of the
risks and uncertainties to which early-stage companies in new and rapidly
evolving markets, such as digital watermarking, are exposed. These risks
include the following:
. our developing revenue models and anticipated products and services may
fail to attract or retain customers;
. the intense competition and rapid technological change in our industry
could adversely affect the market's acceptance of our products and
services;
. we may be unable to build and maintain our brand;
. we may be unable to develop and maintain the strategic relationships upon
which we currently rely for our revenue; and
. our quarterly operating results may fluctuate significantly.
We cannot assure you that our business strategy will be successful or that we
will successfully address these risks and the risks described below.
We have a history of losses, expect future losses and cannot assure you that we
will achieve profitability
We have incurred significant net losses since inception. We incurred net
losses of $874,000 in 1995, $1.6 million in 1996, $4.0 million in 1997, $3.4
million in 1998 and $824,000 in the nine months ended September 30, 1999. We
have not been profitable and cannot assure you that we will realize sufficient
revenue to achieve profitability. Our accumulated deficit as of September 30,
1999 was approximately $10.8 million. We anticipate that we will increase our
research and development, sales and marketing, product development and general
and administrative expenses in the remainder of 1999 and for the foreseeable
future. In order to achieve profitability, we will need to generate
significantly higher revenue than we have in prior years. Even if we ultimately
do achieve profitability, we may not be able to sustain or increase our
profitability. If our revenue grows more slowly than we anticipate, or if our
operating expenses exceed our expectations, our operating results will be
harmed.
4
<PAGE>
Most of our significant revenue models are under development, and the
corresponding anticipated products and services may fail to attract or retain
customers
Our business involves embedding digital watermarks in traditional and digital
media, including secure documents, images on the Internet and video
merchandise. Our current applications include image commerce and counterfeiting
and piracy deterrence. To date, our revenue stream has been based primarily on
a combination of development, consulting, subscription and license fees from
copyright communication, and in recent periods, from secure document
applications. In the future, we anticipate that an increasing share of our
revenue will be from sales of our Paper-as-Portal applications, such as
MediaBridge, and sales of other applications of our digital watermarking
technologies. We have not fully developed a revenue model for our Paper-as-
Portal products, including MediaBridge, or for our other future applications.
In addition, because we have not yet sold these products in the marketplace and
because these products will be sold in new and undeveloped markets, we cannot
be certain that the pricing structure and product marketing that we are
currently developing for these new products will be accepted. We must complete
the development of MediaBridge and obtain revenue from its commercial launch in
order to meet our revenue objectives. If we do not successfully develop, market
and support MediaBridge, it is likely that our future revenue would fall below
our targeted objectives. Any shortfall in revenue from MediaBridge or our other
future applications could reduce the trading price of our common stock. We
believe that it is too early to determine whether revenue from these
initiatives will meet our objectives, and whether the revenue models that we
are currently developing and may develop in the future will be successful or
require changes after adoption. We cannot assure you that our anticipated
products and services will be able to compete effectively against other
alternative technologies in our target markets or that we will be able to
compete effectively against current or future digital watermark companies in
terms of price, performance, applications or other features of their
technologies. In addition, as we develop models for generating revenue, they
may not be sustainable over time, and as a result, our operating results and
financial condition may be harmed.
Because we currently receive 92% of our revenue from a single customer, the
loss of this customer would seriously harm our business, operating results and
financial condition
We have derived a substantial portion of our revenue from a consortium of
leading central banks with whom we have a development and license agreement
related to banknote counterfeit deterrence. Revenue from products and services
provided to this significant customer accounted for 51% of our total revenue in
1998 and 92% of our total revenue for the first nine months of 1999. We
anticipate that this relationship will account for most of our revenue until we
are able to generate revenue from the introduction of other new products and
services that we are developing, including MediaBridge. The customer has a
discretionary right of early termination with respect to the agreement. Unless
the customer exercises this right, the Company expects revenues under the
agreement to continue at or above current levels for the next two years.
Under the terms of our agreement with this customer, we are obliged to keep
the identity of the participating banks, design of the system and timetable for
deployment confidential. Any change in our relationship with this customer,
including any actual or alleged breach of the contract by either party or the
early termination of, or any other material change in, the agreement would
seriously harm our business, operating results and financial condition.
5
<PAGE>
Our future growth will depend on the successful implementation of our solutions
by third-party providers
We are currently developing MediaBridge and our other Paper-as-Portal
technologies and applications. These technologies and other applications and
services which we plan on providing in the future will rely on the successful
implementation of our product solutions, including our reader technology, by
third party software developers and original equipment manufacturers. We
anticipate maintaining and entering into new agreements with major third-party
vendors to create and promote products that incorporate, embed, integrate or
bundle our technologies. If we fail to obtain partners that will incorporate,
embed, integrate or bundle our technologies or these partners are unsuccessful
in these efforts, our business, operating results and financial condition could
be seriously harmed. In addition, if our technologies do not perform according
to market expectations, our business will be seriously harmed.
Our future quarterly operating results may not meet analysts' expectations and
may fluctuate significantly in the future, which could adversely affect our
stock price
We expect that our quarterly operating results will fluctuate significantly
in the future. Accordingly, you should not rely on quarter-to-quarter
comparisons of our historical results as an indication of future performance.
If our quarterly operating results do not meet the expectations of analysts or
investors, the market price of our common stock will likely decline.
Our quarterly results may fluctuate in the future as a result of many
factors, some of which are outside our control, including:
. the timing, introduction and successful commercialization of our new
products and services, including MediaBridge;
. the timing and success of our brand-building and marketing campaigns;
. the loss of or reduction in revenue from the customer that currently
accounts for 92% of our total revenue or any other significant customer;
. the market's acceptance of our products and services, including
MediaBridge;
. our ability to establish and maintain strategic relationships;
. the potential costs of litigation and intellectual property protection;
. the operating costs and capital expenditures related to the expansion of
our business operations and infrastructure, domestically and
internationally, including the hiring of key personnel and new employees;
. the introduction of similar or substitute technologies by our
competitors;
. the timing of future licensing revenue; and
. the marketing arrangements that we enter into during early market
development.
In addition, because the markets for our products and services are new and
rapidly evolving, it is difficult for us to predict our future financial
results. Our research and development, sales and marketing efforts and business
expenditures are based in part on our expectations regarding developments in
counterfeiting and piracy, and our estimates as to the use of digital
watermarking as a solution to those problems. To the extent that these
predictions prove inaccurate, our revenue and operating results will fluctuate
from our anticipated results.
6
<PAGE>
The markets for digital watermark applications are new and developing
Digital watermarking is a new and developing technology. Our success depends
on the acceptance of this technology and the adoption of applications in areas
such as digital image commerce, counterfeiting and piracy deterrence and self-
authentication of documents. The markets for products and services using
digital watermarks are rapidly evolving and are characterized by an increasing
number of market entrants who have introduced or developed products and
services using digital watermarking or alternative technologies. As is typical
in a new and rapidly evolving industry, demand and market acceptance of
recently introduced products and services are subject to a high level of
uncertainty. Our products and services are currently used by only a limited
number of customers. It is difficult to predict the future growth rate, if any,
and ultimate size of these markets or our anticipated future markets. We cannot
assure you that markets for our products and services will develop.
We may not be able to adequately protect our intellectual property, and we may
be subject to infringement claims
Our success depends on our proprietary technologies. We rely on a combination
of patent, copyright, trademark and trade secret rights, confidentiality
procedures and licensing arrangements to establish and protect our proprietary
rights. As a result, we face risks associated with our patent position,
including the potential need to engage in significant legal proceedings to
enforce our patents, the possibility that the validity or enforceability of our
patents may be denied, the possibility that third parties will be able to
compete against us without infringing our patents and the possibility that our
products may infringe patent rights of third parties. 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 harmed.
As part of our confidentiality procedures, we generally enter into non-
disclosure agreements with our employees, consultants and corporate partners
and attempt to control access to and distribution of our technologies,
documentation and other proprietary information. Despite these procedures,
third parties could copy or otherwise obtain and make unauthorized use of our
technologies or independently develop similar technologies. The steps we have
taken may not prevent misappropriation of our solutions or technologies,
particularly in foreign countries where laws or law enforcement practices may
not protect our proprietary rights as fully as in the United States.
Effective protection of intellectual property rights may be unavailable or
limited, both in the United States and in foreign countries. Patent protection
throughout the world is generally established on a country-by-country basis. We
have applied for patent protection both inside the United States and in various
countries outside the United States. However, we cannot assure you that pending
patents will issue or that issued patents will be valid or enforceable. We
cannot 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 patents or other
intellectual property rights we hold.
We license some rights management technology from a third party, and may need
the assistance of this third party to enforce our rights to this technology.
Although we do not currently rely on this
7
<PAGE>
technology for our core products, we may in the future. The cooperation of any
third party in enforcement of patent rights we may license cannot be assured.
We have registered "Digimarc" as a trademark in the United States and other
countries, and are pursuing registration in additional countries. However, our
tradename or trademark may be registered by third parties in other countries,
impairing our ability to enter and compete in these markets. In the United
States, the trademark "Digimark" and the domain name "Digimark.com" have been
registered by an unrelated company. While we have successfully co-existed for
several years with this other company, we cannot assure you that this state of
affairs will continue. If we were forced to change our name, we would lose a
significant amount of our brand equity.
As more companies enter the digital watermark marketplace and develop
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.
The security systems that we use in our proprietary technologies may be
circumvented by third parties, which could damage our reputation and disrupt
our business
Our products and services involve the embedding of imperceptible digital data
in visual content that is imperceptible in normal use but that can be read by
digitally-enabled devices. The success of our products and services depends on
the security of our image commerce, anti-counterfeiting and piracy systems and
self-authentication solutions. Security breaches of these systems and solutions
could damage our reputation and expose us to a risk of loss or litigation and
possible liability. The security measures that we use in our products and
services may not prevent security breaches, and failure to prevent these
security breaches may disrupt our business. A party who is able to circumvent
our security measures could misappropriate proprietary information or cause
interruptions or otherwise damage our products and services and the properties
of our customers. If unintended parties obtain sensitive data and information,
or create bugs or viruses in an attempt to sabotage the functionality of our
products and services, 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.
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. However, protection may not be available at
a reasonable price or at all.
Our products could have unknown defects
Products as complex as those we offer or develop frequently contain
undetected defects or errors. Despite testing, defects or errors may occur in
existing or new products, which could result in loss of revenue or market
share, failure to achieve market acceptance, diversion of development
resources, injury to our reputation, increased insurance costs and increased
service and warranty
8
<PAGE>
costs, any of which could materially harm our business. Furthermore, we often
provide implementation, customization, consulting and other technical services
in connection with the implementation and ongoing maintenance of our products.
The performance of these products typically involves working with sophisticated
software, computing and communications systems. Our failure to meet customer
expectations or project milestones in a timely manner could also result in a
loss of, or delay in, revenue, loss of market share, failure to achieve market
acceptance, injury to our reputation and increased costs.
Because customers rely on our products for critical security applications,
defects or errors in our products might discourage customers from purchasing
our products. These defects or errors could also result in product liability or
warranty claims. Although we attempt to reduce the risk of losses resulting
from these claims through warranty disclaimers and liability limitation clauses
in our sales agreements, these contractual provisions may not be enforceable in
every instance. Furthermore, although we maintain errors and omissions
insurance, this insurance coverage may not adequately cover these claims. If a
court refused 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, our business could be materially harmed.
We may encounter difficulties managing our planned growth and expansion that
may harm our business
As of October 21, 1999 we had 57 employees. In addition, we expect that we
need to hire approximately 60 additional employees in all areas in the rest of
1999 and 2000. We also expect to continue to expand our business and develop
current and new products using our Paper-as-Portal technologies. To manage the
future growth we currently expect to experience, our management must continue
to improve our operational and financial systems and expand, train, retain and
manage our growing employee base. In addition, any additional growth of our
product lines or business will place an even more significant strain on our
managerial and financial resources. If we cannot manage our growth effectively,
we may not be able to coordinate the activities of our technical, accounting
and marketing staffs, and our business could be harmed.
We depend on our key employees for our future success
Our success depends to a significant extent on the performance and continued
service of our senior management. None of our senior management has an
employment agreement. Although our employees have executed agreements
containing non-competition clauses, there is no assurance 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 would be freely able to join our
competitors. In addition, we currently have key person life insurance only on
Bruce Davis, our president and chief executive officer, and Geoffrey Rhoads,
our chief technology officer and secretary. The loss of the services of any of
our senior management or any of our other key employees could harm our
business.
If we are not able to hire, integrate or retain qualified personnel, our
business may be harmed
The recent growth in our business has resulted in an increase in the
responsibilities for both existing and new management personnel. Many of our
personnel are presently serving in more than one capacity. In addition, we
expect that we will need to hire approximately 60 additional employees in all
areas in the rest of 1999 and in 2000, including general managers for new
operations in key market segments. Competition for experienced personnel in our
market segments is intense. We may
9
<PAGE>
not be able to retain our current key employees or attract, integrate or retain
other qualified personnel in the future. If we do not succeed in attracting new
personnel or in integrating, retaining and motivating our current personnel,
our business could be harmed. In addition, because our business is based on our
patented technology, which is unique and not generally known, new employees
will require substantial training, which will require substantial resources and
management attention.
Our promotion of the Digimarc brand must be successful in order for us to
attract users as well as advertisers and other strategic partners
We believe that establishing and maintaining our brand is critical to our
success and that the importance of brand recognition will increase due to the
growing number of technologies that compete with our watermarking technologies
and the increasing number of competitors offering technologies similar to ours.
We intend to increase our marketing and branding expenditures in our effort to
increase awareness of our brand. If our brand-building strategy is
unsuccessful, these expenses may never be recovered, we may be unable to
increase our future revenue and our business could be materially harmed.
We may need to raise additional funds, which may not be available
We believe that our current cash resources, combined with the net proceeds
from this offering, will be sufficient to meet our presently anticipated
working capital and capital expenditure requirements for at least the next 12
months following the date of this prospectus. We may need to raise additional
funds, however, to do the following:
. research and develop new applications for digital watermarking, and new
products and services;
. respond to competitive pressures; and
. acquire complementary businesses or technologies.
Our future liquidity and capital requirements will depend on numerous
factors, including the success of our existing and future products and services
and potentially competing technological and market developments. We may be
required to raise additional funds through public or private financing,
strategic relationships or other arrangements. Raising additional equity
capital would have a dilutive effect on existing stockholders. We cannot assure
you that additional funding, if needed, will be available on terms acceptable
to us or at all. If adequate funds are not available on acceptable terms, our
ability to develop or enhance our products and services, take advantage of
future opportunities or respond to competitive pressures would be significantly
limited. Any of these limitations could harm our business, operating results
and financial condition.
Risks Related to Our Industry
If we are unable to respond to regulatory or industry standards effectively,
our operating results could be harmed
Our future success will depend in part on our ability to enhance and improve
the responsiveness, functionality and features of our products and services in
accordance with newly-imposed regulatory or industry standards. Our ability to
remain competitive will depend in part on our ability to influence and respond
to emerging industry standards, including any standards that may be adopted for
the protection of digital photography or video on DVD, in a timely and cost-
effective manner. For instance, our video copy prevention solution is competing
with another solution to become the
10
<PAGE>
industry standard for DVD copy protection. In addition, our MediaBridge
application competes against companies that provide Internet portals, and other
Internet companies that provide search and directory services. If we are unable
to influence or respond to these standards effectively, our operating results
could be harmed.
If we are unable to integrate new technologies effectively, our business could
be harmed
Our target markets are characterized by new and evolving technologies. The
success of our business will depend on our ability to address the increasingly
sophisticated technological needs of our customers in a timely and cost-
effective manner. Our ability to remain competitive will depend, in part, on
our ability to:
. enhance and improve the responsiveness, functionality and other features
of the products and services we offer or plan to offer;
. continue to develop our technical expertise; and
. develop and introduce new services, applications and technologies to meet
changing customer needs and preferences and to integrate new
technologies.
We cannot 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 integrate new technologies effectively or respond to these
changing needs, our business could be harmed.
Our markets are highly competitive
The markets for digital watermarking applications are new, intensely
competitive and rapidly evolving. We expect competition to continue to increase
from both existing competitors and new market entrants. We face competition
from other companies using digital watermarking technologies and from
alternative technologies. As we expand the applications for our digital
watermarking technologies, we will experience more competition from products
and services that are substitutes for our digital watermarking products.
Because our business model is new and emerging, we may face competition from
unexpected sources. Alternative technologies that may directly or indirectly
compete with certain applications of our watermarking technologies include:
. encryption--securing data during distribution using a secret code so it
cannot be accessed except by authorized users;
. containers--inserting a media object in a "wrapper," which prevents the
media object from being duplicated;
. dataglyphs--a visible modification of the characteristics of an image
that is machine-readable;
. scrambled indicia--optical refraction-based data-hiding technique that is
inserted into an image and can be read with a glass;
. traditional anti-counterfeiting technologies--a number of solutions used
currently by many governments that compete for budgetary outlays designed
to deter counterfeiting, including optically sensitive ink, magnetic
"threads" and other materials used in the printing of currencies;
. radio frequency tags--embedding a chip that emits a signal when in close
proximity with a receiver, which is being used in photo identification,
labels and tags;
11
<PAGE>
. Internet technologies--numerous existing and potential Internet access
and search methods will be potentially competitive with MediaBridge and
other Paper-as-Portal applications; and
. bar codes--visible data-carrying code.
In addition, as we apply our technologies to the Internet through the
anticipated introduction of MediaBridge and other Paper-as-Portal applications,
we may begin to compete with a wide range of other companies. Many of the
companies that currently compete with us, as well as other companies with whom
we may compete in the future, are national or international in scope and may
have greater 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 in our target markets. We cannot assure you that digital
watermarking technologies, and our products and services using these
technologies, will gain widespread market acceptance.
We cannot assure you that we will be able to compete successfully against
current or future participants in our markets or against alternative
technologies, nor can we assure you that the competitive pressures we face will
not harm our business, operating results and financial condition.
Our business may be negatively affected by Year 2000 issues
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. These date code fields
will need to accept four-digit entries to distinguish 21st century dates from
20th century dates. As a result, many companies' software and computer systems
may need to be upgraded or replaced in order to comply with Year 2000
requirements. We utilize third-party equipment and software that may not be
Year 2000 compliant. Failure of this third-party equipment or software to be
Year 2000 compliant could require us to incur unanticipated expenses to remedy
any problems, which could harm our business, operating results and financial
condition. Furthermore, the purchasing patterns of customers or potential
customers may be affected by Year 2000 issues as companies expend significant
resources to correct their current systems for Year 2000 compliance. These
expenditures may result in reduced funds being available to purchase products
and services we offer, which could harm our business, operating results and
financial condition.
Risks Related to This Offering
Our stock price may be volatile
The market price of our common stock is likely to be highly volatile and
fluctuate significantly in response to a number of factors, most of which are
beyond our control, including:
. fluctuations in quarterly operating results;
. changes in our relationship with the consortium of central banks, which
is our primary customer;
. announcements of significant contracts, strategic relationships,
acquisitions or capital commitments;
. technological developments in digital watermarking and other forms of
document security, and technological shifts in accessing the Internet;
. the rapidly evolving nature of our business and the digital watermarking
industry;
. the timing and manner of announcement of new products by us or our
competitors;
12
<PAGE>
. changes in the marketing methods used by advertisers;
. the launch of significant new products and lines of business, which as of
yet are unreleased and untested in the marketplace;
. changes in financial estimates by securities analysts;
. changes in our intellectual property position or the adoption of industry
standards applicable to our technology;
. failure to obtain patents or defend them successfully;
. failure to complete significant license transactions;
. additions or departures of key personnel;
. trading characteristics that develop in the market for our common stock,
which may include low trading volume and other factors that affect the
liquidity of trading; and
. stock market price and volume fluctuations, which are particularly common
among highly volatile securities of high-technology and software
companies.
In the past, securities class action litigation has often been instituted
against a company following periods of volatility in the company's stock price.
This type of litigation could result in substantial costs and could divert our
management's attention and resources.
73% of our common stock is held by existing stockholders and may be sold into
the public market in the future, which may cause our stock price to decline
Sales of a substantial number of shares of common stock after this offering
could adversely affect the market price of our common stock and could impair
our ability to raise capital through the sale of additional equity securities.
After the closing of this offering, we will have outstanding 10,983,255 shares
of common stock, assuming no exercise of outstanding options or warrants after
September 30, 1999 and no exercise of the underwriters' over-allotment option.
The 3,000,000 shares of common stock sold in this offering, which would be
3,450,000 shares if the underwriters' over-allotment option to purchase
additional shares is exercised in full, will be freely tradeable without
restriction or further registration under the federal securities laws unless
purchased by persons who are considered affiliates under the federal securities
laws. The remaining 7,983,255 shares of common stock outstanding upon the
closing of this offering will be considered restricted securities under the
federal securities laws.
Many of our stockholders, option holders and warrant holders are subject to
agreements that limit their ability to sell their shares of common stock.
Subject to limited exceptions, these securityholders cannot sell or otherwise
dispose of any shares of common stock for a period of at least 180 days after
the date of this prospectus without the prior written approval of BancBoston
Robertson Stephens. When these agreements expire, these shares and the shares
underlying the options will become eligible for sale, in some cases only in
accordance with the volume, manner of sale and notice requirements of the
federal securities laws. See "Shares Eligible for Future Sale" and
"Underwriting."
Our management will retain broad discretion in the use of proceeds from this
offering and may use the proceeds in ways with which you do not agree
We intend to use the net proceeds from this offering for the repayment of
indebtedness, working capital and general corporate purposes, including market
expansion, acquisitions and product and
13
<PAGE>
technology development. Accordingly, our management will have significant
flexibility in applying the net proceeds from this offering and may use the net
proceeds in ways with which you do not agree. Until the net proceeds are
needed, we plan to invest them in investment-grade, interest-bearing
securities. We cannot assure you that investment of the net proceeds will yield
a favorable or any return. The inability of our management to apply these funds
effectively could harm our business.
Anti-takeover provisions in our charter documents could prevent or delay
transactions that could be profitable for our stockholders from occurring
The anti-takeover provisions of Delaware law and our certificate of
incorporation and bylaws may make a change of control of us more difficult,
even if a change of control would be beneficial to our stockholders. These
provisions may allow our board of directors to prevent changes in management
and control of us. Under Delaware law, our board may adopt additional anti-
takeover measures in the future.
We have adopted the following anti-takeover provisions, each to take effect
upon the closing of this offering:
. our board of directors will be divided into three classes of directors,
with a separate class of directors being elected at each successive
annual meeting for a term of three years;
. special meetings of the stockholders may be called only by our president,
our secretary or at the discretion of our board of directors;
. vacancies on our board of directors may be filled by a majority of
directors in office, and not by the stockholders; and
. our board of directors may issue preferred stock and determine the price,
rights, preferences and privileges of those shares without any vote or
further action by the stockholders.
These provisions could have the effect of discouraging a third party from
making a tender offer or otherwise attempting to gain control of us. In
addition, these provisions could limit the price that investors might be
willing to pay in the future for shares of our common stock.
YOU SHOULD NOT RELY ON FORWARD-LOOKING
STATEMENTS BECAUSE THEY ARE INHERENTLY UNCERTAIN
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "expect," "anticipate," "intend," "plan,"
"believe," "seek," "estimate" and similar expressions to identify forward-
looking statements. This prospectus also contains forward-looking statements
attributed to third parties relating to their estimates regarding the
prevalence and growth of the number of incidences of copyright infringement,
counterfeiting and piracy. Readers are cautioned not to place undue reliance on
any of these forward-looking statements, which reflect our management's views
as of the date of this prospectus. Our actual results could differ materially
from those anticipated in these forward-looking statements for many reasons,
including the risks faced by us and described in "Risk Factors" and elsewhere
in this prospectus.
14
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds of $38.0 million from the sale
of the 3,000,000 shares of common stock in this offering, assuming an initial
public offering price of $14.00 per share and after deducting the estimated
underwriting discounts and commissions, and estimated offering expenses. If the
underwriters' over-allotment option is exercised in full, our net proceeds will
be approximately $43.9 million.
We intend to use a portion of the net proceeds to repay in full the principal
of and interest, which has been accruing at 7% per annum, on unsecured notes
payable to some of our founding common stockholders, incurred several years ago
as part of our early efforts to finance our business development. The principal
and interest balance on the notes was $386,000 at September 30, 1999. As of the
date of this prospectus, we have not made any specific allocations with respect
to the remainder of the net proceeds. Therefore, we cannot specify with
certainty the particular uses for the net proceeds to be received upon
consummation of this offering. Accordingly, our management will have
significant flexibility in applying the net proceeds.
We expect to use the net proceeds of this offering for:
. additional working capital;
. creating a public market for our common stock; and
. facilitating future access by Digimarc to public equity markets.
Pending our use of these funds, the net proceeds from this offering will be
invested in short-term, interest-bearing, investment grade, instruments.
DIVIDEND POLICY
We have never declared or paid any cash dividends on shares of our common
stock. We currently intend to retain future earnings, if any, to support the
development of our business and do not anticipate paying any cash dividends in
the foreseeable future. Our board of directors will have discretion as to
whether future dividends will be paid, after taking into account factors such
as our financial condition, operating results and current and anticipated cash
needs.
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<PAGE>
DILUTION
As of September 30, 1999, our pro forma net tangible book value was
approximately $7.5 million or $0.93 per share of common stock. Pro forma net
tangible book value per share represents the amount of our total tangible
assets less total liabilities, divided by the pro forma number of shares of
common stock outstanding. After giving effect to the sale of the 3,000,000
shares of common stock we are offering at an assumed initial public offering
price of $14.00, our pro forma net tangible book value as of September 30, 1999
would have been $45.5 million or $4.14 per share of common stock. This
represents an immediate increase in net tangible book value of $3.21 per share
to existing stockholders and an immediate dilution of $9.86 per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $14.00
Pro forma net tangible book value per share as of September 30,
1999............................................................ $0.93
Increase per share attributable to new investors................. 3.21
-----
Pro forma net tangible book value per share after this offering... 4.14
------
Dilution per share to new investors............................... $ 9.86
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1999, the number of shares of common stock purchased, the total consideration
paid and the average price per share paid by the existing stockholders and the
new investors purchasing shares of common stock in this offering. The
information presented is based upon an assumed initial public offering price of
$14.00 per share, before deducting estimated underwriting discounts and
commissions, and estimated offering expenses of this offering:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 7,983,255 72.7% $18,370,000 30.4% $ 2.30
New investors.............. 3,000,000 27.3 42,000,000 69.6 14.00
---------- ----- ----------- -----
Total.................... 10,983,255 100.0% $60,370,000 100.0% 5.50
========== ===== =========== =====
</TABLE>
The information presented with respect to existing stockholders includes
4,520,286 shares of preferred stock, which will be automatically converted into
5,584,786 shares of common stock upon the closing of this offering. The above
information is as of September 30, 1999 and excludes:
. 30,000 shares of common stock issued subsequent to September 30, 1999
upon exercise of options;
. 2,262,461 shares of common stock issuable upon exercise of options
outstanding as of October 31, 1999 at a weighted average exercise price
of $1.20 per share;
. 2,235,606 shares of common stock reserved for future issuance under our
1995 stock incentive plan, our 1999 stock incentive plan and our 1999
employee stock purchase plan; and
. 150,000 shares of common stock issuable upon exercise of warrants
outstanding as of October 31, 1999 at an exercise price equal to the
initial public offering price.
Giving effect to the full vesting of all options and warrants outstanding as
of October 31, 1999 and the stock issued subsequent to September 30, 1999, the
pro forma net tangible book value per share after this offering as of September
30, 1999 would be $3.74, the dilution per share to the new investors would be
$10.26, and the consideration paid by the existing shareholders and the new
investors would represent 35.6% and 64.4%, respectively. If holders of
outstanding options exercise these options, or if we grant additional options
with low exercise prices in the future, there will be further dilution to new
investors.
16
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999 on
an actual basis, on a pro forma basis to give effect to the conversion of all
outstanding shares of preferred stock into common stock and on a pro forma as
adjusted basis to give effect to the conversion of all outstanding shares of
our preferred stock into common stock and the receipt of the estimated net
proceeds from the sale of 3,000,000 shares of common stock offered in this
offering at an assumed initial public offering price of $14.00 per share and
after deducting estimated underwriting discounts and commissions, and estimated
offering expenses.
The actual, pro forma and pro forma as adjusted information below is
unaudited and should be read in conjunction with our financial statements and
the notes to those financial statements appearing at the end of this
prospectus.
<TABLE>
<CAPTION>
September 30, 1999
(unaudited)
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Mandatorily redeemable preferred stock, $0.001
par value, 10,874,000 shares authorized,
4,357,786 shares issued and outstanding,
actual; no shares authorized, issued or
outstanding, pro forma and pro forma as
adjusted...................................... $ 17,266 $ -- $ --
Stockholders' equity (deficit):
Convertible preferred stock, $0.001 par
value; 325,000 shares authorized, 162,500
shares issued and outstanding, actual; no
shares issued and outstanding, pro forma and
pro forma as adjusted....................... -- -- --
Common stock, $0.001 par value; 12,500,000
shares authorized; 2,398,469 shares issued
and outstanding, actual; 7,983,255 shares
issued and outstanding, pro forma; and
10,983,255 shares issued and outstanding,
pro forma as adjusted....................... 3 8 11
Additional paid in capital................... 4,509 21,770 59,759
Deferred compensation........................ (3,466) (3,466) (3,466)
Accumulated deficit.......................... (10,799) (10,799) (10,799)
-------- -------- --------
Total stockholders' equity (deficit)....... (9,753) 7,513 45,505
-------- -------- --------
Total capitalization..................... $ 7,513 $ 7,513 $ 45,505
======== ======== ========
</TABLE>
The number of shares of common stock to be outstanding after this offering is
based on the number of shares outstanding as of September 30, 1999 and
excludes:
. 30,000 shares of common stock issued subsequent to September 30, 1999
upon exercise of options;
. 2,262,461 shares of common stock issuable upon exercise of options
outstanding as of October 31, 1999 at a weighted average exercise price
of $1.20 per share;
. 2,235,606 shares of common stock reserved for future issuance under our
1995 stock incentive plan, our 1999 stock incentive plan and our 1999
employee stock purchase plan; and
. 150,000 shares of common stock issuable upon exercise of warrants
outstanding as of October 31, 1999 at an exercise price equal to the
initial public offering price.
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<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our
financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in this
prospectus. The statement of operations data for the years ended December 31,
1996, 1997 and 1998, and the balance sheet data at December 31, 1997 and 1998,
are derived from our financial statements that KPMG LLP, independent certified
public accountants, have audited and are included in this prospectus. The
statement of operations data for the period from January 3, 1995 (inception)
through December 31, 1995 and the balance sheet data at December 31, 1995 and
1996 are derived from our audited financial statements not included in this
prospectus. The statement of operations data for the nine-month periods ended
September 30, 1998 and 1999, and the balance sheet data at September 30, 1999,
are derived from unaudited interim financial statements included in this
prospectus. The unaudited financial statements have been prepared on
substantially the same basis as the audited financial statements and, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of
operations for these periods. Historical results are not necessarily indicative
of the results to be expected in the future, and results of interim periods are
not necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
Period from
January 3, 1995 Nine Months Ended
(inception) September 30,
through Year Ended December 31, (unaudited)
December 31, ------------------------------- --------------------
1995 1996 1997 1998 1998 1999
--------------- --------- --------- --------- --------- ---------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue:
License and
subscription......... $ -- $ 186 $ 161 $ 484 $ 379 $ 175
Service............... -- 50 25 500 312 4,010
------- --------- --------- --------- --------- ---------
Total revenue........ -- 236 186 984 691 4,185
Cost of revenue:
License and
subscription......... -- 7 126 114 93 62
Service............... -- -- -- 1,466 775 1,814
------- --------- --------- --------- --------- ---------
Total cost of
revenue............. -- 7 126 1,580 868 1,876
------- --------- --------- --------- --------- ---------
Gross margin.......... -- 229 60 (596) (177) 2.309
Operating expenses:
Sales and marketing... 36 376 1,330 825 742 731
Research and
development.......... 327 690 934 658 546 450
Impairment charge..... -- -- 453 -- -- --
General and
administrative....... 477 834 1,282 1,407 913 1,961
------- --------- --------- --------- --------- ---------
Total operating
expenses............ 840 1,900 3,999 2,890 2,201 3,142
------- --------- --------- --------- --------- ---------
Operating loss.......... (840) (1,671) (3,939) (3,486) (2,378) (833)
Other income (expense).. (34) 93 (40) 44 57 9
------- --------- --------- --------- --------- ---------
Loss before income
taxes.................. (874) (1,578) (3,979) (3,442) (2,321) (824)
Provision for income
taxes.................. -- -- -- -- -- --
------- --------- --------- --------- --------- ---------
Net loss.............. $ (874) $ (1,578) $ (3,979) $ (3,442) $ (2,321) $ (824)
======= ========= ========= ========= ========= =========
Basic and diluted net
loss per share......... $ (1.01) $ (0.71) $ (1.88) $ (1.50) $ (1.02) $ (0.35)
======= ========= ========= ========= ========= =========
Weighted average shares
outstanding used in
basic and diluted net
loss per share
calculation............ 869,478 2,226,519 2,120,477 2,288,442 2,284,642 2,342,732
</TABLE>
<TABLE>
<CAPTION>
September 30,
December 31, (unaudited)
-------------------------------- -------------
1995 1996 1997 1998 1999
----- ------- ------- ------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents..... $ 46 $ 3,113 $ 5,638 $ 2,137 $ 8,039
Working capital............... (244) 2,782 4,631 1,196 7,219
Total assets.................. 63 3,376 6,168 2,978 11,274
Long-term obligations, net of
current portion.............. 438 396 395 469 182
Redeemable convertible
preferred stock.............. -- 4,441 10,185 10,185 17,266
Total stockholders' deficit... (690) (1,885) (5,680) (9,095) (9,753)
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and related notes included in this prospectus. This discussion
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those anticipated in these forward-
looking statements as a result of factors described within this prospectus. We
refer you also to the section "You Should Not Rely on Forward-Looking
Statements Because They Are Inherently Uncertain."
Overview
Digimarc is a leading provider of patented digital watermarking technologies
that allow imperceptible digital code to be embedded in traditional and digital
content, including movies, photographic or artistic images and valuable
documents such as financial instruments, passports and event tickets. Our
technologies protect copyrights and deter counterfeiting or piracy by enabling
information related to copyright ownership to be communicated easily. In
addition, our MediaBridge product will offer advertisers, for the first time, a
direct link between physical content and the Internet. This link will be
accomplished by a PC recognizing the embedded digital code within a
MediaBridge-enabled image and, as a result, automatically executing an
instruction to take the user directly to a particular Internet destination
without any mouse clicks or keyboard strokes.
From our inception in January 1995 through late 1996, we devoted
substantially all of our efforts to product development, raising capital and
recruiting personnel. We first generated licensing revenue in the third quarter
of 1996 through the licensing of our software plug-ins to Adobe Systems. In the
fourth quarter of 1996, we introduced a subscription-based service for
communicating copyrights of digital images across the Internet. This product
offering was followed by the introduction in mid-1997 of MarcSpider, our
service that searches the Internet for images containing Digimarc watermarks
and produces reports on the locations of these images. In late 1997, we began
expanding the use of our digital watermarking technologies to counterfeiting
and piracy deterrence.
In 1998, we began working with a consortium of leading central banks to
develop a system to deter the use of personal computer systems in the
counterfeiting of currency. Providing services relating to the development of
this anti-counterfeiting system accounted for 51% of our total revenue in 1998
and 92% of our total revenue for the first nine months of 1999. This increase
in the share of total revenue resulted from our securing a contractual
relationship with the consortium. We anticipate that this development project
will account for most of our revenue until we are able to generate substantial
revenue from the introduction of new products that we are developing relating
to document security and our Paper-as-Portal applications.
In early 1999, we began to place increasing emphasis on developing
MediaBridge, the first of our Paper-as-Portal applications. Our efforts to
develop and introduce MediaBridge and related Paper-as-Portal applications will
require significant continuing investment. To date, we have not derived any
revenue from MediaBridge or any other Paper-as-Portal application. We expect to
begin marketing MediaBridge in the second half of 2000. We currently expect to
develop new products and services, which we anticipate selling to customers
through a variety of pricing plans, including annual license fees and license
fees per document from issuers of valuable documents other than banknotes and
from magazine advertisers and publishers. Successful introduction and marketing
of these new products and services, including MediaBridge and other Paper-as-
Portal applications, if achieved, would significantly change the mix and the
concentration of our future revenue.
19
<PAGE>
To date, we have derived our revenue from licensing software products,
delivering subscription-based services and providing development and consulting
services to the consortium of central banks. We license our software products
to owners of digital images. Revenue is recognized on delivery of software,
assuming no significant obligations or customer acceptance rights exist. We
provide subscription services to users for tracking of their watermarked images
across the Internet. Subscriptions are paid in advance, and revenue is
recognized ratably over the term of the subscription. We also provide
development and consulting services related to the customization, integration
and installation of our technologies. This revenue is recognized as services
are performed, unless completion is subject to customer acceptance. Revenue
from our international sales has primarily been denominated in U.S. dollars.
Therefore, fluctuations in foreign currency exchange rates have not had a
material effect on our business.
We intend to increase our revenue through the marketing of new digital
watermarking applications and the licensing of MediaBridge and other Paper-as-
Portal applications. We expect to target, among other sources of revenue,
publishers, advertisers and other producers of printed materials. Our aim is to
license our technologies to those content producers so that they may embed our
digital watermarks in their print media, such as magazine ads or articles,
direct mail coupons or catalogs and credit or business cards. Our current and
anticipated products are intended to enable them to control reproduction and
alteration of their content, as well as to enable their print materials to
provide a link to relevant Web destinations. Revenue from our new applications
may include one-time licenses, time-based or usage-based fees, royalties and
revenue-sharing. We anticipate that the calculation of fees and royalties will
be based at least in part on the size of the installed base of PCs, cameras,
scanners, digital image capture and output devices, and software carrying our
patented reader technology as well as the nature of the use, and the nature and
amount of licensed content carrying our MediaBridge digital watermarks.
We believe that development of our business will require increasing levels of
expenditures in future periods, including a significant increase in our sales
and marketing efforts for the launch of new products, including MediaBridge and
other applications of our Paper-as-Portal technology. Accordingly, we
anticipate that we will continue to invest significantly in sales and marketing
for the foreseeable future and that the dollar amount of sales and marketing
expenses is likely to increase in the future. We believe that a significant
increase in our research and development investment will be necessary for the
development of additional applications of our technologies. We anticipate that
we will continue to invest significantly in product research and development
for the foreseeable future and that research and development expenses are
likely to increase in the future. Due to the short development period between
achievement of technological feasibility and the general availability of our
software to customers, software development costs qualifying for capitalization
have been insignificant, and as a result, are expensed as they are incurred. We
also believe that our general and administrative expenses will continue to
increase as a result of the continued expansion of our administrative staff and
the expenses associated with becoming a public company, including annual and
other public-reporting costs, directors' and officers' liability insurance,
investor-relations programs and professional-service fees.
Since inception, we have invested in attracting top senior management, in
developing products and in building our sales and marketing organizations. We
have a limited operating history upon which investors may evaluate our business
and prospects. We have incurred significant losses to date, and as of September
30, 1999, we had an accumulated deficit of approximately $10.8 million. We
intend to continue to expend significant financial and management resources on
developing additional
20
<PAGE>
products and services, increasing sales and marketing activities, improving our
technologies and expanding our operations. As a result, we expect to continue
to incur additional losses and negative cash flow through 2001 and possibly
beyond. Our revenue may not increase or even continue at its current levels and
we may not achieve or maintain profitability or generate cash from operations
in future periods. Our prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stages of development, particularly companies deploying new technologies and
applications, such as our efforts to develop our Paper-as-Portal technology as
a new means of using the Internet.
Results of Operations
The following table presents our statement of operations data for the periods
indicated as a percentage of total revenue.
<TABLE>
<CAPTION>
Nine Months
Ended
September
30,
Year Ended December 31, (unaudited)
----------------------------- --------------
1996 1997 1998 1998 1999
------- --------- ------- ------ -----
<S> <C> <C> <C> <C> <C>
Revenue:
License and subscription.... 79% 87% 49% 55% 4%
Service..................... 21 13 51 45 96
------- --------- ------- ------ -----
Total revenue............. 100 100 100 100 100
------- --------- ------- ------ -----
Cost of revenue:
License and subscription.... 3 68 12 14 2
Service..................... -- -- 149 112 43
------- --------- ------- ------ -----
Total cost of revenue..... 3 68 161 126 45
------- --------- ------- ------ -----
Gross margin.............. 97 32 (61) (26) 55
Operating expenses:
Sales and marketing......... 159 715 84 107 17
Research and development.... 292 502 67 79 11
Impairment charge........... -- 244 -- -- --
General and administrative.. 353 689 143 132 47
------- --------- ------- ------ -----
Total operating expenses.. 804 2150 294 318 75
------- --------- ------- ------ -----
Operating loss.............. (707) (2,118) (355) (344) (20)
Other Income (Expense)...... 39 (21) 5 8 --
------- --------- ------- ------ -----
Loss before income taxes.... (668) (2,139) (350) (336) (20)
Provision for income taxes.. -- -- -- -- --
------- --------- ------- ------ -----
Net loss.................. (668)% (2,139)% (350)% (336)% (20)%
======= ========= ======= ====== =====
</TABLE>
Nine Months Ended September 30, 1998 and 1999
Revenue
Total revenue was $691,000 and $4.2 million for the nine months ended
September 30, 1998 and 1999, respectively, representing an increase of $3.5
million. This increase was primarily the result of increased service revenue
which we earned through securing a relationship with a consortium of leading
central banks. One customer (the consortium of banks) accounted for
approximately 45% and 92% of our total revenue for the nine months ended
September 30, 1998
21
<PAGE>
and 1999, respectively. The customer has a discretionary right of early
termination with respect to the agreement. Unless the customer exercises this
right, the Company expects revenues under the agreement to continue at or above
current levels for the next two years. The Company intends to pursue further
business with this customer and may be able to achieve other sources of revenue
in future periods by providing additional products and services to them and
related institutions. We currently expect to develop new products and services,
which we anticipate selling to customers through a variety of pricing plans,
including license fees and license fees per document from issuers of valuable
documents other than banknotes and from magazine advertisers and publishers.
Successful introduction and implementation of these new products and services,
including self-authenticating documents, MediaBridge and other Paper-as-Portal
applications, if achieved, would significantly change the mix and concentration
of our future revenue.
License and subscription. License and subscription revenue was $379,000 and
$175,000 for the nine months ended September 30, 1998 and 1999, respectively,
representing a decrease of $204,000. This decrease was the result of an
increased use of our sales, marketing and research and development personnel to
provide education, outreach and product definition services to our anti-
counterfeiting system customer.
Service. Service revenue was $312,000 and $4.1 million for the nine months
ended September 30, 1998 and 1999, respectively, representing an increase of
$3.7 million. This increase was the direct result of our securing a
relationship with a consortium of leading central banks under which we are
developing a system to deter the use of personal computer systems in the
counterfeiting of currency.
Cost of Revenue
License and subscription. Cost of license and subscription revenue includes
compensation for operations personnel, cost of outsourced customer support,
Internet service provider connectivity charges and image search data fees to
support our services. Cost of license and subscription revenue was $93,000 and
$62,000 for the nine months ended September 30, 1998 and 1999, respectively.
Service. Cost of service revenue primarily includes compensation for software
developers, quality assurance personnel, product managers and business
development personnel, outside contractors and travel costs directly
attributable to certain service and development contracts. Cost of service
revenue was $775,000 and $1.8 million for the nine months ended September 30,
1998 and 1999, respectively, representing an increase of $1.0 million. This
increase was the result of an increased use of our research and development and
sales and marketing personnel to provide services to our anti-counterfeiting
system customer under the development contract. Cost of service revenue as a
percentage of service revenue decreased from 248% in the nine months ended
September 30, 1998 to 45% in the nine months ended September 30, 1999.
Operating Expenses
Sales and marketing. Sales and marketing expenses consist primarily of
compensation, benefits and related costs of sales and marketing personnel,
product managers and sales engineers, as well as recruiting, travel, market
research and costs associated with marketing programs, such as trade shows,
public relations and new product launches. Sales and marketing expenses were
$742,000 and $731,000 for the nine months ended September 30, 1998 and 1999,
respectively, representing a decrease of $11,000. This decrease resulted from
increased costs of $711,000 from salaries, other
22
<PAGE>
related employee costs and travel, offset by a decrease in advertising,
promotional activities and other marketing costs of $132,000 and an increased
allocation of $590,000 to cost of service revenue associated with sales and
marketing personnel who provide education, outreach and product definition
services to our anti-counterfeiting system customer. Sales and marketing
employees totaled seven and 15 as of September 30, 1998 and 1999, respectively.
We believe that a significant increase in our sales and marketing effort is
essential for the introduction of new products, including additional secure
document applications, and MediaBridge and other Paper-as-Portal applications.
Accordingly, we anticipate that we will continue to invest significantly in
sales and marketing for the foreseeable future, and that sales and marketing
expenses are likely to increase in the future.
Research and development. Research and development expenses consist primarily
of compensation, benefits and related costs of software developers and quality
assurance personnel and payments to outside contractors. Research and
development expenses were $546,000 and $450,000 for the nine months ended
September 30, 1998 and 1999, respectively, representing a decrease of $96,000.
Increased use of research and development personnel to provide services to our
anti-counterfeiting system customer resulted in an additional $710,000 of these
expenses being allocated to cost of service revenue, while salaries and other
employee related costs increased $626,000. Research and development personnel
totaled 14 and 28 as of September 30, 1998 and 1999, respectively. We believe
that a significant increase in our research and development investment is
essential for us to maintain our market position, to continue to expand our
product lines and to enhance our technologies and intellectual property rights.
Accordingly, we anticipate that we will continue to invest significantly in
product research and development for the foreseeable future, and that research
and development expenses are likely to increase in the future.
General and administrative. General and administrative expenses consist
primarily of compensation, benefits and related costs of executive, finance and
administrative personnel, facilities costs, legal and other professional fees
and depreciation expense. General and administrative expenses were $913,000 and
$2.0 million for the nine months ended September 30, 1998 and 1999,
respectively, representing an increase of $1.0 million. $810,000 of this
increase was the result of increased executive compensation and travel
expenses, as well as executive recruiting fees and professional fees related to
our recent growth. General and administrative employees totaled four and nine
as of September 30, 1998 and 1999, respectively. We believe that our general
and administrative expenses will continue to increase as a result of the
continued expansion of our administrative staff and expenses associated with
being a public company, including annual and other public-reporting costs,
directors' and officers' liability insurance, investor-relations programs and
professional-services fees.
Stock Compensation Expense. Compensation expense includes costs relating to
stock-based employee compensation arrangements. Stock compensation expense is
based on the difference between the fair market value of our common stock and
the exercise price of options to purchase that stock on the date of the grant,
and is being recognized over the vesting periods of the related options,
usually four years. Stock compensation expense of $121,000 was recorded for the
nine months ended September 30, 1999. The total unearned compensation recorded
by us from inception to September 30, 1999 was $3.6 million. The fair value per
share used to determine unearned compensation was derived by reference to the
preferred stock values reduced by a discount factor. We expect to record at
least an additional $3.1 million of total unearned compensation for the
fourth quarter ended December 31, 1999 related to stock grants. The actual
amount will depend on the number of options granted and their exercise price.
At current estimates, additional deferred compensation amortization related to
these stock option grants, as well as grants made since
23
<PAGE>
inception will be approximately $326,000 for the fourth quarter of 1999 and
approximately $1.7 million for each of 2000 and 2001.
Years Ended December 31, 1997 and 1998
Revenue
Total revenue was $186,000 and $984,000 in 1997 and 1998, respectively,
representing an increase of $798,000. This increase was caused by increased
service revenue in 1998. We had two customers (Micrographx and the consortium
of central banks) that accounted for more than 10% of our revenue, representing
in aggregate approximately 30% of our total revenue for the year ended December
31, 1997; and one customer (the consortium of central banks) that accounted for
more than 10% of our revenue, representing approximately 51% of our total
revenue for the year ended December 31, 1998.
License and subscription. License and subscription revenue was $161,000 and
$484,000 in 1997 and 1998, respectively, representing an increase of $323,000.
$241,000 of this increase was the result of our introduction and the market's
acceptance of our subscription-based services designed to address the needs of
customers that distribute and promote their image collections on the Internet.
Service. Service revenue was $25,000 and $500,000 in 1997 and 1998,
respectively, representing an increase of $475,000. This increase was a result
of our completion of an anti-counterfeiting feasibility study in 1998. This has
since led to the award of a contract to develop a system to deter the use of
personal computers in the counterfeiting of currency.
Cost of Revenue
License and subscription. Cost of license and subscription revenue was
$126,000 and $114,000 in 1997 and 1998, respectively, representing a decrease
of $12,000. $7,000 of this decrease was the result of cost savings associated
with providing customer technical support in-house, which had previously been
provided by a third party.
Service. We recorded cost of service revenue of $1.5 million in 1998 as a
result of the use of our product managers, sales, marketing and research and
development personnel in our performance of a feasibility study for a
consortium of leading central banks which led to a contract to develop a system
to deter the use of personal computer systems in the counterfeiting of
currency. Cost of service revenue was 293% of service revenue for the year
ended 1998.
Operating Expenses
Sales and marketing. Sales and marketing expenses were $1.3 million and
$825,000 in 1997 and 1998, respectively, representing a decrease of $505,000.
This decrease was the result of devoting sales and marketing personnel to
provide education, outreach and product definition services to our anti-
counterfeiting system customer at a cost of $498,000. Sales and marketing
employees totaled ten and eight at December 31, 1997 and 1998, respectively. We
believe that a significant increase in our sales and marketing efforts is
essential for the introduction of new products, including self-authenticating
documents, MediaBridge and other Paper-as-Portal applications.
Research and development. Research and development expenses were $934,000 and
$658,000 in 1997 and 1998, respectively, representing a decrease of $276,000.
Increased use of our research and development personnel to provide services to
our anti-counterfeiting system customer resulted in $968,000 of these expenses
being allocated to cost of service revenue, while salaries and other employee
related costs increased $594,000. Research and development personnel totaled
ten and
24
<PAGE>
fourteen for 1997 and 1998, respectively. We believe that a significant
increase in our research and development investment is essential for us to
maintain our market position, to continue to expand our product line and to
enhance our technologies and associated intellectual property. Accordingly, we
anticipate that we will continue to invest significantly in product research
and development for the foreseeable future, and research and development
expenses are likely to increase in the future. In the development of our new
products such as self-authenticating documents, MediaBridge and other Paper-as-
Portal applications and enhancements of existing products, the technological
feasibility of the software is not established until substantially all product
development is complete.
General and administrative. General and administrative expenses were $1.3
million and $1.4 million in 1997 and 1998, respectively, representing an
increase of $125,000. $64,000 of this increase was the result of more frequent
domestic and international travel and $81,000 was the result of increased
depreciation expense as our fixed asset base grows. General and administrative
employees totaled three and four at December 31, 1997 and 1998, respectively.
Asset Impairment. Asset impairment expense relates to certain assets we
acquired in July 1997 from NetRights, LLC. The assets acquired included certain
office equipment, trademarks and tradenames, and all engineering drawings,
designs and documentation, including patent applications. We originally
intended to use the technology to expand and potentially enhance the delivery
of information to our customers in connection with a reevaluation of our
business strategy.
Prior to consummating the acquisition, we realized that NetRights' technology
did not have the features and functionality previously believed, and that
results could be achieved in a more simple way. Despite proceeding with the
legally binding terms that had been agreed by the parties, a decision was made
prior to consummating the transaction not to use the purchased technology. As a
result, the purchased technology totaling $453,000 was considered impaired and
written off during the year ended December 31, 1997. The fixed assets, the
pending patent and tradenames were retained as acquired assets.
Years Ended December 31, 1996 and 1997
Revenue
Total revenue was $236,000 and $186,000 in 1996 and 1997, respectively,
representing a decrease of $50,000. The decrease in revenue was caused by
higher licensing fees, most of which were received from Adobe Systems and Corel
Corporation, in 1996. We had three customers (Adobe Systems, Corel Corporation
and Motorola, Inc.) that each accounted for more than 10% of our revenue,
representing in aggregate approximately 100% of our total revenue, for the year
ended December 31, 1996; and two customers (Micrographx and the consortium of
central banks) that accounted for more than 10% of our revenue, representing in
aggregate approximately 30% of our total revenue for the year ended December
31, 1997.
License and subscription. License and subscription revenue was $186,000 and
$161,000 in 1996 and 1997, respectively, representing a decrease of $25,000.
This decrease was the result of lower one-time licensing fees in 1997
($155,000), offset by increased subscription sales of $93,000.
Service. We recorded service revenue of $50,000 and $25,000 in 1996 and 1997,
respectively, representing a decrease of $25,000. In both years, service
revenue was derived from one-time consulting projects.
25
<PAGE>
Cost of Revenue
License and subscription. Cost of license and subscription revenue was $7,000
and $126,000 in 1996 and 1997, respectively, representing an increase of
$119,000. All of this increase was caused by the growth of our service
department and related costs to support our software product and service
introductions made in the fourth quarter of 1996.
Operating Expenses
Sales and marketing. Sales and marketing expenses were $376,000 and $1.3
million in 1996 and 1997, respectively, representing an increase of $954,000.
$553,000 of this increase resulted from the hiring of sales management and
sales and marketing personnel, and $324,000 for increased travel and enhanced
promotional programs. Sales and marketing employees totaled five and ten at
December 31, 1996 and 1997, respectively.
Research and development. Research and development expenses were $690,000 and
$934,000 in 1996 and 1997, representing an increase of $244,000. Increased
salaries and other employee related costs of software development and quality-
assurance personnel resulted in an increase of $302,000 offset in part by a
decrease of $96,000 in outside contractors. Research and development personnel
totaled eight and ten for the years ended December 31, 1996 and 1997,
respectively.
General and administrative. General and administrative expenses were $834,000
and $1.3 million in 1996 and 1997, respectively, representing an increase of
$448,000. $377,000 of this increase was the result of increased salary expense
and related payroll taxes and benefits from hiring new personnel. General and
administrative employees totaled four and three at December 31, 1996 and 1997,
respectively.
Asset Impairment. Asset impairment expense relates to certain assets we
acquired in July 1997 from NetRights, LLC. As discussed above, some of the
purchased technology assets, totaling $453,000, were considered impaired and
written off during the year ended December 31, 1997.
Provision for Income Taxes
We have recognized operating losses since inception and as such have not
incurred income tax expense. As of December 31, 1998, we had operating loss
carryovers for federal and state income tax reporting purposes of approximately
$8.6 million and research and development tax credit carryforwards of $113,000,
the last of which will expire through 2018 if not utilized. Under the Tax
Reform Act of 1986, the amounts of and benefits from net operating loss
carryforwards may be impaired or limited in certain circumstances, including a
change of more than 50% in ownership. Such a change in ownership occurred with
the sale of preferred stock in June 1996 and again in July 1996. Accordingly,
we estimate that the approximately $915,000 of net operating loss carryforwards
generated from inception through July of 1996 will be limited.
26
<PAGE>
Quarterly Results of Operations
The following table presents unaudited statement of operations data for the
seven quarters ended September 30, 1999 in dollars. In our management's
opinion, this unaudited information has been prepared on the same basis as the
audited annual financial statements and includes all adjustments, consisting
only of normal recurring adjustments, necessary for fair presentation of the
unaudited information for the quarters presented. You should read this
information in conjunction with the financial statements and the related notes
included elsewhere in this prospectus. The results of operations for any
quarter are not necessarily indicative of results that we might achieve for any
subsequent periods.
<TABLE>
<CAPTION>
Quarter Ended
(unaudited)
----------------------------------------------------------------
Dec.
Mar. 31, June 30, Sept. 30, 31, Mar. 31, June 30, Sept. 30,
1998 1998 1998 1998 1999 1999 1999
-------- -------- --------- ------- -------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Revenue:
License and
subscription......... $ 161 $ 121 $ 97 $ 105 $ 74 $ 42 $ 59
Service............... -- 125 187 188 985 954 2,071
----- ----- ----- ------- ----- ----- ------
Total revenue....... 161 246 284 293 1,059 996 2,130
----- ----- ----- ------- ----- ----- ------
Cost of revenue:
License and
subscription......... 31 31 31 21 21 22 19
Service............... 128 339 308 691 459 433 922
----- ----- ----- ------- ----- ----- ------
Total cost of
revenue............ 159 370 339 712 480 455 941
----- ----- ----- ------- ----- ----- ------
Gross margin........ 2 (124) (55) (419) 579 541 1,189
Operating expenses:
Sales and marketing... 294 204 244 83 131 263 337
Research and
development.......... 236 179 131 112 107 140 203
General and
administrative....... 275 331 307 494 459 569 933
----- ----- ----- ------- ----- ----- ------
Total operating
expense............ 805 714 682 689 697 972 1,473
----- ----- ----- ------- ----- ----- ------
Operating loss...... (803) (838) (737) (1,108) (118) (431) (284)
Other income (expense).. 16 16 25 (13) (11) (17) 37
----- ----- ----- ------- ----- ----- ------
Loss before provision
for income taxes..... (787) (822) (712) (1,121) (129) (448) (247)
Provision for income
taxes.................. -- -- -- -- -- -- --
----- ----- ----- ------- ----- ----- ------
Net loss............ $(787) $(822) $(712) $(1,121) $(129) $(448) $ (247)
===== ===== ===== ======= ===== ===== ======
</TABLE>
We expect operating results to fluctuate significantly in the future as a
result of a variety of factors, many of which are outside of our control. See
"Risk Factors--Our future quarterly operating results may not meet analysts'
expectations and may fluctuate significantly in the future, which could
adversely affect our stock price" for more information on quarterly
fluctuations and how they affect our business.
We believe that comparisons of our historical quarterly operating results
will not necessarily be meaningful, and you should not rely on them as an
indication of future performance. It is possible that in some future periods
our operating results may fail to meet the expectations of analysts and
investors. In such event, the trading price of our common stock may decline.
27
<PAGE>
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through the
private placement of our preferred stock, equipment financings, lines of credit
and long-term loans from shareholders. As of September 30, 1999, we had raised
approximately $17.9 million through the sale of our preferred stock.
As of September 30, 1999, we had cash and cash equivalents of $8.0 million,
representing an increase of $5.9 million from $2.1 million at December 31,
1998. Our working capital at September 30, 1999 was $7.2 million, compared to
working capital of $1.2 million at December 31, 1998. This increase in working
capital is attributable primarily to a $6.3 million and $800,000 sale of our
preferred stock in June 1999 and August 1999, respectively, and an increase in
our trade accounts receivable due to increased revenue from a single customer.
Our operating activities resulted in net cash outflows of $2.3 million and
$644,000 for the nine months ended September 30, 1998 and 1999, respectively.
This $1.6 million decrease in operating cash outflows from the nine months
ended September 30, 1998 to the nine months ended September 30, 1999 was due
primarily to improved operating results in the nine months ended September 30,
1999. Operating activities resulted in net cash outflows of $1.5 million in
1996, $3.1 million in 1997, and $3.2 million in 1998. The $1.6 million increase
in operating cash outflows from 1996 to 1997 was attributable primarily to an
increase in operating losses, offset by an increase in deferred revenue. The
$68,000 increase in operating cash outflows from 1997 to 1998 resulted from
further growth of deferred revenue and accrued payroll and related costs,
offset by lower operating losses.
Investing activities used cash of $60,000 and $209,000 for the nine months
ended September 30, 1998 and 1999, respectively. This $149,000 increase in cash
used in investing activities related to the acquisition of property and
equipment. In addition, investing activities used cash of $165,000 in 1996,
$440,000 in 1997 and $58,000 in 1998. Net cash used in investing activities in
1996 was related primarily to the acquisition of property and equipment. Net
cash used in investing activities in 1997 was related primarily to the
acquisition of selected assets, including technology, patent applications and
some fixed assets of NetRights LLC. Net cash used in investing activities in
1998 was related primarily to the purchase of patents. We anticipate that we
will experience an increase in our capital expenditures consistent with our
anticipated growth in operations, infrastructure and personnel.
Financing activities used net cash of $67,000 and provided cash of $6.8
million for the nine months ended September 30, 1998 and 1999, respectively.
Financing activities provided cash of $4.8 million in 1996 and $6.1 million in
1997 and used cash of $233,000 in 1998. Net cash provided by, or used in,
financing activities in each of these periods was related primarily to the
sales of shares of our preferred stock in 1996, 1997 and the first nine months
of 1999 and proceeds from borrowing in 1997, offset by principal payments on
our bank line of credit and equipment lease obligations in 1998 and the first
half of 1999.
We have a $400,000 bank revolving line of credit that matures on November 20,
1999. This facility requires that we maintain certain financial covenants. As
of September 30, 1999, we had no outstanding borrowings under the revolving
line of credit. Any advances would bear interest at the bank's prime interest
rate plus 1% and would be secured by substantially all of our assets, excluding
intellectual property. We have computers and office equipment financed under
long-term capital leases that expire over the next 36 months. As of September
30, 1999, we had an outstanding balance
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of $301,000 of capital lease obligations. We had unsecured notes payable to
common stockholders totaling $308,000 at September 30, 1999 which bear interest
at 7% per annum. We intend to repay these notes in full from the net proceeds
of this offering. Other significant commitments consist of obligations under
non-cancelable operating leases, which totaled $2.0 million as of September 30,
1999, and are payable in monthly installments through 2004.
We currently anticipate that we will continue to experience significant
growth in our operating expenses for the foreseeable future. These operating
expenses will consume a material amount of our cash resources, including a
portion of the net proceeds from this offering. We believe that the net
proceeds from this offering, together with our existing cash and cash
equivalents and available bank borrowings, will be sufficient to meet our
anticipated capital needs for at least the next 12 months, although we may seek
to raise additional capital during that period. If additional funds are raised
through the issuance of equity securities, stockholders may experience
additional dilution, and such equity securities may have rights, preferences or
privileges senior to those of the holders of our common stock. There can be no
assurance that additional financing will be available on acceptable terms or at
all. If adequate funds are not available or are not available on acceptable
terms, we may be unable to develop or enhance our products, take advantage of
future opportunities or respond to competitive pressures or unanticipated
requirements, which could harm our business, operating results and financial
condition.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on our
investment portfolio and on the increase or decrease in the amount of any
interest expense we must pay with respect to outstanding debt instruments. The
risk associated with fluctuating interest expense is limited, however, to the
exposure related to those debt instruments and credit facilities which are tied
to market rates. We do not plan to use derivative financial instruments in our
investment portfolio. We plan to ensure the safety and preservation of its
invested principal funds by limiting default risks, market risk and investment
risk. We plan to mitigate default risk by investing in low-risk securities. At
December 31, 1998, we had an investment portfolio of money market funds,
commercial securities and U.S. Government securities, including those
classified as short-term investments, of $2.1 million. We had loans outstanding
of $548,000 at December 31, 1998. If market interest rates were to increase
immediately and uniformly by 10% from levels as of December 31, 1998, the
decline of the fair market value of the fixed income portfolio and loans
outstanding would not be material.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes methods for
derivative financial instruments and hedging activities related to those
instruments, as well as other hedging activities. Because we do not currently
hold any derivative instruments and do not currently engage in hedging
activities, we expect that the adoption of SFAS No. 133 will not have a
material impact on our financial position or results of operations. In June
1999, the FASB issued Statement No. 137, "Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of FASB Statement No.
133, an Amendment of FASB Statement No. 133." Statement No. 137 defers the
effective date of Statement No. 133 for one year. Statement No. 133, as
amended, is now effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000.
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In December 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions." SOP 98-9 amends SOP
97-2 and SOP 98-4, extending the deferral of the application of certain
provisions of SOP 97-2 amended by SOP 98-4 through fiscal years beginning on or
before March 15, 1999. All other provisions of SOP 98-9 are effective for
transactions entered into in fiscal years beginning after March 15, 1999.
Before 1998, we recognized software license revenue in accordance with the
AICPA SOP 91-1, "Software Revenue Recognition." Beginning in 1998, we have
recognized software license revenue in accordance with AICPA SOP 97-2,
"Software Revenue Recognition," and related amendments and interpretations
contained in the AICPA's SOP 98-4, "Deferral of the Effective Date of a
Provision of SOP 97-2." Although these pronouncements apply to our subscription
and license revenue and service revenue, we do not expect the adoption of SOP
98-9 to have a material effect on our results of operations or financial
condition or to materially impact our revenue recognition practices.
Year 2000 Readiness
Many currently installed computer systems and software products worldwide are
coded to accept only two-digit entries to identify a year in the date code
field. Consequently, on January 1, 2000, these systems could fail or
malfunction because they are not able to distinguish between the year 1900 and
the year 2000. Accordingly, many companies, including ourselves and our
customers, potential customers, vendors and strategic partners, may need to
upgrade their systems to comply with applicable Year 2000 requirements.
Risks of Year 2000 Issues
Because we and our customers depend to a very substantial degree upon proper
functioning of computer systems, a failure of these systems to correctly
recognize dates beyond January 1, 2000 could disrupt operations. Any
disruptions could harm our business. Additionally, our failure to provide Year
2000 compliant solutions to our customers could result in financial loss, harm
of reputation and legal liability to us. We believe that our products and
services are Year 2000 compliant; however, our products and services are often
integrated with other systems that may not be compliant.
Our State of Readiness
We have reviewed our internal management information and other critical
business systems to identify any Year 2000 problems. Our review consisted of:
. quality assurance testing of our applications;
. assessing repair or replacement requirements;
. implementing repair or replacement as necessary; and
. creating contingency plans in the event of Year 2000 failures.
We have tested our software products and have determined that the currently
shipping versions of all of our software products are Year 2000 compliant. We
have also investigated the Year 2000 readiness of external vendors that supply
us with material software and information. In the course of these
investigations, we have not encountered any material Year 2000 problems with
these third-party products. We continue to monitor these third parties for
updates to their products as part of our
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ongoing Year 2000 effort. We have not made a full assessment of the extent to
which our customers might be vulnerable to Year 2000 issues. Likewise, we have
not made a full assessment of the extent to which other third parties with
which we transact business have determined their vulnerability to Year 2000
issues.
We believe that the Year 2000 risk will not present significant operational
problems for us. However, there can be no assurance that our Year 2000 program
will prevent any harm to our business.
Contingency Plan
Although we have regular data back-up procedures that would assist us in the
recovery of lost business information, we have not yet developed a contingency
plan for handling Year 2000 problems that are not detected and corrected prior
to their occurrence. Any failure to address any unforeseen Year 2000 issue
could harm our business.
Costs to Address Year 2000 Issues
We expect that costs directly related to Year 2000 issues will not exceed
approximately $50,000 for both costs incurred to date and future costs,
including cases where non-compliant third-party products have been or need to
be replaced. We would have incurred the replacement cost of non-compliant
third-party products regardless of the Year 2000 issue due to technology
obsolescence and/or our growth. We have expensed and continue to expense all
costs arising from Year 2000 issues as incurred, funding them from working
capital.
If our Year 2000 program is inadequate and our business operations are
materially impacted, we could incur additional costs to recover any lost
information and replace affected systems. We believe that these systems could
be replaced without significant difficulties, as replacement systems are
generally available on commercially reasonable terms.
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BUSINESS
Overview
Digimarc is a leading provider of patented digital watermarking technologies
that allow imperceptible digital code to be embedded in the printed or digital
versions of visual content, such as magazine ads, catalogs and product packages
and valuable documents like financial instruments, passports and event tickets.
In addition to code which can be embedded within various types of visual
content, our technologies include reader software which, as a resident
application on PCs, allows PCs to recognize these codes. We believe these
technologies have many potential uses. We are developing products and services
to address what we believe are our two largest near-term market opportunities:
the deterrence of digital counterfeiting or piracy and the enhancement of
Internet access and navigation.
Since the introduction of our first product in 1996, we have built a broad
technology platform that we believe has a range of applications. Our initial
products allowed copyright owners to deter the use of advanced digital imaging
tools in producing unauthorized high-quality copies of their images. We later
developed image commerce applications that allowed customers to persistently
identify their protected properties and locate these properties across the
Internet, which further discourages their unauthorized distribution and use.
Today, our business focuses on providing image commerce solutions, including
copyright protection, and counterfeiting and piracy deterrence. We are
currently developing additional applications to address other forms of visual
media such as DVD and video, and other distribution channels such as the
Internet. We are also using our technologies to develop products we call Paper-
as-Portal applications, the first of which, named MediaBridge, is being
developed and is planned for release as a resident application in PC camera
software in the second half of 2000. MediaBridge is intended to enable
imperceptible digital code to be embedded within print media, such as magazine
advertisements or articles, direct mail coupons or catalogs and bank cards or
business cards. When recognized by PC cameras enabled by our patented reader
technology, that code will automatically launch the user directly to the
specific Internet destination chosen by the producer of the print media. In
this way, we believe that MediaBridge will deliver more efficient Internet
navigation and access to consumers and more effective means for print
advertisers to link readers directly to targeted e-commerce points-of-sale.
Industry Background
The Proliferation of Advanced Computing and the Internet
Computing systems widely available today are more powerful than ever before,
incorporating high-resolution scanning, streaming media and data compression as
well as significant increases in processing power, bandwidth and memory.
Advances in multimedia, digital imaging and printing technologies have given
users of every level of sophistication access to highly advanced image
manipulation and printing capabilities. Higher scanner and printer resolution,
now typically at 600 dots per inch or higher, have enabled users to digitally
capture and subsequently print images more quickly and precisely. Very high-
resolution digital camera technology, with over one million pixels per image,
has become standard in consumer digital camera products, giving users the
ability to capture images that approach photo quality. International Data
Corporation, or IDC, estimates that worldwide scanner shipments will increase
at 23.3% per year to 39.5 million units by 2003 and worldwide PC camera
shipments will grow from approximately 600,000 in 1997 to more than 9.2 million
units by 2002.
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These advances in computing performance, coupled with computer system price
decreases, are also enabling millions of people to participate in the growth of
activity on the Internet. IDC estimates that the number of Internet users
worldwide will grow from 104 million in 1998 to 320 million by 2002. The
Internet represents a fundamental change in the way people conduct business and
access or distribute information and contributes to an increase in the
conversion of traditional media and other forms of content to electronic
digital format. NEC estimates that the number of Web pages will increase from
320 million in 1997 to 9.1 billion in 2002 and IDC estimates that the number of
users who will make purchases on the Web will increase from 18 million in 1997
to over 128 million in 2002. The rapid growth in the Internet, Internet-based
business activities and the growing use of the digital format for media content
are all contributing to the growing obsolescence of analog media content
control systems, creating new technological challenges in media content
protection.
Web Interface, Internet Navigation and e-Commerce
As advances in technology are transforming the Internet into a ubiquitous
platform for commerce, traditional "bricks and mortar" businesses are being
challenged to bridge their existing methods for marketing and selling with new
on-line marketing models. According to Forrester Research, U.S. per capita
advertising spending, including print, TV, radio and the Internet, will be over
$700 this year, and the U.S. per capita online advertising portion will grow
from $40 in 1999 to $195 in 2004. A MarketFacts survey indicates that in 1998
approximately 62% of current Internet users visited a Web site after seeing it
mentioned in a magazine or newspaper and approximately 53% visited a site
because of a product's packaging. Currently these users must use search
engines, which only provide an uncategorized listing of Internet addresses, or
at best look for an advertiser's Internet address within the fine print at the
bottom of the page, to find their intended Web destination. The current forms
of print advertising such as magazine ads, couponing, packaging and direct mail
does not fully tap the communications capabilities of the Internet, because
these approaches do not provide a direct link driving potential customers to
the e-commerce point-of-sale.
The growth of the Internet has created a large amount of unstructured
information which, according to eMarketer, consists of hundreds of millions of
Web sites and hundreds of millions of Web pages, with 1.5 million Web pages
being added per day. Many corporate Web sites now have thousands of pages,
which often makes finding relevant information within a particular site
frustrating and time-consuming. As a result, Internet users using conventional
search and directory services often experience difficulty in retrieving
information relevant to specific products and services, potentially causing
e-commerce vendors to lose sales opportunities. According to a study conducted
by the Georgia Institute of Technology, approximately 70% of online shoppers
abandon a Web site because they have problems locating specific products or
services. Search engines currently available are generally inefficient.
According to data gathered by NEC, the most comprehensive search engine indexes
less than 16% of the Web, a decrease from previous periods. NEC also estimates
that the top 11 search engines combined currently index only 42% of the Web.
Counterfeiting and Piracy in the Digital Age
The access to advanced technology that allows users to easily create high-
quality digital content has lowered the barriers to entry for professional
counterfeiters, counterfeiters engaged in crimes of opportunity and unknowing
copyright infringers. This has exacerbated the difficulties of tracking and
managing proprietary content such as movies and photographic or artistic
images. The International Intellectual Property Alliance estimates that U.S.
copyright industries lost at least $12.4 billion worldwide due to copyright
piracy in 1998. Traditional commercial merchandise or services, financial
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instruments and government-issued documents are also affected. The European
Commission estimates that more than 5% of world trade is lost to
counterfeiting. The expediency and reach of the Internet fuels the rate at
which this harm is being done.
The first visual content providers to utilize our digital watermarking for
protection of their copyrights were photographers. Shortly thereafter, the
movie industry formed an anti-piracy initiative focused on digital watermarking
technologies. The lack of an effective DVD security method led major motion
picture studios, including Universal Studios, Warner Brothers, The Walt Disney
Company, Paramount Pictures, Columbia TriStar, 20th Century Fox, Metro-Goldwyn-
Mayer and United Artists, as well as the Motion Picture Association of America,
to engage in their own multi-year digital watermarking specifications program
that is still underway. To our knowledge no contracts have yet been awarded
under this program. Although current Internet speeds are not fast enough to
support the practical transmission of video, future broadband technology
improvements may allow for this transmission. Currently, the Motion Picture
Association of America estimates that American motion picture companies lose
approximately $2.5 billion per year to video piracy, and the potential loss
after Internet distribution of movies becomes widely available could be much
greater.
Financial instruments and government-issued documents are frequent targets of
illegal counterfeiting enabled by digital technology. In recent Congressional
testimony, the U.S. Treasury Department attributed the alarming increases in
counterfeiting activity primarily to high-quality graphic devices such as color
scanners and printers. The U.S. Treasury Department reported that the advanced
technology of today's PCs and peripheral devices was responsible for 43% of all
counterfeit banknotes passed and seized in 1998, up from 0.5% in 1995. The U.S.
Treasury Department also reported that the amount of U.S. counterfeit banknotes
produced increased over 30% during the twelve months ended September 1998.
Currency counterfeiting has wide-ranging implications that may involve, among
other issues, undermining the confidence in a currency's stability, causing
losses far greater than the aggregate face amount of the currency
counterfeited. We believe that digital imaging has contributed to a portion of
the $615 million lost by U.S. banks each year due to fraudulent and counterfeit
checks but are unable to quantify the portion of the loss attributable to
digital imaging. We believe that the rise of digital counterfeiting and forgery
of passports, driver's licenses and other photo identification is also
responsible for substantial losses related to increases in identity theft and
falsification of other valuable documents. Easy access to duplication
technology has also put other high-value documents such as stocks, bonds,
government obligations, traveler's checks, commercial checks, credit and debit
cards and food stamps at risk for counterfeiting and substantial losses.
Many other forms of printed materials are also at risk. Counterfeiters have
targeted traditional commercial merchandise and services by using high-quality
scanners and laser printers to reproduce packaging, stamps, gift certificates
and event tickets. These copies can be distributed over the Internet or on hard
copy, CDs or disks. Event tickets in particular can be successfully duplicated
and sold. Concerned over counterfeit tickets, organizers of the World Cup and
Super Bowl recently adopted currency and check security techniques that
required costly design and printing alterations. Product counterfeiting of
branded clothing, perfumes, luxury items and other items is widespread, causing
label and tag manufacturers to explore and implement similar security printing
methods. For instance, manufacturers of expensive retail items, such as
computer software and branded clothing, have redesigned their packaging and
identification tags to incorporate security techniques such as holograms and
microtext to deter counterfeiting and enhance authentication of genuine
articles. So far, none of these vendors have used our solutions.
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Existing solutions to combat counterfeiting and piracy have had limited
success against advanced digital technology. Traditional analog security
solutions for printed documents, such as special printing techniques, embedded
holograms and microthreads, and the use of optically-variable inks, generally
do not provide sufficient protection from digital counterfeiting. Network
security measures, such as encryption, digital signatures, conditional access
and digital containers, control access to digital content during electronic
transmission but are ineffective for situations in which encryption or format
conversion are involved. These measures also fail to communicate information
regarding content copyright and are unable to operate outside of the digital
environment. Digital certificates, which are specially prepared software files
that act as verifiable electronic credentials, provide authentication and
privacy capabilities for consumers and businesses conducting commerce over the
Internet, but also do not convert to a non-digital format and do not identify
copyright ownership. Without effective solutions that combat counterfeiting and
piracy by communicating copyright ownership within the digital landscape, there
can be no foundation for the management and efficient licensing of proprietary
content across the Internet.
Solutions
We are developing a fundamentally new way to access and use the Internet by
embedding imperceptible digital code in traditional and digital media,
including printed materials such as magazine advertisements, articles, covers
and subscription cards; direct mailers; packaging; debit and credit cards;
greeting cards; coupons; catalogues; tickets; business cards; and digital
content such as video, images and other creative properties in digital form.
This embedded code creates a bridge between those materials and the Internet
that permits users to link directly to relevant Web destinations without any
typing or mouse clicks. Thus, our patented technologies will give digital
capabilities to physical media and allow new forms of interaction with the
digital world, enhancing publishing, advertising and e-commerce.
We first used our patented digital watermarking technologies in a variety of
applications that protect copyrights, promote image commerce and deter
counterfeiting, piracy and other unauthorized uses of all forms of traditional
and digital visual content. We believe that ours have become the most widely
employed digital watermarking technologies in the image commerce and secure
documents markets. We believe our applications offer strong advantages over
other approaches because our digital watermarks are imperceptible, format
independent and survive format changes such as scanning, printing and some
types of copying, allowing them to operate in both analog and digital
environments.
Paper-as-Portal: Bridging the Physical and Digital Worlds and Enhancing the
Use of the Internet
Our technologies allow owners of visual content, such as printed materials
and movies, to embed imperceptible digital code into the content itself. We
have designed our reader technology to detect and read this code by cameras,
scanners and other image capture devices connected to personal computers and
other digital devices. When the code is read, our software is designed to
initiate the display of Web destinations or launch Web-based applications
specified by the creators of the visual content. We believe these Paper-as-
Portal applications will benefit users by providing "no click" direct access to
Internet-based information and e-commerce opportunities. For example, a
magazine advertisement that has been embedded with our digital code will enable
a user to hold the magazine page up to a digital camera enabled with our
proprietary reader technology and be taken directly to the Web destination
specified by the advertiser.
As online business models evolve and the amount of business transacted on the
Internet increases, enterprises are seeking new Internet solutions that will
enable them to develop, maintain
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and leverage relationships with consumers, users and affiliates. We believe our
Paper-as-Portal applications will bridge the two separate commerce systems in
place right now: traditional commerce and e-commerce. We believe Digimarc-
enabled images will facilitate cost-effective integrated marketing by linking
traditional marketing materials to the Internet, allowing print materials to
become direct portals to the Internet and other digital processing
environments. Through our technologies, advertisers will be able to address
both online and offline audiences through one marketing effort, and easily link
readers of traditional print material to an advertiser's Internet or e-commerce
presence.
We believe our ability to embed imperceptible digital code in traditional and
digital visual content will benefit consumers, businesses and institutions in
the following areas:
. Benefits to Businesses. We believe our solutions will enable marketers to
improve the return on their investment in conventional and Internet
advertising. Because our embedded codes will direct users to a specified
Web destination, we believe advertisers can expect a higher percentage of
their intended audience to respond to an advertisement, and ultimately,
to become purchasers. In addition, our solutions are intended to improve
customer satisfaction and retention as customers will be less frustrated
with searches and complicated Web sites. We intend to provide advertisers
the flexibility to alter the Web destination linked by the embedded code
in a particular advertisement, allowing them to remotely redirect a
marketing campaign without having to update their print advertisements.
We believe businesses can lessen the need for, and therefore lower the
internal costs of, call and e-mail centers by establishing self-service
Web pages on proper use and maintenance that are linked to embedded
content. Moreover, imperceptible digital code can be embedded without any
visible design changes or additional material costs.
. Benefits to Consumers. We believe consumers will benefit from our
solutions through improved convenience and assured success in reaching
the relevant Web destination. We intend to offer a direct path from a
consumer's interest in an advertisement, editorial, package or label to
an online research and buying opportunity, thus avoiding misdirected or
overly broad searches on traditional search engines or portals.
Protecting Visual Content and Valuable Documents
We also provide solutions to deter the counterfeiting, piracy and
unauthorized alteration of media content. Major industries have endorsed
digital watermarking generally as an important technology in controlling visual
content and valuable documents, including commercial photography, movies,
video, music, traditional merchandise and services, financial instruments and
other high-value documents. Our digital watermarking solutions are compatible
with a variety of Internet, computing and communications solutions because
virtually any piece of visual content can contain our imperceptible digital
watermarking code. We are able to digitally mark a diverse set of sensitive,
high-value materials, including identity documents such as passports and
drivers' licenses, commercial and traveler's checks, credit and debit cards,
video or print images, currencies, stock certificates, stamps, personal checks,
event tickets and clothing brand labels. Our solutions also provide the means
to link an embedded code to human- and machine-readable information about a
document to establish its authenticity, control its use and link it to the
rightful owner. Our digital watermarking technologies can be applied to various
types of applications for protecting content, including:
. Counterfeiting Deterrence. One customer (the consortium of banks) has
accounted for nearly all of our revenue to date in the area of
counterfeiting deterrence. We intend to pursue further development of our
relationship with this customer and develop other sources of revenue by
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proposing additional products and services over time. We also intend to
use our digital watermarking technologies to provide other issuers of
high-value documents with the ability both to deter illegal or prohibited
reproduction, subject to approval by the consortium, and to verify
authenticity of photo identification documents. We are forming
partnerships with computer, software and peripheral vendors with the aim
of having these entities embed or bundle our reader technology into their
products. Once incorporated into their products, our reader technology
will detect each of our digital watermarks embedded in images or documents
the user attempts to process. Detection of the watermark can deter
attempts to counterfeit high-value documents by preventing the computer
processing of those documents.
. Piracy Prevention. Our digital watermarking technologies provide the
ability to prevent unauthorized reproduction of copyrighted or otherwise
proprietary content. Our digital watermarks can be embedded in almost any
form of visual content and can survive file and format changes to provide
persistent identification of the content. By enabling applications with
our embedding and reader technologies, the imperceptible identity created
by a digital watermark facilitates the communication of copyright and
ownership information. Ultimately, these anti-piracy applications help
owners of visual content to retain attribution and compensation for their
proprietary content.
. Document Integrity. We are developing applications using our digital
watermarking technologies to deter unauthorized alteration of
confidential or proprietary content and to ensure document integrity. Our
self-authenticating technology will allow an access control device
enabled with our reader technology to check for digital watermarking
consistency in documents like passports to determine if a document has
been altered. For instance, this capability could allow a plane ticket or
travel document to be checked for authenticity. By checking to see if the
code in the digital watermark matches information such as a ticket
number, an access control device can determine if a document is
authentic.
. Image Commerce. Any form of visual intellectual property that can be put
into a digital format can be marked with our digital watermarking
technologies. Our digital watermarks represent a new feature in visual
content because they can enhance any type of content, both as a form of
protection that allows an owner of intellectual property to discourage
its unauthorized distribution and as a method for owners to locate their
property on the Internet. In this manner, we provide a fundamental
component of image commerce systems and facilitate e-commerce.
Strategy
Our strategy focuses on establishing our technologies as the industry
standard for all forms of visual content, contributing to systems designed to
control its consumption and use, and enabling numerous new communications
functions to enhance its value for producers and consumers. The key elements of
our strategy are as follows:
Become the De Facto Standard for Digital Watermarking
We believe that our proprietary technologies will emerge as standard digital
watermarking technologies for anti-counterfeiting and for linking digital
visual content with the physical world because of the advantages they offer
over existing security and communications-enabling technologies. We intend to
leverage our expertise, our customer and OEM relationships and our strong
intellectual property position derived from our first-to-market position and
robust portfolio of
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digital watermarking patents to extend our leadership position into other areas
of opportunity for digital watermarking, including movies and video,
traditional merchandise and services and high-value documents. We plan to
leverage our relationship with a consortium of leading central banks to
encourage manufacturers and developers to install our reader software in
multiple personal computer system components including in computers, digital
cameras, scanners and software. Digimarc has the right to use these readers to
protect documents other than banknotes, subject to prior approval by our
customer (the consortium of central banks). We also actively participate in a
number of initiatives for establishing industry standards, including the Copy
Protection Technical Working Group for video copy protection and the Digital
Imaging Group for promotion of digital imaging solutions in general. Through
our participation in these groups, we hope to promote the role that digital
watermarking technologies play in each of these industries. We believe the
following characteristics provide a competitive advantage for establishing our
technologies as standards:
. Imperceptibility. The imperceptible nature of our digital watermark
distinguishes it from most other security technologies because it does
not require a visible or audible change in content, preserving the
aesthetic value of the object.
. Persistence and Format Independence. Our digital watermark survives file
and format changes, including printing and scanning, to provide
persistent identity. In addition, the embedded image is not restricted to
specific channels or media.
Achieve Market Penetration Through an Integrated Focus on Infrastructure and
Applications
We are attempting to build long-term demand for our technologies by fostering
broad proliferation of our reader technology software as a resident application
on personal computers and in software applications and image processing
peripherals, like digital cameras, printers and scanners. We plan to leverage
our relationship with a consortium of leading central banks to encourage
manufacturers and developers to install our reader software in multiple
personal computer system components, adding to our infrastructure development.
Simultaneously, we are aggressively pursuing the development of applications
that utilize our digital watermarking technologies. Our success in driving the
proliferation of infrastructure enabled by our digital watermarking reader
technology will reinforce our technology's applicability to, and is expected to
generate demand for, related applications. In a complementary fashion, the
successful implementation of applications should drive the availability and
demand for our reader technology. We plan to focus efforts in each of these key
areas as follows:
. Drive Proliferation of Our Reader Technology. We are working with major
infrastructure companies, including Adobe, Be Incorporated, 3Com,
Logitech and Hewlett-Packard, to broaden and extend the penetration of
our reader technology into scanners, digital cameras, graphics editing
and photo-processing software, printers, Web browsers and other areas of
the digital infrastructure. Our reader technology is currently bundled
with image-editing applications from leading vendors. To drive adoption,
we will continue working with these and other leading infrastructure
companies through joint research and development efforts and assistance
in product development to influence the establishment of technical
standards.
. Develop New Applications. We intend to continue developing applications
for our digital watermarking technologies through strategic relationships
and consulting efforts with leading consumer and business brands and
governmental agencies. Through our efforts with consumer brand leaders,
we hope to incorporate our watermarking technologies into applications
that span all forms of content, including still images and video.
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Establish Paper-as-Portal as a Leading Internet Access and Navigation
Technology
We believe our MediaBridge solution will serve as a fundamental new interface
to digital devices and the Internet, while also enhancing e-commerce. Our
Paper-as-Portal technology is intended to bridge the analog and digital formats
by embedding imperceptible digital code in printed materials, making those
materials Web-enabled. To promote our Paper-as-Portal applications, we intend
to establish strategic relationships with leading consumer brands and
publishers of printed media as well as infrastructure partners. We believe that
our applications offer distinct advantages over existing Internet-based
alternatives for facilitating e-commerce, including ease of use,
disintermediation of directories and search engines and enhanced market
research. We also intend to facilitate e-commerce through our Paper-as-Portal
applications by: enabling licensing and distribution of content; promoting e-
commerce through digital and printed imagery; protecting the financial
instruments used to pay for Internet goods and services; and establishing
greater confidence in personal identity systems.
Continue Intellectual Property Leadership
We were an early developer of the core technologies that we believe will
become the standard in both digital image commerce and other e-commerce
enabling applications. Since our patent filings commenced in 1993, we believe
that we have established one of the world's most extensive patent portfolios in
the field of digital watermarking. We hold 15 U.S. issued patents, and have an
additional 59 U.S. patent applications pending of which 2 have received a
notice of allowance, indicating that the allowed applications are entitled to
issue as patents subject to completion of all formalities, and at least 17
foreign patent applications pending, including Patent Cooperation Treaty
applications. We intend to maintain our technology leadership by creating new
products and services, concentrating heavily on research and development, and
emphasizing intellectual property protection in all of our activities. We
believe our dedication to innovation will also enable us to respond to the
challenges presented by the ever-increasing access to sophisticated technology
in the areas of piracy and counterfeiting, as well as address the opportunities
emerging from the growth of e-commerce.
Promote Our Brand
To enhance industry and public awareness of our solutions, we are pursuing an
aggressive brand development strategy through mass market and targeted
advertising, promotions and public relations. Our industry branding strategy
promotes the broad utility of our technologies across numerous content types,
distribution channels and applications. We believe that building our brand will
foster continued adoption of our solutions by leading companies in relevant
markets and, as appropriate, educate consumers about the new features in media
content that we enable. We also believe that a strong brand will increase
licensing opportunities with corporate customers, contributing to revenue
growth and diversification.
Products
We offer patented digital watermarking solutions, including software, tools
and services that allow users to embed, and subsequently read, imperceptible
digital code in visual content. This embedded data is imperceptible during
normal use but detectable by our software or hardware. We believe that this
embedded code can be used to identify, authenticate, track, manage and enhance
content, as well as facilitate traditional and e-commerce.
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Our initial products addressed the growing concerns of photographers,
illustrators and graphic designers who began to use the Web and CD-ROM as
central marketing and distribution tools for their portfolios, but who had
become increasingly concerned by the use of digital imaging tools to produce
high fidelity copies of their images. Our initial products addressed the
copyright concerns of these image owners, and ultimately fostered commercial
relations between them, by communicating ownership information and helping an
image owner to retain attribution and compensation for a copyrighted work. The
Advertising Photographers of America expressed concern to Adobe and other major
vendors that tools like Photoshop were providing greater availability of new
forms of copyright infringement. In response, vendors began to bundle our
digital watermarking applications in Photoshop and other leading imaging
applications. In addition, by working with the Picture Agency Council of
America, and leading agencies such as MasterFile, we developed products to
address the needs of stock photo agencies, which use CD-ROM technology for
image distribution and the Web for marketing their image collections, but which
often do not directly hold image copyrights.
We have worked closely with our customers to develop applications for our
digital watermarking technologies with other media forms, distribution channels
and applications like DVD and the Internet. For instance, our initial customers
sought to track uses of copyrighted images. This market demand led us to
develop MarcSpider, our service to track images on the Internet. Other
industries, including media companies such as Time Inc. and National Geographic
Television, began to use digital means to distribute and promote large image
collections, and as a result, they also sought to develop a system of image
asset management. For instance, Time used our watermarking technologies to mark
images that were published in the online version of Teen People. Our image
asset management applications allow customers to use our digital watermarks as
a de facto digital asset tag, discouraging an image's unauthorized distribution
and ultimately generating revenue and extending brand recognition by increasing
the likelihood of the licensing of marked images.
The dual goals of copyright protection and revenue and brand enhancement
inspired two system improvements: the addition of transactional watermarking
and the construction of an image commerce platform. Working with large stock
photo collections, notably Corbis and Getty Images, we developed and licensed
systems to dynamically embed digital watermarks in images as they are
downloaded to customers. Corbis marked more than a million images, many of
which became available through AltaVista's search engine. Getty added our
digital watermarks to the Tony Stone Web site, the online source for their
premium images. National Geographic Television began using our digital
watermarks for advertising images used with partners. In addition, we are
continuing to develop the image commerce system in cooperation with our
customers and business partners, reaching further into the image publishing
work flow. By using our digital watermarks to link an image to a server,
distributors can offer licensing and image search functions within products
like Photoshop. Virtual content bundling being contemplated will further extend
the reach for distributors while adding substantial value to an image user.
Our products continue to adapt to the technological needs of our customers.
Applications like MediaBridge are intended to allow our customers to link
virtually any physical content with the online world of computing, multimedia
and the Internet. We believe that this new method for Web-enabling printed
materials will have many potential product applications in direct marketing,
merchandising and promotion, packaging, service and support, community
building, brand enhancement, news, entertainment and education.
Together with the evolution of our product offerings, we believe that our
fundamental embedding and reader technologies will continue to find increased
applicability. For example, counterfeiting
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constitutes a growing threat to the security of the world's currencies. The
proliferation of high-resolution color copiers, scanners and printers, and
increasingly powerful computers and image-processing software has made it
possible for relatively unsophisticated users to produce counterfeit banknotes
that pass as authentic in many environments. These developments have made
casual counterfeiting a more attractive crime of opportunity, leading to a
substantially increased burden on law agencies. In response to these threats, a
number of leading central banks have decided to add new anti-counterfeiting
features to their currencies using our digital watermarking technologies.
Our current and planned products are grouped along three lines of business:
secure documents, copyright protection and image commerce, and Paper-as-Portal.
Each product line consists of embedders to place our digital watermarks into
content, and reader technology to detect, read and respond to the embedded
code.
Secure Documents
Our planned document security products will use digital watermarking to
authenticate original documents, detect fraudulent documents and deter
unauthorized duplication or alteration of high-value documents such as
passports, tax stamps, tickets and financial instruments like securities,
traveler's checks and currencies. We have relationships with a number of
financial institutions that are involved in the creation or protection of high-
value documents. These relationships include a development and license
agreement with a consortium of leading central banks related to anti-
counterfeiting of currencies that has accounted for more than half of our
revenue in 1998 and is expected to account for substantially all of our revenue
until we develop new sources of revenue from new products like MediaBridge. We
also intend to pursue further development of our relationship with the
consortium of central banks to develop other sources of revenue by proposing
additional products and services to this customer over time and by offering the
benefits of the anti-counterfeiting system to, and developing new product
applications for, the issuers of other high value documents.
Copyright Protection and Image Commerce
Our copyright protection and image commerce products provide a range of
solutions, including copyright communication, asset management and business-to-
business image commerce solutions. Our solutions are enabled by digital
watermarking tools provided to content owners, and software modules provided to
manufacturers and software vendors for reading the embedded code and
facilitating the appropriate responses to them. Our products and services
include those listed below.
. Still Images. Copyright protection solution customers can benefit from
our solutions by using a number of applications. Image creators can use
Digimarc plug-ins that are bundled with a number of leading image editing
applications from companies such as Adobe Systems, Corel, Micrografx and
JASC Software. The Digimarc batch embedder is a stand-alone tool that
processes the embedding of digital watermarks in large collections of
digital images. The Digimarc digital watermarking software development
kit (SDK) provides a programmatic interface to digital watermark
embedding, detection and reading, designed for integration into client
and server products. Our SDK application includes real-time server-based
watermarking, where digital watermarks carrying transactional data are
added to images as they are delivered to customers. Our MarcCentre
service is a central repository of registered ownership information that
is accessible by a Web user who views Digimarc-enhanced proprietary
content with our patented reader technology. This service allows any user
to view the information that
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the content owner wishes to register in MarcCentre. Our MarcSpider service
searches the public Web for images containing our digital watermarks and
produces reports on where and when such images are found. This service
allows Web content developers, photographers, stock photography agencies
and publishers of entertainment, sports and news images to track their
works on the Web.
. Video. Using a unique approach to digital watermarking, Digimarc,
Macrovision and Philips engineers have developed prototypes of technology
that can protect program material on videocassettes, DVDs, cable or
satellite transmissions from unauthorized copying to recordable DVDs,
DVHS and multimedia personal computers. The resulting system would
complement Macrovision's widely-adopted existing video copy protection
technology. Detectors can be cost effectively deployed in hardware or
software to meet real-time play and record control requirements in a wide
range of DVD platforms.
Paper-as-Portal
We anticipate that our Paper-as-Portal products will provide the ability for
printed documents to be identified by personal computers and similar devices
through digital images in the documents enhanced with our watermarks that are
generally imperceptible to users which will link the computer to a targeted
Web destination. We believe that these enhanced images and associated reader
technology will enable a variety of potential applications, the first of which
is MediaBridge.
. MediaBridge is an application we are developing based on our patented
core technology. MediaBridge will create new communications capabilities
for visual content that promote and enhance e-commerce. MediaBridge will
be a fundamentally new way to access and use the Internet by embedding
imperceptible digital code in printed materials, including, among other
things, magazine advertisements, articles, covers and subscription cards,
direct mailers, packaging, debit and credit cards, greeting cards,
coupons, catalogues, tickets and business cards that can be read by
digital devices enabled by our patented reader technology. We expect to
begin marketing MediaBridge in the second half of 2000. The same
technology can be used to permit video, images and other creative
properties in digital form to interact with the digital world.
Technology and Intellectual Property
Digimarc's watermarking technologies embed digital code in images and video
that is imperceptible during normal use but readable by computers and
software. The science of creating these imperceptible codes is known as
digital watermarking. We are a leading owner of intellectual property relating
to digital watermarks and pioneer in the commercial application of digital
watermarking. Our technologies are supported by a broad patent portfolio
covering a wide range of methods and applications for digital watermarking.
Our core technology incorporates a method for embedding code within visual
images in digital formats, such as computer files, and physical
representations, such as print or film. Our primary system embeds a message in
an image by making subtle changes to the brightness of the pixels, creating a
message that can be detected and decoded by hardware that has been enabled
with our patented reader technology. Our embedding process adjusts to the
unique characteristics of the content, placing a stronger watermark signal in
areas with rich detail and a weaker watermark signal in areas with little
detail. Because the message is carried by the image's pixels, it is file-
format
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independent. The message can survive most normal image edits, rotation,
scaling, file-format transformations, copying, scanning and printing.
The structure of the information in our digital watermark is modeled along
the lines of a network protocol. The watermark protocol consists of protocol
structure information, such as the type of message and protocol version, the
actual message data and error correction data. The protocol can be upgraded to
readily accommodate new message types in the future, and is designed so that
later versions of our reader software will be able to read previously created
watermarks. The message in our watermarked content can carry identifying
information, attributes and instructions. This message is typically short in
length so that it can be replicated throughout the image content many times.
The information in the message can uniquely identify the content, link to Web
destinations or databases, communicate information about the content, enable
tracking of the content or convey instructions for software or devices.
Our technologies allow messages in our watermarked images to survive through
a variety of changes to the underlying image, including scaling and rotation of
the image. The ability to be rotation independent is particularly important for
images that are acquired through digital scanners or cameras because the input
image is rarely at the exact same orientation as the original image. We achieve
rotation independence through a patented process that incorporates orientation
information into our digital watermarks, which allows our watermarks to be read
regardless of their orientation relative to the scanner or camera. Using this
orientation information, our patented reader technology can recover an image's
embedded message after scale changes of as much as .6x to 2x the original image
size. We believe these features will be important for communicating the
embedded messages through changes from digital to physical form and back again.
We believe these features will be especially critical for applications that
include printing and scanning, or recording a digital video to VHS and back to
DVD.
To protect our significant efforts in creating these technologies, we have
implemented an extensive intellectual property protection program that relies
upon a combination of patent, copyright, trademark and trade secret laws,
nondisclosure agreements and other contractual provisions. We have adopted an
aggressive patent strategy. We believe that we have established one of the
world's most extensive patent portfolios in the field of digital watermarking,
holding 15 U.S. issued patents, with at least 59 U.S. patent applications
currently on file, of which 2 have received a notice of allowance, and at least
17 foreign patent applications pending, including Patent Cooperation Treaty
applications. We also believe, based on published patents, that we hold some of
the earliest invention dates on issued patents in the field of digital
watermarking and that some of these early patents may be of significant value
to our competitive position. We also own registered trademarks in both the U.S.
and other countries and have applied for other trademarks and have licensed
rights to other technologies. We seek to protect new product applications
through both existing patents and filings for new patents.
We are not currently involved in any proceedings and are not currently aware
of any claims regarding our intellectual property rights. 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. We expect that
infringement claims may increase as companies become more concerned with
protecting their content from electronic copying.
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Customers and Strategic Relationships
Since the introduction of our first product in 1996, we have built a broad
technology platform that we believe has a range of applications. Our initial
customers were copyright owners concerned with the use of digital imaging tools
in producing unauthorized high-quality copies of their images. We have helped
corporate users to generate revenue and extend their brands through image
commerce initiatives. We later developed image commerce applications allowing
customers to persistently identify their protected properties or locate those
properties on the Internet and, ultimately, discourage the unauthorized
distribution or use of those properties. Our strategic partners use our image
commerce applications to offer licensing and image search functions within
image-editing products. While our applications continue to develop to address
changing technological trends, our fundamental embedding and reader
technologies continue to find increased applicability.
Customers
Digimarc has been awarded a multi-year contract to develop a system to deter
the use of personal computer systems in the counterfeiting of currency. The
contract is funded by a consortium of leading central banks. The identities of
the participating banks, design of the system and timetable for deployment are
confidential. The central banks have acquired an exclusive license to
Digimarc's technologies for deterring the counterfeiting of currency. Digimarc
has retained the exclusive right to use the technologies developed for the
system in other applications, subject to approval by the banks.
Digimarc's current customers also include leaders in the sports,
entertainment, news and publishing fields, as well as leading image creators,
such as National Geographic Television, Corbis, Getty Communications, Time,
Inc. and Fox Broadcasting. Our target markets include photographers, Web
designers and OEMs, such as Adobe, Corel and Micrografx. Our stock photo agency
customers account for 75% of all stock photo collections, which include more
than 60 million high-quality photographs.
The following case studies provide illustrations of how selected customers
have used our products and services to address their copyright concerns:
. NASA's Lunar and Planetary Institute (LPI). LPI was looking for a way to
announce its copyrights on the unique images in its 3-D Tour of the Solar
System CD-ROM. LPI also wanted to remind viewers that these images could
not be copied without permission. After much study, LPI took a dual
approach by adding a "do not copy" warning to the packaging and Digimarc-
enhancing all of the images. LPI used the Digimarc Plug-ins bundled with
Adobe Photoshop to mark the images on the CD-ROM, as well as the images
on the LPI Web site. To date, LPI has discovered no misuse of the images,
and it has indicated to us that it plans to use Digimarc-enhanced images
on future projects to communicate image copyrights.
. National Geographic Television. National Geographic Television uses
Digimarc software to add "digital asset tags" to assist with tracking and
management of the computer-generated original content it uses in its
television programming. National Geographic Television's graphic
designers Digimarc-enhance digital art used in their productions prior to
sharing the work with outside production facilities or other groups
within the National Geographic Society.
Strategic Relationships
. Macrovision and Philips. In 1997, we entered a joint marketing and
development agreement with Macrovision, our largest shareholder, aimed at
addressing the absense of an effective DVD security method. Under this
arrangement, we have agreed to develop with Macrovision
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a system to control the copying and unauthorized playing of video content
in all forms of distribution, with an initial focus on DVD video. In 1998,
Philips NV joined the partnership. Macrovision and Philips have been
developing the video copy prevention and play control solution, with
Digimarc contributing intellectual property and technical assistance. In
addition, Macrovision has exclusive marketing rights for the video copy
prevention and playback control solution for a number of years, subject to
payment of minimum royalties. Between December 1997 and June 1999,
Macrovision purchased shares of our preferred stock that upon the closing
of this offering will be converted into 924,475 shares of our common
stock.
. Hearst. In October 1999, we entered into a binding letter agreement with
Hearst Communications, Inc. Under this agreement, Hearst and Digimarc
will jointly promote and market MediaBridge by enhancing the editorial
content of participating Hearst magazines and by enabling advertisements
in Hearst magazines to be compatible with MediaBridge. In connection with
these marketing efforts, we have agreed to provide a non-exclusive
license to Hearst to enable its editorial content to be compatible with
MediaBridge and to sublicense MediaBridge to its advertisers. We will
also provide Hearst with all reasonable and necessary development tools
and related training to enable it to create and publish Digimarc-enabled
content for its magazines. Under the letter agreement, we have granted
Hearst a warrant to purchase up to 150,000 shares of our common stock at
an exercise price equal to our initial public offering price, 87,500 of
which are subject to vesting based upon events as set forth in the letter
agreement. In addition to marketing MediaBridge to publishers of its
magazines and their advertisers, Hearst has agreed to promote MediaBridge
to readers of its publications and to remit to Digimarc a portion of
revenues it receives from MediaBridge-enabled advertising.
. Wired. In October 1999, we entered into a binding letter agreement with
Wired magazine. Under this agreement, Digimarc and Wired have each agreed
to encourage advertisers to use MediaBridge for their advertisements in
issues of Wired magazine beginning in the summer of 2000. In addition,
Wired has agreed to jointly promote and market in Wired magazine and to
remit to us a portion of the revenue it receives for MediaBridge-enabled
advertising. Under this agreement, we have agreed to provide a non-
exclusive license to Wired to enable its editorial content to be
compatible with MediaBridge, as well as to provide Wired with all
reasonable and necessary development tools, training, software and
cameras for it to comply with its obligations under the agreement. We
have also agreed to refrain from granting a license to distribute a
MediaBridge-enabled publication to any other publisher until at least
30 days after the first issue of Wired is published under this agreement.
. Logitech. In September 1999, we entered into a non-binding letter of
intent to establish a strategic partnership with Logitech, Inc. In this
letter of intent, Logitech expressed its intention to enter into an
agreement with Digimarc to include MediaBridge with Logitech's tethered
PC camera software and to prominently mark each package with the Digimarc
logo beginning no later than six months after the first commercial
availability of MediaBridge.
. 3Com. In September 1999, we entered a non-binding letter of intent to
establish a strategic partnership with 3Com Corporation. In this letter
of intent, 3Com expressed its intention to enter a bundling agreement
with Digimarc that will provide for the bundling of MediaBridge with
3Com's tethered PC cameras and to prominently mark each package with the
Digimarc logo beginning no later than six months after Digimarc's first
commercial shipment of MediaBridge.
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. Be Incorporated. In August 1999, we entered a non-binding letter of
intent to establish a strategic partner relationship with Be Incorporated
for use of our MediaBridge software as a standard feature of their
operating system. In exchange, Digimarc will grant a royalty free, non-
exclusive license to Be Incorporated to offer MediaBridge to licensees of
its operating system.
. Adobe. In 1996, Digimarc granted a ten-year license to Adobe to use
Digimarc's watermarking technologies in its Photoshop application, a
leading professional image editing application. Simultaneously, Adobe
granted Digimarc a ten-year license which allows us to use their software
code to develop new applications that are compatible with Adobe's
technology. In the same year, Adobe incorporated Digimarc's technology
into Adobe's ImageReady application, an image processing application
designed specifically for the needs of Web publishers. Between July 1996
and June 1999, Adobe Ventures L.P. purchased shares of our preferred
stock that upon consummation of this offering will be converted into
846,692 shares of our common stock.
. Hewlett-Packard. In June 1999, Hewlett-Packard made an investment in
Digimarc by purchasing $1.5 million of our preferred stock to help us
foster new advancements in our digital watermarking technologies and
image commerce applications. Upon the closing of this offering, Hewlett-
Packard's preferred stock will be converted into 300,000 shares of our
common stock.
. Corbis. In 1998, Digimarc granted a three-year enterprise-wide license to
Corbis for the use of Digimarc image commerce solutions across Corbis'
image collections. Since that time, Corbis and Digimarc have cooperated
in defining market requirements and advancing standards that promote the
industry-wide use of Digimarc watermarking. In addition, in 1998,
Digimarc purchased certain intellectual property relating to digital
watermarking from Corbis.
Competition
The markets in which we compete are emerging, highly competitive, fragmented
and characterized by rapidly changing technology and evolving standards. We
face competition in the overall digital watermarking market as well as in each
of the market segments where our products and services compete. We believe that
the principal competitive factors in the markets for our products are
functionality, interoperability with major hardware and software platforms, and
the costs, time to implementation and support services associated with the
installation of new products and services. We have experienced and expect to
continue to experience increased competition from enterprises in high-
technology industries that are developing watermarking capabilities of their
own, many of whom have significantly greater financial, technical and marketing
resources than we have.
Digimarc's major competition comes from the internal development efforts at
high-technology companies. Internal technology departments have staffed
projects to build their own watermarking systems utilizing a variety of tools.
In some cases, these internal-development projects have been successful in
satisfying the needs of an organization. The competitive factors in this area
require that we generate a product that conforms to the customer's technology
standards, scales to meet the needs of large enterprises, operates globally and
costs less than the results of an internal development effort.
Our video copy prevention and play control solution for DVD faces intense
competition. Our consortium, comprised of Digimarc, Macrovision and Philips,
directly competes with a larger consortium comprised of IBM, NEC, Sony, Hitachi
and Pioneer.
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Most competition in the secure documents market comes from traditional
security features, such as holograms, security threads, special inks, and
laminates which compete for the portion of the production budget reserved for
security features, and machine-readable features, such as Scrambled Indicia,
two dimensional barcodes, Glyphs from Xerox and data-carrying magnetic stripes.
Our Internet-based technology faces competition from companies that provide
Internet portals, and search and directory services. For example, we compete
with search engines, including Excite@Home, Inktomi and AltaVista, for the
traffic generated by Internet users seeking links to third-party content to
address their online information needs. We also compete with directory
services, such as Yahoo! and LookSmart, because they provide alternative ways
for users to obtain the desired information.
Our current and potential competitors, irrespective of the technology they
use or intend to use, may have well-established relationships with current and
potential customers of ours, extensive knowledge of the markets targeted by us,
better name recognition than us and more extensive financial, development,
sales and marketing resources than us. Therefore, our competitors' products may
achieve greater market acceptance than those offered by us. The development and
marketing of competing software may reduce the marketability of our products
and therefore may harm our business, operating results and financial condition.
Our business is characterized by extensive research efforts and rapid
technological progress. To remain competitive, we will be required to expand
and enhance the functionality of our watermarking software and reader
technologies. New developments are expected to continue, and there can be no
assurance that discoveries by others, including current and potential
competitors and internal development efforts, will not render our services and
products noncompetitive. Because of rapid technological change, we may be
required to expend greater amounts in the development of each new product than
currently anticipated, which in turn will require greater revenue to recoup
such expenditures.
Employees
As of October 21, 1999, we had 57 full-time employees, including 14 in sales
and marketing, 30 in research and development and 13 in finance, administration
and corporate communications. 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. 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.
Facilities
Our principal administrative, sales, marketing, support and research and
development facility is currently located in Lake Oswego, Oregon. This facility
occupies a total of approximately 6,000 square feet under a sub-lease that
expires in October 2000. We have signed a five-year lease on approximately
16,500 square feet of space in Tualatin, Oregon, and intend to locate our
principal facility there in November 1999. We believe our current facilities
are adequate to meet our needs for the foreseeable future.
Legal Proceedings
We may from time to time become a party to various legal proceedings arising
in the ordinary course of our business. However, we are not currently subject
to any material legal proceedings.
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MANAGEMENT
Officers and Directors
The following table sets forth certain information regarding our executive
officers, corporate officers and directors as of October 21, 1999:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Executive Officers
Bruce Davis............. 47 President, Chief Executive Officer and Director
Geoffrey Rhoads......... 37 Chief Technology Officer and Director
E. K. Ranjit............ 49 Chief Financial Officer and Secretary
J. Scott Carr........... 37 Vice President and General Manager, Secure Documents
Corporate Officers
Burt W. Perry........... 45 Vice President of Engineering
Kathy S. Brogdon........ 46 Vice President of Finance and Operations
William Y. Conwell...... 40 Vice President of Intellectual Property
Directors
Philip J. Monego, Sr.... 52 Chairman of the Board
Brian J. Grossi......... 49 Director
John Taysom............. 45 Director
</TABLE>
Executive Officers
Bruce Davis has served as our president, chief executive officer and director
since December 1997. Prior to joining us, Mr. Davis served as president of
Titan Broadband Communications, a provider of information technology and
satellite communications systems and services, from April 1997 to December
1997. Prior to that, Mr. Davis served as president of Prevue Networks, Inc., a
supplier of electronic program guides and program promotion services for the
cable and satellite television markets, from July 1996 to February 1997. Prior
to that, Mr. Davis founded and served as president of TV Guide On Screen, a
joint venture of News Corporation and TCI which supplied electronic program
guides and navigational software for the cable television market, from January
1993 to July 1996. 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.
Geoffrey Rhoads founded Digimarc in 1995 and now serves as chief technology
officer, secretary and director. Previously, Mr. Rhoads served as our interim
president from September to November 1995, and as chairman of the board of
directors from January 1995 to March 1996. Prior to that, Mr. Rhoads was the
founder and president of Pinecone Imaging Corporation, a company which develops
imaging systems for telescopes, since 1992. Mr. Rhoads received his B.A. in
physics from the University of Oregon.
E. K. Ranjit has served as our chief financial officer since August 1999.
Prior to that, he served as vice president of finance and treasurer of TriQuint
Semiconductor, Inc., a supplier of integrated circuits for the wireless
communications, telecommunications, data communications and aerospace markets
from July 1996 to August 1999, and as its corporate controller from May 1991 to
June 1996. Mr. Ranjit received a B.S. from the University of Texas at Dallas
and an M.B.A. from Pepperdine University.
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J. Scott Carr has served as our vice president and general manager of secure
documents since June 1999. Prior to that, he served as our vice president of
marketing and business development from January 1998 to May 1999, and director
of business development from May 1996 to December 1997. Prior to joining us,
Mr. Carr served as vice president of marketing at nCUBE Corporation, a
manufacturer of video servers, from July 1995 to May 1996. Prior to that, Mr.
Carr worked as a staff architect at Sequent Computer Systems, Inc., a computer
equipment manufacturer, from August 1992 to July 1995. Mr. Carr received his
B.S. in computer science from Oregon State University.
Corporate Officers
Burt W. Perry has served as our vice president of engineering since July 1996
and served as interim co-president from August through December 1997. Prior to
that, Mr. Perry worked as an engineering manager at Intel, designing and
managing technology and software development, from June 1993 to July 1996. Mr.
Perry received a B.S. in computer science from the University of Delaware.
Kathy S. Brogdon has served as our vice president of finance and operations
since October 1996 and served as interim co-president from August through
December 1997. Prior to joining us, Ms. Brogdon served as vice president of
finance and operations at Active Arts, Inc., a multimedia company, from
December 1995 to October 1996. Ms. Brogdon worked as the controller and a
partner at Nova Northwest, Inc., a lending, leasing and financial advisory
company, from September 1990 to December 1995. Ms. Brogdon received a B.A. in
accounting and quantitative methods from the University of Oregon and became a
Certified Public Accountant in Oregon in 1978.
William Y. Conwell has served as our vice president of intellectual property
since July 1999. Prior to joining us, Mr. Conwell was a patent attorney at
Klarquist Sparkman Campbell Leigh & Whinston, LLP since 1984, and became a
partner in January 1990. Mr. Conwell received a bachelor's degree in Electrical
Engineering from Georgia Institute of Technology and a J.D. from Emory
University School of Law.
Directors
Philip J. Monego, Sr. has been chairman of our board of directors since 1996.
Mr. Monego has served as chief executive officer and chairman of the board of
directors of Voquette, Inc., an Internet media portal company, since May 1999.
Prior to that, Mr. Monego was co-founder, president and chief executive officer
of NetChannel, Inc., an Internet information delivery service, from May 1996 to
June 1998. Prior to that, Mr. Monego was interim president and chief executive
officer of Yahoo! Corporation from April 1995 to September 1995. He is an early
investor in several new media startups and also currently a venture partner in
the Media Technology Venture fund. Mr. Monego received a B.A. in management
from LaSalle University.
Brian J. Grossi has served as one of our directors since July 1996. Mr.
Grossi co-founded AVI Capital, a venture capital firm specializing in high-
technology companies, in 1994. Prior to that, Mr. Grossi was a general partner
with Alpha Partners, a venture capital firm, from 1982 to 1992. Prior to that,
he worked at the Stanford Research Institute as a research engineer and project
leader from 1976 to 1982. Currently, Mr. Grossi serves as a director of
Apptitude, Inc., Aptia, Inc., Intraspect Software, Inc., InVisio, Inc.,
nCommand, Inc., Vivant! Corporation and Pointbase, Inc. Mr. Grossi received a
B.S. and an M.S. in mechanical engineering from Stanford University.
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John Taysom has served as one of our directors since December 1997. Mr.
Taysom has been employed by Reuters, a worldwide television and news agency,
since 1982 and is currently the Managing Director of the Reuters Greenhouse
Fund. Mr. Taysom also serves on the board of directors of TIBCO Software Inc.
and Fantastic Corporation, a Swiss company. Mr. Taysom received a B.Sc. in
economics from Bath University.
Upon consummation of this offering, our board of directors will be divided
into three classes. One class of directors will be elected each year for a
three-year term and until their successors are selected and qualified or until
their earlier resignation or removal. Mr. Taysom will serve until our
2000 annual meeting of shareholders; Messrs. Monego and Rhoads will serve until
our 2001 annual meeting of shareholders; and Messrs. Davis and Grossi will
serve until our 2002 annual meeting of shareholders. Executive officers are
elected by and serve at the discretion of the board of directors.
Board Committees
The board of directors has established a compensation committee and an audit
committee. The compensation committee, consisting of Messrs. Monego and Grossi,
exercises the authority of the board of directors on all compensation matters,
including both cash and equity incentive compensation, and administers our
employee benefit plans.
The audit committee, consisting of Messrs. Monego and Grossi, recommends the
selection of independent public accountants to the board of directors, reviews
the scope and results of the audit and other services provided by our
independent accountants and reviews our accounting practices and systems of
internal accounting controls.
Director Compensation
Directors who are also employees of Digimarc receive no additional
compensation for their services as directors. Directors who are not employees
of Digimarc do not receive a fee for attendance in person at meetings of the
board of directors or committees of the board of directors, but they are
reimbursed for travel expenses and other out-of-pocket costs incurred in
connection with their attendance of meetings. Non-employee directors have also
been granted stock options in the past. After the closing of this offering, we
will adopt an option program for our non-employee directors. See "Management--
Employee Benefit Plans--1999 Non-Employee Director Option Program."
Compensation Committee Interlocks and Insider Participation
No member of our compensation committee was at any time during the fiscal
year ended December 31, 1998 an officer or employee of Digimarc. No member of
our compensation committee serves as a member of the board of directors or
compensation committee of any entity that has any executive officer serving as
a member of our board of directors or compensation committee.
Summary Compensation Table
The following table contains information in summary form concerning the
compensation paid to our chief executive officer and each of our most highly
compensated executive officers, which we refer to in this prospectus as the
named executive officers, whose total salary, bonus and other compensation
exceeded $100,000 during the years ended December 31, 1996, 1997 and 1998.
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The salary information shown for Messrs. Davis and Carr reflects compensation
paid to each in his principal position commencing on December 1997 and May
1996, respectively.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------- ------------
Securities
Name and Principal Underlying All Other
Position Year Salary ($) Bonus ($) Options (#) Compensation ($)
- ------------------ ---- ---------- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Bruce Davis(1) ........ 1998 208,124 75,000 -- 65,529
President and Chief
Executive Officer 1997 2,596 -- 400,000 --
1996 -- -- -- --
Geoffrey Rhoads(2) .... 1998 123,542 75,000 -- --
Chief Technology
Officer 1997 90,101 -- -- --
1996 78,700 -- -- 302,505
J. Scott Carr ......... 1998 109,167 45,000 -- --
Vice President and
General Manager-- 1997 90,000 -- 50,000 --
Secure Documents 1996 55,625 -- 60,000 --
</TABLE>
- --------
(1) The $65,529 of other compensation represents reimbursement for relocation
expenses.
(2) In July 1996, Geoffrey Rhoads and his spouse granted us, for a one-time
cash payment of $217,505.30, an option to purchase a maximum of 701,630
shares of our common stock owned by them at an exercise price of $0.01 per
share. The number of shares subject to the option lapsed on a monthly
basis, and the option could only be exercised by us upon Mr. Rhoads'
voluntary departure or his termination for cause. As of July 30, 1999, our
rights under this option lapsed. In July 1996, we repurchased 170,000
shares of our common stock from Mr. Rhoads for an aggregate purchase price
of $85,000.
Aggregate Option Exercises in Last Fiscal Year and
Fiscal Year-End Values
The following table provides summary information, as to the named executive
officers, concerning stock options exercised during 1998 and the number of
shares subject to both exercisable and unexercisable stock options as of
December 31, 1998. The value of unexercised options at year-end is based on an
assumed fair market value of our common stock at December 31, 1998 of $0.50 per
share less the exercise price.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Options at In-the-Money Options at
Shares Fiscal Year-End (#) Fiscal Year-End ($)(1)
Acquired on Value ------------------------- -------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce Davis............. -- -- 100,000 300,000 0 0
Geoffrey Rhoads......... -- -- -- -- -- --
J. Scott Carr........... -- -- 66,664 43,336 17,500 3,500
</TABLE>
- --------
(1) Fair market value as of December 31, 1998 was determined by the board of
directors, and is based upon its assessment of our overall business,
business prospects and financial condition at that time. The board
considered, among other things, the illiquid nature of Digimarc's common
stock, the price paid for shares of preferred stock in arm's-length
transactions and Digimarc's financial performance and operating results at
that time.
Employment Arrangements
In July 1999, we adopted a policy regarding the vesting of stock options for
all our officers, including prior grants. All shares subject to their options
that have not vested will immediately vest if the following two conditions are
met:
. we merge with another company and there is a change of control of our
company or we sell substantially all of our assets to another company;
and
. any officer's employment is terminated, or constructively terminated,
within twelve months thereafter.
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<PAGE>
Employee Benefit Plans
1995 Stock Incentive Plan
The 1995 plan was approved by our board of directors in October 1995 and by
our shareholders in March 1996. Initially, a total of 500,000 shares of common
stock were reserved for issuance under the 1995 plan. This reserve was amended
several times to reserve a total of 2,800,000 shares of common stock for
issuance under the plan. As of October 21, 1999, options to purchase
426,932 shares of common stock granted had been exercised, options to purchase
2,262,461 shares of common stock were outstanding, and options to purchase
110,607 shares of common stock remained available for grant. The outstanding
options were exercisable at a weighted average exercise price of $1.20 per
share. Outstanding options to purchase an aggregate of 627,461 shares were held
by employees and consultants who are not officers or directors of our company.
After the closing of this offering, all options granted under the 1995 plan
that expire without having been exercised or are cancelled will become
available for grant under the 1999 plan. The 1995 plan will terminate in 2005,
unless terminated earlier by our board of directors. Awards under the 1995 plan
may consist of restricted stock, incentive stock options, which are stock
options that qualify under Section 422 of the Internal Revenue Code, or non-
qualified stock options, which are stock options that do not qualify under that
provision.
The board may grant incentive stock options to employees, including officers
and directors who are employees. Non-qualified stock options and restricted
stock may be granted to employees, including officers and directors who are
employees, or consultants. The compensation committee may set the terms of such
grants, subject to the restrictions in the 1995 plan.
During an optionee's lifetime, only the optionee can exercise an option. The
optionee cannot transfer their options other than by will or the laws of
descent and distribution. If an optionee's status as an employee or consultant
terminates for any reason other than death or disability, the optionee may
exercise their exercisable options within the three-month period following the
termination. In the event the optionee becomes disabled or dies while the
optionee is an employee or consultant of our company, the options vested as of
the date of disability or death may be exercised prior to the earlier of their
expiration date or 12 months from the date of the optionee's disability or
death. In November 1997, we amended the plan to adjust certain exercise
periods, which affects all grants made after that time. Under this amendment,
the time to exercise after termination was reduced from three months to one
month and the time to exercise after death or disability was reduced from 12
months to four months.
In the event of a proposed sale of all or substantially all of our assets or
a merger by us with or into another company, every option outstanding under the
1995 plan may be assumed or substituted with an equivalent option by the
successor company, or its parent or subsidiary. However, our board of directors
may determine, in lieu of assumption or substitution, that an optionee is
entitled to exercise their options, including options which would not otherwise
be exercisable within thirty days of this determination by the board. Our
officers' stock option grant agreements provide for accelerated vesting of
their options in the event of a change of control. If we liquidate or dissolve,
the options will terminate immediately prior to the completion of the
dissolution or liquidation. However, our board may in its sole discretion
declare that any option terminates on a date fixed by the board and give the
optionees the right to exercise their options, including options which would
not otherwise be exercisable.
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The 1995 plan will terminate automatically in 2005 unless terminated earlier
by our board of directors. The board of directors has the authority to amend or
terminate the 1995 plan, subject to stockholder approval of certain amendments.
However, no action may be taken which will affect any shares of common stock
previously issued and sold or any option previously granted under the
1995 plan, without the optionee's consent. We do not anticipate granting
options under this plan after closing of this offering.
1999 Stock Incentive Plan
Our 1999 Stock Incentive Plan was approved by our board of directors on
October 6, 1999. We will be submitting it for approval by our stockholders
prior to the closing of this offering. After the completion of this offering,
we anticipate all further option grants will be made solely under the
1999 Stock Incentive Plan. Initially, we reserved 1,500,000 shares of our
common stock for issuance under the 1999 Stock Incentive Plan. The number of
shares initially reserved will be increased by the number of shares reserved
under our 1995 Stock Incentive Plan and available for grant as of the date of
the closing of this offering, and represented by awards under the 1995 Stock
Incentive Plan that are forfeited, expire or are cancelled following the
adoption of the 1999 Stock Incentive Plan. Commencing on the first day of our
fiscal year beginning in 2001, the number of shares of stock reserved for
issuance under the 1999 Stock Incentive Plan will be increased annually by a
number equal to the lesser of 3% of the fully-diluted number of shares
outstanding as of that date or a lesser number of shares determined by the
board. However, the maximum number of shares available for issuance as
incentive stock options shall be increased by the lesser of 625,000 shares, 3%
of the number of fully-diluted shares outstanding as of that date or a lesser
number of shares determined by the board.
No options to purchase shares of our common stock under the 1999 Stock
Incentive Plan have been exercised, no options to purchase shares of common
stock are outstanding, and options to purchase 1,500,000 shares of common stock
remained available for grant prior to this offering.
The purpose of the 1999 Stock Incentive Plan is to attract and retain the
best available personnel, to provide additional incentive to our employees,
directors and consultants and our related entities and to promote the success
of our business. The 1999 Stock Incentive Plan provides for the granting to
employees of incentive stock options, and the granting to our employees,
directors and consultants and our related entities of non-statutory stock
options, stock appreciation rights, dividend equivalent rights, restricted
stock, performance units, performance shares and other equity-based rights.
Under the 1999 Stock Incentive Plan, our board of directors, or a committee
designated by the board made up of two or more non-employee directors,
administers the granting of stock and options to directors and officers in a
way that allows these grants of stock to be exempt from Section 16(b) of the
Securities Exchange Act and determines the provisions, terms and conditions of
each award. When stock or options are granted to other participants in the 1999
Stock Incentive Plan, our board, or a committee designated by our board
administers these awards and determines the provisions, terms and conditions of
each award.
During their lifetime, those who hold the incentive stock options granted
under this plan cannot transfer these options. The options may be distributed
by a will or the laws of descent upon the death of the option holder. No one is
allowed to exercise the incentive stock options except the person to whom the
options were first issued while that person is alive. Stock or options other
than incentive
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stock options which are issued under the 1999 Stock Incentive Plan can be
transferred to the extent agreed upon at the time of the award.
The term of 1999 Stock Incentive Plan awards will be determined by the board.
The exercise price or purchase price, if any, of 1999 Stock Incentive Plan
awards that are not incentive stock options will be determined by the board,
but will not be less than 50% of the fair market value of the stock. The form
of payment for the shares of common stock when options are exercised or stock
is purchased under a 1999 Stock Incentive Plan award will be determined by the
board and may include cash, check, shares of common stock or the assignment of
part of the proceeds from the sale of shares acquired upon exercise or purchase
of the award.
Where the award agreement permits the exercise or purchase of an award for a
period of time following the recipient's termination of service with us,
disability or death, that award will terminate to the extent not exercised or
purchased on the last day of the specified period or the last day of the
original term of the award, whichever occurs first.
If a third party acquires us through the purchase of all or substantially all
of our assets, a merger or other business combination, all unexercised options
will terminate unless assumed by the successor corporation. Unless terminated
sooner, the 1999 Stock Incentive Plan will terminate automatically in 2009. The
board has the authority to amend, suspend or terminate the 1999 Stock Incentive
Plan, subject to stockholder approval of certain amendments. However, no action
may be taken which will affect awards previously granted under the 1999 Stock
Incentive Plan unless agreed to by the affected grantees.
1999 Non-Employee Director Option Program
Our 1999 Non-Employee Director Option Program was adopted as part of to the
1999 Stock Incentive Plan and is subject to the terms and conditions of the
1999 Stock Incentive Plan. Our 1999 Non-Employee Director Stock Option Program
was approved by our board of directors on October 6, 1999. The 1999 Non-
Employee Director Stock Option Program is effective as of the effective date of
this prospectus, and no awards will be made under this program until that time.
The purpose of the 1999 Non-Employee Director Stock Option Program is to
enhance our ability to attract and retain the best available non-employee
directors, to provide them additional incentives and, therefore, to promote the
success of our business.
The 1999 Non-Employee Director Stock Option Program establishes an automatic
option grant program for the grant of awards to non-employee directors. Under
this program, each then-existing non-employee director upon the effective date
of this prospectus and each non-employee director first elected to our board of
directors following the closing of this offering will automatically be granted
an option to acquire 10,000 shares of our common stock at an exercise price per
share equal to the fair market value of our common stock at the date of grant.
These options will vest and become exercisable in four equal installments on
each anniversary of the grant date. Upon the date of each annual stockholders'
meeting, each non-employee director who has been a member of our board of
directors for at least six months prior to the date of the stockholders'
meeting will receive an automatic grant of options to acquire 2,500 shares of
our common stock at an exercise price equal to the fair market value of our
common stock at the date of grant. These options will vest and become fully
exercisable on the first anniversary of the grant date.
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<PAGE>
The term of each automatic option grant and the extent to which it will be
transferable will be provided in the agreement evidencing the option. The
consideration for the option may consist of cash, check, shares of our common
stock, the assignment of part of the proceeds from the sale of shares acquired
upon exercise of the option or any combination.
The 1999 Non-Employee Director Stock Option Program is administered by the
board or a committee designated by the board made up of two or more non-
employee directors so that such awards would be exempt from Section 16(b) of
the Exchange Act. The program administrator shall determine the terms and
conditions of awards, and construe and interpret the terms of the program and
awards granted under the program. Non-employee directors may also be granted
additional incentives, subject to the discretion of the board or the committee.
Unless terminated sooner, the 1999 Non-Employee Director Stock Option Program
will terminate automatically in 2009 when the 1999 Stock Incentive Plan
terminates. Our board of directors has the authority to amend, suspend or
terminate the 1999 Non-Employee Director Stock Option Program provided that no
such action may affect awards to non-employee directors previously granted
under the program unless agreed to by the affected non-employee directors.
1999 Employee Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan was approved on October 6, 1999. We
will be submitting it for approval by our stockholders prior to the closing of
this offering. The 1999 Employee Stock Purchase Plan is intended to qualify as
an "employee stock purchase plan" under Section 423 of the Internal Revenue
Code in order to provide our employees with an opportunity to purchase common
stock through payroll deductions. The 1999 Employee Stock Purchase Plan will be
administered by our board of directors or a committee designated by our board,
which will have the authority to terminate or amend the 1999 Employee Stock
Purchase Plan, subject to specified restrictions, and otherwise to administer
the 1999 Employee Stock Purchase Plan and to resolve all questions relating to
its administration.
Initially, we reserved 625,000 shares of our common stock for issuance and
made them available for purchase under the 1999 Employee Stock Purchase Plan,
subject to adjustment in the event of a stock split, stock dividend or other
similar change in our common stock or our capital structure. Commencing on the
first day of our fiscal year beginning in 2001, the number of shares of stock
reserved for issuance under this plan will be increased annually by a number
equal to the lesser of 1% of the fully-diluted number of shares outstanding as
of that date, 250,000 shares or a lesser number of shares determined by the
board.
All employees of our company and of our subsidiaries whose customary
employment is for more than five months in any calendar year and 20 hours or
more per week are eligible to participate in our 1999 Employee Stock Purchase
Plan. Employees hired after the closing of this offering are eligible to
participate in our 1999 Employee Stock Purchase Plan, subject to a ten-day
waiting period after hiring. Non-employee directors, consultants and employees
subject to the rules or laws of a foreign jurisdiction that prohibit or make
impractical their participation in the 1999 Employee Stock Purchase Plan are
not eligible to participate in our 1999 Employee Stock Purchase Plan.
The 1999 Employee Stock Purchase Plan designates the periods when the stock
is offered, when it can be purchased, and the exercise dates for options. Offer
periods are generally overlapping periods of 24 months. The initial offer
period begins on the effective date of this prospectus, and
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<PAGE>
ends on January 31, 2002. Additional offer periods will commence each December
1 and June 1. Purchase periods are generally six-month periods, with the
initial purchase period commencing on the effective date of this prospectus and
ending on May 31, 2000. After the effective date of this prospectus, purchase
periods will commence each December 1 and June 1. Exercise dates are the last
day of each purchase period. If we merge with or into another corporation, sell
all or substantially all of our assets or enter into other transactions in
which our shareholders before the transaction own less than 50% of the total
combined voting power of our outstanding securities following the transaction,
the board may elect to shorten the offer period then in progress.
On the first day of each offer period, a participating employee is granted a
purchase right. A purchase right is a form of option to be exercised
automatically on the forthcoming exercise dates within the offer period. During
the offer period, authorized deductions from the pay of participants are
credited to their accounts under the 1999 Employee Stock Purchase Plan. When
the purchase right is exercised, the participant's withheld salary is used to
purchase shares of common stock. The price per share at which shares of common
stock are to be purchased under the 1999 Employee Stock Purchase Plan during
any purchase period is the lesser of 85% of the fair market value of the common
stock on the date of the grant of the option, which is the beginning of the
offer period, or 85% of the fair market value of the common stock on the
exercise date. The participant's purchase right is exercised in this manner on
each exercise date arising in the offer period unless, on the first day of any
purchase period, the fair market value of the common stock is lower than the
fair market value of the common stock on the first day of the offer period. If
it is, the participant's participation in the original offer period is
terminated, and the participant is automatically enrolled in the new offer
period effective the same date with an exercise price equal to the fair market
value of the stock on the first day of the new offer period.
Payroll deductions may range from 1% to 15% in whole percentage increments of
a participant's regular base pay, including cash payments for commissions,
overtime, bonuses, annual awards and other cash incentive payments.
Participants may not make direct cash payments to their accounts. The maximum
number of shares of common stock that any employee may purchase under the 1999
Employee Stock Purchase Plan during a purchase period is 750 shares. The
Internal Revenue Code imposes additional limitations on the amount of common
stock that may be purchased during any calendar year.
401(k) Plan
In 1997, we implemented a 401(k) Plan covering certain of our employees who
are at least 21 years old and have been employed at least four months. Pursuant
to the 401(k) Plan, eligible employees may elect to reduce their current
compensation by up to the lesser of 15% of their compensation or the prescribed
annual limit ($10,000 in 1999) and contribute these amounts to the 401(k) Plan.
We may make contributions to the 401(k) Plan on behalf of eligible employees.
Employees become 25% vested in these contributions after one year of service,
and increase their vested percentages by an additional 25% for each year of
additional service. The 401(k) Plan is intended to qualify under Section 401 of
the Internal Revenue Code so that contributions by employees or by us to the
401(k) Plan, and income earned on the 401(k) Plan contributions, are not
taxable to employees until withdrawn from the 401(k) Plan, and so that
contributions by us, if any, will be deductible by us when made. The trustee
under the 401(k) Plan, at the direction of each participant, invests the 401(k)
Plan employee salary deferrals in selected investment options. We made no
contributions to the 401(k) Plan in 1995, 1996, 1997 or 1998. We do not
presently expect to make any contributions to the 401(k) Plan during fiscal
1999.
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Limitation of Liability and Indemnification Matters
We intend to reincorporate in the State of Delaware immediately prior to this
offering. Our certificate of incorporation and bylaws will provide that we will
indemnify all directors and officers of Digimarc to the fullest extent
permitted by Delaware law. Our certificate of incorporation and bylaws also
will authorize us to indemnify our employees and other agents, at our option,
to the fullest extent permitted by Delaware law. We intend to enter into
agreements to indemnify our directors and officers, in addition to
indemnification provided for in our charter documents. These agreements, among
other things, will provide for the indemnification of our directors and
officers for certain expenses (including attorneys' fees), judgments, fines and
settlement amounts incurred by any such person in any action or proceeding,
including any action by or in the right of Digimarc, arising out of such
person's services as a director or officer of Digimarc or any other company or
enterprise to which such person provides services at the request of Digimarc to
the fullest extent permitted by applicable law. We believe that these
provisions and agreements will assist us in attracting and retaining qualified
persons to serve as directors and officers.
Delaware law permits a corporation to provide in its certificate of
incorporation that a director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability for any breach of the
director's duty of loyalty to the corporation or its stockholders, for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law for liability arising under Section 174 of the General
Corporation Law of the State of Delaware, or for any transaction from which the
director derived an improper personal benefit. Our certificate of incorporation
provides for the elimination of personal liability of a director for breach of
fiduciary duty, as permitted by Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Digimarc in
accordance with the provisions contained in our charter documents, Delaware law
or otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission this indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. If a claim for
indemnification against such liabilities (other than the payment by Digimarc of
expenses incurred or paid by a director, officer or controlling person of
Digimarc in the successful defense of any action, suit, or proceeding) is
asserted by such director, officer or controlling person, we will, unless in
the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by us is against public policy as expressed in the
Securities Act and we will follow the court's determination.
We intend to purchase and maintain insurance on behalf of the officers and
directors, insuring them against liabilities that they may incur in such
capacities or arising out of such status.
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RELATED PARTY TRANSACTIONS
Reincorporation
Prior to the closing of this offering, we will reincorporate in Delaware and
our existing stockholders will receive shares of common stock and preferred
stock of the Delaware corporation in exchange for their shares of common stock
and preferred stock of the Oregon corporation. In connection with the closing
of this offering, each share of Series A and Series B preferred stock will
automatically convert into two shares of common stock of the Delaware
corporation and each share of Series C, Series D and Series D-X preferred stock
will automatically convert into one share of common stock of the Delaware
corporation.
Private Placement Transactions
Since our inception, we have issued in private placement transactions shares
of preferred stock as follows:
. an aggregate of 151,411 shares of Series A-1 preferred stock at $2.50 per
share in June 1996 to eight investors;
. an aggregate of 11,089 shares of Series A-1 preferred stock at $4.50 per
share in June 1996 to two investors;
. an aggregate of 902,000 shares of Series B-1 preferred stock at $5.00 per
share in July 1996 to seven investors, including Adobe Ventures L.P., AVI
Capital L.P. and affiliates whose general partner, Brian Grossi, is a
member of our board of directors, Justsystem, Inc. and Softbank Ventures,
Inc.;
. an aggregate of 2,029,786 shares of Series C-1 preferred stock at $2.86
per share in December 1997 to 16 investors, including Philip Monego, Sr.,
chairman of our board of directors, Adobe Ventures L.P., AVI Capital L.P.
and affiliates, Macrovision Corporation, Reuters, Ltd., a general manager
of which is John Taysom, a member of our board of directors, and
Justsystem, Inc.;
. an aggregate of 1,266,000 shares of Series D preferred stock at $5.00 per
share in June 1999 to 14 investors, including Philip Monego, Sr., Adobe
Ventures L.P., AVI Capital L.P. and affiliates, Macrovision Corporation
and Reuters Holdings Switzerland, S.A.; and
. an aggregate of 160,000 shares of Series D-X preferred stock at $5.00 per
share in August 1999 to three investors, including Philip Monego, Sr.
The following table sets forth the number of shares of Series A-1, Series B-
1, Series C-1, Series D and Series D-X preferred stock purchased by our
directors, five percent stockholders and their respective affiliates.
<TABLE>
<CAPTION>
Series A-1* Series B-1* Series C-1 Series D Series D-X
Holders Preferred Preferred Preferred Preferred Preferred
- ------- ----------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Macrovision
Corporation............ -- -- 524,475 400,000 --
Reuters Group........... -- -- 699,300 200,000 --
AVI Capital L.P. and
affiliates............. -- 252,000 233,549 150,000 --
Adobe Ventures L.P...... -- 250,000 231,692 115,000 --
Philip Monego, Sr....... 16,000 -- 34,965 50,000 40,000
Justsystem, Inc......... -- 200,000 87,412 -- --
Softbank Ventures,
Inc.................... -- 200,000 -- -- --
</TABLE>
- --------
* Each share of Series A-1 and Series B-1 Preferred converts into two shares of
common stock.
58
<PAGE>
Investors' Rights Agreement
Certain holders of common stock and preferred stock have registration rights
with respect to their shares of common stock, including common stock issuable
upon conversion of their preferred stock. See "Description of Capital Stock--
Registration Rights of Certain Holders."
Transactions with Directors and Executive Officers
In July 1996, we repurchased 170,000 shares of our common stock from Mr.
Rhoads for an aggregate purchase price of $85,000, which was the same price as
the exercise price of stock options granted to other purchasers at
approximately the same time.
See "Management--Executive Compensation" for a description of stock
transactions entered into with our directors and executive officers.
Transactions with Affiliates
In September 1996, we entered into a software development and distribution
agreement with Adobe Systems Incorporated. Under that agreement, we granted a
non-exclusive license to Adobe for the use of our licensed software to be
bundled with Adobe products in exchange for a one-time engineering fee of
$100,000 for the development and license of the software.
We believe that all of the transactions set forth above were made on terms no
less favorable to us than could have been obtained from unaffiliated third
parties. We intend that all future transactions, including loans, between us
and our officers, directors, principal shareholders and their affiliates will
be approved by the board of directors, including a majority of the
disinterested outside directors on the board of directors, and will be on terms
no less favorable to us than could be obtained from unaffiliated third parties.
59
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of October 21, 1999 and as adjusted to reflect the sale of the shares of
common stock in this offering by:
. each person or entity known by us to own beneficially more than five
percent of our common stock;
. our chief executive officer, each of the other named executive officers
and each of our directors; and
. all of our executive officers and directors as a group.
The beneficial ownership is calculated based on 8,013,255 shares of our
common stock outstanding as of October 21, 1999 and 11,013,255 shares
immediately following the closing of this offering. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to
securities. Unless otherwise indicated, each person or entity named in the
table has sole voting power and investment power, or shares voting and
investment power with his or her spouse, with respect to all shares of capital
stock listed as owned by that person. Shares issuable upon the exercise of
options that are currently exercisable or become exercisable within sixty days
of October 21, 1999 are considered outstanding for the purpose of calculating
the percentage of outstanding shares of our common stock held by the
individual, but not for the purpose of calculating the percentage of
outstanding shares of our common stock held by any other individual.
The address of each of the executive officers and directors is c/o Digimarc
Corporation, One Centerpointe Drive, Suite 500, Lake Oswego, Oregon 97035-8615.
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned
Number of -------------------------
Shares Beneficially Prior to After
Name and Address Owned the Offering the Offering
- ---------------- ------------------- ------------ ------------
<S> <C> <C> <C>
5% Stockholders
Macrovision Corporation .... 924,475 11.5% 8.4%
1341 Orleans Drive
Sunnyvale, California 94089
Reuters Group PLC(1)........ 899,300 11.2% 8.2%
c/o Reuters Ltd.
85 Fleet Street
London, EC4P 4AJ
England
AVI Capital Management L.P.
and affiliates(2).......... 887,549 11.1% 8.1%
One First Street
Los Altos, California 94022
Adobe Systems
Incorporated(3) ........... 507,189 6.3% 4.6%
c/o Adobe Incentive
Partners
345 Park Avenue
San Jose, California 95110
Justsystem Corporation(4)... 487,412 6.1% 4.4%
c/o Justsystem, Inc.
2460 Sand Hill Road,
Suite 201
Menlo Park, California
94025
Softbank Corp.(5)........... 400,000 5.0% 3.6%
c/o Softbank Ventures, Inc.
333 West San Carlos Avenue,
Suite 1225
San Jose, California 95110
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned
Number of -------------------------
Shares Beneficially Prior to After
Name and Address Owned the Offering the Offering
- ---------------- ------------------- ------------ ------------
<S> <C> <C> <C>
Named Executive Officers
and Directors
Philip J. Monego, Sr.(6)... 246,965 3.0% 2.2%
Bruce Davis(7)............. 175,000 2.1% 1.6%
Geoffrey Rhoads(8)......... 754,280 9.4% 6.8%
J. Scott Carr(9)........... 88,125 1.1% 0.8%
Brian J. Grossi(10)........ 887,549 11.1% 8.6%
John Taysom(11)............ 899,300 11.2% 8.2%
All executive officers and
directors as a group (6
persons)(12).............. 3,051,219 36.7% 30.1%
</TABLE>
- --------
* Less than 1%.
(1) Represents 699,300 shares held by Reuters, Ltd. and 200,000 shares held by
Reuters Holdings Switzerland, S.A., affiliates of Reuters Group PLC.
(2) Brian Grossi is a partner of AVI Capital Management, L.P. and of AVI
Management Partners III, L.P. The shares listed represent 754,531 shares
held by AVI Capital, L.P., 104,325 shares held by Associated Venture
Investors III, L.P., 21,452 shares held by AVI Partners Growth Fund II,
L.P. and 7,241 shares held by AVI Silicon Valley Partners, L.P. AVI
Capital Management, L.P. is the general partner of AVI Capital, L.P., and
AVI Management Partners III, L.P. is the general partner of Associated
Ventures Investors III, L.P., AVI Partners Growth Fund II, L.P. and AVI
Silicon Valley Partners, L.P. In such capacity, AVI Capital Management.
L.P. and AVI Management Partners III, L.P., through a committee comprised
of all of their partners, exercises sole voting and investment power with
respect to all shares held of record by the respective named investment
partnerships; individually, no partner of AVI Capital Management, L.P. or
of AVI Management Partners III, L.P., is deemed to have or share such
voting or investment power.
(3) Represents 507,189 shares held by Adobe Incentive Partners. Adobe Systems
Incorporated is the general partner of Adobe Incentive Partners.
(4) Represents 487,412 shares held by Justsystem, Inc., a subsidiary of
Justsystem Corporation.
(5) Represents 400,000 shares held by Softbank Ventures, Inc., a subsidiary of
Softbank Corp.
(6) Includes options for 90,000 shares of common stock exercisable within 60
days of October 21, 1999.
(7) Includes options for 135,000 shares exercisable within 60 days of October
21, 1999 and 5,000 shares owned by Gary and Kimberly Davis, 5,000 shares
owned by Joseph and Barbara Davis, 5,000 shares owned by Thomas and Donna
Davis, 5,000 shares owned by George and Candace Richard, 5,000 shares
owned by John and Halene Richard, 5,000 shares owned by Robert Bradford,
Jr. and Grace Richard, 5,000 shares owned by Robert Bradford III and Darcy
Richard and 5,000 shares owned by Gary and Karen Gorney, all of whom are
relatives of Bruce Davis. Mr. Davis disclaims beneficial ownership of
these shares owned by his relatives.
(8) Includes 13,000 shares owned by Amanda Rhoads Trust, 13,000 shares owned
by Hudson Rhoads Trust, 1,050 shares owned by Craig and Laura Mikkelson,
10,210 shares owned by Barbara K. Rhoads, 850 shares owned by Bryan Gurrie
Rhoads, 950 shares owned by Cynthia Brooke Rhoads, 44,920 shares owned by
Gurrie and Alice Rhoads, 100 shares owned by Nicole Rhoads--Trustee for
the Children of Geoffrey and Nicole Rhoads, 13,000 shares owned by Trevor
Rhoads Trust, 750 shares owned by Mittie Hellmich, 750 shares owned by
Taylor James Pierce and 750 shares owned by Dirk Pierce, all of whom are
relatives of Geoffrey Rhoads or trusts established for their benefit. Mr.
Rhoads disclaims beneficial ownership of these shares owned by his
relatives.
(9) Represents options for 88,125 shares of common stock exercisable within 60
days of October 21, 1999.
(10) Represents shares held by AVI Capital L.P. and affiliates of which Mr.
Grossi is a general partner. Mr. Grossi disclaims beneficial ownership of
these shares except to the extent of his pecuniary interest as a general
partner.
(11) Represents shares held by Reuters Group. Mr. Taysom disclaims beneficial
ownership of these shares.
(12) Includes options for 313,125 shares of common stock exercisable within 60
days of October 21, 1999.
61
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Following the closing of this offering, our authorized capital stock will
consist of 30,000,000 shares of common stock and 5,000,000 shares of
undesignated preferred stock. The following description of our capital stock is
subject to, and qualified in its entirety by, the provisions of our certificate
of incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus is a part, and by the provisions of
applicable law.
Common Stock
As of October 21, 1999, there were 2,428,469 shares of common stock
outstanding that were held of record by approximately 96 shareholders. Based on
the shares outstanding as of October 21, 1999, there will be 11,013,255 shares
of common stock outstanding, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options, after giving effect to
the sale of the common stock we are offering.
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 the 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 the board of directors out of
funds legally available for such purpose, as well as any distributions to the
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
As of October 21, 1999, there were 4,520,286 shares of preferred stock
outstanding and held of record by 24 stockholders. In connection with the
closing of this offering, all outstanding shares of Series A and Series B
preferred stock will automatically be converted into common stock on a two-for-
one basis, and all outstanding shares of Series C, Series D and Series D-X
preferred stock will automatically be converted into common stock on a one-for-
one basis, and all these shares of preferred stock will be cancelled. From and
after the closing of this offering, we will be authorized to issue 5,000,000
shares of preferred stock that will not be designated as a particular class.
Our board of directors will have 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 the stockholders and
may adversely affect the voting and other rights of the holders of common
stock. At present, we have no plans to issue any shares of preferred stock.
Registration Rights of Certain Holders
After the closing of this offering, and assuming we comply with other
requirements, the holders of approximately 5,584,786 shares of common stock
will have the right to cause us to register their
62
<PAGE>
shares under the Securities Act. These rights are held under the terms of an
investors' rights agreement between us and the holders of these registrable
securities. Under the terms of this agreement, if we propose to register any of
our securities under the Securities Act, we must give the holders of these
registrable securities 30 days' prior notice of registration and include a
portion of their shares of common stock in the registration. Additionally, upon
written demand of holders of more than 50% of the then-outstanding registrable
securities, we will use our best efforts to promptly register the securities
that the holders request to be registered, provided, among other limitations,
that the aggregate offering price to the public exceeds $10 million. We are not
required to register securities more than twice under the holders' rights to
demand these registrations. We will be required to file a registration
statement on form S-3 or any similar short-form registration statement if
requested to do so by any of these holders, provided that the aggregate
offering price for the securities to be sold is more than $1,000,000.
Furthermore, we are only required to effect one demand registration on form S-3
within any 12-month period. The holders cannot demand that we file a
registration statement prior to the date 180 days following the effective date
of any registration statement filed by us.
All expenses in effecting these registrations will be borne by us, excluding
underwriting discounts, selling commissions and stock transfer taxes, which
shall be borne proportionately by the holders of the securities that have been
registered. These registration rights are subject to conditions and
limitations, among them the right of the underwriters of an offering to limit
the number of shares included in the registration. We have agreed to indemnify
the holders of these registration rights, and each selling holder has agreed to
indemnify us, against liabilities under the Securities Act, the Securities
Exchange Act or other applicable federal or state law.
Anti-Takeover Provisions
Delaware Takeover Statute
Following our reincorporation in the State of Delaware, we will be 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; or
. upon consummation 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
stockholder, 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.
63
<PAGE>
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.
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, will:
. Provide that our board of directors will be divided into three classes of
directors (disregarding the effect of any voting rights of holders of
convertible preferred stock), as nearly equal in number as is reasonably
possible, serving staggered terms so that directors' initial terms will
expire at the first, second and third succeeding annual meeting of the
stockholders following our initial public offering, respectively. At each
succeeding annual meeting, directors elected to succeed those directors
whose terms are expiring at that meeting shall be elected for a three-
year term of office. A vote of at least 80% of our capital stock would be
required to amend this provision.
. Provide that special meetings of the stockholders may be called only by
our president, by our secretary or at the direction of the board. Advance
written notice is required, which generally must be received by the
secretary not less than 30 days nor more than 60 days prior to the
meeting, by a stockholder of a proposal or director nomination which that
stockholder desires to present at a meeting of stockholders. Any
amendment of this provision would require a vote of at least 80% of our
capital stock.
. 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 may be filled by a majority of
directors in office, although less than a quorum, and not by the
stockholders.
64
<PAGE>
. Allow us to issue up to 5,000,000 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 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 EquiServe. Its
address is: 150 Royale Street, Canton, Massachusetts 02021, its telephone
number is (201) 222-5610, and its website is www.equiserve.com.
65
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Excluding the 3,000,000 shares of common stock offered hereby (which will be
freely tradable except if held by our "affiliates" as defined in Rule 144 of
the Securities Act) and assuming no exercise of the underwriters' over-
allotment option, as of the effective date of the registration statement, there
will be 8,013,255 shares of common stock outstanding, all of which are
"restricted" shares under the Securities Act. 7,435,356 of the restricted
shares are subject to lock-up agreements with the underwriters where the
holders of the restricted shares have agreed not to sell, pledge or otherwise
dispose of such shares for a period of 180 days after the date of this
prospectus. BancBoston Robertson Stephens Inc. may release the shares subject
to the lock-up agreements in whole or in part at any time with or without
notice. However, BancBoston Robertson Stephens Inc. has no current plans to do
so.
The following table indicates approximately when the 8,013,255 shares of our
common stock that are not being sold in the offering but that will be
outstanding at the time the offering is complete will be eligible for sale in
the public market:
<TABLE>
<CAPTION>
Eligibility of Restricted Shares for Sale in Public Market
----------------------------------------------------------
<S> <C>
At effective date................................................. 475,927
90 days after effective date...................................... 59,920
180 days after effective date..................................... 7,435,356
More than 181 days after effective date upon expiration of the
one-year holding periods applicable to those shares.............. 42,054
</TABLE>
Approximately 2,683,684 of the restricted shares that will become available
for sale in the public market beginning 180 days after the effective date will
be subject to the volume and other resale restrictions of Rule 144 because the
holders are affiliates of Digimarc. In general, a person who has beneficially
owned restricted shares for at least one year, will be entitled to sell in any
three-month period a number of shares that does not exceed the greater of
. 1% of the then outstanding shares of the common stock, approximately
110,133 shares immediately after this offering, or
. the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the SEC.
Sales made in accordance with Rule 144 are subject to requirements relating
to manner of sale, notice and availability of current public information about
Digimarc. A person who is not deemed to have been an affiliate of Digimarc at
any time during the 90 days immediately preceding the sale and who has
beneficially owned his or her shares for at least two years is entitled to sell
such shares in accordance with Rule 144(k) without regard to the limitations
described above.
Any employee, officer or director of or consultant to Digimarc who purchased
his or her shares prior to the Effective Date or who holds vested options as of
that date under a written compensatory plan or contract is entitled to rely on
the resale provisions of Rule 701, which permits non-affiliates to sell their
Rule 701 shares without having to comply with the public-information, holding-
period, volume-limitation or notice provisions of Rule 144 and permits
affiliates to sell their Rule 701 shares without having to comply with Rule
144's holding-period restrictions, in each case commencing 90 days after the
Effective Date. However, we and our officers, directors and a majority of our
other stockholders have agreed not to sell or otherwise dispose of any shares
of our common stock for the
66
<PAGE>
180-day period after the date of this prospectus without the prior written
consent of the underwriters. See "Underwriting."
As soon as practicable after the Effective Date, we intend to file a
registration statement on Form S-8 under the Securities Act to register the
4,925,000 shares of common stock reserved for issuance under the 1995 stock
incentive plan, the 1999 stock incentive plan and the 1999 employee stock
purchase plan, thus permitting the resale of such shares by non-affiliates in
the public market without restriction under the Securities Act. As of September
30, 1999, options to purchase 2,255,961 shares of common stock were
outstanding. However, holders of approximately of the shares that will be
registered have agreed with BancBoston Robertson Stephens Inc. not to sell
their shares into the public market during the 180-day period after the
effective date of the registration statement.
Lock-Up Agreements
All officers and directors and a majority of holders of common stock and
options to purchase common stock have agreed that they will not offer, sell,
contract to sell, pledge, grant any option to sell, or otherwise dispose of any
shares of common stock or securities convertible into common stock, or warrants
or other rights to purchase common stock, for a period of 180 days after the
date of this prospectus without the prior written consent of BancBoston
Robertson Stephens Inc.
67
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Hambrecht & Quist LLC and U.S. Bancorp
Piper Jaffray Inc., have severally agreed with us, subject to the terms and
conditions of the underwriting agreement, to purchase from us the number of
shares of common stock indicated opposite their names below. The underwriters
are committed to purchase and pay for all of the shares if any are purchased.
<TABLE>
<CAPTION>
Number Of
Underwriters Shares
------------ ---------
<S> <C>
BancBoston Robertson Stephens Inc................................
Hambrecht & Quist LLC............................................
U.S. Bancorp Piper Jaffray Inc. .................................
---------
Total.......................................................... 3,000,000
=========
</TABLE>
We have been advised that the underwriters propose to offer the shares of
common stock to the public at the public offering price located on the cover
page of this prospectus and to dealers at that price less a concession of not
in excess of $ per share, of which $ may be reallowed to their
dealers. After the initial public offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
reduction in this price will change the amount of proceeds to be received by us
as indicated on the cover page of this prospectus.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 450,000 additional shares of common stock at the same price per
share as we will receive for the 3,000,000 shares that the underwriters have
agreed to purchase. To the extent that the underwriters exercise this option,
each of the underwriters will have a firm commitment to purchase approximately
the same percentage of these additional shares that the number of shares of
common stock to be purchased by it shown in the above table represents as a
percentage of the 3,000,000 shares offered by this prospectus. If purchased,
such additional shares will be sold by the underwriters on the same terms as
those on which the 3,000,000 shares are being sold. We will be obligated, under
this option, to sell shares to the extent the option is exercised. The
underwriters may exercise the option only to cover over-allotments made in
connection with the sale of the shares of common stock offered by this
prospectus.
The following table shows the per share and total underwriting discounts and
commissions to be paid by us to the underwriters. This information is presented
assuming either no exercise or full exercise by the underwriters of their over-
allotment option.
<TABLE>
<CAPTION>
Per Without With
Share Option Option
----- ------- ------
<S> <C> <C> <C>
Public offering price................................. $ $ $
Underwriting discounts and commissions................ $ $ $
Proceeds, before expenses, to us...................... $ $ $
</TABLE>
The other expenses of the offering are estimated at $1,068,000 and are
payable entirely by us. BancBoston Robertson Stephens Inc. expects to deliver
the shares of common stock to purchasers on , 1999.
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<PAGE>
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-Up Agreements. All of our executive officers and directors, and a
majority of our stockholders, optionholders and warrantholders have agreed, for
a period of 180 days after the date of this prospectus, not to offer to sell,
contract to sell or otherwise sell, dispose of, loan, pledge or grant any
rights to, any shares of common stock, any options or warrants to purchase any
shares of common stock or any securities convertible into or exchangeable for
shares of common stock owned as of the date of this prospectus or subsequently
acquired directly by the holders or to which they have or subsequently acquire
the power of disposition, without the prior written consent of BancBoston
Robertson Stephens Inc. However, BancBoston Robertson Stephens Inc., in some
instances may, in its sole discretion and at any time without notice, release
all or any portion of the securities subject to lock-up agreements. There are
no agreements between the representatives and any of our stockholders providing
consent by the representatives to the sale of shares prior to the expiration of
the period of 180 days after the date of this prospectus.
Future Sales. In addition, we have agreed that during the period of 180 days
after this prospectus, we will not, subject to certain exceptions, without the
prior written consent of BancBoston Robertson Stephens Inc.:
. Consent to the disposition of any shares held by stockholders prior to
the expiration of the period of 180 days after this prospectus; or
. Issue, sell, contract to sell or otherwise dispose of any shares of
common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable
for shares of common stock other than (1) the sale of shares in this
offering, (2) the issuance of common stock upon the exercise or
conversion of outstanding options, warrants or convertible securities,
(3) our issuance of stock options under existing stock option plans and
(4) our issuance of common stock under the Employee Stock Purchase Plan.
See "Shares Eligible for Future Sale."
Listing. We have applied to have our common stock quoted on the Nasdaq
National Market under the symbol DMRC.
No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price
for the common stock offered hereby was determined through negotiations between
us and the representatives. Among the factors considered in such negotiations
were prevailing market conditions, certain of our financial information, market
valuations of other companies that we and the representatives believed to be
comparable to us, estimates of our business potential, the present state of our
development and other factors deemed relevant.
Stabilization. The representatives have advised us that, in accordance with
Regulation M under the Securities Act, some participants in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of the common stock at a level
above that which might otherwise prevail in the open market. A "stabilizing
bid" is a bid for or the purchase of the common
69
<PAGE>
stock on behalf of the underwriters for the purpose of fixing or maintaining
the price of the common stock. A "syndicate covering transaction" is a bid for
or the purchase of the common stock on behalf of the underwriters to reduce a
short position incurred by the underwriters in connection with this offering. A
"penalty bid" is an arrangement permitting the representatives to reclaim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with this offering if the common stock originally sold by such
underwriter or syndicate member is purchased by the representatives in a
syndicate covering transaction and has therefore not been effectively placed by
these underwriter or syndicate member. The representatives have advised us that
these transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
Directed Share Program. We have requested that the underwriters have reserved
up to 300,000 shares of common stock to be issued by us and offered hereby for
sale, at the initial public offering price, to directors, officers, employees,
business associates and related persons of Digimarc. The number of shares of
common stock available for sale to the general public will be reduced to the
extent such individuals purchase such reserved shares. Any reserved shares
which are not so purchased will be offered by the underwriters to the general
public on the same basis as the other shares offered hereby.
In August 1999, Bayview Investors, Ltd., an affiliate of BancBoston Robertson
Stephens Inc., purchased 60,000 shares of our Series D-X preferred stock for
$5.00 per share on the same terms and conditions as the other purchasers of
Series D-X preferred stock. All of these shares will automatically convert into
common stock upon the closing of this offering.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us by
Morrison & Foerster LLP, San Francisco, California. Certain legal matters in
connection with the offering will be passed upon for the underwriters by Wilson
Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California.
Attorneys employed by Morrison & Foerster LLP or investment partnerships of
which they are the beneficial owners hold approximately 60,000 shares of common
stock. Attorneys employed by Morrison & Foerster LLP will also purchase shares
in our directed share program.
EXPERTS
The financial statements of Digimarc as of December 31, 1997 and 1998, and
for each of the years in the three-year period ended December 31, 1998 have
been included herein and in the registration statement in reliance upon the
report of KPMG LLP, independent certified public accountants, upon the
authority of the firm as experts in accounting and auditing.
70
<PAGE>
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock offered in this prospectus.
This prospectus does not contain all of the information in the registration
statement and its exhibits and schedules, portions of which have been omitted
as permitted by the rules and regulations of the SEC. For further information
about us and the common stock, we refer you to the registration statement and
to its exhibits and schedules. Statements in this prospectus about the contents
of any contract, agreement or other document are not necessarily complete and,
in each instance, we refer you to the copy of such contract, agreement or
document filed as an exhibit to the registration statement. Each such statement
is qualified in all respects by reference to the document to which it refers.
Anyone may inspect the registration statement and its exhibits and schedules
without charge at the public reference facilities the SEC maintains at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
SEC located at 7 World Trade Center, Suite 1300, New York, New York 10048, and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may obtain
copies of all or any part of these materials from the SEC upon the payment of
fees prescribed by the SEC. You may obtain information on the operation of the
Public Reference Room by calling 1-800-SEC-0300. You may also inspect these
reports and other information without charge at a Web site maintained by the
SEC. The address of this site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the informational
requirements of the Exchange Act and, in accordance therewith, file reports,
proxy statements and other information with the SEC. You will be able to
inspect and copy these reports, proxy statements and other information at the
public reference facilities maintained by the SEC and at the SEC's regional
offices at the addresses noted above. You also will be able to obtain copies of
this material from the Public Reference Room of the SEC as described above, or
inspect them without charge at the SEC's Web site.
71
<PAGE>
DIGIMARC CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of KPMG LLP........................................................ F-2
Balance Sheets............................................................ F-3
Statements of Operations.................................................. F-4
Statements of Stockholders' Equity (Deficit).............................. F-5
Statements of Cash Flows.................................................. F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
When the reverse stock split referred to in Note 12(b) of the Notes to the
Financial Statements has been consummated, we will render the following
opinion.
FORM OF INDEPENDENT AUDITORS' REPORT
The Board of Directors
Digimarc Corporation:
We have audited the accompanying balance sheets of Digimarc Corporation as of
December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity (deficit), and cash flows for each of the years in the
three-year period ended December 31, 1998. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. 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 Digimarc Corporation as of
December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1998 in
conformity with generally accepted accounting principles.
Portland, Oregon
March 9, 1999, except as to note 12(b) which is
as of November , 1999
F-2
<PAGE>
DIGIMARC CORPORATION
BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998 September 30, 1999
------- ------- -----------------------
(unaudited) (unaudited)
(Pro Forma)
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........... $ 5,638 $ 2,137 $ 8,039
Trade accounts receivable, net...... 102 298 1,653
Prepaid expenses and other current
assets............................. 81 98 1,026
------- ------- --------
Total current assets............... 5,821 2,533 10,718
Property and equipment, net.......... 251 329 501
Other assets, net.................... 96 116 55
------- ------- --------
Total assets....................... $ 6,168 $ 2,978 $ 11,274
======= ======= ========
<CAPTION>
LIABILITIES, REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
<S> <C> <C> <C> <C>
Current liabilities:
Short-term borrowings............... $ 400 $ 250 $ --
Accounts payable.................... 335 228 723
Current portion of capital lease
obligations........................ 79 124 119
Accrued payroll and related costs... 186 390 615
Deferred revenue.................... 190 345 1,734
Current portion of notes payable to
stockholders....................... -- -- 308
------- ------- --------
Total current liabilities.......... 1,190 1,337 3,499
Capital lease obligations, less
current portion..................... 111 171 182
Notes payable to stockholders, less
current portion..................... 284 298 --
Other long-term liabilities.......... 78 82 80
------- ------- --------
Total liabilities.................. 1,663 1,888 3,761
------- ------- --------
Convertible redeemable preferred
stock; 10,874,000 shares authorized;
2,931,786 shares issued and
outstanding at December 31, 1997 and
1998 and 4,357,786 shares
outstanding at September 30, 1999;
aggregate liquidation preference
$10,315 and $17,445 at December 31,
1998 and September 30, 1999,
respectively (unaudited); pro forma
no shares issued
and outstanding..................... 10,185 10,185 17,266 $ --
------- ------- -------- --------
Commitments and contingencies
Stockholders' equity (deficit):
Convertible preferred stock; 325,000
shares authorized; aggregate
liquidation preference $429:
Series A-1, $.001 par value; issued
and outstanding 162,500 shares at
December 31, 1997 and 1998 and
September 30, 1999; pro forma no
shares issued and outstanding..... -- -- -- --
Series A-N, $.001 par value; no
shares issued and outstanding..... -- -- -- --
Common stock, $.001 par value;
authorized 12,500,000 shares;
issued and outstanding 2,252,993
and 2,313,623 and 2,398,469 shares
at December 31, 1997 and 1998 and
September 30, 1999, respectively;
pro forma 7,983,255 shares issued
and outstanding.................... 2 2 3 8
Additional paid-in capital.......... 851 878 4,509 21,770
Deferred stock compensation......... -- -- (3,466) (3,466)
Accumulated deficit................. (6,533) (9,975) (10,799) (10,799)
------- ------- -------- --------
Total stockholders' equity
(deficit)......................... (5,680) (9,095) (9,753) $ 7,513
------- ------- -------- ========
Total liabilities, convertible
redeemable preferred stock and
stockholders' equity (deficit).... $ 6,168 $ 2,978 $ 11,274
======= ======= ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
DIGIMARC CORPORATION
STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
License and
subscription......... $ 186 $ 161 $ 484 $ 379 $ 175
Service............... 50 25 500 312 4,010
--------- --------- --------- --------- ---------
Total revenue....... 236 186 984 691 4,185
--------- --------- --------- --------- ---------
Cost of revenue:
License and
subscription......... 7 126 114 93 62
Service............... -- -- 1,466 775 1,814
--------- --------- --------- --------- ---------
Total cost of
revenue............ 7 126 1,580 868 1,876
--------- --------- --------- --------- ---------
Operating expenses:
Sales and marketing... 376 1,330 825 742 731
Research and
development.......... 690 934 658 546 450
Impairment charge..... -- 453 -- -- --
General and
administrative....... 834 1,282 1,407 913 1,961
--------- --------- --------- --------- ---------
Total operating
expenses........... 1,900 3,999 2,890 2,201 3,142
--------- --------- --------- --------- ---------
Operating loss...... (1,671) (3,939) (3,486) (2,378) (833)
Other income (expense):
Interest income....... 68 76 189 162 88
Interest expense...... (71) (86) (119) (13) (75)
Other................. 96 (30) (26) (92) (4)
--------- --------- --------- --------- ---------
Loss before
provision for
income taxes....... (1,578) (3,979) (3,442) (2,321) (824)
Provision for income
taxes.................. -- -- -- -- --
--------- --------- --------- --------- ---------
Net loss............ $ (1,578) $ (3,979) $ (3,442) $ (2,321) $ (824)
========= ========= ========= ========= =========
Net loss per share--
basic and diluted...... $ (0.71) $ (1.88) $ (1.50) $ (1.02) $ (0.35)
========= ========= ========= ========= =========
Weighted average shares
used in computing net
loss per share--basic
and diluted............ 2,226,519 2,120,477 2,288,442 2,284,642 2,342,732
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
DIGIMARC CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Convertible
preferred stock Common stock Additional Total
----------------- ----------------- paid-in Deferred Accumulated stockholders'
Shares Amount Shares Amount capital compensation deficit deficit
--------- ------- --------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1995................... -- $ -- 2,047,364 $ 2 $ 182 $ -- $ (874) $ (690)
Issuance of common stock
through conversion of
note payable........... -- -- 272,000 -- 41 -- -- 41
Repurchase and
cancellation of
common stock previously
issued................. -- -- (288,340) -- -- -- (102) (102)
Issuance of common stock
in exchange for
services............... -- -- 36,369 -- 5 -- -- 5
Issuance of Series A-1
preferred stock, net... 162,500 -- -- -- 439 -- -- 439
Net loss................ -- -- -- -- -- -- (1,578) (1,578)
--------- ------ --------- --- ------ ------- -------- -------
BALANCE AT DECEMBER 31,
1996................... 162,500 -- 2,067,393 2 667 -- (2,554) (1,885)
Exercise of stock
options................ -- -- 62,600 -- 13 -- -- 13
Repurchase and
cancellation of
common stock previously
issued................. -- -- (56,000) -- (8) -- -- (8)
Common stock issued for
the acquisition of
assets................. -- -- 179,000 -- 179 -- -- 179
Net loss................ -- -- -- -- -- -- (3,979) (3,979)
--------- ------ --------- --- ------ ------- -------- -------
BALANCE AT DECEMBER 31,
1997................... 162,500 -- 2,252,993 2 851 -- (6,533) (5,680)
Stock issued............ -- -- 27,144 -- 13 -- -- 13
Exercise of stock
options................ -- -- 33,486 -- 14 -- -- 14
Net loss................ -- -- -- -- -- -- (3,442) (3,442)
--------- ------ --------- --- ------ ------- -------- -------
BALANCE AT DECEMBER 31,
1998................... 162,500 -- 2,313,623 2 878 -- (9,975) (9,095)
Exercise of stock
options (unaudited).... -- -- 84,846 1 44 -- -- 45
Deferred compensation
related to
stock options
(unaudited)............ -- -- -- -- 3,587 (3,587) -- --
Stock compensation
expense (unaudited).... -- -- -- -- -- 121 -- 121
Net loss (unaudited).... -- -- -- -- -- -- (824) (824)
--------- ------ --------- --- ------ ------- -------- -------
BALANCE AT SEPTEMBER 30,
1999 (unaudited)....... 162,500 $ -- 2,398,469 $ 3 $4,509 $(3,466) $(10,799) $(9,753)
========= ====== ========= === ====== ======= ======== =======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
DIGIMARC CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Nine Months
Years Ended December Ended
31, September 30,
------------------------- ----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss......................... $(1,578) $(3,979) $(3,442) $(2,321) $ (824)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization... 23 100 178 130 203
Amortization of discount on note
payable........................ 19 13 14 10 10
Asset impairment................ -- 453 -- -- --
Non-cash expenses............... 15 27 20 7 121
Gain on forgiveness of debt..... (96) (33) -- -- --
Changes in assets and
liabilities:
Trade accounts receivable....... -- (102) (196) 64 (1,355)
Prepaid expenses and other
assets......................... (54) (36) (33) (18) (906)
Accounts payable................ 118 43 (107) (199) 495
Accrued payroll and related
costs.......................... 32 199 204 (100) 225
Deferred revenue................ (26) 173 152 150 1,387
------- ------- ------- ------- -------
Net cash used in operating
activities.................... (1,547) (3,142) (3,210) (2,277) (644)
------- ------- ------- ------- -------
Cash flows from investing
activities:
Purchase of property and
equipment....................... (165) (23) (8) (10) (209)
Purchases of patents............. -- -- (50) (50) (10)
Sale of tradename................ -- -- -- -- 10
Acquisition of assets............ -- (417) -- -- --
------- ------- ------- ------- -------
Net cash used in investing
activities.................... (165) (440) (58) (60) (209)
------- ------- ------- ------- -------
Cash flows from financing
activities:
Proceeds (repayment) of short-
term borrowings................. -- 400 (150) (3) (250)
Net proceeds from issuance of
preferred stock................. 4,510 5,744 -- (1) 7,081
Net proceeds from issuance of
common stock.................... -- 13 14 7 45
Proceeds from issuance of notes
payable......................... 350 -- -- -- --
Principal payments of notes
payable......................... (111) -- -- -- --
Proceeds from sale-leaseback..... 142 -- -- -- --
Repurchase of common stock
previously issued............... (102) (8) -- -- --
Principal payments under capital
lease obligations............... (10) (42) (97) (70) (121)
------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities.......... 4,779 6,107 (233) (67) 6,755
------- ------- ------- ------- -------
Net (decrease) increase in cash
and cash equivalents............. 3,067 2,525 (3,501) (2,404) 5,902
Cash and cash equivalents at
beginning of period.............. 46 3,113 5,638 5,638 2,137
------- ------- ------- ------- -------
Cash and cash equivalents at end
of period........................ $ 3,113 $ 5,638 $ 2,137 $ 3,234 $ 8,039
======= ======= ======= ======= =======
Supplemental disclosure of cash
flow information:
Cash paid for interest........... $ 3 $ 38 $ 125 $ 85 $ 76
======= ======= ======= ======= =======
Summary of non-cash investing and
financing activities:
Conversion of note payable to
common stock.................... $ 41 $ -- $ -- $ -- $ --
Equipment acquired or exchanged
under capital lease
obligations..................... 40 64 202 127 167
Common stock issued for the
acquisition of assets........... -- 179 -- -- --
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
DIGIMARC CORPORATION
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(1) Summary of Significant Accounting Policies
(a) The Company
Digimarc Corporation (the Company) was incorporated on January 3, 1995. The
Company has developed digital watermarking technology used to identify, track,
manage and enhance visual communications. Digitally watermarked images contain
hidden messages which are imperceptible during normal use but detectable by
software or other devices.
(b) Interim Financial Statements
The financial information included herein for the nine-month periods ended
September 30, 1998 and 1999 is unaudited; however, such information reflects
all adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods. The
interim consolidated financial statements should be read in conjunction with
the financial statements and the notes included in the financial statements.
The results of operations for the interim period presented are not necessarily
indicative of the results to be expected for the full year.
(c) Accounts Receivable
Trade accounts receivable are shown net of allowance for doubtful accounts.
The amount of the allowance and the charges were as follows:
<TABLE>
<CAPTION>
December 31,
-------------- September 30,
1996 1997 1998 1999
---- ---- ---- -------------
(unaudited)
<S> <C> <C> <C> <C>
Balance--beginning of period................... $ -- $ -- $17 $ 2
Provision (recovery)........................... -- 17 (7) 4
Charge offs.................................... -- -- (8) --
---- ---- --- ---
Balance--end of period......................... $ -- $ 17 $ 2 $ 6
==== ==== === ===
</TABLE>
(d) Property and Equipment
Property and equipment are stated at cost. Property and equipment under
capital lease obligations are stated at the lower of the present value of
minimum lease payments at the beginning of the lease term or fair value of the
leased assets at the inception of the lease. 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 three to five
years. Property and equipment held under capital leases are amortized by the
straight-line method over the lease term. Amortization of property and
equipment under capital lease is included in depreciation expense.
(e) Software Development Costs
Under Statement of Financial Accounting Standards No. 86 (SFAS No. 86),
software development costs are to be capitalized beginning when a product's
technological feasibility has been
F-7
<PAGE>
DIGIMARC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share data)
established and ending when a product is made available for general release to
customers. To date, the establishment of technological feasibility of the
Company's products has occurred shortly before general release and, therefore,
software development costs qualifying for capitalization have been immaterial.
Accordingly, the Company has not capitalized any software development costs and
has charged all such costs to research and development expense.
(f) Funded Research and Development
The Company 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, the
Company is not obligated to repay any of the amounts provided by the funding
parties. As a result, the Company recognizes revenue as the services are
performed.
Revenues recognized under vendor and end-user funding arrangements totaled
$500 for the year ended December 31, 1998. Direct costs allocated to the
arrangement were $1,466 for the year ended December 31, 1998. There were no
such revenues recognized or cost incurred related to a funding arrangement in
1996 or 1997.
(g) Other Assets
Other assets consist primarily of the costs of acquired patents and
trademarks, and are amortized by the straight-line method over a useful life of
three to five years. They are shown net of accumulated amortization of $16 and
$63 at December 31, 1997 and 1998, respectively.
(h) Advertising Costs
Advertising costs are expensed as incurred. Total advertising expenses were
$13, $157 and $135 for the years ended December 31, 1996, 1997 and 1998,
respectively.
(i) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company accounts for long-lived assets in accordance with the provisions
of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. This Statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.
(j) Revenue Recognition
In October 1997, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) No. 97-2, Software Revenue
Recognition. Subsequently, in March 1998, the Financial Accounting Standards
Board (FASB) approved SOP 98-4, Deferral of the Effective Date
F-8
<PAGE>
DIGIMARC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share data)
of a Provision of 97-2, Software Revenue Recognition. SOP 98-4 defers for one
year the application of several paragraphs and examples in SOP 97-2 that limit
the definition of vendor specific objective evidence (VSOE) of the fair value
of various elements in a multiple-element arrangement. SOP 97-2 generally
requires revenue earned on software arrangements involving multiple elements to
be allocated to each element based on VSOE of the relative fair values of each
element in the arrangement. The Company establishes VSOE based on the price
when the element is sold separately.
The provisions of SOPs 97-2 and 98-4 have been applied by the Company to
transactions entered into beginning January 1, 1998. Prior to 1997, the
Company's revenue policy was in accordance with the preceding authoritative
guidance provided by SOP No. 91-1, Software Revenue Recognition.
Software license revenue consists of fees for licenses of the Company's
software products. Revenue allocated to software licenses is recognized upon
delivery of software, assuming no significant future obligations or customer
acceptance rights exist. Software license agreements have not contained
significant obligations or customer acceptance rights to date.
Revenue allocated to subscriptions are paid in advance and revenues are
recognized ratably over the term of the subscription. Revenue allocated to
contracted professional services is recognized as the services are performed.
The Company recognizes revenues on service contracts on a method that
approximates the percentage of completion basis using budgeted amounts
established with the customer at the inception of the contract. Progress
towards completion is measured using allowable costs incurred as compared to
the budgeted amounts contained in the basic contract. Losses on contracts, if
any, are provided for in the period in which the loss becomes determinable. The
contract is considered complete upon completion of the deliverables specified
in the contract. Deferred revenue consists of payments received in advance for
consulting services and subscriptions to the Company's internet service for
service and support not yet performed.
In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2
Software Revenue Recognition, with Respect to Certain Transactions. This SOP
amends SOP 97-2 to require recognition of revenue using the "residual method"
in circumstances outlined in the SOP. Under the residual method, revenue is
recognized as follows: (1) the total fair value of undelivered elements, as
indicated by VSOE, is deferred and subsequently recognized in accordance with
the relevant sections of SOP 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.
SOP 98-9 is effective for fiscal years beginning after March 15, 1999. Also
the provisions of SOP 97-2 that were deferred by SOP 98-4 will continue to be
deferred until the date SOP 98-9 becomes effective.
(k) Use of Estimates
Generally accepted accounting principles require management to make estimates
and assumptions that affect the reported amounts of assets, liabilities and
contingencies at the date of the financial statements and the reported amounts
of revenues and expense during the reporting periods. Actual results could
differ from those estimates.
F-9
<PAGE>
DIGIMARC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share data)
(l) Income Taxes
The Company accounts for income taxes under the asset and liability method.
Under the asset and liability method, deferred income taxes reflect the future
tax consequences of differences between the tax bases of assets and liabilities
and their financial reporting amounts at each year-end. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are established when necessary to reduce
tax assets to the amount expected to be realized.
(m) Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations
of credit risk consist primarily of cash and trade receivables. The credit risk
associated with cash is minimal. The Company had accounts receivable from three
customers representing approximately 83% of trade accounts receivable at
December 31, 1998. Loss of or non-performance by these significant customers
could adversely affect the Company's financial position, liquidity or results
of operations.
(n) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and accrued payroll approximate fair value due to the short-
term nature of these instruments. The carrying amounts of capital leases and
notes payable approximate fair value as the stated interest rates reflect
current market rates. 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.
(o) Stock-Based Employee Compensation
The Company adopted SFAS No. 123, Accounting for Stock-Based Compensation,
which permits entities to recognize expense over the vesting period based on
the fair value of all stock-based awards on the date of grant. Alternatively,
SFAS No. 123 also allows entities to continue to apply the provisions of
Accounting Principles Board (APB) Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected to
apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
(p) Contingencies and Factors that Could Affect Future Results
A portion of the Company's revenues each year is generated from licensing of
technology. In the extremely competitive industry environment in which the
Company operates, such product generation, development and marketing processes
are uncertain and complex, requiring accurate prediction of demand as well as
successful management of various development risks inherent in
F-10
<PAGE>
DIGIMARC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share data)
technology development. In light of these dependencies, it is possible that
failure to successfully manage future changes in technology with respect to the
Company's technology could have long-term impact on the Company's growth and
results of operations.
(q) Net Income (Loss) Per Share
In 1997, the Company adopted SFAS No. 128 "Earnings Per Share" which provides
that "basic net income (loss) per share" and "diluted net income (loss) per
share" for all prior periods presented are to be computed using the weighted
average number of common shares outstanding during each period, with diluted
net income per share including the effect of potentially dilutive common
shares.
Common stock equivalents related to stock options of 180,260, 640,857, and
1,327,426 are antidilutive in a net loss year and, therefore, are not included
in 1996, 1997 and 1998 diluted net loss per share, respectively.
(2) Acquisition of Assets
In July 1997, the Company acquired substantially all of the assets of
NetRights, LLC (NetRights) for approximately $417 and 179,000 shares of common
stock. NetRights was developing a software product which would provide direct
access to remote information, initiate direct connections to Web sites and
commerce services and automate communications between suppliers of digitized
creative works and consumers through the digital content pictures themselves.
Assets acquired by the Company included certain office equipment, certain
trademarks and tradenames, and all engineering drawings, designs and
documentation, including patent applications.
The allocation of the purchase price resulted in capitalization of purchased
technology of $453, capitalization of office equipment of $48, and patent and
tradename capitalizations of $95, which are being amortized over three years.
Subsequent to the acquisition a decision was made not to use the purchased
technology, and as a result the purchased technology was considered impaired
and written off.
(3) Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid instruments with an original maturity of three months or less to
be cash equivalents.
Cash and cash equivalents include various money market instruments and
investments in government bonds totaling $125 and $2,137 at December 31, 1997
and 1998, respectively. Cash equivalents are carried at cost, which
approximates market.
F-11
<PAGE>
DIGIMARC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share data)
(4) Property and Equipment
<TABLE>
<CAPTION>
December
31,
-----------
1997 1998
---- -----
<S> <C> <C>
Furniture and fixtures.......................................... $ 38 $ 51
Office equipment................................................ 311 504
Leasehold improvements.......................................... -- 4
---- -----
349 559
Less accumulated depreciation and amortization.................. (98) (230)
---- -----
$251 $ 329
==== =====
</TABLE>
(5) Leases
The Company leases certain office equipment under long-term capital leases,
which expire over the next four years. At December 31, 1997 and 1998, the cost
of these assets was $245 and $447, respectively, and accumulated amortization
was $68 and $168, respectively.
Future minimum lease payments under non-cancelable operating leases and the
present value of future minimum capital lease payments are as follows:
<TABLE>
<CAPTION>
Capital Operating
Year ending December 31: leases leases
------------------------ ------- ---------
<S> <C> <C>
1999....................................................... $156 $107
2000....................................................... 114 73
2001....................................................... 65 --
2002....................................................... 9 --
---- ----
Total minimum lease payments............................. 344 $180
====
Less amount representing interest.......................... 49
----
295
Less current portion of capital lease...................... 124
----
$171
====
</TABLE>
Rent expense on the operating leases for the years ended December 31, 1996,
1997 and 1998 totaled $22, $62 and $71, respectively.
(6) Notes Payable
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
------ ------
<S> <C> <C>
Notes payable to stockholders, net of unamortized discount of
$100 and $86 at December 31, 1997 and 1998, respectively,
interest at 7% beginning in 1998, due and payable May 2005 or
earlier under certain conditions, unsecured.................. $ 284 $ 298
------ ------
284 298
Less current portion.......................................... -- --
------ ------
$ 284 $ 298
====== ======
</TABLE>
F-12
<PAGE>
DIGIMARC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share data)
(7) Short-term Borrowings
The Company has a $400 revolving line of credit with a bank which matures on
August 20, 1999 and is secured by the assets of the Company. The line bears
interest at the prime rate plus 1%. The interest rate on short-term borrowings
during 1997 and 1998 was 11.5% and 8.75%, respectively. At December 31, 1997
and 1998, $400 and $250, respectively, was outstanding on this line. See
note 14.
(8) Defined Contribution Pension Plan
The Company has an employee savings plan (the Plan) which qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Employees become eligible to participate in the Plan after four months of
service. Employees may contribute up to 15% of their pay to the Plan, subject
to the limitations of the Internal Revenue Code. The Company made no
contributions to the Plan during 1996, 1997 or 1998.
(9) Convertible Redeemable Preferred Stock
The Company has authorized several series of convertible redeemable preferred
stock. The title, carrying amount, and number of shares issued and outstanding
are as follows:
<TABLE>
<CAPTION>
December 31,
--------------- September 30,
1997 1998 1999
------- ------- -------------
(unaudited)
<S> <C> <C> <C>
Series B-1, $.001 par value; issued and
outstanding 902,000 shares at December 31,
1997 and 1998; liquidation preference
$4,510...................................... $ 4,441 $ 4,441 $ 4,441
Series B-N, $.001 par value; no shares issued
and outstanding.............................
Series C-1, $.001 par value; issued and
outstanding 2,029,786 shares at December 31,
1997 and 1998; liquidation preference
$5,805...................................... 5,744 5,744 5,744
Series C-N, $.001 par value; no shares issued
and outstanding.............................
Series D, $.001 par value; issued and
outstanding 1,266,000 shares at
September 30, 1999; liquidation preference
$6,330...................................... -- -- 6,281
Series D-X, $.001 par value; issued and
outstanding 160,000 shares at September 30,
1999; liquidation preference $800........... -- -- 800
------- ------- -------
Total convertible redeemable preferred
stock....................................... $10,185 $10,185 $17,266
======= ======= =======
</TABLE>
Preferred Series B and Series C stock is subject to certain mandatory
redemption features following the affirmative vote of at least 60% of the
outstanding shares of the Series B and Series C preferred stock, effective no
earlier than June 30, 2001. The Company shall redeem all of the then
outstanding Series B and Series C preferred stock or an amount determined by
the Company for which funds are available for redemption. The per share
redemption price for the Series B and Series C preferred stock is equal to its
per share issue price, plus any undeclared and unpaid dividends. Each Series B
and Series C preferred stockholder may, but is not obligated to, participate in
the Series B and Series C redemption up to that holder's pro rata share of the
total number of shares specified in the redemption request. See note 10 for
additional features of convertible redeemable preferred stock. See note 14.
F-13
<PAGE>
DIGIMARC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share data)
(10) Stockholders' Equity
(a) Stockholders' Agreement
The Company and its stockholders have an agreement that includes
restrictions on the purchase and sale of the Company's common stock. Except
for expressly provided exceptions, no stockholder is allowed to transfer
ownership of common stock without the prior written consent of the Company. If
a stockholder desires to sell any shares, the stockholder must first offer to
sell those shares to the Company or its designee before offering shares to a
third party. These restrictions lapse upon the effectiveness of a registration
of common stock under the Securities Act of 1933, as amended, and the
consummation of the sale of common stock under that registration statement.
(b) Preferred Stock
The Company has issued Series A-1, Series B-1 and Series C-1 preferred
stock. In addition, the Company is also authorized to issue Series A-N, Series
B-N and Series C-N preferred stock. The terms for each series of preferred
stock are similar and are summarized below:
Dividends
Preferred stockholders are entitled to receive dividends when and if
declared by the Board of Directors at an annual rate of $.25 per share for
Series A-1 and A-N, $.50 per share for Series B-1 and B-N and $.286 per share
for Series C-1 and C-N. The right to receive dividends on preferred stock is
not cumulative and no right to receive dividends shall accrue to holders of
the preferred stock in the event the Board of Directors does not declare
dividends. No dividends may be declared or paid on common stock until equal
dividends on preferred stock have been declared and paid. After payment of all
dividends on preferred stock, the holders of preferred stock are entitled to
participate, on an as-converted basis, with the outstanding common stock as to
any dividends paid on such common stock. As of December 31, 1998, no dividends
had been declared or paid.
Liquidation Preferences
Upon dissolution, liquidation, or winding-up of the affairs of the Company
(Liquidation), either voluntary or involuntary, the preferred stockholders
receive preference over the common stockholders of the Company. The
liquidation value for each outstanding share is $2.50 for Series A-1 and A-N
(Series A), $5.00 for Series B-1 and B-N (Series B) and $2.86 for Series C-1
and C-N (Series C), adjusted for any stock dividends. If upon liquidation the
assets of the Company available for distribution are insufficient to pay the
holders of preferred stock the full preference, then the entire assets and
funds of the Company legally available for distribution to its stockholders
will be distributed ratably among all holders of preferred stock. After paying
the full preference, any assets of the Company remaining available for
distribution to stockholders upon liquidation will be distributed ratably
among all holders of common and preferred stock in proportion to the amount of
common stock each stockholder holds, treating each holder of Series B and
Series C preferred stock as if such stock were converted into common stock at
the existing conversion price. Series A preferred stock automatically converts
to common stock prior to a liquidation, if as a result of the conversion the
consideration per share to be received with respect to the preferred stock
would be
F-14
<PAGE>
DIGIMARC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share data)
larger than the Series A preferred stock preference. The conversion price for
Series A-1, Series B-1 and Series C-1 is $1.25, $2.50 and $2.86, respectively,
at December 31, 1998.
Voting
The holder of each share of each series of preferred stock shall have the
right to the number of votes such holders would be entitled to if the shares of
preferred stock were converted to common stock.
Conversion
Each share of preferred stock is voluntarily convertible into common stock at
any time after the date of issuance at a rate that equals the original issue
price divided by the conversion price at the time in effect, subject to certain
adjustments as set forth in the purchase agreements. Automatic conversion of
the Series A preferred into common stock at the then effective conversion rate
will occur upon the closing and issuance of shares following the effectiveness
of a registration statement under the Securities Act of 1933, or upon the
approval of the conversion by holders of a majority of the originally issued
shares of Series A preferred stock, or approval of the conversion by 67% of the
originally outstanding shares of all series of preferred stock, or in the case
of a liquidation where the consideration per share to be received with respect
to the preferred stock would be larger than the Series A preferred stock
preference. Automatic conversion of the Series B preferred into common stock at
the then effective conversion rate will occur upon the closing of the issuance
shares following the effectiveness of a registration statement under the
Securities Act of 1933 in which the aggregate price to the public equals or
exceeds $10,000 and in which the public offering price per share of common
stock equals or exceeds $10, or on the approval of the conversion by holders of
67% of the outstanding shares of preferred stock. Automatic conversion of the
Series C preferred into common stock at the then effective conversion rate will
occur upon the consummation of a designated initial public offering, or on the
approval of conversion by the holders of 67% of the outstanding shares of
preferred stock.
As of December 31, 1998, the Company has reserved a total of 4,158,786 shares
of its common stock expressly for the conversion privileges of preferred stock.
(c) Stock Incentive Plan
The Company has a Stock Incentive Plan (the Plan). Under the terms of the
Plan, the Board of Directors is authorized to grant incentive stock options,
non-qualified stock options and restricted stock to employees or consultants.
Prices for all options or stock granted under the Plan are determined by the
Board of Directors. Option prices for incentive stock options are set at not
less than the fair market value of the common stock at the date of grant.
Options vest over periods determined by the Board of Directors. Options are
contingent upon continued employment with the Company and, unless otherwise
specified, expire ten years from the date of grant. The Company has reserved
1,800,000 shares of its common stock for issuance under the Plan.
F-15
<PAGE>
DIGIMARC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share data)
SFAS No. 123 "Accounting for Stock-Based Compensation" defines a fair value
based method of accounting for an employee stock option and similar equity
instrument. As is permitted under SFAS No. 123, the Company has elected to
continue to account for its stock-based compensation plans under APB Opinion
No. 25. The Company has computed, for pro forma disclosure purposes, the value
of all options granted during 1996, 1997 and 1998 using the Black-Scholes
option pricing model as prescribed by SFAS No. 123 with the following weighted
average assumption for grants:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate........................ 6.0% 6.25% 6.0%
Expected dividend yield........................ -- -- --
Expected life (in years)....................... 4 4 4
Expected volatility............................ 100% 100% 100%
Using the Black-Scholes methodology, the total value of options granted
during 1996, 1997 and 1998 was $86, $97 and $175, respectively, which would be
amortized on a pro forma basis over the vesting period of the options. The
weighted average fair value of options granted during 1996, 1997 and 1998 was
$.055, $.077 and $.090 per share, respectively. If the Company had accounted
for its stock-based compensation plans in accordance with SFAS No. 123, the
Company's net income (loss) and net income (loss) per share would approximate
the pro forma disclosures below:
<CAPTION>
Years Ended December 31,
----------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net loss....................................... $ (1,578) $(3,979) $(3,442)
Pro forma net loss............................. (1,613) (4,053) (3,552)
Net loss per share............................. (0.71) (1.88) (1.50)
Pro forma net loss per share................... (0.72) (1.91) (1.55)
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
January 1, 1995, and additional awards are anticipated in future years.
F-16
<PAGE>
DIGIMARC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share data)
Transactions involving the Plan are summarized as follows:
<TABLE>
<CAPTION>
Weighted
average
Number of exercise
shares price
--------- --------
<S> <C> <C>
Options outstanding,
December 31, 1995...................................... 147,000 $ .15
Granted................................................. 526,550 .32
Exercised............................................... -- --
Canceled................................................ (96,000) .15
--------- -----
Options outstanding,
December 31, 1996...................................... 577,550 .30
Granted................................................. 416,900 .50
Exercised............................................... (62,600) .22
Canceled................................................ (19,650) .50
--------- -----
Options outstanding,
December 31, 1997...................................... 912,200 .40
Granted................................................. 646,800 .50
Exercised............................................... (33,486) .50
Canceled................................................ (220,714) .50
--------- -----
Options outstanding,
December 31, 1998...................................... 1,304,800 .42
Granted (unaudited)..................................... 1,084,000 1.94
Exercised (unaudited)................................... (84,846) .50
Canceled (unaudited).................................... (47,992) .50
--------- -----
Options outstanding, September 30, 1999 (unaudited)..... 2,255,962 $1.16
========= =====
</TABLE>
At December 31, 1998, the range of exercise prices and the weighted average
remaining contractual life of outstanding options were $.15-$.50 and nine
years, respectively.
At December 31, 1997 and 1998, options to purchase 224,668 and 386,137 shares
of common stock, respectively, were exercisable. The weighted average exercise
price of those options was $.26 and $.30 at December 31, 1997 and 1998,
respectively, and 183,114 shares were available for grant at December 31, 1998.
(11) Income Taxes
The Company incurred a loss for both financial reporting and tax return
purposes and, as such, there was no current or deferred tax provision for the
years ended December 31, 1996, 1997 and 1998.
F-17
<PAGE>
DIGIMARC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share data)
The actual income tax expense differs from the expected tax expense
(computed by applying the U.S. federal corporate income tax rate of 34% to net
income (loss) before income taxes) as follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Computed expected income tax (benefit) expense.............. (34)% (34)% (34)%
Increase (reduction) in income tax
expense (benefit) resulting from:
State income tax (benefit) expense....................... (4) (4) (4)
Increase in valuation allowance........................... 39 39 40
Other..................................................... (1) (1) (2)
--- --- ---
Income tax expense...................................... -- % -- % -- %
=== === ===
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of December
31 are as follows:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 1,865 $ 3,284
Capitalized research and experimentation costs......... 326 238
Tax basis intangible assets, due to differences in
amortization.......................................... 104 82
Research and experimentation credits................... 42 113
Other.................................................. 25 22
------- -------
Total gross deferred tax assets...................... 2,362 3,739
Less valuation allowance................................. (2,314) (3,699)
------- -------
Net deferred tax assets.............................. 48 40
------- -------
Deferred tax liabilities:
Unamortized discount on notes payable.................. 10 33
Plant and equipment, due to differences in
depreciation.......................................... 38 7
------- -------
Total deferred tax liabilities....................... 48 40
------- -------
Net deferred tax liability (asset)................... $ -- $ --
======= =======
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1998 was
approximately $3.7 million. The net change in the total valuation allowance for
the years ended December 31, 1996, 1997 and 1998 was an increase (decrease) of
approximately $896, $1,418 and $1,385, respectively.
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $8,562 to offset against future income for federal and state tax
purposes, and research and experimentation credits of $113. These carryforwards
expire through 2018.
A provision of the Internal Revenue Code requires that the utilization of net
operating losses and research and experimentation credits be limited when there
is a change of more than 50% in ownership of the Company. Such a change
occurred with the sale of preferred stock Series A in June 1996 and the sale of
preferred stock Series B in July 1996. Accordingly, the utilization of the
F-18
<PAGE>
DIGIMARC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share data)
net operating loss carryforwards generated from periods prior to July of 1996
is limited; the amount subject to limitation is approximately $915.
(12) Subsequent Event
(a) Sale of a Trademark
In January 1999, the Company sold the trademark associated with NetRights,
LLC. The sales price approximated the net book value of the trademark. This
transaction is not expected to have a material effect on the financial
position, results of operations or liquidity of the Company.
(b) Stock Split
On November , 1999, the Board of Directors approved a one-for-two reverse
stock split of outstanding common and preferred shares. Common and preferred
share and per share data for all periods presented in the accompanying
financial statements have been adjusted to reflect this stock split.
(13) Segment Information
(a ) Geographic Information
Digimarc derives its revenue from a single operating segment, digital
watermarking applications. Revenue is generated in this segment through
licensing and subscription of its products and the delivery of contracted and
consulting services.
The Company operates solely within the United States, and all assets are
located within the United States. Sales to identifiable foreign customers were
approximately $85, $17 and $89 for the years ended December 31, 1996, 1997 and
1998, respectively.
(b) Major Customers
Revenue from the Company's major customers was as follows:
<TABLE>
<CAPTION>
Nine Months
Ended
Years Ended September 30,
December 31, 1999
-------------- -------------
1996 1997 1998
---- ---- ---- (unaudited)
<S> <C> <C> <C> <C>
Customer A...................................... $ -- $30 $ -- $ --
Customer B...................................... -- 25 503 3,860
Customer C...................................... 100 -- -- --
---- --- ---- ------
$100 $55 $503 $3,860
==== === ==== ======
</TABLE>
No single customer accounted for more than 10% of trade accounts receivable
outstanding at December 31, 1997. The Company had accounts receivable from
three customers representing approximately 83% of trade accounts receivable at
December 31, 1998. Accounts receivable from one customer represented 98% of
trade receivables at September 30, 1999 (unaudited).
F-19
<PAGE>
DIGIMARC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share data)
(14) Unaudited Recent Developments
(a) Issuance of Preferred Stock
On June 30, 1999, the Company authorized 1,400,000 shares of Series D-1
convertible redeemable preferred stock. The terms of the Series D-1 stock are
substantially identical to the Series B-1 and C-1 stock as described in note
10. There were 1,266,000 shares of Series D-1 stock outstanding at
September 30, 1999.
On August 26, 1999, the Company issued 160,000 shares of Series D-X
convertible redeemable preferred stock at $5.00 per share. The terms of the
Series D-X stock are substantially identical to the Series B and C stock as
described in note 10.
(b) Lease Transactions
On June 22, 1999, the Company entered into a five-year operating lease
agreement for office space. The lease requires a letter of credit in lieu of a
cash security deposit in the amount of $350 which was entered into in August
1999. The letter of credit is secured by a certificate of deposit in the amount
of $350. The letter of credit is to be released over two years in increments
upon the Company's meeting certain milestones.
(c) Short-term Borrowings
In August 1999, the Company's bank extended the maturity date on the
Company's revolving line of credit. As a result, the revolving line of credit
currently expires on November 20, 1999.
(d) Stock Incentive Plan
In April 1999, the Company increased the number of common shares reserved for
issuance under the Stock Incentive Plan to 2.8 million shares.
(e) Strategic Partnerships
In October 1999, the Company entered into a binding letter of agreement with
Wired magazine (Wired) in which the Company and Wired will jointly promote
Internet-enabled advertising. Under the agreement the Company has agreed to
provide a non-exclusive license to Wired for MediaBridge, as well as provide
Wired with all reasonable and necessary development tools, training, software
and cameras for it to comply with its obligations under the agreement. Wired
has agreed to remit to the Company a portion of the revenue it receives from
MediaBridge-enabled advertising.
In October 1999, the Company entered into a two-year agreement with Hearst
Communications, Inc. (Hearst) in which the Company and Hearst will jointly
promote Internet-enabled advertising. This agreement will commence at a date
mutually agreed by both parties. In connection with the agreement the Company
issued a warrant to purchase 150,000 shares of common stock to Hearst at an
exercise price per share equal to the initial public offering price or other
equity financing. The warrant is exercisable for a period of three years with
62,500 shares exercisable immediately after
F-20
<PAGE>
DIGIMARC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share data)
the consummation of an initial public offering, 62,500 shares exercisable based
on the achievement of certain milestones and 25,000 shares exercisable upon the
one-year anniversary of the agreement. The Company will record non-cash charges
in their statement of operations for the fair value, as determined by the
Black-Scholes valuation model, when the vesting milestones are achieved and the
warrant becomes exercisable for these shares.
(f) Deferred Stock Compensation
Stock compensation expense is based on the difference between the estimated
fair market value of the Company's common stock and the exercise price of
options to purchase that stock on the date of grant, and is being recognized
over the vesting period of the related options, usually four years. The
estimated fair value per share used to determine unearned compensation was
derived by reference to preferred stock values reduced by a discount factor,
the execution of various contracts and letters of intent, the progress toward
completion of new products, and the estimated price range of the common stock
at the effective date. Stock compensation expense of $121 was recorded for the
nine months ended September 30, 1999. The total unearned compensation recorded
by the Company from inception to September 30, 1999 was $3.6 million.
F-21
<PAGE>
[THE DIGIMARC CORPORATION LOGO WITH IMAGES OF A BANK CARD, A DRIVER'S LICENSE,
AN ACCESS CARD AND A PASSPORT, AND INCLUDING THE FOLLOWING TEXT: "SELF-
AUTHENTICATING IDENTITY DOCUMENTS" AND "COMBAT PHOTO SWAPPING AND DEFEND
AGAINST DOCUMENT ALTERATION."]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[THE DIGIMARC CORPORATION LOGO AND WEB ADDRESS.]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 24, 1999
3,000,000 Shares
Common Stock
Digimarc Corporation is offering 3,000,000 shares of its common stock. This
is our initial public offering and no public market currently exists for our
shares. We have applied to have our common stock quoted on the Nasdaq National
Market under the symbol "DMRC." We anticipate that the initial public offering
price will be between $13.00 and $15.00 per share.
------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 4.
------------
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public Offering Price............................................... $ $
Underwriting Discounts and Commissions.............................. $ $
Proceeds to Digimarc................................................ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
Digimarc has granted the underwriters a 30-day option to purchase up to an
additional 450,000 shares of common stock to cover any over-allotments.
------------
Robertson Stephens International
Hambrecht & Quist
U.S. Bancorp Piper Jaffray
The date of this Prospectus is , 1999.
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Hambrecht & Quist LLC and U.S. Bancorp
Piper Jaffray Inc., have severally agreed with us, subject to the terms and
conditions of the underwriting agreement, to purchase from us the number of
shares of common stock indicated opposite their names below. The underwriters
are committed to purchase and pay for all of the shares if any are purchased.
<TABLE>
<CAPTION>
Number Of
Underwriters Shares
------------ ---------
<S> <C>
BancBoston Robertson Stephens Inc.............................
Hambrecht & Quist LLC.........................................
U.S. Bancorp Piper Jaffray Inc. ..............................
<CAPTION>
International Underwriters
--------------------------
<S> <C>
BancBoston Robertson Stephens International Ltd...............
Hambrecht & Quist LLC.........................................
U.S. Bancorp Piper Jaffray Inc. ..............................
---------
Total....................................................... 3,000,000
=========
</TABLE>
We have been advised that the underwriters propose to offer the shares of
common stock to the public at the public offering price located on the cover
page of this prospectus and to dealers at that price less a concession of not
in excess of $ per share, of which $ may be reallowed to their
dealers. After the initial public offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
reduction in this price will change the amount of proceeds to be received by us
as indicated on the cover page of this prospectus.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 450,000 additional shares of common stock at the same price per
share as we will receive for the 3,000,000 shares that the underwriters have
agreed to purchase. To the extent that the underwriters exercise this option,
each of the underwriters will have a firm commitment to purchase approximately
the same percentage of these additional shares that the number of shares of
common stock to be purchased by it shown in the above table represents as a
percentage of the 3,000,000 shares offered by this prospectus. If purchased,
such additional shares will be sold by the underwriters on the same terms as
those on which the 3,000,000 shares are being sold. We will be obligated, under
this option, to sell shares to the extent the option is exercised. The
underwriters may exercise the option only to cover over-allotments made in
connection with the sale of the shares of common stock offered by this
prospectus.
The following table shows the per share and total underwriting discounts and
commissions to be paid by us to the underwriters. This information is presented
assuming either no exercise or full exercise by the underwriters of their over-
allotment option.
<TABLE>
<CAPTION>
Per Without With
Share Option Option
----- ------- ------
<S> <C> <C> <C>
Public offering price................................. $ $ $
Underwriting discounts and commissions................ $ $ $
Proceeds, before expenses, to us...................... $ $ $
</TABLE>
The other expenses of the offering are estimated at $1,068,000 and are
payable entirely by us. BancBoston Robertson Stephens Inc. expects to deliver
the shares of common stock to purchasers on , 1999.
68
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses to be paid by the Registrant in connection with the distribution
of the securities being registered, other than underwriting discounts and
commissions, are as follows:
<TABLE>
<CAPTION>
Amount*
----------
<S> <C>
Securities and Exchange Commission Filing Fee.................... $ 14,387
NASD Filing Fee.................................................. 4,000
Nasdaq National Market Listing Fee............................... 95,000
Accounting Fees and Expenses..................................... 200,000
Blue Sky Fees and Expenses....................................... 5,000
Legal Fees and Expenses.......................................... 500,000
Transfer Agent and Registrar Fees and Expenses................... 8,000
Printing Expenses................................................ 225,000
Miscellaneous Expenses........................................... 16,455
----------
Total........................................................ $1,067,842
==========
</TABLE>
- --------
* All amounts are estimates except the SEC filing fee, the NASD filing fee and
the Nasdaq National Market listing fee.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to officers,
director and other corporate agents under certain circumstances and subject to
certain limitations. Digimarc's certificate of incorporation and bylaws provide
that Digimarc shall indemnify its directors, officers, employees and agents to
the full extent permitted by Delaware General Corporation Law, including in
circumstances in which indemnification is otherwise discretionary under
Delaware law. In addition, Digimarc intends to enter into separate
indemnification agreements with its directors, officers and certain employees
which would require Digimarc, among other things, to indemnify them against
certain liabilities which may arise by reason of their status as directors,
officers or certain other employees. Digimarc also intends to maintain director
and officer liability insurance, if available on reasonable terms.
These indemnification provisions and the indemnification agreement to be
entered into between Digimarc and its officers and directors may be
sufficiently broad to permit indemnification of Digimarc officers and directors
for liabilities (including reimbursement of expenses incurred) arising under
the Securities Act.
The underwriting agreement, which is Exhibit 1.1 to this registration
statement, provides for indemnification by our underwriters and their officers
and directors for certain liabilities arising under the Securities Act or
otherwise.
Item 15. Recent Sales of Unregistered Securities
Since January 1, 1996, the Registrant has issued and sold the following
unregistered securities:
1. Between January 1, 1996 and October 21, 1999, the Registrant granted
3,033,750 shares of restricted common stock and options to purchase shares
of common stock at prices ranging from $0.15 to $2.50 to employees,
directors and consultants pursuant to its 1995 Stock Incentive Plan. Such
sales were made in reliance on Rule 701 of the Securities Act.
II-1
<PAGE>
2. In May 1996, the Registrant issued an aggregate of 36,369 shares of
its common stock to Alliance Consulting Group, Inc., Hugh Mackworth and
Clay Davidson in exchange for services rendered. Such sales were made in
reliance on Section 4(2) of the Securities Act.
3. In June 1996, the Registrant issued and sold an aggregate of 162,500
shares of its Series A-1 preferred stock to a total of 10 investors for an
aggregate purchase price of $438,730. Such sales were made in reliance on
Section 4(2) of the Securities Act.
4. In July 1996, the Registrant issued and sold an aggregate of 902,000
shares of its Series B-1 preferred stock to a total of seven investors for
an aggregate purchase price of $4,510,000. Such sales were made in reliance
on Section 4(2) of the Securities Act.
5. In July 1997, the Registrant issued an aggregate of 179,000 shares of
its common stock in connection with its acquisition of certain assets of
NetRights, LLC. Such issuance was made in reliance on Section 4(2) of the
Securities Act.
6. In December 1997, the Registrant issued and sold an aggregate of
2,029,786 shares of its Series C-1 preferred stock to a total of 16
investors for an aggregate purchase price of $5,805,189. Such sales were
made in reliance on Section 4(2) of the Securities Act.
7. In January 1998, the Registrant issued an aggregate of 13,572 shares
of its common stock to each of Sandra Kinsler and Daniel Romano in exchange
for the release of certain claims against the Registrant. Such issuances
were made in reliance on Section 4(2) of the Securities Act.
8. In June 1999, the Registrant issued and sold an aggregate of 1,266,000
shares of its Series D preferred stock to a total of 14 investors for an
aggregate purchase price of $6,330,000. Such sales were made in reliance on
Section 4(2) of the Securities Act.
9. In August 1999, the Registrant issued and sold an aggregate of 160,000
shares of its Series D-X preferred stock to a total of 3 investors for an
aggregate purchase price of $800,000. Such sales were made in reliance on
Section 4(2) of the Securities Act.
10. In October 1999, the Registrant issued a warrant to purchase 150,000
shares of its common stock to Hearst Communications, Inc. as part of a
marketing agreement. The warrant was issued in reliance on Section 4(2) of
the Securities Act.
The issuances of the securities in the transactions above were deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2)
of the Securities Act as transactions by an issuer not involving a public
offering, where the purchasers represented their intention to acquire the
securities for investment only and not with a view to distribution and received
or had access to adequate information about the Registrant, or Rule 701
promulgated under the Securities Act as transactions pursuant to a compensatory
benefit plan or a written contract relating to compensation.
Appropriate legends were affixed to the stock certificates issued in the
above transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. No underwriters were employed in any
of the above transactions.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
The exhibits are as set forth in the Exhibit Index.
(b) Financial Statement Schedules
All schedules have been omitted since they are not required or are not
applicable or the required information is shown in the financial statements or
related notes.
Item 17. Undertakings
The Registrant hereby undertakes to provide to the underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Lake Oswego,
State of Oregon, on the 24th day of November 1999.
Digimarc Corporation
/s/ Bruce Davis
By: _________________________________
Bruce Davis
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Bruce Davis President, Chief Executive Officer November 24, 1999
______________________________________ and Director (Principal Executive
(Bruce Davis) Officer)
** Chief Financial Officer (Principal November 24, 1999
______________________________________ Accounting Officer) and Secretary
(E. K. Ranjit)
** Chief Technology Officer November 24, 1999
______________________________________ and Director
(Geoffrey Rhoads)
** Chairman of the Board of Directors November 24, 1999
______________________________________
(Philip Monego, Sr.)
** Director November 24, 1999
______________________________________
(Brian J. Grossi)
** Director November 24, 1999
______________________________________
(John Taysom)
/s/ Bruce Davis
**By: ___________________________
Bruce Davis
(Attorney-in-fact)
</TABLE>
II-4
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Document
------- --------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant
3.2 Bylaws of the Registrant
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Second Amended and Restated Investor Rights Agreement, dated as of
November 2, 1999, between the Registrant and the holders of the
Registrant's preferred stock
4.3 Specimen Stock Certificate of the Registrant
5.1** Opinion of Morrison & Foerster LLP as to the legality of the common
stock
10.1 Form of Indemnification Agreement between the Registrant and each of
its executive officers and directors
10.2* Registrant's 1995 Stock Incentive Plan, as amended
10.3 Registrant's 1999 Stock Incentive Plan, including forms of agreements
thereunder
10.4 Registrant's 1999 Employee Stock Purchase Plan, including forms of
agreements thereunder
10.5* Office Lease Agreement, dated as of April 16, 1998, between the
Registrant and Property Reserve, Inc.
10.6* Sublease, dated as of April 23, 1998, between the Registrant and
Southern Pacific Funding Corporation
10.7* Sublease, dated as of April 27, 1998, between the Registrant and
Southern Pacific Funding Corporation
10.8* Lease Agreement, dated as of June 25, 1999, between the Registrant and
Southplace Associates LLC
10.9*** Counterfeit Deterrence System Development and License Agreement, dated
as of January 1, 1999
23.1 Consent of Morrison & Foerster LLP. Reference is made to Exhibit 5.1
23.2 Consent of KPMG LLP, Independent Certified Public Accountants
24.1* Powers of Attorney
27.1* Financial Data Schedule
</TABLE>
- --------
* Previously filed
** To be filed by amendment
*** Confidential treatment has been requested with regard to certain portions
of this document. Such portions have been omitted from this filing and
have been filed separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 1.1
Underwriting Agreement
December __, 1999
BancBoston Robertson Stephens Inc.
Hambrecht & Quist LLC
U.S. Bancorp Piper Jaffray Inc.
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
As Representative of the several Underwriters
Ladies and Gentlemen:
Introductory. Digimarc Corporation, a Delaware corporation (the
"Company), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of __________ shares (the "Firm
- ----------
Shares") of its Common Stock, par value $0.001 per share (the "Common Shares").
In addition, the Company has granted to the Underwriters an option to purchase
up to an additional __________ Common Shares (the "Option Shares") as provided
in Section 2. The Firm Shares and, if and to the extent such option is
exercised, the Option Shares are collectively called the "Shares". BancBoston
Robertson Stephens Inc., Hambrecht & Quist LLC and U.S. Bancorp Piper Jaffray
Inc., have agreed to act as representatives of the several Underwriters (in such
capacity, the "Representatives") in connection with the offering and sale of the
Shares.
The Company has prepared and filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-1 (File No. 333-87501),
which contains a form of prospectus to be used in connection with the public
offering and sale of the Shares. Such registration statement, as amended,
including the financial statements, exhibits and schedules thereto, in the form
in which it was declared effective by the Commission under the Securities Act of
1933 and the rules and regulations promulgated thereunder (collectively, the
"Securities Act"), including any information deemed to be a part thereof at the
time of effectiveness pursuant to Rule 430A or Rule 434 under the Securities
Act, is called the "Registration Statement". Any registration statement filed
by the Company pursuant to Rule 462(b) under the Securities Act is called the
"Rule 462(b) Registration Statement", and from and after the date and time of
filing of the Rule 462(b) Registration Statement the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. Such
prospectus, in the form first used by the Underwriters to confirm sales of the
Shares, is called the "Prospectus"; provided, however, if the Company has, with
the consent of BancBoston Robertson Stephens Inc., elected to rely upon Rule 434
under the Securities Act, the
<PAGE>
term "Prospectus" shall mean the Company's prospectus subject to completion
(each, a "preliminary prospectus") dated November 1, 1999 (such preliminary
prospectus is called the "Rule 434 preliminary prospectus"), together with the
applicable term sheet (the "Term Sheet") prepared and filed by the Company with
the Commission under Rules 434 and 424(b) under the Securities Act and all
references in this Agreement to the date of the Prospectus shall mean the date
of the Term Sheet. All references in this Agreement to the Registration
Statement, the Rule 462(b) Registration Statement, a preliminary prospectus, the
Prospectus or the Term Sheet, or any amendments or supplements to any of the
foregoing, shall include any copy thereof filed with the Commission pursuant to
its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR").
The Company hereby confirms its agreements with the Underwriters as
follows:
Section 1. Representations and Warranties of the Company.
The Company hereby represents, warrants and covenants to each
Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration Statement
and any Rule 462(b) Registration Statement have been declared effective by the
Commission under the Securities Act. The Company has complied to the
Commission's satisfaction with all requests of the Commission for additional or
supplemental information. No stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration Statement is in effect
and no proceedings for such purpose have been instituted or are pending or, to
the best knowledge of the Company, are contemplated or threatened by the
Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Shares. Each
of the Registration Statement, any Rule 462(b) Registration Statement and any
post-effective amendment thereto, at the time it became effective and at all
subsequent times, complied and will comply in all material respects with the
Securities Act and did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus, as
amended or supplemented, as of its date and at all subsequent times, did not and
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representatives expressly
for use therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
-2-
<PAGE>
(b) Offering Materials Furnished to Underwriters. The Company has delivered
to the Representatives four complete conformed copies of the Registration
Statement and of each consent and certificate of experts filed as a part
thereof, and conformed copies of the Registration Statement (without exhibits)
and preliminary prospectuses and the Prospectus, as amended or supplemented, in
such quantities and at such places as the Representatives have reasonably
requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company has not
distributed and will not distribute, prior to the later of the Second Closing
Date (as defined below) and the completion of the Underwriters' distribution of
the Shares, any offering material in connection with the offering and sale of
the Shares other than a preliminary prospectus, the Prospectus or the
Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.
(e) Authorization of the Shares To Be Sold by the Company. The Shares to be
purchased by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have been
duly waived.
(g) No Material Adverse Change. Subsequent to the respective dates as of
which information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to result
in a material adverse change, in the condition, financial or otherwise, or in
the earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company (any such change
or effect, where the context so requires, is called a "Material Adverse Change"
or a "Material Adverse Effect"); (ii) the Company has not incurred any material
liability or obligation not in the ordinary course of business nor entered into
any material transaction or agreement not in the ordinary course of business;
and (iii) there has been no dividend or distribution of any kind declared, paid
or made by the Company on any class of capital stock or repurchase or redemption
by the Company of any class of capital stock.
(h) Independent Accountants. KPMG LLP, who have expressed their opinion
with respect to the financial statements (which term as used in this Agreement
includes the related notes thereto)
-3-
<PAGE>
filed with the Commission as a part of the Registration Statement and included
in the Prospectus, are independent public or certified public accountants within
the meaning of by the Securities Act.
(i) Preparation of the Financial Statements. The financial statements filed
with the Commission as a part of the Registration Statement and included in the
Prospectus present fairly the consolidated financial position of the Company as
of and at the dates indicated and the results of their operations and cash flows
for the periods specified. Such financial statements have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the periods involved, except as may be expressly stated in the
related notes thereto. No other financial statements or supporting schedules are
required to be included in the Registration Statement. The financial data set
forth in the Prospectus under the captions "Prospectus Summary--Summary Selected
Financial Data", "Selected Financial Data" and "Capitalization" fairly present
the information set forth therein on a basis consistent with that of the audited
financial statements contained in the Registration Statement.
(j) Company's Accounting System. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(k) Subsidiaries of the Company. The Company does not own or control,
directly or indirectly, any corporation, association or other entity.
(l) Incorporation and Good Standing of the Company. The Company has been
duly organized and is validly existing as a corporation in good standing under
the laws of the jurisdiction in which it is organized with full corporate power
and authority to own its properties and conduct its business as described in the
prospectus, and is duly qualified to do business as a foreign corporation and is
in good standing under the laws of each jurisdiction which requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a Material Adverse Effect (as defined below).
(m) Capitalization and Other Capital Stock Matters. The authorized, issued
and outstanding capital stock of the Company is as set forth in the Prospectus
under the caption "Capitalization" (other than for subsequent issuances, if any,
pursuant to employee benefit plans described in the Prospectus or upon exercise
of outstanding options described in the Prospectus). The Common Shares
(including the Shares) conform in all material respects to the description
thereof contained in the Prospectus. All of the issued and outstanding Common
Shares have been duly authorized and validly issued, fully paid and
nonassessable and have been issued in compliance with federal and state
securities laws. None of the outstanding Common Shares were issued in violation
of any preemptive rights, rights of first refusal or other similar rights to
subscribe for or purchase securities
-4-
<PAGE>
of the Company. There are no authorized or outstanding options, warrants,
preemptive rights, rights of first refusal or other rights to purchase, or
equity or debt securities convertible into or exchangeable or exercisable for,
any capital stock of the Company other than those accurately described in the
Prospectus. The description of the Company's stock option, stock bonus and other
stock plans or arrangements, and the options or other rights granted thereunder,
set forth in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.
(n) Stock Exchange Listing. The Shares have been approved for inclusion on
the Nasdaq National Market, subject only to official notice of issuance.
(o) No Consents, Approvals or Authorizations Required. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and such as may be required (i) under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Shares by
the Underwriters in the manner contemplated here and in the Prospectus, (ii) by
the National Association of Securities Dealers, LLC and (iii) by the federal and
provincial laws of Canada.
(p) Non-Contravention of Existing Instruments Agreements. Neither the issue
and sale of the Shares nor the consummation of any other of the transactions
herein contemplated nor the fulfillment of the terms hereof will conflict with,
result in a breach or violation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company pursuant to, (i) the charter or by-
laws of the Company (ii) the terms of any indenture, contract, lease, mortgage,
deed of trust, note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument to which the Company is a party or bound or to
which its property is subject or (iii) any statute, law, rule, regulation,
judgment, order or decree applicable to the Company of any court, regulatory
body, administrative agency, governmental body, arbitrator or other authority
having jurisdiction over the Company or any of its properties.
(q) No Defaults or Violations. The Company is not in violation or default
of (i) any provision of its charter or by-laws, (ii) the terms of any indenture,
contract, lease, mortgage, deed of trust, note agreement, loan agreement or
other agreement, obligation, condition, covenant or instrument to which it is a
party or bound or to which its property is subject or (iii) any statute, law,
rule, regulation, judgment, order or decree of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or any of its properties, as applicable, except
any such violation or default which would not, singly or in the aggregate,
result in a Material Adverse Change except as otherwise disclosed in the
Prospectus.
(r) No Actions, Suits or Proceedings. No action, suit or proceeding by or
before any court or governmental agency, authority or body or any arbitrator
involving the Company or its property is pending or, to the best knowledge of
the Company, threatened that (i) could reasonably be expected to prevent the
consummation of any of the transactions contemplated hereby or (ii) could
reasonably be expected to result in a Material Adverse Effect.
-5-
<PAGE>
(s) All Necessary Permits, Etc. The Company possesses such valid and
current certificates, authorizations or permits issued by the appropriate state,
federal or foreign regulatory agencies or bodies necessary to conduct their
respective businesses, and the Company has not received any notice of
proceedings relating to the revocation or modification of, or non-compliance
with, any such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, could
result in a Material Adverse Change.
(t) Title to Properties. The Company has good and marketable title to all
the properties and assets reflected as owned in the financial statements
referred to in Section 1(i) above, in each case free and clear of any security
interests, mortgages, liens, encumbrances, equities, claims and other defects,
except such as do not materially and adversely affect the value of such property
and do not materially interfere with the use made or proposed to be made of such
property by the Company. The real property, improvements, equipment and personal
property held under lease by the Company are held under valid and enforceable
leases, with such exceptions as are not material and do not materially interfere
with the use made or proposed to be made of such real property, improvements,
equipment or personal property by the Company.
(u) Tax Law Compliance. The Company has filed all necessary federal, state
and foreign income and franchise tax returns, or has properly requested
extensions thereof, and has paid all taxes required to be paid by it and, if due
and payable, any related or similar assessment, fine or penalty levied against
it. The Company has made adequate charges, accruals and reserves in the
applicable financial statements referred to in Section 1(i) above in respect of
all federal, state and foreign income and franchise taxes for all periods as to
which the tax liability of the Company has not been finally determined. The
Company is not aware of any tax deficiency that has been or might be asserted or
threatened against the Company that could result in a Material Adverse Change.
(v) Intellectual Property Rights. Except as disclosed in the Prospectus,
the Company owns or possesses adequate rights to use all patents, patent rights
or licenses, inventions, collaborative research agreements, trade secrets, know-
how, trademarks, service marks, trade names and copyrights which are necessary
to conduct its businesses as described in the Registration Statement and
Prospectus; the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not result in a
Material Adverse Change that is not otherwise disclosed in the Prospectus; the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of the Company by others with
respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights; and the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names or
copyrights which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, might have a Material Adverse Change. Except as
disclosed in the Prospectus, there is no claim being made against the Company
regarding patents, patent rights or licenses, inventions, collaborative
research, trade secrets, know-how, trademarks, service marks, trade names or
copyrights. The Company does not in the conduct of their business as now or
proposed to be conducted as described in the Prospectus infringe or conflict
with any right or patent of any third party, or any discovery,
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<PAGE>
invention, product or process which is the subject of a patent application filed
by any third party, known to the Company, which such infringement or conflict is
reasonably likely to result in a Material Adverse Change.
(w) Year 2000 Preparedness. There are no issues related to the Company's
preparedness for the Year 2000 that (i) are of a character required to be
described or referred to in the Registration Statement or Prospectus by the
Securities Act which have not been accurately described in the Registration
Statement or Prospectus or (ii) might reasonably be expected to result in any
Material Adverse Change or that might materially affect their properties, assets
or rights. The Company has inquired of material vendors as to their preparedness
for the Year 2000 and has disclosed in the Registration Statement or Prospectus
any issues that might reasonably be expected to result in any Material Adverse
Change.
(x) No Transfer Taxes or Other Fees. There are no transfer taxes or other
similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the shares.
(y) Company Not an "Investment Company." The Company has been advised of
the rules and requirements under the Investment Company Act of 1940, as amended
(the "Investment Company Act"). The Company is not, and after receipt of payment
for the Shares will not be, an "investment company" or an entity "controlled" by
an "investment company" within the meaning of the Investment Company Act and
will conduct its business in a manner so that it will not become subject to the
Investment Company Act.
(z) Insurance. The Company is insured by recognized, financially sound and
reputable institutions with policies in such amounts and with such deductibles
and covering such risks as are generally deemed adequate and customary for their
businesses including, but not limited to, policies covering real and personal
property owned or leased by the Company against theft, damage, destruction, acts
of vandalism and earthquakes, general liability and Directors and Officers
liability. The Company has no reason to believe that it will not be able (i) to
renew its existing insurance coverage as and when such policies expire or (ii)
to obtain comparable coverage from similar institutions as may be necessary or
appropriate to conduct its business as now conducted and at a cost that would
not result in a Material Adverse Change. The Company has not been denied any
insurance coverage which it has sought or for which it has applied.
(aa) Labor Matters. To the best of Company's knowledge, no labor
disturbance by the employees of the Company exists or is imminent; and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, subassemblers, value added
resellers, subcontractors, original equipment manufacturers, authorized dealers
or international distributors that might be expected to result in a Material
Adverse Change.
(bb) No Price Stabilization or Manipulation. The Company has not taken and
will not take, directly or indirectly, any action designed to or that might be
reasonably expected to cause or
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<PAGE>
result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(cc) Lock-Up Agreements. Each officer and director of the Company and each
beneficial owner of capital of the Company has agreed to sign an agreement
substantially in the form attached hereto as Exhibit A (the "Lock-up
---------
Agreements"). The Company has provided to counsel for the Underwriters a
complete and accurate list of all securityholders of the Company and the number
and type of securities held by each securityholder. The Company has provided to
counsel for the Underwriters true, accurate and complete copies of all of the
Lock-up Agreements presently in effect or effected hereby. The Company hereby
represents and warrants that it will not release any of its officers, directors
or other stockholders from any Lock-up Agreements currently existing or
hereafter effected without the prior written consent of BancBoston Robertson
Stephens Inc.
(dd) Related Party Transactions. To the best of the Company's knowledge,
there are no business relationships or related-party transactions involving the
Company or any other person required to be described in the Prospectus which
have not been described as required.
Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
SECTION 2. Purchase, Sale and Delivery of the Shares.
(a) The Firm Shares. The Company agrees to issue and sell to the several
Underwriters the Firm Shares upon the terms herein set forth. On the basis of
the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company the respective number of
Firm Shares set forth opposite their names on Schedule A. The purchase price
----------
per Firm Share to be paid by the several Underwriters to the Company shall be
$___ per share.
(b) The First Closing Date. Delivery of the Firm Shares to be purchased by
the Underwriters and payment therefor shall be made by the Company and the
Representatives at 6:00 a.m. San Francisco time, at the offices of Morrison &
Foerster LLP (or at such other place as may be agreed upon among the
Representatives and the Company), (i) on the third (3rd) full business day
following the first day that Shares are traded, (ii) if this Agreement is
executed and delivered after 1:30 P.M., San Francisco time, the fourth (4th)
full business day following the day that this Agreement is executed and
delivered or (iii) at such other time and date not later that seven (7) full
business days following the first day that Shares are traded as the
Representatives and the Company may determine (or at such time and date to which
payment and delivery shall have been postponed pursuant to Section 8 hereof),
such time and date of payment and delivery being herein called the "Closing
Date;" provided, however, that if the Company has not made available to the
Representatives copies of the Prospectus within the time provided in Section
4(d) hereof, the Representatives may, in their sole discretion, postpone the
Closing Date until no later that two (2) full business days following delivery
of copies of the Prospectus to the Representatives.
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<PAGE>
(c) The Option Shares; the Second Closing Date. In addition, on the basis
of the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Company hereby grants
an option to the several Underwriters to purchase, severally and not jointly, up
to an aggregate of __________ Option Shares from the Company at the purchase
price per share to be paid by the Underwriters for the Firm Shares. The option
granted hereunder is for use by the Underwriters solely in covering any over-
allotments in connection with the sale and distribution of the Firm Shares. The
option granted hereunder may be exercised at any time upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. The time and date of delivery of the
Option Shares, if subsequent to the First Closing Date, is called the "Second
Closing Date" and shall be determined by the Representatives and shall not be
earlier than three nor later than five full business days after delivery of such
notice of exercise. If any Option Shares are to be purchased, (i) each
Underwriter agrees, severally and not jointly, to purchase the number of Option
Shares (subject to such adjustments to eliminate fractional shares as the
Representatives may determine) that bears the same proportion to the total
number of Option Shares to be purchased as the number of Firm Shares set forth
on Schedule A opposite the name of such Underwriter bears to the total number of
----------
Firm Shares. The Representatives may cancel the option at any time prior to its
expiration by giving written notice of such cancellation to the Company.
(d) Public Offering of the Shares. The Representatives hereby advise the
Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Shares as soon
after this Agreement has been executed and the Registration Statement has been
declared effective as the Representatives, in their sole judgment, has
determined is advisable and practicable.
(e) Payment for the Shares. Payment for the Shares shall be made at the
First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer in immediately available-funds to the order of the Company.
It is understood that the Representatives have been authorized, for
its own account and the accounts of the several Underwriters, to accept delivery
of and receipt for, and make payment of the purchase price for, the Firm Shares
and any Option Shares the Underwriters have agreed to purchase. BancBoston
Robertson Stephens Inc., individually and not as the Representative of the
Underwriters, may (but shall not be obligated to) make payment for any Shares to
be purchased by any Underwriter whose funds shall not have been received by the
Representatives by the First Closing Date or the Second Closing Date, as the
case may be, for the account of such Underwriter, but any such payment shall not
relieve such Underwriter from any of its obligations under this Agreement.
(f) Delivery of the Shares. The Company shall deliver, or cause to be
delivered, a credit representing the Firm Shares to an account or accounts at
The Depository Trust Company, as designated by the Representatives for the
accounts of the Representatives and the several Underwriters at the First
Closing Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company
shall also
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<PAGE>
deliver, or cause to be delivered a credit representing the Option Shares the
Underwriters have agreed to purchase at the First Closing Date (or the Second
Closing Date, as the case may be), to an account or accounts at The Depository
Trust Company as designated by the Representatives for the accounts of the
Representatives and the several Underwriters, against the irrevocable release of
a wire transfer of immediately available funds for the amount of the purchase
price therefor. Time shall be of the essence, and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00 noon
on the second business day following the date the Shares are released by the
Underwriters for sale to the public, the Company shall deliver or cause to be
delivered copies of the Prospectus in such quantities and at such places as the
Representatives shall request.
SECTION 3. Covenants of the Company.
The Company further covenants and agrees with each Underwriter as follows:
(a) Registration Statement Matters. The Company will (i) use its best
efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the Securities Exchange Act of 1934 (the
"Exchange Act") to become effective simultaneously with the Registration
Statement, (ii) use its best efforts to cause the Registration Statement to
become effective or, if the procedure in Rule 430A of the Securities Act is
followed, to prepare and timely file with the Commission under Rule 424(b) under
the Securities Act a Prospectus in a form approved by the Representatives
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Securities Act and (iii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representatives shall not previously have been advised
and furnished with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance with the Securities Act. If
the Company elects to rely on Rule 462(b) under the Securities Act, the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) under the Securities Act prior to the time
confirmations are sent or given, as specified by Rule 462(b)(2) under the
Securities Act, and shall pay the applicable fees in accordance with Rule 111
under the Securities Act.
(b) Securities Act Compliance. The Company will advise the Representatives
promptly (i) when the Registration Statement or any post-effective amendment
thereto shall have become effective, (ii) of receipt of any comments from the
Commission, (iii) of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any additional
information and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use of the
Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.
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<PAGE>
(c) Blue Sky Compliance. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Shares for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) Amendments and Supplements to the Prospectus and Other Securities Act
Matters. The Company will comply with the Securities Act and the Exchange Act,
and the rules and regulations of the Commission thereunder, so as to permit the
completion of the distribution of the Shares as contemplated in this Agreement
and the Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which, in the judgment of the Company or in the reasonable opinion of
the Representatives or counsel for the Underwriters, it becomes necessary to
amend or supplement the Prospectus in order to make the statements therein, in
the light of the circumstances existing at the time the Prospectus is delivered
to a purchaser, not misleading, or, if it is necessary at any time to amend or
supplement the Prospectus to comply with any law, the Company promptly will
prepare and file with the Commission, and furnish at its own expense to the
Underwriters and to dealers, an appropriate amendment to the Registration
Statement or supplement to the Prospectus so that the Prospectus as so amended
or supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.
(e) Copies of any Amendments and Supplements to the Prospectus. The Company
agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date, as in the opinion of counsel for the Underwriters, the Prospectus
is no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), as many copies of the
Prospectus and any amendments and supplements thereto as the Representatives may
request.
(f) Insurance. The Company shall (i) obtain Directors and Officers
liability insurance in the minimum amount of $10 million which shall apply to
the offering contemplated hereby.
(g) Notice of Subsequent Events. If at any time during the ninety (90) day
period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Company Shares has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
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<PAGE>
(h) Use of Proceeds. The Company shall apply the net proceeds from the sale
of the Shares sold by it substantially in the manner described under the caption
"Use of Proceeds" in the Prospectus.
(i) Transfer Agent. The Company shall engage and maintain, at its expense,
a registrar and transfer agent for the Company Shares.
(j) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending December 31, 2000 that satisfies the provisions of Section 11(a) of the
Securities Act.
(k) Periodic Reporting Obligations. During the Prospectus Delivery Period
the Company shall file, on a timely basis, with the Commission and the Nasdaq
National Market all reports and documents required to be filed under the
Exchange Act.
(l) Agreement Not to Offer or Sell Additional Securities. The Company will
not, without the prior written consent of BancBoston Robertson Stephens Inc.,
for a period of 180 days following the date of the Prospectus, offer, sell or
contract to sell, or otherwise dispose of or enter into any transaction which is
designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, or announce the offering of, any other Common Shares or any
securities convertible into, or exchangeable for, Common Shares; provided,
however, that (i) the Company may issue and sell Common Shares pursuant to any
director or employee stock option plan, stock ownership plan or dividend
reinvestment plan of the Company in effect at the date of the Prospectus and
described in the Prospectus so long as none of those shares may be transferred
on during the period of 180 days from the date that the Registration Statement
is declared effective (the "Lock-Up Period") and the Company shall enter stop
transfer instructions with its transfer agent and registrar against the transfer
of any such Common Shares and (ii) the Company may issue Common Shares issuable
upon the conversion of securities or the exercise of warrants outstanding at the
date of the Prospectus and described in the Prospectus, and (iii) the Company
may issue Common Shares (or securities convertible into, or exchangeable for,
Common Shares) in connection with the formation or furtherance of a strategic
alliance so long as none of those shares may be transferred on during the Lock-
Up Period.
(m) Future Reports to the Representatives. During the period of three years
hereafter the Company will furnish to the Representatives as soon as available,
copies of any report or communication of the Company mailed generally to holders
of its capital stock.
Section 4. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
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<PAGE>
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company set forth in Section 1
hereof as of the date hereof and as of the First Closing Date as though then
made and, with respect to the Option Shares, as of the Second Closing Date as
though then made, to the timely performance by the Company of its covenants and
other obligations hereunder, and to each of the following additional conditions:
(a) Compliance with Registration Requirements; No Stop Order; No Objection
from the National Association of Securities Dealers, LLC. The Registration
Statement shall have become effective prior to the execution of this Agreement,
or at such later date as shall be consented to in writing by you; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company or any Underwriter, threatened by the Commission, and any request of
the Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with to the
satisfaction of Underwriters' Counsel; and the National Association of
Securities Dealers, LLC shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(b) Corporate Proceedings. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to Underwriters'
Counsel, and such counsel shall have been furnished with such papers and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this Section.
(c) No Material Adverse Change. Subsequent to the execution and delivery of
this Agreement and prior to the First Closing Date, or the Second Closing Date,
as the case may be, there shall not have been any Material Adverse Change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company considered as one enterprise from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus.
(d) Opinion of Counsel for the Company. You shall have received on the
First Closing Date, or the Second Closing Date, as the case may be, an opinion
of Morrison & Foerster LLP, counsel for the Company, substantially in the form
of Exhibit B attached hereto, dated the First Closing Date, or the Second
---------
Closing Date, addressed to the Underwriters and with reproduced copies or signed
counterparts thereof for each of the Underwriters.
Counsel rendering the opinion contained in Exhibit B may rely as to
---------
questions of law not involving the laws of the United States or the State of
California upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, and of government
officials, in which case their opinion is to state that they are so relying and
that they have no knowledge of any material misstatement or inaccuracy in any
such opinion, representation or certificate. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
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<PAGE>
(e) Opinion of Counsel for the Underwriters. You shall have received on
the First Closing Date or the Second Closing Date, as the case may be, an
opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
substantially in the form of Exhibit C hereto. The Company shall have furnished
---------
to such counsel such documents as they may have requested for the purpose of
enabling them to pass upon such matters.
(f) Accountants' Comfort Letter. You shall have received on the First
Closing Date and on the Second Closing Date, as the case may be, a letter from
KPMG LLP addressed to the Underwriters, dated the First Closing Date or the
Second Closing Date, as the case may be, confirming that they are independent
certified public accountants with respect to the Company within the meaning of
the Act and the applicable published Rules and Regulations and based upon the
procedures described in such letter delivered to you concurrently with the
execution of this Agreement (herein called the "Original Letter"), but carried
out to a date not more than four (4) business days prior to the First Closing
Date or the Second Closing Date, as the case may be, (i) confirming, to the
extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the First Closing Date or the Second Closing Date, as
the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of such letter, or to reflect the availability of more recent financial
statements, data or information. The letter shall not disclose any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse and that makes
it, in your sole judgment, impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. The Original
Letter from KPMG LLP shall be addressed to or for the use of the Underwriters in
form and substance satisfactory to the Underwriters and shall (i) represent, to
the extent true, that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations, (ii) set forth their opinion with respect to
their examination of the consolidated balance sheet of the Company as of
[December 31, 1998] and related consolidated statements of operations,
shareholders' equity, and cash flows for the twelve (12) months ended [December
31, 1998], (iii) state that KPMG LLP has performed the procedures set out in
Statement on Auditing Standards No. 71 ("SAS 71") for a review of interim
financial information and providing the report of KPMG LLP as described in SAS
71 on the financial statements for each of the quarters in the ten-quarter
period ended June 30, 1999 (the "Quarterly Financial Statements"), (iv) state
that in the course of such review, nothing came to their attention that leads
them to believe that any material modifications need to be made to any of the
Quarterly Financial Statements in order for them to be in compliance with
generally accepted accounting principles consistently applied across the periods
presented, and address other matters agreed upon by KPMG LLP and you. In
addition, you shall have received from KPMG LLP a letter addressed to the
Company and made available to you for the use of the Underwriters stating that
their review of the Company's system of internal accounting controls, to the
extent they deemed necessary in establishing the scope of their examination of
the Company's consolidated financial statements as of December 31, 1998 did not
disclose any weaknesses in internal controls that they considered to be material
weaknesses.
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<PAGE>
(g) Officers' Certificate. You shall have received on the First Closing
Date and the Second Closing Date, as the case may be, a certificate of the
Company, dated the First Closing Date or the Second Closing Date, as the case
may be, signed by the Chief Executive Officer and Chief Financial Officer of the
Company, to the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the First Closing
Date or the Second Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to the First Closing Date or
the Second Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate, the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
contained all material information required to be included therein by the
Securities Act and the applicable rules and regulations of the Commission
thereunder and in all material respects conformed to the requirements of
the Securities Act and the applicable rules and regulations of the
Commission thereunder, the Registration Statement and the Prospectus, and
any amendments or supplements thereto, did not and do not include any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (a)
any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company, (b)
any transaction that is material to the Company, except transactions
entered into in the ordinary course of business, (c) any obligation, direct
or contingent, that is material to the Company, incurred by the Company,
except obligations incurred in the ordinary course of business, (d) any
change in the capital stock or outstanding indebtedness of the Company that
is material to the Company, (e) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company, or (f) any loss
or damage (whether or not insured) to the property of the Company which has
been sustained or will have been sustained which has a material adverse
effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company.
(h) Lock-up Agreement from Certain Stockholders of the Company. The
Company shall have obtained and delivered to you an agreement substantially in
the form of Exhibit A attached hereto from each officer and director of the
---------
Company and each beneficial owner of the outstanding issued share capital of the
Company.
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(i) Stock Exchange Listing. The Shares shall have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(j) Compliance with Prospectus Delivery Requirements. The Company shall
have complied with the provisions of Sections 2(g) and 3(e) hereof with respect
to the furnishing of Prospectuses.
(k) Additional Documents. On or before each of the First Closing Date and
the Second Closing Date, as the case may be, the Representatives and counsel for
the Underwriters shall have received such information, documents and opinions as
they may reasonably require for the purposes of enabling them to pass upon the
issuance and sale of the Shares as contemplated herein, or in order to evidence
the accuracy of any of the representations and warranties, or the satisfaction
of any of the conditions or agreements, herein contained.
If any condition specified in this Section 4 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Option Shares, at any time prior to the
Second Closing Date, which termination shall be without liability on the part of
any party to any other party, except that Section 5 (Payment of Expenses),
Section 6 (Reimbursement of Underwriters' Expenses), Section 7 (Indemnification
and Contribution) and Section 10 (Representations and Indemnities to Survive
Delivery) shall at all times be effective and shall survive such termination.
Section 5. Payment of Expenses. The Company agrees to pay all costs, fees
and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Shares to the Underwriters, (iv) all fees and expenses of the
Company's counsel, independent public or certified public accountants and other
advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Shares for offer and
sale under the state securities or blue sky laws or the provincial securities
laws of Canada or any other country, and, if requested by the Representatives,
preparing and printing a "Blue Sky Survey", an "International Blue Sky Survey"
or other memorandum, and any supplements thereto, advising the Underwriters of
such qualifications, registrations and exemptions, (vii) the filing fees
incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the National Association of Securities Dealers,
LLC review and approval of the Underwriters' participation in the offering and
distribution of the Common Shares, (viii) the fees and expenses associated with
including the Common Shares on the Nasdaq National Market, (ix) all costs and
expenses incident to the preparation and undertaking of
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"road show" preparations to be made to prospective investors, and (x) all other
fees, costs and expenses referred to in Item 13 of Part II of the Registration
Statement. Except as provided in this Section 5, Section 6, and Section 7
hereof, the Underwriters shall pay their own expenses, including the fees and
disbursements of their counsel.
Section 6. Reimbursement of Underwriters' Expenses. If this Agreement is
terminated by the Representatives pursuant to Section 4, Section 7, Section 8,
Section 9, or if the sale to the Underwriters of the Shares on the First Closing
Date is not consummated because of any refusal, inability or failure on the part
of the Company to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse the Representatives and the other
Underwriters (or such Underwriters as have terminated this Agreement with
respect to themselves), severally, upon demand for all out-of-pocket expenses
that shall have been reasonably incurred by the Representatives and the
Underwriters in connection with the proposed purchase and the offering and sale
of the Shares, including but not limited to fees and disbursements of counsel,
printing expenses, travel expenses, postage, facsimile and telephone charges.
Section 7. Indemnification and Contribution.
(a) Indemnification of the Underwriters.
The Company agrees to indemnify and hold harmless each Underwriter,
its officers and employees, and each person, if any, who controls any
Underwriter within the meaning of the Securities Act and the Exchange Act
against any loss, claim, damage, liability or expense, as incurred, to which
such Underwriter or such controlling person may become subject, under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company, which consent shall not be unreasonably withheld), insofar as such
loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based (i) upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, or any amendment thereto, including any information deemed to be a
part thereof pursuant to Rule 430A or Rule 434 under the Securities Act, or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading; or (ii) upon
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; or (iii) in whole or
in part upon any inaccuracy in the representations and warranties of the Company
contained herein; or (iv) in whole or in part upon any failure of the Company to
perform its obligations hereunder or under law; or (v) any act or failure to act
or any alleged act or failure to act by any Underwriter in connection with, or
relating in any manner to, the Shares or the offering contemplated hereby, and
which is included as part of or referred to in any loss, claim, damage,
liability or action arising out of or based upon any matter covered by clause
(i), (ii), (iii) or (iv) above, provided that the Company shall not be liable
under this clause (v) to the extent that a court of competent jurisdiction shall
have determined by a final judgment that such loss,
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claim, damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter through
its bad faith or willful misconduct; and to reimburse each Underwriter and each
such controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by BancBoston Robertson Stephens Inc.) as such
expenses are reasonably incurred by such Underwriter or such controlling person
in connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action; provided, however,
that the foregoing indemnity agreement shall not apply to any loss, claim,
damage, liability or expense to the extent, but only to the extent, arising out
of or based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Representatives expressly for use in
the Registration Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto); and provided, further, that with respect to
any preliminary prospectus, the foregoing indemnity agreement shall not inure to
the benefit of any Underwriter from whom the person asserting any loss, claim,
damage, liability or expense purchased Shares, or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. The indemnity agreement
set forth in this Section 7(a) shall be in addition to any liabilities that the
Company may otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information furnished to the Company by the
Representatives expressly for use therein; and to reimburse the Company, or any
such director, officer or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer or controlling
person in connection with investigating, defending, settling, compromising or
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paying any such loss, claim, damage, liability, expense or action. The indemnity
agreement set forth in this Section 7(b) shall be in addition to any liabilities
that each Underwriter may otherwise have.
(c) Information Provided by the Underwriters. The Company hereby
acknowledges that the only information that the Underwriters have furnished to
the Company expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) are the
statements set forth in the table in the first, second and third paragraphs
under the caption "Underwriting" in the Prospectus; and the Underwriters confirm
that such statements are correct.
(d) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 7 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), approved by the
indemnifying party (BancBoston Robertson Stephens Inc. in the case of Section
7(b) and Section 8), representing the indemnified parties who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying party.
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<PAGE>
(e) Settlements. The indemnifying party under this Section 7 shall not be
liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 7(d) hereof, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes (i) an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(f) Contribution. If the indemnification provided for in this Section 7 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law then each indemnifying party shall contribute to such amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriter on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bears to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and Underwriters agree that it would not be just and equitable
if contributions pursuant to this Section 7(f) were determined by pro rata
allocation (even if the Underwriters were
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<PAGE>
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 7(f). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) referred to above in this Section 7(f) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (f), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this Section 7(f) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(g) Timing of Any Payments of Indemnification. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than thirty
(30) days of invoice to the indemnifying party.
(h) Survival. The indemnity and contribution agreements contained in this
Section 7 and the representation and warranties of the Company set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
(i) Acknowledgements of Parties. The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 7, and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 7 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Securities Act and the Exchange Act.
Section 8. Default of One or More of the Several Underwriters. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the several Underwriters shall fail or refuse to purchase Shares that it
or they have agreed to purchase hereunder on such date, and the aggregate number
of Common Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase does not exceed 10% of the aggregate number of the
Shares to be purchased on such date, the other Underwriters shall be obligated,
severally, in the proportions that the number of Firm Common Shares set forth
opposite their respective names on Schedule A bears to the aggregate number of
----------
Firm Shares set forth opposite the names of all such non-defaulting
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<PAGE>
Underwriters, or in such other proportions as may be specified by the
Representatives with the consent of the non-defaulting Underwriters, to purchase
the Shares which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase on such date. If, on the First Closing Date or the Second
Closing Date, as the case may be, any one or more of the Underwriters shall fail
or refuse to purchase Shares and the aggregate number of Shares with respect to
which such default occurs exceeds 10% of the aggregate number of Shares to be
purchased on such date, and arrangements satisfactory to the Representatives and
the Company for the purchase of such Shares are not made within 48 hours after
such default, this Agreement shall terminate without liability of any party to
any other party except that the provisions of Section 4, and Section 7 shall at
all times be effective and shall survive such termination. In any such case
either the Representatives or the Company shall have the right to postpone the
First Closing Date or the Second Closing Date, as the case may be, but in no
event for longer than seven days in order that the required changes, if any, to
the Registration Statement and the Prospectus or any other documents or
arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
8. Any action taken under this Section 8 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
Section 9. Termination of this Agreement. Prior to the First Closing Date,
this Agreement may be terminated by the Representatives by notice given to the
Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the National Association of
Securities Dealers, LLC; (ii) a general banking moratorium shall have been
declared by any of federal, New York or California authorities; (iii) there
shall have occurred any outbreak or escalation of national or international
hostilities or any crisis or calamity, or any change in the United States or
international financial markets, or any substantial change or development
involving a prospective change in United States' or international political,
financial or economic conditions, as in the judgment of the Representatives is
material and adverse and makes it impracticable or inadvisable to market the
Common Shares in the manner and on the terms described in the Prospectus or to
enforce contracts for the sale of securities; (iv) in the judgment of the
Representatives there shall have occurred any Material Adverse Change; or (v)
the Company shall have sustained a loss by strike, fire, flood, earthquake,
accident or other calamity of such character as in the judgment of the
Representatives may interfere materially with the conduct of the business and
operations of the Company regardless of whether or not such loss shall have been
insured. Any termination pursuant to this Section 9 shall be without liability
on the part of (a) the Company to any Underwriter, except that the Company shall
be obligated to reimburse the expenses of the Representatives and the
Underwriters pursuant to Sections 5 and 6 hereof, (b) any Underwriter to the
Company, or (c) of any party hereto to any other party except that the
provisions of Section 7 shall at all times be effective and shall survive such
termination.
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<PAGE>
Section 10. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Shares sold hereunder and any termination of this Agreement.
Section 11. Notices. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
BANCBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel
If to the Company:
DIGIMARC CORPORATION
One Centerpointe Drive, Suite 500
Lake Oswego, OR 97035
Facsimile: 503-968-0219
Attention: Chief Executive Officer
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
Section 12. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 8 hereof, and to the benefit of the employees, officers and directors
and controlling persons referred to in Section 7, and to their respective
successors, and personal representatives, and no other person will have any
right or obligation hereunder. The term "successors" shall not include any
purchaser of the Shares as such from any of the Underwriters merely by reason of
such purchase.
Section 13. Partial Unenforceability. The invalidity or unenforceability of
any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
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<PAGE>
Section 14. Governing Law Provisions.
(a) Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding arising
out of or based upon this Agreement or the transactions contemplated hereby
("Related Proceedings") may be instituted in the federal courts of the United
States of America located in the City and County of San Francisco or the courts
of the State of California in each case located in the City and County of San
Francisco (collectively, the "Specified Courts"), and each party irrevocably
submits to the exclusive jurisdiction (except for proceedings instituted in
regard to the enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non-exclusive) of such courts in
any such suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth above shall be effective
service of process for any suit, action or other proceeding brought in any such
court. The parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the Specified Courts
and irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum. Each party not located in the
United States irrevocably appoints CT Corporation System, which currently
maintains a San Francisco office at 49 Stevenson Street, San Francisco,
California 94105, United States of America, as its agent to receive service of
process or other legal summons for purposes of any such suit, action or
proceeding that may be instituted in any state or federal court in the City and
County of San Francisco.
Section 15. General Provisions. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Section headings herein are for the convenience of the parties only and
shall not affect the construction or interpretation of this Agreement.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
DIGIMARC CORPORATION
By: ____________________________
Name: Bruce Davis
Title: Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives as of the date first above written.
BANCBOSTON ROBERTSON STEPHENS INC.
HAMBRECHT & QUIST LLC
U.S. BANCORP PIPER JAFFRAY INC.
On their behalf and on behalf of each of the several underwriters named in
Schedule A hereto.
- ----------
By BANCBOSTON ROBERTSON STEPHENS INC.
By:_________________________________
Authorized Signatory
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<PAGE>
SCHEDULE A
Number of Firm
Common Shares
Underwriters To be Purchased
------------ ---------------
BANCBOSTON ROBERTSON STEPHENS INC..................
HAMBRECHT & QUIST LLC..............................
U.S. BANCORP PIPER JAFFRAY INC. ...................
Total.......................................
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
DIGIMARC CORPORATION
DIGIMARC CORPORATION., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "Corporation"),
does hereby certify:
1. That the name of the Corporation is Digimarc Corporation. The
Corporation was originally incorporated under the same name; and the original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware on the 27th day of September, 1999.
2. That by unanimous written consent of the Board of Directors of the
Corporation, filed with the minutes of the Corporation, resolutions were duly
adopted setting forth the proposed amendment and restatement of the Certificate
of Incorporation of the Corporation and declaring said amendment and restatement
to be advisable. The resolution setting forth the proposed amendment and
restatement is as follows:
RESOLVED, that the Certificate of Incorporation of the Corporation
be, and it hereby is, amended and restated in its entirety to read as set
forth in the attached Restated Certificate of Incorporation.
3. That thereafter, the Directors and the stockholders of the
Corporation took action by executing a written consent in lieu of a meeting in
accordance with Section 108(c) and Section 228(a), respectively, of the General
Corporation Law of the State of Delaware.
4. That said amendment and restatement was duly adopted in accordance
with the provisions of Sections 242 and 245 of the General Corporation Law of
the State of Delaware. This Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the Certificate of Incorporation
of the Corporation as follows:
SECTION 1.
The name of the corporation is Digimarc Corporation (the "Corporation").
SECTION 2.
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, in the City of Wilmington, Delaware 19801, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
SECTION 3.
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the Delaware General Corporation Law.
1
<PAGE>
SECTION 4.
4.1 The aggregate number of shares of Capital Stock which the Corporation
shall have authority to issue is 46,199,000, consisting of 30,000,000 shares of
common stock, $.001 par value ("Common Stock"), and 16,199,000 shares of
preferred stock ("Preferred Stock"), $.001 par value.
4.2 Any of the shares of Preferred Stock may be issued from time to time
in one or more series. Subject to the limitations and restrictions in this
paragraph 4 set forth, the Board of Directors or a Committee of the Board of
Directors, to the extent permitted by law and the bylaws of the Corporation or a
resolution of the Board of Directors, by resolution or resolutions, is
authorized to create or provide for any such series, and to fix the
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, including,
without limitation, the authority to fix or alter the dividend rights, dividend
rates, conversion rights, exchange rights, voting rights, rights and terms of
redemption (including sinking and purchase fund provisions), the redemption
price or prices, the dissolution preferences and the rights in respect to any
distribution of assets of any wholly unissued series of Preferred Stock and the
number of shares constituting any such series, and the designation thereof, or
any of them and to increase or decrease the number of shares of any series so
created, subsequent to the issue of that series but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
There shall be no limitation or restriction on any variation between any of
the different series of Preferred Stock as to the designations, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof; and the several series of
Preferred Stock may, except as hereinafter in this paragraph 4 otherwise
expressly provided, vary in any and all respects as fixed and determined by the
resolution or resolutions of the Board of Directors or by Committee of the Board
of Directors, providing for the issuance of the various series; provided,
--------
however, that all shares of any one series of Preferred Stock shall have the
- -------
same designation, preferences and relative, participating, optional or other
special rights and qualifications, limitations and restrictions.
Except as otherwise required by law, or as otherwise fixed by resolution or
resolutions of the Board of Directors with respect to one or more series of
Preferred Stock, the entire voting power and all voting rights shall be vested
exclusively in the Common Stock, and each stockholder of the Corporation who at
the time possesses voting power for any purpose shall be entitled to one vote
for each share of such stock standing in his name on the books of the
Corporation.
4.3 The Board of Directors, with the written consent of both the Series B
Preferred Stock Director and the Series C Preferred Stock Director (as defined
in Section 6.2.6 herein), is hereby authorized to fix or alter the rights,
preferences, privileges and restrictions granted to or imposed upon series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, or of any of them. Subject to securing the written consent
of the holders of requisite majorities of Preferred Stock or series thereof that
would be required by this
2
<PAGE>
Certificate of Incorporation for issuance of new series of Preferred Stock
("Protective Provisions"), the rights privileges, preferences and restrictions
of any such series may be subordinated to, made pari passu with (including,
without limitation, inclusion in provisions with respect to liquidation and
acquisition preferences, redemption and /or approval of matters by vote or
written consent), or made senior to any of those of any present or future class
or series of Preferred Stock or Common Stock.
SECTION 5.
Common Stock
5.1 Common Stock. Except as expressly set forth in this Certificate, the
------------
shares of Common Stock have voting rights of one vote per share on all matters,
and are entitled to receive the net assets of the Corporation upon liquidation.
5.2 Repurchase of Shares. Subject to the Protective Provisions of Section
--------------------
6.2.7 and Delaware law, this Corporation is authorized to purchase shares of
Common Stock from holders thereof pursuant to arrangements approved by the Board
of Directors, without taking into account the preferential liquidation rights of
holders of Preferred Stock set forth herein when applying the provisions of the
Delaware General Corporation Law to determine the lawfulness of the purchase.
SECTION 6.
Preferred Stock
6.1 Designation of Preferred Stock Series.
-------------------------------------
(a) Of the authorized Preferred Stock, 162,500 shares are
designated Series A-1 Preferred Stock, and 162,500 are designated Series A-N
Preferred Stock (collectively, the "Series A Preferred Stock"); 902,000 are
designated Series B-1 Preferred Stock, and 902,000 are designated Series B-N
Preferred Stock (collectively, the "Series B Preferred Stock"); and 2,035,000
are designated Series C-1 Preferred Stock and 2,035,000 are designated Series C-
N Preferred Stock (collectively, the "Series C Preferred Stock"); 1,400,000
shares are designated Series D Preferred Stock (the "Series D Preferred Stock");
and 300,000 shares are designated Series D-X Preferred Stock (the "Series D-X
Preferred Stock"). Collectively, these series are referred to as the "Preferred
Stock." The "Issue Price" applicable to Series A-1 Preferred Stock and Series A-
N Preferred Stock is $2.50 per share. The "Issue Price" applicable to Series B-1
Preferred Stock and Series B-N Preferred Stock is $5.00 per share. The "Issue
Price" applicable to Series C-1 Preferred Stock and Series C-N Preferred Stock
is $2.86 per share. The "Issue Price" applicable to Series D Preferred Stock is
$5.00 per share. The "Issue Price" applicable to Series D-X Preferred Stock is
$5.00 per share. Series A-N Preferred Stock, Series B-N Preferred Stock and
Series C-N Preferred Stock shall be identical in every respect to Series A-1
Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred Stock,
respectively, except that Series A-N Preferred Stock, Series B-N Preferred Stock
and Series C-N Preferred Stock shall not be entitled to the weighted average
anti-dilution benefits described in Section 6.2.3(d)), from the date of original
issuance, and shall further be issuable only through conversion of the Series A-
1 Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred Stock,
respectively, pursuant to Section 6.2.3(e).
3
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(b) Except as expressly noted in this Section 6.1, the
preferences, limitations and relative rights of the Series D Preferred Stock and
the Series D-X Preferred Stock shall be identical to and in pari passu with the
Series C-1 Preferred Stock, the Series D Preferred Stock, and the Series D-X
Preferred Stock shall act with the Series C Preferred Stock as a single class
(with relative weight of each share of Series C Preferred Stock, Series D
Preferred Stock, or Series D-X Preferred Stock determined on an "as converted to
Common Stock" basis) on all issues on which Series C Preferred Stock has a
designated right to separate vote or consent from the Common Stock, and all
issues with respect to which consent of or action by the majority of shares of
the class outstanding binds or commits the rest of the class.
6.1.2 Conversion Price Adjustments. The Conversion Price applicable
----------------------------
to each share of Series D Preferred Stock and each share of Series D-X Preferred
Stock shall be $5.00 per share. Adjustments may be made to the Conversion Price
applicable to the Series D Preferred Stock only if the events giving rise to
such adjustments occurred after June 2, 1999, and not for events occurring
before that date. Adjustments may be made to the Conversion Price applicable to
the Series D-X Preferred Stock, only if the events giving rise to such
adjustments occurred after August 26, 1999 and not for events occurring before
that date.
6.1.3 Exclusion From Section 6.2.3(e). The Series D Preferred Stock
-------------------------------
and the Series D-X Preferred Stock shall not be covered by or subject to the
terms of Section 6.2.3(e) of this Certificate of Incorporation, as amended, but
shall retain rights analogous to those of Series C-1 Preferred Stock even under
conditions that would compel the conversion of Series C-1 Preferred Stock into
Series C-N Preferred Stock.
6.2 Rights, Preferences and Restrictions of Preferred Stock. Other than as
-------------------------------------------------------
set forth in Section 6.1 above, the rights, preferences, privileges, and
restrictions granted to and imposed on Preferred Stock are as follows:
6.2.1 Dividends. Holders of Preferred Stock shall be entitled to
---------
receive dividends at the rate of 10% per year, in preference to Common Stock,
when, as, and if declared by the Board of Directors. No dividends will be paid
on Common Stock until equal dividends have been declared and paid on Preferred
Stock. After payment of all dividends on Preferred Stock, the holders of
Preferred Stock shall be entitled to participate, on an as-converted basis, with
the outstanding Common Stock as to any dividends paid on such Common Stock.
6.2.2 Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up
of this Corporation, including a Qualified Consolidation or Merger as defined
below (collectively, "Liquidation"), either voluntary or involuntary, each
holder of Preferred Stock shall be entitled to receive prior to any distribution
of any of the assets of this Corporation to the holders of Common Stock, upon
Liquidation of this Corporation, by reason of their ownership thereof, the Issue
Price applicable to that Series, per share (as adjusted to reflect any stock
splits, stock dividends or other recapitalizations) (that sum being referred to
herein as the "Preference"). If, upon Liquidation, the assets of this
Corporation available for distribution to its stockholders are insufficient to
pay the holders of Preferred Stock the full Preference, then the entire assets
and funds of this Corporation legally available for distribution to its
stockholders shall be distributed
4
<PAGE>
ratably among all holders of Preferred Stock in proportion to the full
Preference applicable to each holder.
(b) After setting apart or paying in full the Preference, any
assets of this Corporation remaining available for distribution to stockholders
upon Liquidation shall be distributed ratably among all holders of Common Stock
and all holders of Series B Preferred Stock and Series C Preferred Stock (after
full payment pursuant to subsection (a) above to the holders of the Preferred
Stock) in proportion to the amount of Common Stock each holder holds (treating
each holder of Series B Preferred Stock or Series C Preferred Stock as holding
that number of shares of Common Stock into which that holder's Series B
Preferred Stock or Series C Preferred Stock could then be converted pursuant to
the then Existing Conversion Price).
(c) A "Qualifying Consolidation or Merger" is (i) a consolidation
or merger of this Corporation with or into any other corporation or other entity
or person or any other corporate reorganization in which the holders of
Preferred Stock and Common Stock immediately prior to the consolidation or
merger own less than 50% of the voting securities of the Corporation or
successor entity by virtue of the securities received immediately following such
consolidation or merger or other corporate reorganization, (ii) any transaction
or series of transactions in which in excess of 50% of the Corporation's voting
power is transferred, or (iii) a sale, lease or disposition of all or
substantially all of the assets of the Corporation. If, assuming conversion of
all Preferred Stock into Common Stock and exercise of all outstanding options,
warrants or other rights to purchase Common Stock or Preferred Stock, each share
of Common Stock would receive, on a Qualifying Consolidation or Merger,
consideration whose fair market value is less than $10.00 per share (adjusted
for intervening stock splits, stock dividends or other recapitalizations of the
Common Stock and assuming no weighted average antidilution adjustments have
occurred pursuant to Section 6.2.3(d), then the Qualifying Consolidation or
Merger shall be treated as a Liquidation hereunder for purposes of determining
entitlement to the Preference for Series B Preferred Stock and Series C
Preferred Stock. If the fair market value of the consideration is $10.00 per
share or more (subject to the same adjustments), then the Qualifying
Consolidation or Merger shall be treated as a Designated IPO (defined below),
and all Preferred Stock shall automatically convert into Common Stock
immediately before the closing of the transaction.
6.2.3 Conversion. The holders of Preferred Stock shall have
----------
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
----------------
(1) The Conversion Price applicable to each share of
Series A Preferred Stock shall be $1.25 per share. The Conversion Price
applicable to each share of Series B Preferred Stock shall be $2.50 per share.
The Conversion Price applicable to each share of Series C Preferred Stock shall
be $2.86 per share. Such Conversion Prices shall be adjusted from time to time
in accordance with this Section 6.2.3.
(2) Each share of Preferred Stock shall be convertible,
at the option of its holder, at any time after the date it issues, into that
number of fully paid and
5
<PAGE>
nonassessable shares of Common Stock expressed by the Conversion Rate, which is
defined as the quotient obtained by dividing the Issue Price by the then
Existing Conversion Price (as defined below). Conversion will take place at the
office of the Corporation or any transfer agent for the Preferred Stock.
(3) Each share of Series A Preferred Stock shall
automatically be converted into that number of shares of Common Stock expressed
by the Conversion Rate applicable to that share, immediately upon (i) the
consummation of this Corporation's sale of its Common Stock in a bona fide, firm
commitment underwriting pursuant to an effective registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), or (ii) the
approval of the conversion or election to convert by holders of a majority of
the originally issued shares of Series A Preferred Stock, or (iii) approval of
the conversion or election to convert by holders of 67% of the outstanding
shares of Preferred Stock. Each share of Series A Preferred Stock shall also
automatically be converted into Common Stock immediately prior to a Liquidation,
if as a result of the conversion, the consideration per share to be received
with respect to the Series A Preferred Stock would be larger than the Series A
Preferred Stock Preference. Each share of Series B Preferred Stock shall
automatically be converted into that number of shares of Common Stock expressed
by the Conversion Rate applicable to that share of Series B Preferred Stock,
immediately upon (i) the consummation of this Corporation's sale of its Common
Stock in a bona fide, firm commitment underwriting pursuant to an effective
registration statement under the Securities Act in which the price per share is
$5.00 or more (as adjusted for intervening stock splits, stock dividends or
recapitalizations, and assuming no weighted average antidilution adjustments
pursuant to Section 6.2.3(d) have occurred) and the total offering is for at
least $10,000,000 (a "Designated IPO"); or (ii) on the approval of the
conversion by holders of 67% of the outstanding shares of Preferred Stock. Each
share of Series C Preferred Stock shall automatically be converted into that
number of shares of Common Stock expressed by the Conversion Rate applicable to
that share of Series C Preferred Stock, immediately upon (i) the consummation of
a Designated IPO; or (ii) on the approval of the conversion by the holders of
67% of the outstanding shares of Preferred Stock. Each share of Series D
Preferred Stock and Series D-X Preferred Stock shall automatically be converted
into that number of shares of Common Stock expressed by the Conversion Rate
applicable to that share of Series D Preferred Stock, immediately upon (i) the
consummation of a Designated IPO; or (ii) on the approval of the conversion by
the holders of 67% of the outstanding shares of Preferred Stock.
(b) Mechanics of Conversion.
-----------------------
(1) What the holder does. Before any holder of
--------------------
Preferred Stock shall be entitled to convert the holder's Preferred Stock into
shares of Common Stock, the holder shall (i) surrender the certificate or
certificates for the Preferred Stock, duly endorsed, at the office of this
Corporation or of any transfer agent for the Preferred Stock, (ii) give written
notice to this Corporation at its principal corporate office of the election to
convert the Preferred Stock, and (iii) state in the notice the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued.
(2) What the Corporation does. This Corporation shall,
-------------------------
as soon as practicable thereafter, issue and deliver to the holder or the
holder's nominee or nominees, a
6
<PAGE>
certificate or certificates for the number of shares of Common Stock to which
the holder shall be entitled.
(3) Effective date of Conversion. The conversion shall
----------------------------
be deemed effective immediately prior to the close of business on the date the
Preferred Stock was surrendered to be converted. The person or persons entitled
to receive the shares of Common Stock issuable upon the conversion shall be
treated for all purposes as the record holder or holders of the Common Stock
shares as of the date conversion is deemed to have occurred.
(4) Offering Contingencies, Effective Date. If the
--------------------------------------
conversion is in connection with an underwritten offer of securities registered
pursuant to the Securities Act, the conversion may, at the option of the holder
tendering Preferred Stock for conversion, be conditioned upon the closing with
the underwriter of the sale of securities pursuant to the offering. In that
case, the person(s) entitled to receive the Common Stock issuable upon such
conversion of the Preferred Stock shall not be deemed to have converted such
Preferred Stock until immediately prior to the closing of the sale of
securities.
(c) Conversion Adjustments.
----------------------
(1) Adjustments for Recapitalizations. If the
---------------------------------
Corporation shall at any time or from time to time after December 29, 1997 (the
"Filing Date") effect a recapitalization of the outstanding Common Stock without
corresponding changes being made to split the Preferred Stock to grant the
Preferred Stock the same percentage ownership as prior to the recapitalization,
the Conversion Price in effect immediately before that recapitalization shall be
proportionately adjusted as appropriate. Any adjustment under this Section
6.2.3(c)(1) shall become effective at the close of business on the date the
recapitalization becomes effective.
(2) Adjustments for Stock Splits and Combinations. If
---------------------------------------------
the Corporation shall at any time or from time to time after the Filing Date
effect a split of the outstanding Common Stock without a corresponding split of
the Preferred Stock, the Conversion Price for each series in effect immediately
before the split shall be proportionately decreased. Conversely, if the
Corporation shall at any time or from time to time after the Filing Date combine
the outstanding shares of Common Stock into a smaller number of shares without a
corresponding combination of the Preferred Stock, the Conversion Price in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this Section 6.2.3(c)(2) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(3) Adjustments for Common Stock Dividends and
------------------------------------------
Distributions. If the Corporation at any time or from time to time after the
- -------------
Filing Date makes, or fixes a record date for the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock, in each such event the Conversion Price that
is then in effect shall be decreased as of the time of such issuance or, in the
event such record date is fixed, as of the close of business on such record
date, by multiplying the Conversion Price then in effect by a fraction (i) the
numerator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (ii) the denominator of which is
7
<PAGE>
the total number of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on such record date
plus the number of shares of Common Stock issuable in payment of such dividend
or distribution; provided, however, that if such record date is fixed and such
-------- -------
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Conversion Price shall be recomputed accordingly as of the
close of business on such record date and thereafter the Conversion Price shall
be adjusted pursuant to this Section 6.2.3(c)(3) to reflect the actual payment
of such dividend or distribution.
(4) Adjustments for Other Dividends and Distributions.
-------------------------------------------------
If the Corporation at any time or from time to time after the Filing Date makes,
or fixes a record date for the determination of holders of Common Stock entitled
to receive, a dividend or other distribution payable in securities of the
Corporation other than shares of Common Stock, in each such event provision
shall be made so that the holders of the Preferred Stock shall receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of other securities of the Corporation which
they would have received had their Preferred Stock been converted into Common
Stock on the date of such event and had they thereafter, during the period from
the date of such event to and including the conversion date, retained such
securities receivable by them as aforesaid during such period, subject to all
other adjustments called for during such period under this Section 6.2.3(c)(4)
with respect to the rights of the holders of the Preferred Stock or with respect
to such other securities by their terms.
(5) Adjustment for Reclassification, Exchange and
---------------------------------------------
Substitution. If at any time or from time to time after the Filing Date, the
- ------------
Common Stock issuable upon the conversion of the Preferred Stock is changed into
the same or a different number of shares of any class or classes of stock,
whether by recapitalization, reclassification or otherwise (other than a
Qualifying Consolidation or Merger as defined in Section 6.2.2(c) or a split or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section 6.2.3),
in any such event each holder of Preferred Stock shall have the right thereafter
to convert such stock into the kind and amount of stock and other securities and
property receivable upon such recapitalization, reclassification or other change
by holders of the maximum number of shares of Common Stock into which such
shares of Preferred Stock could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further adjustment
as provided herein or with respect to such other securities or property by the
terms thereof.
(6) Reorganizations, Mergers, Consolidations or Sales
-------------------------------------------------
of Assets. If at any time or from time to time after the Filing Date, there is a
- ---------
capital reorganization of the Common Stock (other than a Qualifying
Consolidation or Merger as defined in Section 6.2.2(c)) or a recapitalization,
split, combination, reclassification, exchange or substitution of shares
provided for elsewhere in this Section 6.2.3, as a part of such capital
reorganization, provision shall be made so that the holders of the Preferred
Stock shall thereafter be entitled to receive upon conversion of the Preferred
Stock the number of shares of stock or other securities or property of the
Corporation to which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled on such capital
reorganization, subject to adjustment in respect of such stock or securities by
the terms thereof. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 6.2.3 with respect to the rights
of the holders of Preferred Stock after the capital
8
<PAGE>
reorganization to the end that the provisions of this Section 6.2.3 (including
adjustment of the Conversion Price then in effect and the number of shares
issuable upon conversion of the Preferred Stock) shall be applicable after that
event and be as nearly equivalent as practicable.
(d) Weighted Average Antidilution Adjustment. If the Corporation at any
----------------------------------------
time after the Filing Date shall issue any Additional Stock (as defined below)
without consideration or for a consideration per share less than the Conversion
Price for Series A-1 Preferred Stock, Series B-1 Preferred Stock or Series C-1
Preferred Stock then in effect (the "Existing Conversion Price" or "ECP"), the
Conversion Price applicable to that series (but not Series A-N Preferred Stock,
Series B-N Preferred Stock or Series C-N Preferred Stock) shall be adjusted or
readjusted, as follows. Multiply the Existing Conversion Price by a fraction
constructed as follows. The numerator of the fraction shall be the "Old Stock,"
defined as the number of shares of Common Stock outstanding immediately prior to
such issue or sale, "fully diluted," plus the number of shares of Common Stock
that the aggregate consideration received by the Corporation for the new
Additional Stock would purchase at the Existing Conversion Price (the "No
dilution additional stock" or "NDAS"). The denominator of the fraction shall be
the "Old Stock," plus the number of shares of new Additional Stock issued ("New
Stock"). "Fully diluted" for this purpose means assuming that all outstanding
Preferred Stock has been converted into Common Stock at conversion prices in
effect before the issuance or sale. The formula for determining the new
Conversion Price is thus:
New Conversion Price = ECP X (Old Stock plus NDAS) / (Old Stock plus New
Stock).
No adjustment of the Conversion Price for Preferred Stock shall be made in an
amount less than one cent per share, provided that any adjustments which are not
required to be made by reason of this sentence shall be carried forward and
taken into account in any subsequent adjustment.
(1) Determining Additional Stock Consideration. In the case of the
------------------------------------------
issuance of Common Stock for cash, the consideration shall be deemed to be the
amount of cash paid therefor before deducting any reasonable discounts,
commissions or other expenses allowed, paid or incurred by the Corporation for
any underwriting or otherwise in connection with the issuance and sale thereof.
Non-cash consideration shall be treated as if it is cash, at the fair value
thereof as determined by the Board of Directors in good faith irrespective of
any accounting treatment.
(2) Additional Stock. "Additional Stock" shall mean any shares of
----------------
Common Stock issued by the Corporation after the Filing Date other than
"Reserved Shares," defined as follows:
(A) Common Stock issued pursuant to a transaction described in
subsection 6.2.3(c), or upon conversion of Preferred Stock;
(B) Up to 1,521,400 shares of Common Stock issued to employees,
consultants, directors or advisory board members of the Corporation primarily
for the purpose of soliciting or retaining their employment directly or pursuant
to a stock option plan or restricted stock plan approved by the shareholders and
directors of the Corporation, or such higher number of shares as may be approved
from time to time by a majority of the Board of
9
<PAGE>
Directors including both the Series B Preferred Stock Director and the Series C
Preferred Stock Director (as each term is defined in Section 6.2.6), or shares
reissued after repurchase pursuant to any restricted stock purchase agreement
following a termination in status as an employee, consultant, director, or
advisory board member; and
(C) Common Stock issued in equipment lease financing or
otherwise issued or issuable in standard commercial line of credit transactions
approved by the Board of Directors in good faith.
(e) Conversion to Series A-N Preferred Stock, Series B-N Preferred
--------------------------------------------------------------
Stock and Series C-N Preferred Stock on Failure to Participate in Future
- ------------------------------------------------------------------------
Financings on Call of Board. In case any subsequent financing is offered, the
- ---------------------------
Board of Directors (including the Series B Preferred Stock Director and Series C
Preferred Stock Director) may establish in good faith the amount of funds
required to be invested in such financing by all holders of Preferred Stock
(collectively, the "Preferred Stock Contribution"). If a holder of Preferred
Stock is offered the opportunity to participate in such financing by at least
thirty (30) days notice, but declines or fails to participate at 100% of that
holder's proportionate share of the Preferred Stock Contribution
(proportionality to be determined on an as-converted-to-common-stock basis,
where each holder's Preferred Stock as so converted is expressed as a proportion
of all Preferred Stock so converted), then those shares of Series A-1 Preferred
Stock, Series B-1 Preferred Stock or Series C-1 Preferred Stock held by that
holder shall automatically convert into Series A-N Preferred Stock, Series B-N
Preferred Stock or Series C-N Preferred Stock, respectively, on a one-for-one
basis immediately prior to the close of the financing. Such conversion will be
effective whether or not certificates representing Series A-1 Preferred Stock,
Series B-1 Preferred Stock or Series C-1 Preferred Stock that has been converted
are tendered for exchange. The Corporation will notify each holder of such
converted stock of the conversion, and on request of the holder, certificates
representing Series A-1 Preferred Stock, Series B-1 Preferred Stock or Series C-
1 Preferred Stock that has been converted shall be exchanged for certificates
expressly representing Series A-N Preferred Stock, Series B-N Preferred Stock or
Series C-N Preferred Stock.
(f) No Impairment. This Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 6.2.3 and in the taking of all such action as
may be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Preferred Stock against impairment.
(g) No Fractional Shares. No fractional shares shall be issued upon
--------------------
any conversion of the Preferred Stock. Any fractional share determined on an
aggregate conversion basis shall be rounded down to the nearest whole share. If,
in the event of the aforementioned aggregation, in-the absence of such rounding
down the conversion would result in the issuance of any fractional share, the
Corporation shall pay in cash an amount equal to the product obtained by
multiplying such fraction by the Common Stock's fair market value (as determined
in good faith by the Board of Directors) on the date of such conversion.
10
<PAGE>
(h) Reservation of Stock Issuable Upon Conversion. This Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the Preferred Stock the number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Preferred Stock. If at any time the number of authorized but
unissued shares of Common Stock shall be insufficient to effect the conversion
of all then outstanding shares of the Preferred Stock, in addition to other
remedies as shall be available to the holder of the Preferred Stock, this
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to the number of shares that shall be sufficient for the purpose.
(i) No Reissuance of Preferred Stock. No share or shares of
--------------------------------
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued.
6.2.4 Right to Participate in Subsequent Financings. In case the
---------------------------------------------
Corporation proposes to issue any additional equity securities, or securities
convertible into equity securities, in exchange for cash consideration (other
than for Reserved Shares (as defined in Section 6.2.3(d), shares issued in the
acquisition of another company, or shares offered to the public pursuant to an
underwritten public offering), and unless waived in writing by the holder, each
holder of Preferred Stock shall have the right to participate in that subsequent
round. Each holder shall have the right to participate up to the percentage of
that offering equal to the percentage which the holder's Preferred Stock, on an
as-converted basis, represents of all outstanding equity of the Corporation,
assuming exercise of all warrants, conversion of all convertible debt, and
conversion of all Preferred Stock into Common Stock, and all options issued or
issuable under the Corporation's Stock Incentive Plan(s) but not yet exercised.
The Board of Directors shall have power to prescribe procedures to give effect
to the intent of this paragraph.
6.2.5 Series B and Series C Preferred Stock Redemption Rights. The
-------------------------------------------------------
holders of at least 60% of the outstanding shares of Series B Preferred Stock
and Series C Preferred Stock, acting together as a single class, may give notice
("Redemption Request") to the Corporation at any time after five (5) years from
the Filing Date, but no more often than one time per calendar year, that the
Corporation redeem all or any portion of the Series B Preferred Stock and Series
C Preferred Stock, as applicable, at a redemption price (each, a "Redemption
Price") equal to (i) in the case of the Series B Preferred Stock, the Issue
Price paid for each share of Series B Preferred Stock (as adjusted to account
for intervening stock splits or recapitalizations of the Series B Preferred
Stock) plus any accrued and unpaid dividends on such shares, or (ii) in the case
of the Series C Preferred Stock, the Issue Price paid for each share of Series C
Preferred Stock (as adjusted to account for intervening stock splits or
recapitalizations of the Series C Preferred Stock), plus any declared and unpaid
dividends on such shares. Upon receipt of such Redemption Request, the
Corporation, to the extent that it has funds legally available therefor and will
not otherwise violate any contracts or agreements to which it is a party, shall
be obligated to notify ("Redemption Notice") all Series B Preferred Stock and
Series C Preferred Stock holders of the Redemption Request and each holder may,
but is not obligated to, participate in such redemption up to that holder's pro
rata share of the total number of shares specified in the Redemption Request.
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(a) The Redemption Notice shall provide at least twenty days from the
Notice date within which holders of Series B Preferred Stock and Series C
Preferred Stock may exercise their redemption rights by delivery of the shares
they wish redeemed, together with such Letters of Transmittal as the Redemption
Notice may reasonably prescribe, to a bank or trust company the Redemption
Notice specifies (the final date for which is called the "Tender Date"), and
shall also specify a Redemption Date, which shall be not later than fifteen days
following the Tender Date, as of which the Redemption Price (or the first
installment thereof) is to be paid. The Redemption Notice shall also specify
whether the Redemption Price is to be paid all at once or in three equal annual
installments, shall specify a Redemption Date, and shall contain such other
provisions concerning the mechanics of redemption as may be necessary or useful
to assist the redemption to proceed.
(b) On or prior to the Redemption Date, the Corporation shall deposit
the Redemption Price (or, if to be made in three annual installments, the first
third of the Redemption Price) of all shares tendered for redemption (but not
more than the number specified in the Redemption Request) with the bank or trust
company specified in the Redemption Notice, as a trust fund, with irrevocable
instructions and authority to the bank or trust company to pay, on and after
such Redemption Date, the Redemption Price (or each third thereof as placed on
deposit) of the shares tendered by the Tender Date to their respective holders.
If the Corporation has elected to pay the Redemption Price in three equal annual
installments, then on or prior to the second and third anniversaries of the
Redemption Date, the Corporation shall deposit the second and third thirds of
the Redemption Price, respectively, with the same bank or trust company, with
irrevocable instructions and authority to the bank or trust company to pay, on
and after such anniversary date, that third of the Redemption Price to the
holders of the tendered shares.
(c) If more shares are tendered than are specified in the Redemption
Request, the Corporation may elect either to redeem all tendered shares, or to
redeem only so many of them as are specified in the Redemption Request. If the
Corporation has insufficient funds legally available to redeem all shares
specified in the Redemption Request, then that number of shares for which there
are insufficient funds shall be treated as an overtender of shares. The effects
of any overtender of shares shall be allocated among all holders submitting
shares such that the shares actually to be redeemed are, so nearly as possible,
in the same ratio as the Preferred Stock holdings of all redeeming shareholders
are to each other. Fractional shares to be redeemed shall in all cases be
rounded down to the nearest whole share.
(d) Tendered certificates shall be canceled following the final
payment of the Redemption Price. In the event less than all the shares
represented by such certificates are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after such Redemption Date, all
rights of the holder of such shares tendered for redemption as holder of
Preferred Stock (except the right to receive the Redemption Price without
interest) shall cease and terminate with respect to such shares, provided that
in the event that there is a default in payment of the Redemption Price by the
Corporation, or the Corporation is unable to pay the Redemption Price due to
insufficient legally available funds, those shares tendered by each holder for
which the payment actually made on the Redemption Date is insufficient shall be
treated as unredeemed shares hereunder, and shall remain outstanding and be
entitled to all of the rights and preferences provided herein.
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6.2.6 Voting Rights. With respect to the election of directors, the
-------------
Series B Preferred Stock shall vote as a separate class for the election of one
director (the "Series B Preferred Stock Director"), and to remove such director
and to fill any vacancy caused by the resignation, death or removal of such
director, and the Series C Preferred Stock, the Series D Preferred Stock, and
the Series D-X Preferred Stock, voting together as a class, shall vote as a
separate class for the election of one director (the "Series C Preferred Stock
Director"), and to remove such director and to fill any vacancy caused by the
resignation, death or removal of such director. With respect to the election of
all remaining directors, Preferred Stock and Common Stock shall vote as a single
class. With respect to all other matters, the holders of Preferred Stock and
the holders of Common Stock shall vote as a single class, provided that the
holders of Preferred Stock must also approve, by the requisite majorities
specified, decisions specified in Section 6.2.7. The holder of each share of
Preferred Stock shall have the right to one vote for each share of Common Stock
into which the holder's Preferred Stock could then be converted (with any
fractional share determined on an aggregate conversion basis being rounded to
the nearest whole share). With respect to that vote, the holder shall have full
voting rights and powers equal to the voting rights and powers of the holders of
Common Stock, and shall be entitled to notice of any shareholders' meeting in
accordance with the Bylaws of this Corporation.
6.2.7 Protective Provisions. The consent of the holders of at least
---------------------
67% of the Preferred Stock, voting as a single class, shall be required for any
action which:
(1) amends or repeals any provision of the Corporation's
Certificate of Incorporation or Bylaws if such action would materially and
adversely alter or change the designations, preferences, and relative,
participating, optional and other special rights or the restrictions
provided for the benefit of the Preferred Stock;
(2) authorizes or issues shares of any class of stock having
any preference or priority as to dividends, liquidation, redemption,
voting, conversion or other preferences superior to or on a parity with any
such preference or priority of any series of the Preferred Stock (except
any issuance of Series A-N Preferred Stock, Series B-N Preferred Stock or
Series C-N Preferred Stock, which is issuable only upon conversion of
Series A-1 Preferred Stock, Series B-1 Preferred Stock or Series C-1
Preferred Stock pursuant to Section 6.2.3(e)); or
(3) pays or declares any dividend on any junior securities.
The consent of holders of a majority of the Series B Preferred Stock and Series
C Preferred Stock, each voting as a separate class, shall be required for
(4) any merger, sale of substantially all the assets,
consolidation, recapitalization, or reorganization of the Corporation, or
(5) any repurchase or other acquisition by the Corporation
of its own shares other than pursuant to this Certificate or stock
repurchase agreements approved by a majority of the Board of Directors,
including the Series B Preferred Stock Director and the Series C Preferred
Stock Director, or entered into with respect to
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Common Stock issued or to be issued pursuant to options issued under the
Corporation's Stock Incentive Plans.
6.2.8 Directors. Except as otherwise provided herein or the General
---------
Corporation Law of the State of Delaware, the business and affairs of the
Corporation shall be managed by or under the direction of a board of directors
consisting of one or more members. Directors need not be stockholders of the
Corporation. The number of directors shall be fixed from time to time, within
the limits specified in the Bylaws, by a Bylaw or amendment thereof duly adopted
by the vote of a majority of the shares entitled to vote represented at a duly
held meeting at which a quorum is present, or by the board of directors.
The directors shall be divided into three classes, designated Class I,
Class II and Class III, as nearly equal in number as the then total number of
directors permits, serving staggered terms so that the initial terms of each
such class will expire, respectively, at the first, second and third succeeding
annual meetings of the stockholders held following the initial public offering
of the Corporation's Common Stock. At each such succeeding annual meeting of
stockholders, directors elected to succeed those directors whose terms are
expiring at such meeting shall be elected for a term of office to expire at the
third succeeding annual meeting of stockholders following such election. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional directors of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
will a decrease in the number of directors shorten the term of any incumbent
director. Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of preferred stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation or the Bylaws applicable thereto, and
such directors so elected shall not be divided into classes pursuant to this
Section 6.2.8 unless expressly provided by such terms.
Any amendment, change or repeal of this Section 6.2.8, or any other
amendment to this Certificate of Incorporation that will have the effect of
permitting circumvention of or modifying this Section 6.2.8, shall require the
favorable vote, at a stockholders' meeting, of the holders of at least eighty
percent (80%) of the then-outstanding shares of stock of the Corporation
entitled to vote.
Except as provided below, the directors shall be elected by a plurality
vote of the shares represented in person or by proxy at the stockholders annual
meeting in each year and entitled to vote on the election of directors. Elected
directors shall hold office until the next annual meeting for the years in which
their terms expire and until their successors shall be duly elected and
qualified. If, for any cause, the board of directors shall not have been elected
at an annual meeting, they may be elected as soon thereafter as convenient at a
special meeting of the stockholders called for that purpose in the manner
provided in this Certificate of Incorporation or the Bylaws.
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Except as otherwise provided by the Certificate of Incorporation or any
amendments thereto, vacancies and newly created directorships resulting from any
increase in the number of authorized directors may be filled by a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director, and each director so elected shall hold office for the
unexpired portion of the term of the director whose place shall be vacant, and
until his successor shall have been duly elected and qualified. A vacancy in
the board of directors shall be deemed to exist under this paragraph in the case
of the death, removal or resignation of any director, or if the stockholders
fail at any meeting of stockholders at which directors are to be elected to
elect the number of directors then constituting the whole board.
Any director may resign by delivering his written resignation to the
Corporation at its principal office, addressed to the president or secretary.
Such resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event. When one
or more directors shall resign from the board, effective at a future date, a
majority of the directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
director so chosen shall hold office for the unexpired portion of the term of
the director whose place shall be vacated and until his successor shall have
been duly elected and qualified.
SECTION 7.
7.1 Number and Designation of Directors. For so long as there is Series B
-----------------------------------
Preferred Stock outstanding, the Bylaws shall provide that one of the directors
shall be the Series B Preferred Stock Director. For so long as there is Series
C Preferred Stock, Series D Preferred Stock, or Series D-X Preferred Stock
outstanding, the Bylaws shall provide that one of the directors shall be the
Series C Preferred Stock Director. As of the Filing Date, the Bylaws shall
provide that the number of directors shall be seven. The Bylaws may further
provide that the Directors shall have power to change the number of directors by
majority vote, provided that if there is then required to be a Series B
Preferred Stock Director or a Series C Preferred Stock Director, the vote of the
required Preferred Stock directors shall be required to change the size of the
Board.
7.2 Liability of Directors. No director of the Corporation shall be
----------------------
personally liable to the Corporation or its shareholders for monetary damages
for conduct as a director; provided that this Section 7 shall not eliminate the
liability of a director for any act or omission for which such elimination of
liability is not permitted under the Delaware General Corporation Law. No
amendment to the Delaware General Corporation Law that further limits the acts
or omissions for which elimination of liability is permitted shall affect the
liability of a director for any act or omission that occurs prior to the
effective date of such amendment.
SECTION 8.
8.1 Indemnification. To the fullest extent permitted by Delaware
---------------
statutory or decisional law, as amended or interpreted, no director of this
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as
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a director. This Section 8.1 does not affect the availability of equitable
remedies for breach of fiduciary duties.
8.2 Amendments. Any amendment, change or repeal of this Section shall
----------
only be prospective and no repeal or modification hereof shall adversely affect
the rights under this Section in effect at the time of the alleged occurrence of
any action or omission to act that is the cause of any Proceeding.
SECTION 9.
The name and mailing address of the incorporator are as follows:
Misako Sack
c/o Morrison & Foerster llp
425 Market Street
San Francisco, California 94105-2482
SECTION 10.
The board of directors is expressly authorized to make, alter, or repeal
the bylaws of the Corporation.
SECTION 11.
Elections of directors need not be by written ballot unless the bylaws of
the Corporation shall so provide.
SECTION 12.
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof, or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three-
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
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SECTION 13.
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate of
Incorporation to be signed by its duly authorized officer, this 5th day of
November, 1999.
By: /s/ Bruce Davis,
-----------------------
Bruce Davis, President
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Exhibit 3.2
BYLAWS
OF
DIGIMARC CORPORATION
a Delaware corporation
<PAGE>
BYLAWS
OF
DIGIMARC CORPORATION
ARTICLE I
Offices
Section 1.1 Registered Office.
The registered office of the corporation in the State of Delaware shall be
in the City of Wilmington, County of New Castle.
Section 1.2 Other Offices.
The corporation shall also have and maintain an office or principal place
of business at One Center Pointe Drive, Suite 500, Lake Oswego, Oregon 97035-
8615, and may also have offices at such other places, both within and without
the State of Delaware as the Board of Directors may from time to time determine
or the business of the corporation may require.
ARTICLE II
Stockholders' Meetings
Section 2.1 Place of Meetings.
Meetings of the stockholders of the corporation shall be held at such
place, either within or without the State of Delaware, as may be designated from
time to time by the Board of Directors, or, if not so designated, then at the
office of the corporation required to be maintained pursuant to Section 1.2 of
Article I hereof.
Section 2.2 Annual Meetings.
The annual meetings of the stockholders of the corporation, commencing with
the year 2000, for the purpose of election of directors and for such other
business as may lawfully come before it, shall be held on such date and at such
time as may be designated from time to time by the Board of Directors, or, if
not so designated, then at 10 a.m. on March 1 in each year if not a legal
holiday, and, if a legal holiday, at the same hour and place on the next
succeeding day not a holiday.
Section 2.3 Special Meetings.
Special Meetings of the stockholders of the corporation may be called, for
any purpose or purposes, by the President, the Secretary, or by the Board of
Directors at any time.
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Section 2.4 Notice of Meetings.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, written notice of each meeting of stockholders, specifying the
place, date and hour and purpose or purposes of the meeting, shall be given not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote thereat, directed to his address as it
appears upon the books of the corporation; except that where the matter to be
acted on is a merger or consolidation of the Corporation or a sale, lease or
exchange of all or substantially all of its assets, such notice shall be given
not less than twenty (20) nor more than sixty (60) days prior to such meeting.
(b) If at any meeting action is proposed to be taken which, if taken, would
entitle shareholders fulfilling the requirements of section 262(d) of the
Delaware General Corporation Law to an appraisal of the fair value of their
shares, the notice of such meeting shall contain a statement of that purpose and
to that effect and shall be accompanied by a copy of that statutory section.
(c) When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken unless the adjournment is for more
than thirty days, or unless after the adjournment a new record date is fixed for
the adjourned meeting, in which event a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
(d) Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, either before or after such meeting, and to the extent
permitted by law, will be waived by any stockholder by his attendance thereat,
in person or by proxy. Any stockholder so waiving notice of such meeting shall
be bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
(e) Unless and until voted, every proxy shall be revocable at the pleasure
of the person who executed it or of his legal representatives or assigns, except
in those cases where an irrevocable proxy permitted by statute has been given.
Section 2.5 Quorum and Voting.
(a) At all meetings of stockholders, except where otherwise provided by
law, the Certificate of Incorporation, or these Bylaws, the presence, in person
or by proxy duly authorized, of the holders of a majority of the outstanding
shares of stock entitled to vote shall constitute a quorum for the transaction
of business. Shares, the voting of which at said meeting have been enjoined, or
which for any reason cannot be lawfully voted at such meeting, shall not be
counted to determine a quorum at said meeting. In the absence of a quorum, any
meeting of stockholders may be adjourned, from time to time, by vote of the
holders of a majority of the shares represented thereat, but no other business
shall be transacted at such meeting. At such adjourned meeting at which a quorum
is present or represented any business may be transacted which might have been
transacted at the original meeting. The stockholders present at a duly called or
convened meeting, at which a quorum is present, may continue to transact
business
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until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum.
(b) Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, all action taken by the holders of a majority of the voting
power represented at any meeting at which a quorum is present shall be valid and
binding upon the corporation.
(c) Where a separate vote by a class or classes is required, a majority of
the outstanding shares of such class or classes, present in person or
represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter and the affirmative vote of the majority of
shares of such class or classes present in person or represented by proxy at the
meeting shall be the act of such class.
Section 2.6 Voting Rights.
(a) Except as otherwise provided by law, only persons in whose names shares
entitled to vote stand on the stock records of the corporation on the record
date for determining the stockholders entitled to vote at said meeting shall be
entitled to vote at such meeting. Shares standing in the names of two or more
persons shall be voted or represented in accordance with the determination of
the majority of such persons, or, if only one of such persons is present in
person or represented by proxy, such person shall have the right to vote such
shares and such shares shall be deemed to be represented for the purpose of
determining a quorum.
(b) Every person entitled to vote or execute consents shall have the right
to do so either in person or by an agent or agents authorized by a written proxy
executed by such person or his duly authorized agent, which proxy shall be filed
with the Secretary of the corporation at or before the meeting at which it is to
be used. Said proxy so appointed need not be a stockholder. No proxy shall be
voted on after three years from its date unless the proxy provides for a longer
period.
(c) Without limiting the manner in which a stockholder may authorize
another person or persons to act for him as proxy pursuant to subsection (b) of
this section, the following shall constitute a valid means by which a
stockholder may grant such authority:
(1) A stockholder may execute a writing authorizing another person or
persons to act for him as proxy. Execution may be accomplished by the
stockholder or his authorized officer, director, employee or agent signing such
writing or causing his or her signature to be affixed to such writing by any
reasonable means including, but not limited to, by facsimile signature.
(2) A stockholder may authorize another person or persons to act for
him as proxy by transmitting or authorizing the transmission of a telegram,
cablegram, or other means of electronic transmission to the person who will be
the holder of the proxy or to a proxy solicitation firm, proxy support service
organization or like agent duly authorized by the person who will be the holder
of the proxy to receive such transmission, provided that any such telegram,
cablegram or other means of electronic transmission must either set forth or be
submitted with information from which it can be determined that the telegram,
cablegram or other electronic transmission was authorized by the stockholder.
Such authorization can be
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established by the signature of the stockholder on the proxy, either in writing
or by a signature stamp or facsimile signature, or by a number or symbol from
which the identity of the stockholder can be determined, or by any other
procedure deemed appropriate by the inspectors or other persons making the
determination as to due authorization.
(3) If it is determined that such telegrams, cablegrams or other
electronic transmissions are valid, the inspectors or, if there are no
inspectors, such other persons making that determination shall specify the
information upon which they relied.
(d) Any copy, facsimile telecommunication or other reliable reproduction of
the writing or transmission created pursuant to subsection (c) of this section
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used, provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or transmission.
Section 2.7 Voting Procedures and Inspectors of Elections.
(a) The corporation shall, in advance of any meeting of stockholders,
appoint one or more inspectors to act at the meeting and make a written report
thereof. The corporation may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the person presiding at
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector with strict impartiality
and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares outstanding and
the voting power of each, (ii) determine the shares represented at a meeting and
the validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (v) certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist the inspectors in the performance of the duties of
the inspectors.
(c) The date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be announced at
the meeting. No ballot, proxies or votes, nor any revocations thereof or changes
thereto, shall be accepted by the Inspectors after the closing of the polls
unless the Court of Chancery upon application by a stockholder shall determine
otherwise.
(d) In determining the validity and counting of proxies and ballots, the
inspectors shall be limited to an examination of the proxies, any envelopes
submitted with those proxies, any information provided in accordance with
Section 212(c)(2) of the Delaware General Corporation Law, ballots and the
regular books and records of the corporation, except that the inspectors may
consider other reliable information for the limited purpose of reconciling
proxies and ballots submitted by or on behalf of banks, brokers, their nominees
or similar persons which represent more votes than the holder of a proxy is
authorized by the record owner to cast or more votes than the stockholder holds
of record. If the inspectors consider other reliable information for the
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limited purpose permitted herein, the inspectors at the time they make their
certification pursuant to subsection (b)(v) of this section shall specify the
precise information considered by them including the person or persons from whom
they obtained the information, when the information was obtained, the means by
which the information was obtained and the basis for the inspectors' belief that
such information is accurate and reliable.
Section 2.8 List of Stockholders.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held and which place shall
be specified in the notice of the meeting, or, if not specified, at the place
where said meeting is to be held, and the list shall be produced and kept at the
time and place of meeting during the whole time thereof, and may be inspected by
any stockholder who is present.
Section 2.9 Stockholder Proposals at Annual Meetings.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, otherwise properly brought before the meeting by or at
the direction of the Board of Directors or otherwise properly brought before the
meeting by a stockholder. In addition to any other applicable requirements, for
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation, not
less than 45 days nor more than 75 days prior to the date on which the
corporation first mailed its proxy materials for the previous year's annual
meeting of shareholders (or the date on which the corporation mails its proxy
materials for the current year if during the prior year the corporation did not
hold an annual meeting or if the date of the annual meeting was changed more
than 30 days from the prior year). A stockholder's notice to the Secretary
shall set forth as to each matter the stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of the stockholder proposing
such business, (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, and (iv) any material interest of the
stockholder in such business.
Notwithstanding anything in the By-Laws to the contrary, no business shall
be conducted at the annual meeting except in accordance with the procedures set
forth in this Section 2.9, provided, however, that nothing in this Section 2.9
shall be deemed to preclude discussion by any stockholder of any business
properly brought before the annual meeting in accordance with said procedure.
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The Chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 2.9, and if he should
so determine he shall so declare to the meeting, and any such business not
properly brought before the meeting shall not be transacted.
Nothing in this Section 2.9 shall affect the right of a stockholder to
request inclusion of a proposal in the corporation's proxy statement to the
extent that such right is provided by an applicable rule of the Securities and
Exchange Commission.
Section 2.10 Nominations of Persons for Election to the Board of Directors.
In addition to any other applicable requirements, only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors. Nominations of persons for election to the Board of
Directors of the corporation may be made at a meeting of stockholders by or at
the direction of the Board of Directors, by any nominating committee or person
appointed by the Board of Directors or by any stockholder of the corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 2.10. Such nominations, other
than those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation, not less than 45 days nor
more than 75 days prior to the date on which the corporation first mailed its
proxy materials for the previous year's annual meeting of shareholders (or the
date on which the corporation mails its proxy materials for the current year if
during the prior year the corporation did not hold an annual meeting or if the
date of the annual meeting was changed more than 30 days from the prior year).
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director, (i)
the name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class and number of
shares of the corporation which are beneficially owned by the person, and (iv)
any other information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Rule 14a under
the Securities Exchange Act of 1934; and (b) as to the stockholder giving the
notice, (i) the name and record address of the stockholder, and (ii) the class
and number of shares of the corporation which are beneficially owned by the
stockholder. The corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the corporation to determine
the eligibility of such proposed nominee to serve as a director of the
corporation. No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth herein.
These provisions shall not apply to nomination of any persons entitled to be
separately elected by holders of preferred stock.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
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Section 2.11 Action Without Meeting.
Unless otherwise provided in the Certificate of Incorporation, any action
required by statute to be taken at any annual or special meeting of stockholders
of the corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent or consents in writing, setting forth
the action so taken, are signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. To be effective, a written consent must be delivered to the
corporation by delivery to its registered office in Delaware, its principal
place of business, or an officer or agent of the corporation having custody of
the book in which proceedings of meetings of stockholders are recorded.
Delivery made to a corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. Every written consent
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein unless, within sixty days of the earliest dated consent delivered in the
manner required by this Section to the corporation, written consents signed by a
sufficient number of holders to take action are delivered to the corporation in
accordance with this Section. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
ARTICLE III
Directors
Section 3.1 Number and Term of Office.
The number of directors of the corporation shall not be less than seven (7)
nor more than eleven (11) until changed by amendment of the Certificate of
Incorporation or by a Bylaw amending this Section 3.1 duly adopted by the Board
of Directors. For so long as there is Series B Preferred Stock outstanding, one
of the directors shall be the Series B Preferred Stock Director, elected as
specified the Certificate of Incorporation. For so long as there is Series C
Preferred Stock, Series D Preferred Stock, or Series D-X Preferred Stock
outstanding, one of the directors shall be the Series C Preferred Stock
Director, elected as specified the Certificate of Incorporation. The exact
number of directors shall be fixed from time to time, within the limits
specified in the Certificate of Incorporation or in this Section 3.1, by a bylaw
or amendment thereof duly adopted by the vote of a majority of the shares
entitled to vote represented at a duly held meeting at which a quorum is
present, or by the written consent of the holders of a majority of the
outstanding shares entitled to vote, or by the Board of Directors, provided that
if there is then required to be a Series B Preferred Stock Director or a Series
C Preferred Stock Director, the vote of the required Preferred Stock directors
shall be required to change the size of the Board. Subject to the foregoing
provisions for changing the number of directors, the number of directors of the
corporation has been fixed at seven (7).
The directors shall be divided into three classes, designated Class I,
Class II, and Class III, as nearly equal in number as the then total number of
directors permits. Class I directors shall serve until the 2000 annual meeting,
Class II directors shall serve until the 2001
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annual meeting and Class III directors shall serve until the 2002 annual
meeting. At each succeeding annual meeting of stockholders beginning in 2000,
successors to the class of directors whose terms expires at that annual meeting
shall be elected for a three-year term. If the number of directors is changed,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible, and
any additional directors of any class elected to fill a vacancy resulting from
an increase in such class shall hold office for a term that shall coincide with
the remaining term of that class, but in no case will a decrease in the number
of directors shorten the term of any incumbent director. Notwithstanding the
foregoing, whenever the holders of any one or more classes or series of
Preferred Stock issued by the Corporation shall have the right, voting
separately by class or series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of these
Bylaws applicable thereto, and such directors so elected shall not be divided
into classes pursuant to this Section 3.1 unless expressly provided by such
terms.
Any amendment, change or repeal of this Section 3.1, or any other amendment
to these Bylaws that will have the effect of permitting circumvention of or
modifying this Section 3.1, shall require the favorable vote, at a stockholders'
meeting, of the holders of at least 80% of the then-outstanding shares of stock
of the Corporation entitled to vote.
With the exception of the first Board of Directors, which shall be elected
by the incorporators, and except as provided in Section 3.3 of this Article III,
the directors shall be elected by a plurality vote of the shares represented in
person or by proxy, at the stockholders annual meeting in each year and entitled
to vote on the election of directors. Elected directors shall hold office until
the next annual meeting for the years in which their terms expire and until
their successors shall be duly elected and qualified. Directors need not be
stockholders. If, for any cause, the Board of Directors shall not have been
elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
Section 3.2 Powers.
The powers of the corporation shall be exercised, its business conducted
and its property controlled by or under the direction of the Board of Directors.
Section 3.3 Vacancies.
Vacancies and newly created directorships resulting from any increase in
the authorized number of directors may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director,
and each director so elected shall hold office for the unexpired portion of the
term of the director whose place shall be vacant, and until his successor shall
have been duly elected and qualified. A vacancy in the Board of Directors shall
be deemed to exist under this section in the case of the death, removal or
resignation of any director, or if the stockholders fail at any meeting of
stockholders at which directors are to be elected (including any meeting
referred to in Section 3.4 below) to elect the number of directors then
constituting the whole Board.
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Section 3.4 Resignations and Removals.
(a) Any director may resign at any time by delivering his written
resignation to the Secretary, such resignation to specify whether it will be
effective at a particular time, upon receipt by the Secretary or at the pleasure
of the Board of Directors. If no such specification is made it shall be deemed
effective at the pleasure of the Board of Directors. When one or more directors
shall resign from the Board, effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office for the unexpired portion of the term of the director whose
place shall be vacated and until his successor shall have been duly elected and
qualified.
(b) At a special meeting of stockholders called for the purpose in the
manner herein above provided, the Board of Directors, or any individual
director, may be removed from office, with or without cause, and a new director
or directors elected by a vote of stockholders holding a majority of the
outstanding shares entitled to vote at an election of directors. Unless the
certificate of incorporation otherwise provides, if the board of directors is
classified, shareholders may effect removal only for cause.
Section 3.5 Meetings.
(a) The annual meeting of the Board of Directors shall be held immediately
after the annual stockholders' meeting and at the place where such meeting is
held or at the place announced by the Chairman at such meeting. No notice of an
annual meeting of the Board of Directors shall be necessary and such meeting
shall be held for the purpose of electing officers and transacting such other
business as may lawfully come before it.
(b) Except as hereinafter otherwise provided, regular meetings of the Board
of Directors shall be held in the office of the corporation required to be
maintained pursuant to Section 1.2 of Article I hereof. Regular meetings of the
Board of Directors may also be held at any place within or without the State of
Delaware which has been designated by resolutions of the Board of Directors or
the written consent of all directors.
(c) Special meetings of the Board of Directors may be held at any time and
place within or without the State of Delaware whenever called by the Chairman of
the Board or, if there is no Chairman of the Board, by the President, or by a
majority of the directors.
(d) Written notice of the time and place of all regular and special
meetings of the Board of Directors shall be delivered personally to each
director or sent by telegram or facsimile transmission at least 48 hours before
the start of the meeting, or sent by first class mail at least 120 hours before
the start of the meeting. Notice of any meeting may be waived in writing at any
time before or after the meeting and will be waived by any director by
attendance thereat.
Section 3.6 Quorum and Voting.
(a) A quorum of the Board of Directors shall consist of a majority of the
exact number of directors fixed from time to time in accordance with Section 3.1
of Article III of these Bylaws, but not less than one; provided, however, at any
meeting whether a quorum be present or
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otherwise, a majority of the directors present may adjourn from time to time
until the time fixed for the next regular meeting of the Board of Directors,
without notice other than by announcement at the meeting.
(b) At each meeting of the Board at which a quorum is present all questions
and business shall be determined by a vote of a majority of the directors
present, unless a different vote be required by law, the Certificate of
Incorporation, or these Bylaws.
(c) Any member of the Board of Directors, or of any committee thereof, may
participate in a meeting by means of conference telephone or similar
communication equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by such means shall
constitute presence in person at such meeting.
(d) The transactions of any meeting of the Board of Directors, or any
committee thereof, however called or noticed, or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice, if a
quorum be present and if, either before or after the meeting, each of the
directors not present shall sign a written waiver of notice, or a consent to
holding such meeting, or an approval of the minutes thereof. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Section 3.7 Action Without Meeting.
Unless otherwise restricted by the Certificate of Incorporation or these
Bylaws, any action required or permitted to be taken at any meeting of the Board
of Directors or of any committee thereof may be taken without a meeting, if all
members of the Board or of such committee, as the case may be, consent thereto
in writing, and such writing or writings are filed with the minutes of
proceedings of the Board or committee.
Section 3.8 Fees and Compensation.
Directors and members of committees may receive such compensation, if any,
for their services, and such reimbursement for expenses, as may be fixed or
determined by resolution of the Board of Directors.
Section 3.9 Committees.
(a) Executive Committee: The Board of Directors may appoint an Executive
Committee of not less than one member, each of whom shall be a director. The
Executive Committee, to the extent permitted by law, shall have and may exercise
when the Board of Directors is not in session all powers of the Board in the
management of the business and affairs of the Corporation, except such committee
shall not have the power or authority to amend these Bylaws or to approve or
recommend to the stockholders any action which must be submitted to stockholders
for approval under the General Corporation Law.
(b) Other Committees: The Board of Directors may, by resolution passed by a
majority of the whole Board, from time to time appoint such other committees as
may be permitted by law. Such other committees appointed by the Board of
Directors shall have such powers and perform such duties as may be prescribed by
the resolution or resolutions creating such
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committee, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws.
(c) Term: The members of all committees of the Board of Directors shall
serve a term coexistent with that of the Board of Directors which shall have
appointed such committee. The Board, subject to the provisions of subsections
(a) or (b) of this Section 3.9, may at any time increase or decrease the number
of members of a committee or terminate the existence of a committee; provided,
that no committee shall consist of less than one member. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation, but the Board may at any time for any reason remove any individual
committee member and the Board may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(d) Meetings: Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 3.9 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter; special meetings of any such
committee may be held at the principal office of the corporation required to be
maintained pursuant to Section 1.2 of Article I hereof; or at any place which
has been designated from time to time by resolution of such committee or by
written consent of all members thereof, and may be called by any director who is
a member of such committee, upon written notice to the members of such committee
of the time and place of such special meeting given in the manner provided for
the giving of written notice to members of the Board of Directors of the time
and place of special meetings of the Board of Directors. Notice of any special
meeting of any committee may be waived in writing at any time after the meeting
and will be waived by any director by attendance thereat. A majority of the
authorized number of members of any such committee shall constitute a quorum for
the transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee.
ARTICLE IV
Officers
Section 4.1 Officers Designated.
The officers of the corporation shall be a President, a Secretary, and a
Treasurer. The Board of Directors or the President may also appoint a Chairman
of the Board, one or more Vice-Presidents, assistant secretaries, assistant
treasurers, and such other officers and agents with such powers and duties as it
or he shall deem necessary. The order of the seniority of the Vice- Presidents
shall be in the order of their nomination, unless otherwise determined by the
Board of
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Directors. The Board of Directors may assign such additional titles to one or
more of the officers as they shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
Section 4.2 Tenure and Duties of Officers.
(a) General: All officers shall hold office at the pleasure of the Board
of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors. Nothing in these Bylaws shall be construed as creating any
kind of contractual right to employment with the corporation.
(b) Duties of the Chairman of the Board of Directors: The Chairman of the
Board of Directors (if there be such an officer appointed) shall, when present,
preside at all meetings of the shareholders and the Board of Directors. The
Chairman of the Board of Directors shall perform such other duties and have such
other powers as the Board of Directors shall designate from time to time.
(c) Duties of President: The President shall be the chief executive
officer of the corporation and shall preside at all meetings of the shareholders
and at all meetings of the Board of Directors, unless the Chairman of the Board
of Directors has been appointed and is present. The President shall perform such
other duties and have such other powers as the Board of Directors shall
designate from time to time.
(d) Duties of Vice-Presidents: The Vice-Presidents, in the order of their
seniority, may assume and perform the duties of the President in the absence or
disability of the President or whenever the office of the President is vacant.
The Vice-President shall perform such other duties and have such other powers as
the Board of Directors or the President shall designate from time to time.
(e) Duties of Secretary: The Secretary shall attend all meetings of the
shareholders and of the Board of Directors and any committee thereof, and shall
record all acts and proceedings thereof in the minute book of the corporation.
The Secretary shall give notice, in conformity with these Bylaws, of all
meetings of the shareholders, and of all meetings of the Board of Directors and
any Committee thereof requiring notice. The Secretary shall perform such other
duties and have such other powers as the Board of Directors shall designate from
time to time. The President may direct any Assistant Secretary to assume and
perform the duties of the Secretary in the absence or disability of the
Secretary, and each Assistant Secretary shall perform such other duties and have
such other powers as the Board of Directors or the President shall designate
from time to time.
(f) Duties of Treasurer: The Treasurer shall keep or cause to be kept the
books of account of the corporation in a thorough and proper manner, and shall
render statements of the financial affairs of the corporation in such form and
as often as required by the Board of
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Directors or the President. The Treasurer, subject to the order of the Board of
Directors, shall have the custody of all funds and securities of the
corporation. The Treasurer shall perform all other duties commonly incident to
his office and shall perform such other duties and have such other powers as the
Board of Directors or the President shall designate from time to time. The
President may direct any Assistant Treasurer to assume and perform the duties of
the Treasurer in the absence or disability of the Treasurer, and each Assistant
Treasurer shall perform such other duties and have such other powers as the
Board of Directors or the President shall designate from time to time.
ARTICLE V
Execution of Corporate Instruments, and
Voting of Securities Owned by the Corporation
Section 5.1 Execution of Corporate Instruments.
(a) The Board of Directors may, in its discretion, determine the method and
designate the signatory officer or officers, or other person or persons, to
execute any corporate instrument or document, or to sign the corporate name
without limitation, except where otherwise provided by law, and such execution
or signature shall be binding upon the corporation.
(b) Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, formal contracts of the corporation, promissory
notes, deeds of trust, mortgages and other evidences of indebtedness of the
corporation, and other corporate instruments or documents requiring the
corporate seal, and certificates of shares of stock owned by the corporation,
shall be executed, signed or endorsed by the Chairman of the Board (if there be
such an officer appointed) or by the President; such documents may also be
executed by any Vice-President and by the Secretary or Treasurer or any
Assistant Secretary or Assistant Treasurer. All other instruments and documents
requiring the corporate signature, but not requiring the corporate seal, may be
executed as aforesaid or in such other manner as may be directed by the Board of
Directors.
(c) All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation, or in special accounts of the corporation, shall
be signed by such person or persons as the Board of Directors shall authorize so
to do.
Section 5.2 Voting of Securities Owned by Corporation.
All stock and other securities of other corporations owned or held by the
corporation for itself, or for other parties in any capacity, shall be voted,
and all proxies with respect thereto shall be executed, by the person authorized
so to do by resolution of the Board of Directors or, in the absence of such
authorization, by the Chairman of the Board (if there be such an officer
appointed), or by the President, or by any Vice-President.
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ARTICLE VI
Shares of Stock
Section 6.1 Form and Execution of Certificates.
Certificates for the shares of stock of the corporation shall be in such
form as is consistent with the Certificate of Incorporation and applicable law.
Every holder of stock in the corporation shall be entitled to have a certificate
signed by, or in the name of the corporation by, the Chairman of the Board (if
there be such an officer appointed), or by the President or any Vice-President
and by the Treasurer or Assistant Treasurer or the Secretary or Assistant
Secretary, certifying the number of shares owned by him in the corporation. Any
or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue. If the corporation shall be authorized to issue
more than one class of stock or more than one series of any class, 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 shall be set forth
in full or summarized on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in section 202 of the Delaware General
Corporation Law, in lieu of the foregoing requirements, there may be set forth
on the face or back of the certificate which the corporation shall issue to
represent such class or series of stock, a statement that the corporation will
furnish without charge to each stockholder who so requests 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.
Section 6.2 Lost Certificates.
The Board of Directors may direct a new certificate or certificates to be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to indemnify the
corporation in such manner as it shall require and/or to give the corporation a
surety bond in such form and amount as it may direct as indemnity against any
claim that may be made against the corporation with respect to the certificate
alleged to have been lost or destroyed.
Section 6.3 Transfers.
Transfers of record of shares of stock of the corporation shall be made
only upon its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a certificate or certificates for a like
number of shares, properly endorsed.
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Section 6.4 Fixing Record Dates.
(a) In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which record date shall not be more than sixty
nor less than ten days before the date of such meeting. If no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
date on which the meeting is held. A determination of stockholders of record
entitled notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by the Delaware General Corporation Law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the corporation by delivery to its registered office in
Delaware, its principal place of business, or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
or the stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action.
If no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
Section 6.5 Registered Stockholders.
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends, and
to vote as such owner, and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part
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of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII
Other Securities of the Corporation
All bonds, debentures and other corporate securities of the corporation,
other than stock certificates, may be signed by the Chairman of the Board (if
there be such an officer appointed), or the President or any Vice-President or
such other person as may be authorized by the Board of Directors and the
corporate seal impressed thereon or a facsimile of such seal imprinted thereon
and attested by the signature of the Secretary or an Assistant Secretary, or the
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature of a trustee under an indenture pursuant to which such bond, debenture
or other corporate security shall be issued, the signature of the persons
signing and attesting the corporate seal on such bond, debenture or other
corporate security may be the imprinted facsimile of the signatures of such
persons. Interest coupons appertaining to any such bond, debenture or other
corporate security, authenticated by a trustee as aforesaid, shall be signed by
the Treasurer or an Assistant Treasurer of the corporation, or such other person
as may be authorized by the Board of Directors, or bear imprinted thereon the
facsimile signature of such person. In case any officer who shall have signed
or attested any bond, debenture or other corporate security, or whose facsimile
signature shall appear thereon or before the bond, debenture or other corporate
security so signed or attested shall have been delivered, such bond, debenture
or other corporate security nevertheless may be adopted by the corporation and
issued and delivered as though the person who signed the same or whose facsimile
signature shall have been used thereon had not ceased to be such officer of the
corporation.
ARTICLE VIII
Corporate Seal
The corporate seal shall consist of a die bearing the name of the
corporation and the state and date of its incorporation. Said seal may be used
by causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE IX
Indemnification of Officers, Directors, Employees and Agents
Section 9.1 Right to Indemnification.
Each person who was or is a party or is threatened to be made a party to or
is involved (as a party, witness, or otherwise), in any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (hereinafter a "Proceeding"), by reason of the fact that he, or
a person of whom he is the legal representative, is or was a director, officer,
employee, or agent of the corporation or is or was serving at the request of the
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corporation as a director, officer, employee, or agent of another corporation or
of a partnership, joint venture, trust, or other enterprise, including service
with respect to employee benefit plans, whether the basis of the Proceeding is
alleged action in an official capacity as a director, officer, employee, or
agent or in any other capacity while serving as a director, officer, employee,
or agent (hereafter an "Agent"), shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the Delaware General Corporation
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 corporation to provide broader
indemnification rights than were permitted prior thereto) against all expenses,
liability, and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties, and amounts paid or to be paid in settlement, and any
interest, assessments, or other charges imposed thereon, and any federal, state,
local, or foreign taxes imposed on any Agent as a result of the actual or deemed
receipt of any payments under this Article) reasonably incurred or suffered by
such person 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 (hereinafter "Expenses"); provided, however, that except as
to actions to enforce indemnification rights pursuant to Section 9.3 of this
Article, the corporation shall indemnify any Agent seeking indemnification in
connection with a Proceeding (or part thereof) initiated by such person only if
the Proceeding (or part thereof) was authorized by the Board of Directors of the
corporation. The right to indemnification conferred in this Article shall be a
contract right.
Section 9.2 Authority to Advance Expenses.
Expenses incurred by an officer or director (acting in his capacity as
such) in defending a Proceeding shall be paid by the corporation in advance of
the final disposition of such Proceeding, provided, however, that if required by
the Delaware General Corporation Law, as amended, such Expenses shall be
advanced only upon delivery to the corporation of an undertaking by or on behalf
of such director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized in this Article or otherwise. Expenses incurred by other Agents of
the corporation (or by the directors or officers not acting in their capacity as
such, including service with respect to employee benefit plans) may be advanced
upon such terms and conditions as the Board of Directors deems appropriate. Any
obligation to reimburse the corporation for Expense advances shall be unsecured
and no interest shall be charged thereon.
Section 9.3 Right of Claimant to Bring Suit.
If a claim under Section 9.1 or 9.2 of this Article is not paid in full by
the corporation within 180 days after a written claim has been received by the
corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense
(including attorneys' fees) of prosecuting such claim. It shall be a defense to
any such action (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 corporation) that the claimant has
not met the standards of conduct that make it permissible under the Delaware
General Corporation Law for the corporation to indemnify the claimant for the
amount claimed. The burden of proving such a defense shall be on the
corporation. Neither
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the failure of the corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper under
the circumstances because he has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by
the corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the claimant had not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
Section 9.4 Provisions Nonexclusive.
The rights conferred on any person by this Article shall not be exclusive
of any other rights that such person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, agreement, vote of
stockholders or disinterested directors, or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office. To the extent that any provision of the Certificate, agreement, or vote
of the stockholders or disinterested directors is inconsistent with these
bylaws, the provision, agreement, or vote shall take precedence.
Section 9.5 Authority to Insure.
The corporation may purchase and maintain insurance to protect itself and
any Agent against any Expense, whether or not the corporation would have the
power to indemnify the Agent against such Expense under applicable law or the
provisions of this Article.
Section 9.6 Survival of Rights.
The rights provided by this Article shall continue as to a person who has
ceased to be an Agent and shall inure to the benefit of the heirs, executors,
and administrators of such a person.
Section 9.7 Settlement of Claims.
The corporation shall not be liable to indemnify any Agent under this
Article (a) for any amounts paid in settlement of any action or claim effected
without the corporation's written consent, which consent shall not be
unreasonably withheld; or (b) for any judicial award if the corporation was not
given a reasonable and timely opportunity, at its expense, to participate in the
defense of such action.
Section 9.8 Effect of Amendment.
Any amendment, repeal, or modification of this Article shall not adversely
affect any right or protection of any Agent existing at the time of such
amendment, repeal, or modification.
Section 9.9 Subrogation.
In the event of payment under this Article, the corporation shall be
subrogated to the extent of such payment to all of the rights of recovery of the
Agent, who shall execute all papers required and shall do everything that may be
necessary to secure such rights, including the
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execution of such documents necessary to enable the corporation effectively to
bring suit to enforce such rights.
Section 9.10 No Duplication of Payments.
The corporation shall not be liable under this Article to make any payment
in connection with any claim made against the Agent to the extent the Agent has
otherwise actually received payment (under any insurance policy, agreement,
vote, or otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE X
Notices
Whenever, under any provisions of these Bylaws, notice is required to be
given to any stockholder, the same shall be given in writing, timely and duly
deposited in the United States Mail, postage prepaid, and addressed to his last
known post office address as shown by the stock record of the corporation or its
transfer agent. Any notice required to be given to any director may be given by
the method herein above stated, or by telegram or other means of electronic
transmission, except that such notice other than one which is delivered
personally, shall be sent to such address or (in the case of facsimile
telecommunication) facsimile telephone number as such director shall have filed
in writing with the Secretary of the corporation, or, in the absence of such
filing, to the last known post office address of such director. If no address
of a stockholder or director be known, such notice may be sent to the office of
the corporation required to be maintained pursuant to Section 1.2 of Article I
hereof. An affidavit of mailing, executed by a duly authorized and competent
employee of the corporation or its transfer agent appointed with respect to the
class of stock affected, specifying the name and address or the names and
addresses of the stockholder or stockholders, director or directors, to whom any
such notice or notices was or were given, and the time and method of giving the
same, shall be conclusive evidence of the statements therein contained. All
notices given by mail, as above provided, shall be deemed to have been given as
at the time of mailing and all notices given by telegram or other means of
electronic transmission shall be deemed to have been given as at the sending
time recorded by the telegraph company or other electronic transmission
equipment operator transmitting the same. It shall not be necessary that the
same method of giving be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
The period or limitation of time within which any stockholder may exercise any
option or right, or enjoy any privilege or benefit, or be required to act, or
within which any director may exercise any power or right, or enjoy any
privilege, pursuant to any notice sent him in the manner above provided, shall
not be affected or extended in any manner by the failure of such a stockholder
or such director to receive such notice. Whenever any notice is required to be
given under the provisions of the statutes or of the Certificate of
Incorporation, or of these Bylaws, a waiver thereof in writing signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Whenever notice is required
to be given, under any provision of law or of the Certificate of Incorporation
or Bylaws of the corporation, to any person with whom communication is unlawful,
the giving of such notice to such person shall not be required and there shall
be no duty to apply to any
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governmental authority or agency for a license or permit to give such notice to
such person. Any action or meeting which shall be taken or held without notice
to any such person with whom communication is unlawful shall have the same force
and effect as if such notice had been duly given. In the event that the action
taken by the corporation is such as to require the filing of a certificate under
any provision of the Delaware General Corporation Law, the certificate shall
state, if such is the fact and if notice is required, that notice was given to
all persons entitled to receive notice except such persons with whom
communication is unlawful.
ARTICLE XI
Amendments
These Bylaws may be repealed, altered or amended or new Bylaws adopted by
written consent of stockholders in the manner authorized by Section 2.11 of
Article II, or at any meeting of the stockholders, either annual or special, by
the affirmative vote of a majority of the stock entitled to vote at such
meeting, unless a larger vote is required by these Bylaws or the Certificate of
Incorporation. The Board of Directors shall also have the authority to repeal,
alter or amend these Bylaws or adopt new Bylaws (including, without limitation,
the amendment of any Bylaws setting forth the number of directors who shall
constitute the whole Board of Directors) by unanimous written consent or at any
annual, regular, or special meeting by the affirmative vote of a majority of the
whole number of directors, subject to the power of the stockholders to change or
repeal such Bylaws and provided that the Board of Directors shall not make or
alter any Bylaws fixing the qualifications, classifications, or term of office
of directors.
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CERTIFICATE OF SECRETARY
The undersigned, Secretary of Digimarc Corporation, a Delaware
corporation, hereby certifies that the foregoing is a full, true and correct
copy of the Bylaws of said corporation, with all amendments to date of this
Certificate.
WITNESS the signature of the undersigned this 4th day of October, 1999.
/s/ E.K. Ranjit
-----------------------------
E.K. Ranjit, Secretary
<PAGE>
EXHIBIT 4.2
DIGIMARC CORPORATION
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
This Second Amended and Restated Investor Rights Agreement (the
"Agreement") is entered into as of the 2 day of November, 1999, by and
among DIGIMARC CORPORATION, an Oregon corporation (the "Company") and the
holders of the Company's Series A Preferred Stock (the "Series A Holders"),
Series B Preferred Stock (the "Series B Holders"), Series C Preferred Stock (the
"Series C Holders"), Series D Preferred Stock (the "Series D Holders") and
Series D-X Preferred Stock (the "Series D-X Holders"), (collectively, the Series
A Holders, the Series B Holders, the Series C Holders, the Series D Holders and
the Series D-X Holders are referred to herein as "Preferred Holders").
Recitals
WHEREAS, the Company, the Series A Holders, the Series B Holders and the
Series C Holders have entered into a First Amended and Restated Investor Rights
Agreement dated December 31, 1997, as amended by that First Amendment to the
First Amended and Restated Investor Rights Agreement dated June 8, 1999 by and
among the Company and the Series A Holders, the Series B Holders, the Series C
Holders and the Series D Holders, as further amended by that Second Amendment to
the First Amended and Restated Investor Rights Agreement dated August 26, 1999
by and among the Company and the Preferred Holders (collectively, the "First
Amended and Restated Agreement"); and
WHEREAS, the Company and the Preferred Holders desire to provide for
certain arrangements with respect to the registration of shares of capital stock
of the Company under the Securities Act;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement and pursuant to Sections 3.10, 3.11 and 6.5 of the
First Amended and Restated Agreement, the Company and the undersigned Preferred
Holders holding at least 60% of the Registrable Securities then outstanding (as
defined in the First Amended and Restated Agreement) hereby amend the First
Amended and Restated Agreement so that it is restated in its entirety to read
as follows:
1. General.
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1.1 Definitions. As used in this Agreement, the following terms shall
have the following respective meanings:
"Designated IPO" means the same thing as that term is defined to mean in
Section 4.2.3(a)(3) of the Company's Third Restated Articles of Incorporation,
as amended ("Third Restated Articles").
"Holder" means any Preferred Holder or other holder owning of record
Registrable Securities that have not been sold to the public or any assignee of
record of such Registrable Securities in accordance with Section 3.9 hereof.
"Initial Offering" means the Company's first firm commitment underwritten
public offering of its Common Stock pursuant to a registration statement filed
under the Securities Act.
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.
"Registrable Securities" means (i) Common Stock of the Company issued or
issuable upon conversion of the Shares; and (ii) any Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, such above-described securities.
Notwithstanding the foregoing, Registrable Securities shall not include any
securities (i) sold by a person to the public either pursuant to a registration
statement or Rule 144 or (ii) sold in a private transaction in which the
transferor's rights under Section 3 of this Agreement are not assigned.
"Registrable Securities then outstanding" shall be the number of shares
determined by calculating the total number of shares of the Company's Common
Stock that are Registrable Securities and either (1) are then issued and
outstanding or (2) are issuable pursuant to then exercisable or convertible
securities.
"Registration Expenses" shall mean all expenses incurred by the Company in
complying with Sections 3.1, 3.2 and 3.3 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company and the underwriters, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes, if any, applicable to the sale.
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"Shares" shall mean shares of the Company's Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock
and Series D-X Preferred Stock.
"Form S-3" means such form under the Securities Act as in effect on the
date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"SEC" or "Commission" means the Securities and Exchange Commission.
2. Restrictions on Transfer.
2.1 Transfer Only Under These Conditions. Each Holder agrees not to make
any disposition of all or any portion of such Holder's Registrable Securities
unless and until the transferee has agreed in writing for the benefit of the
Company to be bound by this Section 2, provided and to the extent such Section
is then applicable and:
2.1.1 Unless Registration Statement Then Effective. There is then in
effect a registration statement under the Securities Act covering such
proposed disposition and such disposition is made in accordance with such
registration statement; or
2.1.2 Unless Exemption Exists. (i) Such Holder shall have notified
the Company of the proposed disposition and shall have furnished the
Company with a detailed statement of the circumstances surrounding the
proposed disposition, and (ii) if reasonably requested by the Company, such
Holder shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such disposition will not
require Registration of such shares under the Securities Act. It is agreed
that the Company will not require opinions of counsel for transactions made
pursuant to Rule 144 except in unusual circumstances.
2.1.3 Unless Affiliated Transaction. Notwithstanding the provisions
of paragraphs 2.1.1 and 2.1.2 above, no such registration statement or
opinion of counsel shall be necessary for a transfer by a Holder which is
(i) a partnership to its partners or former partners in accordance with
partnership interests, (ii) a corporation to its shareholders in accordance
with their interest in the corporation or to an entity directly or
indirectly controlling, controlled by or under common control with such
corporation, (iii) a limited liability company to its members in accordance
with their membership interests, (iv) an individual Holder to a family
member of such Holder or to a trust for the benefit of such Holder or (v) a
partnership or limited liability company affiliated with and/or managed by
the transferee or the same manager who manages the transferee, provided the
transferee will be subject to the terms of this Section 2.1 to the same
extent as if such transferee were an original Holder hereunder.
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2.1.4 Legend. Each certificate representing Shares or Registrable
Securities shall (unless otherwise permitted by the provisions of this
Agreement) be stamped or otherwise imprinted with a legend substantially
similar to the following (in addition to any legend required under
applicable state securities laws or as provided elsewhere in this
Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE
OPINION OF COUNSEL OR BASED ON OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER,
PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
2.2 Removal of '33 Act Legend. The Company shall be obligated to reissue
promptly unlegended certificates at the request of any holder thereof if the
holder shall have obtained an opinion of counsel reasonably acceptable to the
Company to the effect that the securities proposed to be disposed of may
lawfully be so disposed of without registration, qualification or legend.
2.3 Removal of Blue Sky Legends. Any legend endorsed on an instrument
pursuant to applicable state securities laws and the stop-transfer instructions
with respect to such securities shall be removed upon receipt by the Company of
an order of the appropriate blue sky authority authorizing such removal.
3. Registration Rights.
3.1 Demand Registration.
3.1.1 Obligation to Register. Subject to the conditions of this
Section 3.1, if the Company shall receive at any time a written request
from the Holders of more than fifty percent (50%) of the Registrable
Securities then outstanding (the "Initiating Holders") that the Company
file a registration statement under the Securities Act having an aggregate
offering price to the public in excess of $10,000,000 (excluding
underwriting discounts and commissions), then the Company shall, within
thirty (30) days of the receipt thereof, give written notice of such
request to all Holders and subject to the limitations of this Section 3.1,
shall use its best efforts to effect, as soon as practicable, the
registration under the Securities Act of all Registrable Securities that
the Holders request to be registered.
3.1.2 Underwritten Demand Offerings. If the Initiating Holders
intend to distribute the Registrable Securities covered by their request by
means of an underwriting, they shall so advise the Company as a part of
their request made pursuant to this Section 3.1 and the Company shall
include such information in the written notice referred to in Section
3.1.1. In such event, the right of any Holder to include his Registrable
Securities in
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such registration shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting (unless otherwise mutually agreed by a majority in
interest of the Initiating Holders and such Holder) to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by a
majority in interest of the Initiating Holders (which underwriter or
underwriters shall be reasonably acceptable to the Company).
Notwithstanding any other provision of this Section 3.1, if the underwriter
advises the Company in writing that marketing factors require a limitation
of the number of securities to be underwritten (including Registrable
Securities) then the Company shall so advise all Holders which would
otherwise be underwritten pursuant hereto, and the number of shares that
may be included in the underwriting shall be allocated to the Holders on a
pro rata basis based on the number of Registrable Securities held by all
such Holders (including the Initiating Holders). Any Registrable Securities
excluded or withdrawn from such underwriting shall be withdrawn from the
registration.
3.1.3 Limits on Obligation. The Company shall not be required to
effect a registration pursuant to this Section 3.1:
(a) Earliest Allowed Demand. prior to the earlier of (i)
January 1, 2002; or (ii) the date one hundred eighty (180) days
following the Initial Offering of the Company's Common Stock; or
(b) Maximum Limits. after the Company has effected two (2)
registrations pursuant to this Section 3. 1 and such registrations
have been declared or ordered effective; or
(c) Upcoming Company Registration. during the period starting
with the date 30 days prior to the Company's good faith estimated
date of filing of, and ending on the date 120 days following the
effective date of, a registration statement pertaining to an
offering of securities for the account of the Company, provided the
Company is at all times during such period diligently pursuing such
registration provided, however, that this right to delay any
requested registration shall not be utilized more than once in any
12 month period; or
(d) Company Deferral. if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section 3.1, a
certificate signed by the President or Chief Executive Officer of
the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such registration statement to be
filed and it is therefore essential to defer the filing of such
registration statement, in which event the Company shall have the
right to defer initiation of the offering process for a single
period of not more than ninety (90) days after receipt of the
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request of the Initiating Holders, provided that such right to delay
a request shall be exercised by the Company no more than twice in
any one-year period.
3.2 Piggyback Registrations. The Company shall notify all Holders in
writing at least thirty (30) days prior to the filing of any registration
statement under the Securities Act for purposes of a public offering of
securities of the Company (including, but not limited to, registration
statements relating to secondary offerings of securities of the Company, but
excluding registration statements relating to employee benefit plans and
corporate reorganizations) and will use its best efforts to afford each such
Holder an opportunity to include in such registration statement all or part of
such Registrable Securities held by such Holder. Each Holder desiring to
include in any such registration statement all or any part of the Registrable
Securities held by it shall, within fifteen (15) days after delivery of the
above-described notice from the Company, so notify the Company in writing. Such
notice shall state the intended method of disposition of the Registrable
Securities by such Holder. If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
3.2.1 Underwritten Offerings, Cutback. If the registration statement
under which the Company gives notice under this Section 3.2 is for an
underwritten offering, the Company shall so advise the Holders. In such
event, the right of any Holder to be included in a registration pursuant to
this Section 3.2 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing
to distribute their Registrable Securities through such underwriting shall
enter into an underwriting agreement in customary form with the underwriter
or underwriters selected for such underwriting. Notwithstanding any other
provision of the Agreement, if the underwriter determines in good faith
that marketing factors require a limitation of the number of Registrable
Securities to be underwritten, the number of Registrable Securities that
may be included in the underwriting shall be reduced among the Holders on a
pro rata basis based on the total number of Registrable Securities held by
the Holders, provided no such reduction shall reduce to less than 25% of
any offering the number of shares of the Holders requested to be
registered. In no event will shares of any other selling shareholder be
included in such registration which would reduce the number of Registrable
Securities which may be included by Holders without the written consent of
Holders of not less than a majority of the Registrable Securities proposed
to be sold in the offering.
3.2.2 Company's Right to Terminate. The Company shall have the right
to terminate or withdraw any registration initiated by it under this
Section 3.2 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration. The
Registration Expenses of such withdrawn registration shall be borne by the
Company in accordance with Section 3.4 hereof.
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3.3 Form S-3 Registration. In case the Company shall receive from any
Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 (or any successor to Form S-3) or any similar short-
form registration statement and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders the Company will:
3.3.1 Notice. promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other
Holders; and
3.3.2 Inclusion of Offered Shares. as soon as practicable, effect
such registration and all such qualifications and compliances as may be so
requested and as would permit or facilitate the sale and distribution of
all or such portion of such Holder's or Holders' Registrable Securities as
are specified in such request, together with all or such portion of the
Registrable Securities of any other Holder or Holders joining in such
request as are specified in a written request given within fifteen (15)
days after receipt of such written notice from the Company; provided,
however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 3.3:
(a) Unless S-3 not available. if Form S-3 (or such successor or
similar form) is not available for such offering by the Holders; or
(b) Unless total offered stock less than threshold. if the
Holders, together with the holders of any other securities of the
Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an
aggregate offering price to the public of less than $1,000,000; or
(c) Unless for Company Deferral. if the Company shall furnish
to the Holders a certificate signed by the President or Chief
Executive Officer of the Company stating that in the good faith
judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such
Form S-3 Registration to be effected at such time, in which event
the Company shall have the right to defer the filing of the Form S-3
registration statement for a single period of not more than ninety
(90) days after receipt of the request of the Holder or Holders
under this Section 3.3 and provided that such right to delay a
request shall be exercised by the Company no more than twice in any
one-year period; or
(d) Unless within 180 Days of Offering. during the period
starting with the date of filing of, and ending on the date one
hundred eighty (180) days following the effective date of any
registration statement filed by the Company under the Securities
Act; or
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(e) One per 12 Months Limit. if the Company has already
effected one (1) registration on Form S-3 for the Holders pursuant
to this Section 3.3 within the previous 12 months.
3.3.3 Prompt filing. Subject to the foregoing, the Company shall
file a Form S-3 registration statement covering the Registrable Securities
and other securities so requested to be registered as soon as practicable
after receipt of the request or requests of the Holders.
3.4 Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 3.1 or any registration under Section 3.2 or 3.3 herein shall be borne
by the Company. All Selling Expenses incurred in connection with any
registrations hereunder, shall be borne by the holders of the securities so
registered pro rata on the basis of the number of shares so registered. The
Company shall not, however, be required to pay for expenses of any registration
proceeding begun pursuant to Section 3.1 or 3.3, the request of which has been
subsequently withdrawn by the Initiating Holders unless (a) the withdrawal is
based upon material adverse information concerning the Company of which the
Initiating Holders were not aware at the time of such request or (b) the Holders
of a majority of Registrable Securities agree to forfeit their right to one
requested registration pursuant to Section 3.1 or 3.3 (in which event such right
shall be forfeited by all Holders). If the Holders are required to pay the
Registration Expenses, such expenses shall be borne by the holders of securities
(including Registrable Securities) requesting such registration in proportion to
the number of shares for which registration was requested.
3.5 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities, the Company shall use its best
efforts, as expeditiously and as reasonably possible, to:
3.5.1 File And Keep Registration Statement Effective. Prepare and
file with the SEC a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective, and, upon the request of the Holders of a majority of the
Registrable Securities registered thereunder, keep such registration
statement effective for up to one hundred eighty (180) days or, if earlier,
until the Holders have completed the distribution related thereto.
3.5.2 Update as Law Requires. Prepare and file with the SEC such
amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration
statement.
3.5.3 Supply Prospectus. Furnish to the Holders such number of
copies of a prospectus, including a preliminary prospectus, in conformity
with the requirements of the
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Securities Act, and such other documents as they may reasonably request in
order to facilitate the disposition of Registrable Securities owned by
them.
3.5.4 Blue Sky, within limits. Use its best efforts to register and
qualify the securities covered by such registration statement under such
other securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Holders, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such
states or jurisdictions.
3.5.5 Enter Underwriting Agreement. In the event of any underwritten
public offering, enter into and perform its obligations under an
underwriting agreement, in usual and customary form, with the managing
underwriter(s) of such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such
an agreement.
3.5.6 Keep Holders Updated for Compliance. Notify each Holder of
securities covered by such registration statement at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
3.5.7 Opinion and Comfort Letters. Furnish, at the request of a
majority of the Holders participating in the registration, on the date that
such Registrable Securities are delivered to the underwriters for sale, if
such securities are being sold through underwriters, or, if such securities
are not being sold through underwriters, on the date that the registration
statement with respect to such securities becomes effective, (i) an
opinion, dated as of such date, of counsel representing the Company for the
purposes of such registration, in form and substance as is customarily
given to underwriters in an underwritten public offering and reasonably
satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities and (ii) a letter dated
as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and
if permitted by applicable accounting standards, to the Holders requesting
registration of Registrable Securities.
3.6 Termination of Registration Rights. All registration rights granted
under this Section 3 shall terminate and be of no
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further force and effect ten (10) years after the Initial Offering, provided,
however, that registration rights granted under this Section 3 shall terminate
and be of no further force and effect as to each individual Holder (or
transferee holding registration rights hereunder) prior to ten (10) years after
the closing of the Initial Offering if such Holder and its affiliates or
transferee and its affiliates can either (i) sell all of its Registrable
Securities pursuant to Rule 144 of the Securities Act within any calendar
quarter or (ii) sell its Registrable Securities pursuant to Rule 144K of the
Securities Act.
3.7 Delay of Registration; Furnishing Information.
3.7.1 No Injunctions. No Holder shall have any right to obtain or seek
an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 3.
3.7.2 Holders' Data Conditions Precedent. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to
Sections 3.1, 3.2 or 3.3 that the selling Holders shall furnish to the
Company such information regarding themselves, the Registrable Securities
held by them, and the intended method of disposition of such securities as
shall be required to effect the registration of their Registrable
Securities.
3.8 Indemnification. In the event any Registrable Securities are included
in a registration statement under Sections 3.1, 3.2 or 3.3:
3.8.1 Company Indemnification. To the extent permitted by law, the
Company will indemnify and hold harmless each Holder, the partners,
officers and directors of each Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the
Securities Exchange Act of 1934, as amended, (the "1934 Act"), against any
losses, claims, damages, or liabilities (joint or several) to which they
may become subject under the Securities Act, the 1934 Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a "Violation")
by the Company: (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary
to make the statements therein not misleading, or (iii) any violation or
alleged violation by the Company of the Securities Act, the 1934 Act, any
state securities law or any rule or regulation promulgated under the
Securities Act, the 1934 Act or any state securities law in connection with
the offering covered by such registration statement; and the Company will
reimburse each such Holder, partner, officer or director, underwriter or
controlling person for any legal or other expenses as reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided however, that the indemnity agreement
contained in this Section 3.8.1 shall not apply to amounts paid in
settlement of any such loss,
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claim, damage, liability or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such
loss, claim, damage, liability or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in
connection with such registration by such Holder, partner, officer,
director, underwriter or controlling person of such Holder.
3.8.2 Holder Indemnification. To the extent permitted by law, each
selling Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers, each person, if any, who controls the
Company within the meaning of the Securities Act, any underwriter and any
other Holder selling securities under such registration statement or any of
such other Holder's partners, directors or officers or any person who
controls such Holder, against any losses, claims, damages or liabilities
joint or several) to which the Company or any such director, officer,
controlling person, underwriter or other such Holder, or partner, director,
officer or controlling person of such other Holder may become subject under
the Securities Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder under an
instrument duly executed by such Holder and stated to be specifically for
use in connection with such registration; and each such Holder will
reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, controlling person, underwriter or other
Holder, or partner, officer, director or controlling person of such other
Holder in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 3.8.2 shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of such Holder, which consent
shall not be unreasonably withheld; provided further, that in no event
shall any indemnity under this Section 3.8 exceed the net proceeds from the
offering received by such Holder.
3.8.3 Procedure on Indemnification Claims. Promptly after receipt by
an indemnified party under this Section 3.8 of notice of the commencement
of any action (including any governmental action), such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 3.8, deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to
assume the defense thereof with counsel mutually satisfactory to the
indemnifying and indemnified parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation
of such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests
between such indemnified party and any other
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party represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a reasonable time
of the commencement of any such action, if materially prejudicial to its
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 3.8, but the omission
so to deliver written notice to the indemnifying party will not relieve it
of any liability that it may have to any indemnified party otherwise than
under this Section 3.8.
3.8.4 Alternate Remedies. If the indemnification provided for in
this Section 3.8 is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any losses, claims,
damages or liabilities referred to herein, the indemnifying party, in lieu
of indemnifying such indemnified party hereunder, shall to the extent
permitted by applicable law contribute to the amount paid or payable by
such indemnified party as a result of such loss, claim, damage or liability
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the
other in connection with the Violation(s) that resulted in such loss,
claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
3.8.5 Indemnification Obligations Survive. The obligations of the
Company and Holders under this Section 3.8 shall survive the completion of
any offering of Registrable Securities in a registration statement, and
otherwise.
3.8.6 Limits on Settlement Obligation. No Holder shall be obligated
to consent to any settlement of any claim entered into by the Company in
satisfaction of its indemnification obligations hereunder unless the
settlement includes a full and complete release of the Holder.
3.9 Assignment of Registration Rights. The rights to cause the Company to
register Registrable Securities pursuant to this Section 3 may be assigned by a
Holder to a transferee or assignee of Registrable Securities who (i) is a
subsidiary, affiliate, parent, general partner, limited partner or retired
partner of a Holder or affiliated partnership managed by the Holder, (ii) is a
Holder's family member or trust for the benefit of an individual Holder, (iii)
is a Holder prior to the transfer, or (iv) acquires either (x) at least five
hundred thousand (500,000) shares of Series A Preferred Stock or Series B
Preferred Stock (or Common Stock issued upon conversion thereof) subject to
Registration Rights pursuant to this Section 3; or (y) at least one hundred
twenty-five thousand (125,000) shares of Series C Preferred Stock, Series D
Preferred Stock or Series D-X Preferred Stock (or Common Stock issued upon
conversion thereof) subject to Registration Rights pursuant to this Section 3
(as adjusted for stock splits and combinations); provided, however, (a) the
transferor shall, within ten (10) days after such transfer, furnish to the
Company written notice of
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the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned and (b) such
transferee shall agree in writing to be subject to all restrictions set forth in
this Agreement.
3.10 Amendment of Registration Rights. Any provision of this Section 3
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of not less than sixty percent
(60%) of the Registrable Securities then outstanding. Any amendment or waiver
effected in accordance with this Section 3.10 shall be binding upon each Holder
and the Company. By acceptance of any benefits under this Section 3, Holders
hereby agree to be bound by the provisions hereunder.
3.11 Limitation on Subsequent Registration Rights. The Company shall
grant no additional parties registration rights on parity with or superior to
those granted the Holders hereunder, without the written consent of the Company
and the Holders of not less than sixty percent (60%) of the Registrable
Securities then outstanding.
3.12 "Market Stand-Off" Agreement. If requested by the Company or a
representative of the underwriters of Common Stock (or other securities) of the
Company acting reasonably, each Holder shall not sell or otherwise transfer or
dispose of any Common Stock (or other securities) of the Company held by such
Holder (other than those included in the registration) for a period specified by
the representative of the underwriters, not to exceed one hundred eighty (180)
days following the effective date of a registration statement of the Company
filed under the Securities Act (the "Effective Date"). The foregoing commitment
has two limitations: (i) no Holder shall be required to refrain from selling
under this paragraph, unless all officers and key employees of the Company enter
into similar agreements; and (ii) no Holder (including for this purpose
affiliates of any Holder) shall be required to refrain from selling under this
paragraph unless all other holders of the Company's Common Stock owning an equal
or a larger percentage of the Company's Common Stock (on an as-converted basis)
as the Holder and its affiliates are also required by a representative of the
underwriter to enter into market standoff agreements on the same terms.
The obligations described in this Section 3.12 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future. The Company may impose stop-
transfer instructions with respect to the shares of Common Stock (or other
securities) subject to the foregoing restriction until the end of said one
hundred eighty (180) day period.
3.13 Rule 144 Reporting. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its good faith efforts to:
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3.13.1 Do things that Make Rule 144 Available. Make and keep public
information available, as those terms are understood and defined in Rule
144 or any similar or analogous rule promulgated under the Securities Act,
at all times after the effective date of the first registration filed by
the Company for an offering of its securities to the general public;
3.13.2 File '33 and '34 Act Reports Timely. File with the SEC, in a
timely manner, all reports and other documents required of the Company
under the Securities Act and the 1934 Act;
3.13.3 Data to Holders. So long as a Holder owns any Registrable
Securities, furnish to such Holder forthwith upon written request: a
written statement by the Company as to its compliance with the reporting
requirements of said Rule 144 of the Securities Act, and of the 1934 Act
(at any time after it has become subject to such reporting requirements); a
copy of the most recent annual or quarterly report of the Company; and such
other reports and documents as a Holder may reasonably request in availing
itself of any rule or regulation of the SEC allowing it to sell any such
securities without registration.
4. Covenants of the Company.
4.1 Basic Financial Information and Reporting. The Company will maintain
true books and records of account in which full and correct entries will be made
of all its business transactions pursuant to a system of accounting established
and administered in accordance with generally accepted accounting principles
consistently applied, and will set aside on its books all such proper accruals
and reserves as shall be required under generally accepted accounting principles
consistently applied. In addition, so long as a Series B Holder, Series C
Holder, Series D Holder or Series D-X Holders (or Series B Holders, Series C
Holders, Series D Holders or Series D-X Holders under common management) shall
own on an as-converted basis not less than three percent (3%) of the outstanding
shares of the Company's Common Stock (including such Common Stock issuable upon
conversion of the Company's outstanding shares of preferred stock), the Company
will furnish such Series B Holder, Series C Holder, Series D Holder or Series D-
X Holder (or Series B Holders, Series C Holders, Series D Holders or Series D-X
Holders under common management, by furnishing to the common manager):
4.1.1 Annual Data. As soon as practicable after the end of each fiscal
year of the Company, and in any event within ninety (90) days thereafter, a
consolidated balance sheet of the Company, as at the end of such fiscal
year, and a consolidated statement of income and a consolidated statement
of cash flows of the Company, for such year, all prepared in accordance
with generally accepted accounting principles and setting forth in each
case in comparative form the figures for the previous fiscal year, and for
the operating plan for the year as to which the financial statements
pertain, all in reasonable detail. Such financial statements shall be
audited by an independent public accounting firm selected by the Company's
Board of Directors.
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4.1.2 Monthly Data. As soon as practicable after each monthly
accounting period in each fiscal year of the Company, and in any event
within twenty-five (25) days thereafter, a consolidated balance sheet of
the Company as of the end of each such monthly period, a consolidated
statement of income and a consolidated statement of cash flows of the
Company for such period and for the current fiscal year to date, with
comparisons to year earlier results and to results projected in that year's
operating plan, prepared in accordance with generally accepted accounting
principles, with the exception that no notes need be attached to such
statements and year-end audit adjustments need not have been made.
4.1.3 Quarterly Data. As soon as practicable after each quarterly
accounting period in each fiscal year of the Company, and in any event
within thirty (30) days after such quarterly period, a report setting forth
the Company's financial and operational highlights corresponding to each
such period.
4.2 Qualified Small Business and SBA Covenants.
4.2.1 Use of Proceeds. The proceeds from the issuance and sale of the
Series C Preferred Stock, the Series D Preferred Stock and the Series D-X
Preferred Stock (the "Proceeds") that have been provided by Series C
Holders, Series D Holders or Series D-X Holders who are licensed Small
Business Investment Companies ("SBIC Investors") shall be used by the
Company for its growth, modernization, or expansion. The Company shall
provide each SBIC Investor and the Small Business Administration (the
"SBA") reasonable access to the Company's books and records for the purpose
of confirming use of Proceeds from SBIC Investors.
4.2.2 Business Activity. For a period of one year following the
initial Closing under the Series C Purchase Agreement, the Company shall
not change its business activity if the change would render the Company
ineligible as provided in 13 CFR Section 107.720.
4.2.3 Compliance. So long as any SBIC Investor holds any securities of
the Company, the Company will at all times comply with the non-
discrimination requirements of 13 CFR Parts 112, 113, and 117.
4.2.4 Information for SBIC Investor. Within 45 days after the end of
each fiscal year and at such other times as an SBIC Investor may reasonably
request, the Company shall deliver to such SBIC Investor a written
assessment, in form and substance satisfactory to such SBIC Investor, of
the economic impact of such SBIC Investor's financing specifying the full
time equivalent jobs created or retained in connection with such
investment, and the impact of the financing on the Company's business in
terms of profits and on taxes paid by the Company and its employees. Upon
request, the Company agrees to promptly provide each SBIC Investor with
sufficient information to permit such Investor to comply with its
obligations under the Small Business Investment Act of 1958, as amended,
and the
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regulations promulgated thereunder and related thereto. Any submission of
any financial information under this Section shall include a certificate of
the Company's President, Chief Executive Officer, Treasurer, or Chief
Financial Officer.
4.2.5 Compliance with 1202. The Company will use reasonable efforts to
comply with the reporting and recordkeeping requirements of Section 1202(c)
f of the Internal Revenue Code of 1986, as amended (the "Code") and any
regulations promulgated thereunder, and unless by vote of the Board of
Directors including the Series B Preferred Stock Director (as defined in
the Third Restated Articles of Incorporation of the Company) will not
repurchase any stock of the Company if such purchase would cause the
Registrable Securities not to qualify as "Qualified Small Business Stock"
as defined in Section 1202(c) of the Code.
4.2.6 Number of Holders of Voting Securities. So long as any SBIC
Investor holds any shares of Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series D-X Preferred Stock or securities
issued by the Company with respect thereto, the Company shall use good
faith efforts to notify each SBIC Investor (i) at least 15 days prior to
taking any action after which the number of record holders of the Company's
voting securities would be increased from fewer than 50 to 50 or more, and
(ii) of any other action or occurrence after which the number of record
holders of the Company's voting securities was increased (or would
increase) from fewer than 50 to 50 or more, as soon as practicable after
the Company becomes aware that such other action or occurrence has occurred
or is proposed to occur.
4.3 Stock Options. Unless otherwise determined by the Board of Directors
for particular individuals, shares and options issued under the Company's Stock
Incentive Plan shall vest 25 percent after 12 months from issuance, and monthly
at the rate of 1/48th of the total grant per month thereafter over the remaining
36-month period. Such shares will have restrictions on transfer prior to
vesting, and thereafter the Company shall have the right of first refusal to
purchase, such right to terminate on the Initial Offering or on such other terms
as the Board may determine.
4.4 Termination of Covenants. All covenants of the Company contained in
Section 4 of this Agreement shall expire and terminate as to each Preferred
Holder on the closing of a Designated IPO.
4.5 Reserve for Conversion Shares. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of common stock,
for the purpose of effecting the conversion of the Shares and otherwise
complying with the terms of this Agreement, such number of its duly authorized
shares of common stock as shall be sufficient to effect the conversion of the
Shares from time to time outstanding or otherwise to comply with the terms of
this Agreement. If at any time the number of authorized but unissued shares of
common stock shall not be sufficient to effect the conversion of the Shares or
otherwise to comply with the terms of this Agreement, the Company will forthwith
take such corporate action as may be necessary to increase its authorized
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but unissued shares of common stock to such number of shares as shall be
sufficient for such purposes. The Company will obtain any authorization,
consent, approval or other action by or make any filing with any court or
administrative body that may be required under applicable state securities laws
in connection with the issuance of shares of common stock upon conversion of the
Shares.
4.6 Corporate Existence. The Company shall maintain and cause each of its
subsidiaries (if any) to maintain, their respective corporate existence, rights
and franchises in full force and effect.
4.7 Inspection, Consultation and Advice. The Company shall permit and
cause each of its subsidiaries (if any) to permit each Holder and such persons
as it may designate, at such Holder's expense, to visit and inspect any of the
properties of the Company and its subsidiaries, examine their books and take
copies and extracts therefrom, discuss the affairs, finances and accounts of the
Company and its subsidiaries with their officers, employees and public
accountants (and the Company hereby authorizes said accountants to discuss with
such Holder and such designees such affairs, finances and accounts), and consult
with and advise the management of the Company and its subsidiaries as to their
affairs, finances and accounts, all at reasonable times and upon reasonable
notice.
4.8 Restrictive Agreements Prohibited. Neither the Company nor any of its
subsidiaries shall become a party to any agreement which by its terms restricts
the Company's performance of this Agreement, the Series C Purchase Agreement,
the Series D Purchase Agreement or the Series D-X Purchase Agreement or any of
the Related Agreements (as defined in the Series D-X Purchase Agreement) except
for standard commercial lending agreements as approved by the Board of Directors
including the Series B Preferred Stock Director and the Series C Preferred Stock
Director (as those terms are defined in the Third Restated Articles).
4.9 Expenses of Directors; Outside Directors. The Company shall promptly
reimburse in full in accordance with payment policies consistent with this
Section 4.9 established by the Board of Directors, each director of the Company
who is not an employee of the Company for all of his reasonable out-of-pocket
expenses incurred in attending each meeting of the Board of Directors of the
Company or any Committee thereof. The Company shall use its best efforts
promptly to increase the size of the Board of Directors to include two outside
directors (as such term is reasonably construed by the Board of Directors).
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5. Confidentiality.
5.1 Commitments Regarding Use. Each Series B Holder, Series C Holder,
Series D Holder and Series D-X Holder agrees not to use Confidential Information
(as hereinafter defined) of the Company for its own use or for any purpose
except to evaluate and enforce its equity investment in the Company. Except as
permitted under subsection (B) below, each Series B Holder, Series C Holder,
Series D Holder and Series D-X Holder agrees to use its respective best efforts
not to disclose such Confidential Information to any third parties. Each Series
B Holder, Series C Holder, Series D Holder and Series D-X Holder shall undertake
to treat such Confidential Information in a manner consistent with the treatment
of its own information of such proprietary nature and agrees that it shall
protect the confidentiality of and use reasonable best efforts to prevent
disclosure of the Confidential Information to prevent it from falling into the
public domain or the possession of unauthorized persons. Each transferee of any
Series B Holder, Series C Holder, Series D Holder or Series D-X Holder who
receives Confidential Information shall agree to be bound by such provisions.
For purposes of this Section 5, "Confidential Information" means any
information, technical data, or know-how, including, but not limited to, the
Company's research, products, software, services, development, inventions,
processes, designs, drawings, engineering, marketing, or finances, disclosed by
the Company either directly or indirectly in writing, orally or by drawings or
inspection of parts or equipment.
5.2 Confidential Information Defined. Confidential Information does not
include information, technical data or know-how which (i) is in the Series B
Holder's, Series C Holder's, Series D Holder's or Series D-X Holder's
possession at the time of disclosure as shown by such Series B Holder's, Series
C Holder's, Series D Holder's or Series D-X Holder's files and records
immediately prior to the time of disclosure; (ii) before or after it has been
disclosed to the Series B Holder, Series C Holder, Series D Holder or Series D-X
Holder, is part of the public knowledge or literature, not as a result of any
action or inaction of the Series B Holder, Series C Holder, Series D Holder or
Series D-X Holder; or (iii) is approved for release by written authorization of
Company. The provisions of this Section 5 shall not apply (A) to the extent
that a Series B Holder, Series C Holder, Series D Holder or Series D-X Holder is
required to disclose Confidential Information pursuant to any law, statute, rule
or regulation or any order of any court or jurisdiction process or pursuant to
any direction, request or requirement (whether or not having the force of law
but if not having the force of law being of a type with which institutional
investors in the relevant jurisdiction are accustomed to comply) of any self-
regulating organization or any governmental, fiscal, monetary or other
authority; (B) to the disclosure of Confidential Information to a Series B
Holder's, Series C Holder's, Series D Holder's or Series D-X Holder's employees,
counsel, accountants or other professional advisors; (C) to the extent that a
Series B Holder, Series C Holder, Series D Holder or Series D-X Holder needs to
disclose Confidential Information for the protection of any such Series B
Holder's, Series C Holder's, Series D Holder's or Series D-X Holder's rights or
interest against the Company, whether under this Agreement or otherwise; or (D)
to the disclosure of Confidential Information to a prospective transferee of
securities which agrees to be bound by the provisions of this Section 5 in
connection with the receipt of such Confidential Information.
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6. Miscellaneous.
6.1 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Oregon as applied to agreements among Oregon
residents entered into and to be performed entirely within Oregon.
6.2 Survival. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by any Holder and the closing
of the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
6.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a Holder from time to time; provided, however, that prior to
the receipt by the Company of adequate written notice of the transfer of any
Registrable Securities specifying the full name and address of the transferee,
the Company may deem and treat the person listed as the holder of such shares in
its records as the absolute owner and holder of such shares for all purposes,
including the payment of dividends or any redemption price.
6.4 Separability. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
6.5 Amendment and Waiver. Except as otherwise expressly provided, this
Agreement may be amended or modified only upon the written consent of the
Company and the Holders of more than sixty percent (60%) of the Registrable
Securities. Notwithstanding the foregoing, Section 4.12 of this Agreement may
not be amended without the written consent of Reuters and the Company.
6.6 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under the Agreement or
any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not
alternative.
Page 19
<PAGE>
6.7 Entire Agreement. This Agreement constitutes the entire agreement
between the parties relative to the specific subject matter hereof. Any
previous agreement among the parties related to the specific subject matter
hereof is superseded by this Agreement.
6.8 Notices. Notices will be given to the people designated, at the
address designated at the conclusion of this Agreement. Each party can change
its own Notice address and designated Notice recipient, by Notice. Notice shall
be effective when actually received by the designated person, in any form that
leaves a hard copy record of the notice in that person's possession. If sent
certified or registered mail, postage prepaid, return receipt requested, notice
is considered effective on the date the return receipt shows the notice was
accepted, refused, or returned undeliverable.
6.9 Attorneys' Fees. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
6.10 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
In Witness Whereof, the parties hereto have executed this Second Amended
and Restated Investor Rights Agreement as of the date set forth in the first
paragraph hereof.
DIGIMARC CORPORATION
By: /s/ Bruce Davis
--------------------------------------------
Bruce Davis, Chief Executive Officer
Address: One Centerpointe Drive,
Suite 500
Lake Oswego, Oregon 97035
[Signatures continue on the next page]
Page 20
<PAGE>
<TABLE>
<CAPTION>
Holders of Series B Preferred Stock
<S> <C>
AVI Capital L.P. Associated Venture Investors III L.P.
By: AVI Capital Management, L.P., its By: AVI Management Partners III, L.P.
General Partner
By: /s/ Brian J. Grossi By: /s/ Brian J. Grossi
---------------------------------- ----------------------------------
Title: Brian J. Grossi, General Partner Title: Brian J. Grossi, General Partner
Address: One First Street Address: One First Street
Los Altos, California 94022 Los Altos, California 94022
AVI Silicon Valley Partners L.P. AVI Partners Growth Fund II L.P.
By: AVI Management Partners III, L.P. By: AVI Management Partners III, L.P., its
General Partner
By: /s/ Brian J. Grossi By: /s/ Brian J. Grossi
---------------------------------- ----------------------------------
Title: Brian J. Grossi, General Partner Title: Brian J. Grossi, General Partner
Address: One First Street Address: One First Street
Los Altos, California 94022 Los Altos, California 94022
Justsystem, Inc. Softbank Holdings Inc.
By: /s/ Jun Iuchi By: /s/ Yoshitaka Kitao
---------------------------------- ----------------------------------
Title: President & Coo Title: Yoshitaka Kitao, President & CEO
Address: 2460 Sand Hill Road, Suite 201 Address: 333 W. San Carlos, Suite 1225
Menlo Park, CA 94025 San Jose, CA 95110
Adobe Ventures L.P.
By: H & Q Adobe Ventures Management, L.P.
H & Q Adobe Ventures Management Corp.
By: /s/ Jackie Berterretche
----------------------------------
Title: Jackie Berterrtche, Attorney-In-Fact
Address: One Bush Street, 15th Floor
San Francisco, CA 94104
</TABLE>
Page 21
<PAGE>
Holders of Series C Preferred Stock
<TABLE>
<CAPTION>
<S> <C>
Reuters, Ltd. AVI, Capital L.P.
By: /s/ R.O. Rowley By: AVI Capital Management, L.P.,
----------------------------------- its General Partner
Finance Director
Address: 85 Fleet Street By: /s/ Brian J. Grossi
London, EC4P4AJ ----------------------------------
Title: Brian J. Grossi, General Partner
Address: One First Street
Los Altos, California 94022
Associated Venture Investors III L.P. AVI Silicon Valley Partners L.P.
By: AVI Management Partners III, L.P. By: AVI Management Partners III, L.P.
By: /s/ Brian J. Grossi By: /s/ Brian J. Grossi
---------------------------------- ----------------------------------
Title: Brian J. Grossi, General Partner Title: Brian J. Grossi, General Partner
Address: One First Street Address: One First Street
Los Altos, California 94022 Los Altos, California 94022
AVI Partners Growth Fund II L.P. Justsystem, Inc.
By: AVI Management Partners III, L.P.,
its General Partner
By: /s/ Brian J. Grossi By: /s/ Jun Iuchi
---------------------------------- ----------------------------------
Title: Brian J. Grossi, General Partner Title: President & Coo
Address: One First Street Address: 2460 Sand Hill Road, Suite 201
Los Altos, California 94022 Menlo Park, CA 94025
Adobe Ventures L.P. Macrovision Corporation
By: H & Q Adobe Ventures Management, L.P.
H & Q Adobe Ventures Management Corp.
By:----------------------------------
/s/ Jackie Berterretche Title:
By:----------------------------------
Title: Jackie Berterretche, Attorney-In-Fact Address: 1341 Orleans Drive
Address: One Bush Street, 15th Floor Sunnyvale, CA 94089
San Francisco, CA 94104
</TABLE>
Page 22
<PAGE>
<TABLE>
<S> <C>
Beagle Ltd.
By: /s/ Michael Hecht /s/ Steve Combs
----------------------------------- ----------------------------------
Title: Michael Hecht, President Steve Combs
Address: c/o Hecht & Co., P.C. Address: 282 20th Avenue
111 W. 40th Street San Francisco, CA 94121
New York, NY 10018
/s/ Steven Joseph Phinney
/s/ Warren Rosenfeld /s/ Dana Phinney
- -------------------------------------- --------------------------------------
Warren Rosenfeld Steven Joseph and Dana Phinney, JTWROS
Address: P.O. Box 10068 Address: 1001 Godetia Drive
Portland, OR 97210-0067 Woodside, CA 94062
/s/ Thomas Garnier /s/ Dennis Johnson
- -------------------------------------- --------------------------------------
Thomas Garnier Dennis Johnson
Address: 9760 SW Freeman Drive Address: 3545 SW Santa Monica
Wisonville, OR 97070 Portland, OR 97221
/s/ Philip Monego, Sr. /s/ Thomas Toy
- -------------------------------------- --------------------------------------
Philip Monego, Sr. Thomas Toy
Address: P.O. Box 620065 Address: 331 Parrott Drive
Woodside, CA 94062 San Mateo, CA 94402
</TABLE>
Page 23
<PAGE>
Holders of Series A Preferred Stock
<TABLE>
<CAPTION>
<S> <C>
Deborah A. Coleman Stephen Joseph and Dana Phinney,
JTWROS
/s/ Stephen Anthony Phinney
/s/ Deborah A. Coleman /s/ Dana Phinney
- ---------------------------------------- --------------------------------------------
#2904 Fountain Plaza 1001 Godetia Drive
1414 SW 3rd Avenue Woodside, CA 94062
Portland, OR 97201
Dennis Johnson Herbert M. Gardner
/s/ Dennis Johnson
- ---------------------------------------- ------------------------------------------
SW Santa Monica Court 4 Darley Road
Portland, OR 97201 Great Neck, NY 11021
Thomas Garnier Warren Rosenfeld
/s/ Thomas Garnier /s/ Warren Rosenfeld
- ---------------------------------------- ------------------------------------------
9760 SW Freeman Drive P.O. Box 10067
Wilsonville, OR 97070 Portland, OR 97210-0067
Hugh Mackworth John C. Thuma
/s/ Hugh Mackworth /s/ John C. Thuma
- ---------------------------------------- -----------------------------------------
248 NW Sundown Way 1017 E. Street, Suite D
Portland, OR 97229 San Rafael, CA 94901
Philip Monego, Sr. Thomas J. Toy
/s/ Philip Monego, Sr. /s/ Thomas J. Toy /s/ Constance K. Toy
- ---------------------------------------- -----------------------------------------
P.O. Box 620065 331 Parrott Drive
Woodside, CA 94062 San Mateo, CA 94402
</TABLE>
Page 24
<PAGE>
Holders of Series D Preferred Stock
<TABLE>
<CAPTION>
<S> <C>
Reuters, Holdings Switzerland, S.A. Hewlett-Packard Company
By: /s/ Illegible By:
----------------------------------------------- ------------------------------------
Title:
Address: 3000 Hanover Street
Palo Alto, CA 94034
Address: 153 Route Thornon
1245 Collonge
Bellgrive, Switzerland
Adobe Ventures L.P. Macrovision Corporation
By: H & Q Adobe Ventures Management, L.P.
H & Q Adobe Ventures Management Corp.
By: /s/ Jackie Berterretche, Attorney-In-Fact By:
--------------------------------------------- -----------------------------------------
Title: Title:
Address: One Bush Street, 15th Floor Address: 1341 Orleans Drive
San Francisco, CA 94104 Sunnyvale, CA 94089
Beagle Ltd.
By: /s/ Michael Hecht, President /s/ Warren Rosenfeld
---------------------------------- ---------------------------------
Title: Warren Rosenfeld
Address: c/o Hecht & Co., P.C. Address: P.O. Box 10068
111 W. 40th Street Portland, OR 97210-0067
New York, NY 10018
/s/ Thomas Garnier /s/ Philip Monego
- --------------------------------------------- ------------------------------------
Thomas Garnier Philip Monego, Sr.
Address: 9760 SW Freeman Drive Address: P.O. Box 620065
Wisonville, OR 97070 Woodside, CA 94062
AVI Management Partners Growth Fund III, L.P.
By: AVI Capital Management, L.P., its
General Partner
By: /s/ Brian Grossi /s/ Dennis Johnson
----------------------------------------- ------------------------------------
Title: Brian Grossi, General Partner Dennis Johnson
Address: One First Street Address: 3545 SW Santa Monica Court
Los Altos, California 94022 Portland, OR 97221
</TABLE>
Page 25
<PAGE>
Holders of Series D-X Preferred Stock
<TABLE>
<CAPTION>
<S> <C>
/s/ Philip Monego, Sr. BANCBOSTON ROBERTSON STEPHENS
- ------------------------------------- By: Bayview
Philip Monego, Sr.
Address: PO Box 620065 By: Dana Welch
Woodside, CA 94062 ---------------------------
Title: Authorized Signatory
Address: 555 California Street
San Francisco, CA
ATTN: Jennifer Sherrill
</TABLE>
BUILDING C PARTNERS
By: /s/ Gavin Grover
-------------------
Title: Partner
--------------------------
Address: 425 Market St
-------------------------
San Francisco, CA
94105
Page 26
<PAGE>
Exhibit 4.3
- ------------------ ------------------
Number Shares
DMR
- ------------------ ------------------
COMMON STOCK COMMON STOCK
[LOGO OF DIGIMARC]
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
<TABLE>
<S> <C> <C>
THIS CERTIFICATE IS TRANSFERABLE IN CUSIP 253807 10 1 SEE REVERSE FOR CERTAIN DEFIN?
BOSTON, MA OR NEW YORK, NY STATEMENT AS TO THE RIGHTS, PR?
PRIVILEGES AND LIMITATIONS OF S?
</TABLE>
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, OF THE PAR VALUE
OF $0.001 EACH, OF
DIGIMARC 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:
[SEAL OF DIGIMARC]
/s/ E. K. Ranjit /s/ Bruce Davis
CHIEF FINANCIAL OFFICER AND PRESIDENT AND CHIEF EXECUTIVE
SECRETARY OFFICER
TRANSFER AGENT AND REGISTRAR
BY /s/ L. E. Seeley-Roger
AUTHORIZED SIGNATURE
<PAGE>
DIGIMARC CORPORATION
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.
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ............... Custodian ..............
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act.....................................
in common (State)
UNIF TRF MIN ACT - ..........Custodian (until age .........)
(Cust)
.................under Uniform Transfers
(Minors)
to Minors Act ..........................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ___________________________________________________________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_________________________________________
_________________________________________
____________________________________________________________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING 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 _____________________________________
X _____________________________________________________________
X _____________________________________________________________
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NOTICE: NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OF ANY CHANGE
WHATEVER.
Signature(s) Guaranteed
By_____________________________________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM): PURSUANT TO S.E.C. RULE
17Ad-15.
</TABLE>
<PAGE>
Exhibit 10.1
DIGIMARC CORPORATION
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is entered into, effective as of [the day before the closing
of the Company's initial public offering], 1999 by and between Digimarc
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
1
<PAGE>
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 imposes 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 complete 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.
2
<PAGE>
(h) Reviewing Party: the person or body appointed in accordance with
Section 3.
(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). The parties hereto intend that this
Agreement shall provide for indemnification in excess of that expressly
permitted by statute, including, without limitation, any indemnification
provided by the Company's Certificate of Incorporation, its bylaws, vote of its
stockholders or disinterested directors, or applicable law.
(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
3
<PAGE>
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.
(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
4
<PAGE>
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 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 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.
5
<PAGE>
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).
(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,
6
<PAGE>
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 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.
7
<PAGE>
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.
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
One Centerpointe Drive
Suite 500
Lake Oswego, OR 97035
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.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Indemnification Agreement as of the day specified above.
DIGIMARC CORPORATION
By:________________________________
Title:_____________________________
INDEMNITEE:________________________
Indemnitee
9
<PAGE>
Exhibit 10.3
DIGIMARC CORPORATION
RESTATED 1999 STOCK INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are to
--------------------
attract and retain the best available personnel, to provide additional incentive
to Employees, Directors and Consultants and to promote the success of the
Company's business.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Affiliate" and "Associate" shall have the respective meanings
--------- ---------
ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.
(b) "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock incentive plans, if any, under applicable provisions of
federal securities laws, state corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to Awards granted to residents therein.
(c) "Award" means the grant of an Option, SAR, Dividend Equivalent
-----
Right, Restricted Stock, Performance Unit, Performance Share, or other right or
benefit under the Plan.
(d) "Award Agreement" means the written agreement evidencing the grant
---------------
of an Award executed by the Company and the Grantee, including any amendments
thereto.
(e) "Board" means the Board of Directors of the Company.
-----
(f) "Code" means the Internal Revenue Code of 1986, as amended.
----
(g) "Committee" means any committee appointed by the Board to
---------
administer the Plan.
(h) "Common Stock" means the common stock of the Company.
------------
(i) "Company" means Digimarc Corporation, a Delaware corporation.
-------
(j) "Consultant" means any person (other than an Employee or a
----------
Director, solely with respect to rendering services in such person's capacity as
a Director) who is engaged by the Company or any Related Entity to render
consulting or advisory services to the Company or such Related Entity.
(k) "Continuous Service" means that the provision of services to the
------------------
Company or a Related Entity in any capacity of Employee, Director or Consultant,
is not interrupted or terminated. Continuous Service shall not be considered
interrupted in the case of (i) any approved leave of absence, (ii) transfers
among the Company, any Related Entity, or any successor, in any capacity
1
<PAGE>
of Employee, Director or Consultant, or (iii) any change in status as long as
the individual remains in the service of the Company or a Related Entity in any
capacity of Employee, Director or Consultant (except as otherwise provided in
the Award Agreement). An approved leave of absence shall include sick leave,
military leave, or any other authorized personal leave. For purposes of
Incentive Stock Options, no such leave may exceed ninety (90) days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract.
(l) "Director" means a member of the Board or the board of directors of
--------
any Related Entity.
(m) "Disability" means that a Grantee would qualify for benefit
----------
payments under the long-term disability policy of the Company or the Related
Entity to which the Grantee provides services regardless of whether the Grantee
is covered by such policy
(n) "Dividend Equivalent Right" means a right entitling the Grantee to
-------------------------
compensation measured by dividends paid with respect to Common Stock.
(o) "Employee" means any person, including an Officer or Director, who
--------
is an employee of the Company or any Related Entity. The payment of a director's
fee by the Company or a Related Entity shall not be sufficient to constitute
"employment" by the Company.
(p) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(q) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) Where there exists a public market for the Common Stock, the
Fair Market Value shall be (A) the closing price for a Share for the last market
trading day prior to the time of the determination (or, if no closing price was
reported on that date, on the last trading date on which a closing price was
reported) on the stock exchange determined by the Plan Administrator to be the
primary market for the Common Stock or the Nasdaq National Market, whichever is
applicable or (B) if the Common Stock is not traded on any such exchange or
national market system, the average of the closing bid and asked prices of a
Share on the Nasdaq Small Cap Market for the day prior to the time of the
determination (or, if no such prices were reported on that date, on the last
date on which such prices were reported), in each case, as reported in The Wall
Street Journal or such other source as the Plan Administrator deems reliable; or
(ii) In the absence of an established market for the Common Stock
of the type described in (i), above, the Fair Market Value thereof shall be
determined by the Plan Administrator in good faith.
(r) "Grantee" means an Employee, Director or Consultant who receives an
-------
Award pursuant to an Award Agreement under the Plan.
(s) "Immediate Family" means any child, stepchild, grandchild, parent,
----------------
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-
in-law, father-in-law, son-in law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive
2
<PAGE>
relationships, any person sharing the Grantee's household (other than a tenant
or employee), a trust in which these persons have more than fifty percent (50%)
of the beneficial interest, a foundation in which these persons (or the Grantee)
control the management of assets, and any other entity in which these persons
(or the Grantee) own more than fifty percent (50%) of the voting interests.
(t) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code.
(u) "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(v) "Officer" means a person who is an officer of the Company or a
-------
Related Entity within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.
(w) "Option" means an option to purchase Shares pursuant to an Award
------
Agreement granted under the Plan.
(x) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(y) "Performance Shares" means Shares or an Award denominated in Shares
------------------
which may be earned in whole or in part upon attainment of performance criteria
established by the Plan Administrator.
(z) "Performance Units" means an Award which may be earned in whole or
-----------------
in part upon attainment of performance criteria established by the Plan
Administrator and which may be settled for cash, Shares or other securities or a
combination of cash, Shares or other securities as established by the Plan
Administrator.
(aa) "Plan" means this 1999 Stock Incentive Plan.
----
(bb) "Plan Administrator" means either the Board or a committee of the
------------------
Board that is responsible for the administration of the Plan as is
designated from time to time by resolution of the Board.
(cc) "Registration Date" means the first to occur of (i) the closing of
-----------------
the first sale to the general public of (A) the Common Stock or (B) the same
class of securities of a successor corporation (or its Parent) issued pursuant
to a Corporate Transaction in exchange for or in substitution of the Common
Stock, pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities Act of 1933, as
amended; and (ii) in the event of a Corporate Transaction, the date of the
consummation of the Corporate Transaction if the same class of securities of the
successor corporation (or its Parent) issuable in such Corporate Transaction
shall have been sold to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange
3
<PAGE>
Commission under the Securities Act of 1933, as amended on or prior to the date
of consummation of such Corporate Transaction.
(dd) "Related Entity" means any Parent, Subsidiary and any business,
--------------
corporation, partnership, limited liability company or other entity in which the
Company, a Parent or a Subsidiary holds a substantial ownership interest,
directly or indirectly.
(ee) "Restricted Stock" means Shares issued under the Plan to the
----------------
Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture provisions,
and other terms and conditions as established by the Plan Administrator.
(ff) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act
----------
or any successor thereto.
(gg) "SAR" means a stock appreciation right entitling the Grantee to
---
Shares or cash compensation, as established by the Plan Administrator, measured
by appreciation in the value of Common Stock.
(hh) "Share" means a share of the Common Stock.
-----
(ii) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan.
-------------------------
(a) Subject to the provisions of Section 10, below, the maximum
aggregate number of Shares which may be issued pursuant to all Awards is
1,500,000 Shares, increased by (i) any Shares available for future Awards under
the Company's 1995 Stock Incentive Plan as of the Registration Date, (ii) any
Shares that are represented by Awards under the Company's 1995 Stock Incentive
Plan which are forfeited, expire or are cancelled without delivery of Shares or
which result in the forfeiture of Shares back to the Company on or after the
Registration Date, and (iii) an annual increase to be added on the first day of
the Company's fiscal year beginning in 2001 equal to three percent (3%) of the
fully-diluted number of Shares outstanding as of such date or a lesser number of
Shares determined by the Plan Administrator. Notwithstanding the foregoing,
subject to the provisions of Section 10, below, of the number of Shares
specified above, the maximum aggregate number of Shares available for grant of
Incentive Stock Options shall be 1,500,000 Shares, plus an annual increase to be
added on the first day of the Company's fiscal year beginning in 2001 equal to
the lesser of (x) 625,000 Shares, (y) three percent (3%) of the fully-diluted
number of Shares outstanding as of such date, or (z) a lesser number of Shares
determined by the Plan Administrator. For purposes of determining the
outstanding number of Shares under this Section 3(a), all outstanding classes of
securities of the Company, convertible notes, Awards and warrants that are
convertible or exercisable presently or in the future by the holder into Shares
(excluding options awarded under the Company's 1999 Employee Stock Purchase
Plan), shall be deemed to have been fully converted or exercised
(notwithstanding any limits on such conversions or exercises) into the number of
Shares represented by such securities,
4
<PAGE>
notes, Awards and warrants calculated using the treasury stock method. The
Shares to be issued pursuant to Awards may be authorized, but unissued, or
reacquired Common Stock.
(b) Any Shares covered by an Award (or portion of an Award) which is
forfeited or canceled, expires or is settled in cash, shall be deemed not to
have been issued for purposes of determining the maximum aggregate number of
Shares which may be issued under the Plan. If any unissued Shares are retained
by the Company upon exercise of an Award in order to satisfy the exercise price
for such Award or any withholding taxes due with respect to such Award, such
retained Shares subject to such Award shall become available for future issuance
under the Plan (unless the Plan has terminated). Shares that actually have been
issued under the Plan pursuant to an Award shall not be returned to the Plan and
shall not become available for future issuance under the Plan, except that if
unvested Shares are forfeited, or repurchased by the Company at their original
purchase price, such Shares shall become available for future grant under the
Plan.
4. Administration of the Plan.
--------------------------
(a) Plan Administrator.
------------------
(i) Administration with Respect to Directors and Officers. With
-----------------------------------------------------
respect to grants of Awards to Directors or Employees who are also Officers or
Directors of the Company, the Plan shall be administered by (A) the Board or (B)
a Committee designated by the Board, which Committee shall be constituted in
such a manner as to satisfy the Applicable Laws and to permit such grants and
related transactions under the Plan to be exempt from Section 16(b) of the
Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board.
(ii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Awards to Employees or Consultants who are
- ---------
neither Directors nor Officers of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the Applicable Laws. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. Subject to Applicable Laws, the Board may
authorize one or more Officers to grant such Awards and may limit such authority
as the Board determines from time to time.
(iii) Administration Errors. In the event an Award is granted in a
---------------------
manner inconsistent with the provisions of this subsection (a), such Award shall
be presumptively valid as of its grant date to the extent permitted by the
Applicable Laws.
(b) Powers of the Plan Administrator. Subject to Applicable Laws and
--------------------------------
the provisions of the Plan (including any other powers given to the Plan
Administrator hereunder), and except as otherwise provided by the Board, the
Plan Administrator shall have the authority, in its discretion:
5
<PAGE>
(i) to select the Employees, Directors and Consultants to whom
Awards may be granted from time to time hereunder;
(ii) to determine whether and to what extent Awards are granted
hereunder;
(iii) to determine the number of Shares or the amount of other
consideration to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreements for use under the Plan;
(v) to determine the terms and conditions of any Award granted
hereunder;
(vi) to amend the terms of any outstanding Award granted under the
Plan, provided that any amendment that would adversely affect the Grantee's
rights under an outstanding Award shall not be made without the Grantee's
written consent;
(vii) to construe and interpret the terms of the Plan and Awards
granted pursuant to the Plan, including without limitation, any notice of Award
or Award Agreement, granted pursuant to the Plan;
(viii) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Grantees favorable treatment under such laws; provided, however,
that no Award shall be granted under any such additional terms, conditions,
rules or procedures with terms or conditions which are inconsistent with the
provisions of the Plan; and
(ix) to take such other action, not inconsistent with the terms of
the Plan, as the Plan Administrator deems appropriate.
5. Eligibility. Awards other than Incentive Stock Options may be granted to
-----------
Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees of the Company, a Parent or a Subsidiary. An Employee,
Director or Consultant who has been granted an Award may, if otherwise eligible,
be granted additional Awards. Awards may be granted to such Employees, Directors
or Consultants who are residing in foreign jurisdictions as the Plan
Administrator may determine from time to time.
6. Terms and Conditions of Awards.
------------------------------
(a) Type of Awards. The Plan Administrator is authorized under the
--------------
Plan to award any type of arrangement to an Employee, Director or Consultant
that is not inconsistent with the provisions of the Plan and that by its terms
involves or might involve the issuance of (i) Shares, (ii) an Option, a SAR or
similar right with a fixed or variable price related to the Fair Market Value of
the Shares and with an exercise or conversion privilege related to the passage
of time, the occurrence of one or more events, or the satisfaction of
performance criteria or other
6
<PAGE>
conditions, or (iii) any other security with the value derived from the value of
the Shares. Such awards include, without limitation, Options, SARs, sales or
bonuses of Restricted Stock, Dividend Equivalent Rights, Performance Units or
Performance Shares, and an Award may consist of one such security or benefit, or
two (2) or more of them in any combination or alternative.
(b) Designation of Award. Each Award shall be designated in the
--------------------
Award Agreement. In the case of an Option, the Option shall be designated as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive Stock Options which
become exercisable for the first time by a Grantee during any calendar year
(under all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such excess Options, to the extent of the Shares covered thereby in excess of
the foregoing limitation, shall be treated as Non-Qualified Stock Options. For
this purpose, Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of the Shares shall be
determined as of the date the Option with respect to such Shares is granted.
(c) Conditions of Award. Subject to the terms of the Plan, the
-------------------
Plan Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Plan Administrator may be based on any one of, or
combination of, increase in share price, earnings per share, total stockholder
return, return on equity, return on assets, return on investment, net operating
income, cash flow, revenue, economic value added, personal management
objectives, or other measure of performance selected by the Plan Administrator.
Partial achievement of the specified criteria may result in a payment or vesting
corresponding to the degree of achievement as specified in the Award Agreement.
(d) Acquisitions and Other Transactions. The Plan Administrator
-----------------------------------
may issue Awards under the Plan in settlement, assumption or substitution for,
outstanding awards or obligations to grant future awards in connection with the
Company or a Related Entity acquiring another entity, an interest in another
entity or an additional interest in a Related Entity whether by merger, stock
purchase, asset purchase or other form of transaction.
(e) Deferral of Award Payment. The Plan Administrator may
-------------------------
establish one or more programs under the Plan to permit selected Grantees the
opportunity to elect to defer receipt of consideration upon exercise of an
Award, satisfaction of performance criteria, or other event that absent the
election would entitle the Grantee to payment or receipt of Shares or other
consideration under an Award. The Plan Administrator may establish the election
procedures, the timing of such elections, the mechanisms for payments of, and
accrual of interest or other earnings, if any, on amounts, Shares or other
consideration so deferred, and such other terms, conditions, rules and
procedures that the Plan Administrator deems advisable for the administration of
any such deferral program.
7
<PAGE>
(f) Award Exchange Programs. The Plan Administrator may establish
-----------------------
one or more programs under the Plan to permit selected Grantees to exchange an
Award under the Plan for one or more other types of Awards under the Plan on
such terms and conditions as determined by the Plan Administrator from time to
time.
(g) Separate Programs. The Plan Administrator may establish one
-----------------
or more separate programs under the Plan for the purpose of issuing particular
forms of Awards to one or more classes of Grantees on such terms and conditions
as determined by the Plan Administrator from time to time.
(h) Early Exercise. The Award Agreement may, but need not,
--------------
include a provision whereby the Grantee may elect at any time while an Employee,
Director or Consultant to exercise any part or all of the Award prior to full
vesting of the Award. Any unvested Shares received pursuant to such exercise may
be subject to a repurchase right in favor of the Company or a Related Entity or
to any other restriction the Plan Administrator determines to be appropriate.
(i) Term of Award. The term of each Award shall be the term
-------------
stated in the Award Agreement, provided, however, that the term of an Incentive
Stock Option shall be no more than ten (10) years from the date of grant
thereof. However, in the case of an Incentive Stock Option granted to a Grantee
who, at the time the Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Award Agreement.
(j) Transferability of Awards. Incentive Stock Options may not
-------------------------
be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Grantee, only by the Grantee; provided,
however, that the Grantee may designate a beneficiary of the Grantee's Incentive
Stock Option in the event of the Grantee's death on a beneficiary designation
form provided by the Plan Administrator. Other Awards may be transferred by gift
or through a domestic relations order to members of the Grantee's Immediate
Family to the extent provided in the Award Agreement or in the manner and to the
extent determined by the Plan Administrator.
(k) Time of Granting Awards. The date of grant of an Award
-----------------------
shall for all purposes be the date on which the Plan Administrator makes the
determination to grant such Award, or such other date as is determined by the
Plan Administrator. Notice of the grant determination shall be given to each
Employee, Director or Consultant to whom an Award is so granted within a
reasonable time after the date of such grant.
7. Award Exercise or Purchase Price, Consideration, and Taxes.
----------------------------------------------------------
(a) Exercise or Purchase Price. The exercise or purchase price,
--------------------------
if any, for an Award shall be as follows:
8
<PAGE>
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be not less than one hundred ten
percent (110%) of the Fair Market Value per Share on the date of grant; or
(B) granted to any Employee other than an Employee described
in the preceding paragraph, the per Share exercise price shall be not less than
one hundred percent (100%) of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Non-Qualified Stock Option, the per Share
exercise price shall be not less than fifty percent (50%) of the Fair Market
Value per Share on the date of grant unless otherwise determined by the Plan
Administrator.
(iii) In the case of other Awards, such price as is determined by
the Plan Administrator.
(iv) Notwithstanding the foregoing provisions of this Section
7(a), in the case of an Award issued pursuant to Section 6(d), above, the
exercise or purchase price for the Award shall be determined in accordance with
the principles of Section 424(a) of the Code.
(b) Consideration. Subject to Applicable Laws, the consideration to
-------------
be paid for the Shares to be issued upon exercise or purchase of an Award
including the method of payment, shall be determined by the Plan Administrator
(and, in the case of an Incentive Stock Option, shall be determined at the time
of grant). In addition to any other types of consideration the Plan
Administrator may determine, the Plan Administrator is authorized to accept as
consideration for Shares issued under the Plan the following, provided that the
portion of the consideration equal to the par value of the Shares must be paid
in cash or other legal consideration permitted by the Delaware General
Corporation Law:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such recourse,
interest, security, and redemption provisions as the Plan Administrator
determines as appropriate;
(iv) if the exercise or purchase occurs on or after the
Registration Date, surrender of Shares or delivery of a properly executed form
of attestation of ownership of Shares as the Plan Administrator may require
(including withholding of Shares otherwise deliverable upon exercise of the
Award) which have a Fair Market Value on the date of surrender or attestation
equal to the aggregate exercise price of the Shares as to which said Award shall
be exercised (but only to the extent that such exercise of the Award would not
result in an
9
<PAGE>
accounting compensation charge with respect to the Shares used to pay the
exercise price unless otherwise determined by the Plan Administrator);
(v) with respect to Options, if the exercise occurs on or after
the Registration Date, payment through a broker-dealer sale and remittance
procedure pursuant to which the Grantee (A) shall provide written instructions
to a Company designated brokerage firm to effect the immediate sale of some or
all of the purchased Shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased Shares and (B) shall provide written
directives to the Company to deliver the certificates for the purchased Shares
directly to such brokerage firm in order to complete the sale transaction; or
(vi) any combination of the foregoing methods of payment.
(c) Taxes. No Shares shall be delivered under the Plan to any
-----
Grantee or other person until such Grantee or other person has made arrangements
acceptable to the Plan Administrator for the satisfaction of any foreign,
federal, state, or local income and employment tax withholding obligations,
including, without limitation, obligations incident to the receipt of Shares or
the disqualifying disposition of Shares received on exercise of an Incentive
Stock Option. Upon exercise of an Award, the Company shall withhold or collect
from Grantee an amount sufficient to satisfy such tax obligations.
8. Exercise of Award.
-----------------
(a) Procedure for Exercise; Rights as a Stockholder.
-----------------------------------------------
(i) Any Award granted hereunder shall be exercisable at such times
and under such conditions as determined by the Plan Administrator under the
terms of the Plan and specified in the Award Agreement.
(ii) An Award shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Award by the person entitled to exercise the Award and full payment for the
Shares with respect to which the Award is exercised, including, to the extent
selected, use of the broker-dealer sale and remittance procedure to pay the
purchase price as provided in Section 7(b)(v). Until the issuance (as evidenced
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to Shares subject to an Award, notwithstanding the exercise
of an Option or other Award. The Company shall issue (or cause to be issued)
such stock certificate promptly upon exercise of the Award. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in the Award Agreement
or Section 10, below.
(b) Exercise of Award Following Termination of Continuous Service.
-------------------------------------------------------------
10
<PAGE>
(i) An Award may not be exercised after the termination date of
such Award set forth in the Award Agreement and may be exercised following the
termination of a Grantee's Continuous Service only to the extent provided in the
Award Agreement.
(ii) Where the Award Agreement permits a Grantee to exercise an
Award following the termination of the Grantee's Continuous Service for a
specified period, the Award shall terminate to the extent not exercised on the
last day of the specified period or the last day of the original term of the
Award, whichever occurs first.
(iii) Any Award designated as an Incentive Stock Option to the
extent not exercised within the time permitted by law for the exercise of
Incentive Stock Options following the termination of a Grantee's Continuous
Service shall convert automatically to a Non-Qualified Stock Option and
thereafter shall be exercisable as such to the extent exercisable by its terms
for the period specified in the Award Agreement.
9. Conditions Upon Issuance of Shares.
----------------------------------
(a) Shares shall not be issued pursuant to the exercise of an Award
unless the exercise of such Award and the issuance and delivery of such Shares
pursuant thereto shall comply with all Applicable Laws, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Award, the Company may require
the person exercising such Award to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.
10. Adjustments Upon Changes in Capitalization. Subject to any required
------------------------------------------
action by the stockholders of the Company, the number of Shares covered by each
outstanding Award, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Awards have yet been granted or which
have been returned to the Plan, the exercise or purchase price of each such
outstanding Award, the maximum number of Shares with respect to which Options
and SARs may be granted to any Employee in any fiscal year of the Company, as
well as any other terms that the Plan Administrator determines require
adjustment shall be proportionately adjusted for (i) any increase or decrease in
the number of issued Shares resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Shares, or similar event
affecting the Shares, (ii) any other increase or decrease in the number of
issued Shares effected without receipt of consideration by the Company, or (iii)
as the Plan Administrator may determine in its discretion, any other transaction
with respect to Common Stock to which Section 424(a) of the Code applies or any
similar transaction; provided, however that conversion of any convertible
securities of the Company shall not be deemed to have been "effected without
receipt of consideration." Such adjustment shall be made by the Plan
Administrator and its determination shall be final, binding and conclusive.
Except as the Plan Administrator determines, no issuance by the Company of
shares of stock of any class, or
11
<PAGE>
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason hereof shall be made with respect to, the number or price
of Shares subject to an Award.
11. Effective Date and Term of Plan. The Plan shall become effective upon
-------------------------------
the earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated. Subject to Section 16, below, and Applicable
Laws, Awards may be granted under the Plan upon its becoming effective.
12. Amendment, Suspension or Termination of the Plan.
------------------------------------------------
(a) The Board may at any time amend, suspend or terminate the Plan. To
the extent necessary to comply with Applicable Laws, the Company shall obtain
stockholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) No Award may be granted during any suspension of the Plan or after
termination of the Plan.
(c) Any amendment, suspension or termination of the Plan (including
termination of the Plan under Section 11, above) shall not affect Awards already
granted, and such Awards shall remain in full force and effect as if the Plan
had not been amended, suspended or terminated, unless mutually agreed otherwise
between the Grantee and the Plan Administrator, which agreement must be in
writing and signed by the Grantee and the Company.
13. Reservation of Shares.
---------------------
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
14. No Effect on Terms of Employment/Consulting Relationship. The Plan
--------------------------------------------------------
shall not confer upon any Grantee any right with respect to the Grantee's
Continuous Service, nor shall it interfere in any way with his or her right or
the Company's right to terminate the Grantee's Continuous Service at any time,
with or without cause.
15. No Effect on Retirement and Other Benefit Plans. Except as
-----------------------------------------------
specifically provided in a retirement or other benefit plan of the Company or a
Related Entity, Awards shall not be deemed compensation for purposes of
computing benefits or contributions under any retirement plan of the Company or
a Related Entity, and shall not affect any benefits under any other benefit plan
of any kind or any benefit plan subsequently instituted under which the
availability or
12
<PAGE>
amount of benefits is related to level of compensation. The Plan is not a
"Retirement Plan" or "Welfare Plan" under the Employee Retirement Income
Security Act of 1974, as amended.
16. Stockholder Approval. The grant of Incentive Stock Options under the
--------------------
Plan shall be subject to approval of the Plan by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted excluding
Incentive Stock Options issued in substitution for outstanding Incentive Stock
Options pursuant to Section 424(a) of the Code. Such stockholder approval shall
be obtained in the degree and manner required under Applicable Laws. The Plan
Administrator may grant Incentive Stock Options under the Plan prior to approval
by the stockholders, but until such approval is obtained, no such Incentive
Stock Option shall be exercisable. In the event that stockholder approval is not
obtained within the twelve (12) month period provided above, all Incentive Stock
Options previously granted under the Plan shall be exercisable as Non-Qualified
Stock Options.
13
<PAGE>
EXHIBIT 10.4
DIGIMARC CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
The following constitute the provisions of the 1999 Employee Stock
Purchase Plan of Digimarc Corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Parents or Subsidiaries with an opportunity to
purchase Common Stock of the Company through accumulated payroll deductions. It
is the intention of the Company to have the Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Code. The provisions of the Plan,
accordingly, shall be construed so as to extend and limit participation in a
manner consistent with the requirements of that section of the Code.
2. Definitions. As used herein, the following definitions shall
-----------
apply:
(a) "Applicable Laws" means the legal requirements relating to the
---------------
administration of employee stock purchase plans, if any, under applicable
provisions of federal securities laws, state corporate and securities laws, the
Code, the rules of any applicable stock exchange or national market system, and
the rules of any foreign jurisdiction applicable to participation in the Plan by
residents therein.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Change in Control" means a change in ownership or control of the
------------------
Company effected through the direct or indirect acquisition by any person or
related group of persons (other than an acquisition from or by the Company or by
a Company-sponsored employee benefit plan or by a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Common Stock" means the common stock of the Company.
------------
(f) "Company" means Digimarc Corporation, a Delaware corporation.
-------
(g) "Compensation" means an Employee's base salary and other cash
------------
payments for commissions, overtime, bonuses, annual awards, and other cash
incentive payments from the Company or one or more Designated Parents or
Subsidiaries, including such amounts as are deferred by the Employee (i) under a
qualified cash or deferred arrangement described in Section 401(k) of the Code,
or (ii) to a plan qualified under Section 125 of the Code. Compensation does not
include reimbursements or other expense allowances, fringe benefits (cash or
noncash), moving expenses, deferred compensation, contributions (other than
contributions described in the
1
<PAGE>
first sentence) made on the Employee's behalf by the Company or one or more
Designated Parents or Subsidiaries under any employee benefit or welfare plan
now or hereafter established, and any other payments not specifically referenced
in the first sentence.
(h) "Corporate Transaction" means any of the following transactions:
---------------------
(1) a merger or consolidation in which the Company is not
the surviving entity, except for a transaction the principal purpose
of which is to change the state in which the Company is incorporated;
(2) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital
stock of the Company's subsidiary corporations) in connection with
complete liquidation or dissolution of the Company;
(3) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding
securities are transferred to a person or persons different from those
who held such securities immediately prior to such merger; or
(4) acquisition by any person or related group of persons
(other than the Company or by a Company-sponsored employee benefit
plan) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%)
of the total combined voting power of the Company's outstanding
securities (whether or not in a transaction also constituting a Change
in Control), but excluding any such transaction that the Plan
Administrator determines shall not be a Corporate Transaction
(i) "Designated Parents or Subsidiaries" means the Parents or
----------------------------------
Subsidiaries which have been designated by the Plan Administrator from time to
time as eligible to participate in the Plan.
(j) "Effective Date" means the effective date of the Registration
--------------
Statement relating to the Company's initial public offering of its Common Stock.
However, should any Designated Parent or Subsidiary become a participating
company in the Plan after such date, then such entity shall designate a separate
Effective Date with respect to its employee-participants.
(k) "Employee" means any individual, including an officer or director,
--------
who is an employee of the Company or a Designated Parent or Subsidiary for
purposes of Section 423 of the Code. For purposes of the Plan, the employment
relationship shall be treated as continuing intact while the individual is on
sick leave or other leave of absence approved by the individual's employer.
Where the period of leave exceeds ninety (90) days and the individual's right to
reemployment is not guaranteed either by statute or by contract, the employment
relationship will be deemed to have terminated on the ninety-first (91st) day of
such leave, for purposes of determining eligibility to participate in the Plan.
2
<PAGE>
(l) "Enrollment Date" means the first day of each Offer Period.
---------------
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(n) "Exercise Date" means the last day of each Purchase Period.
-------------
(o) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(1) Where there exists a public market for the Common Stock,
the Fair Market Value shall be (A) the closing price for a share of
Common Stock for the last market trading day prior to the time of the
de termination (or, if no closing price was reported on that date, on
the last trading date on which a closing price was reported) on the
stock exchange determined by the Plan Administrator to be the primary
market for the Common Stock or the Nasdaq National Market, whichever
is applicable or (B) if the Common Stock is not traded on any such
exchange or national market system, the average of the closing bid and
asked prices of a share of Common Stock on the Nasdaq Small Cap Market
for the day prior to the time of the determination (or, if no such
prices were reported on that date, on the last date on which such
prices were reported), in each case, as reported in The Wall Street
Journal or such other source as the Plan Administrator deems reliable;
or
(2) In the absence of an established market of the type
described in (1), above, for the Common Stock, the Fair Market Value
thereof shall be determined by the Plan Administrator in good faith.
(p) "Offer Period" means an Offer Period established pursuant to
------------
Section 4 hereof.
(q) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(r) "Participant" means an Employee of the Company or Designated
-----------
Parent or Subsidiary who is actively participating in the Plan.
(s) "Plan" means this Employee Stock Purchase Plan.
----
(t) "Plan Administrator" means either the Board or a committee of the
------------------
Board that is responsible for the administration of the Plan as is designated
from time to time by resolution of the Board.
(u) "Purchase Period" means a period of approximately six months,
---------------
commencing on June 1 and December 1 of each year and terminating on the next
following November 30 or May 31, respectively; provided, however, that the first
Purchase Period shall commence on the Effective Date and shall end on May 31,
2000.
3
<PAGE>
(u) "Purchase Period" means a period specified as such pursuant to
---------------
Section 4(b) hereof.
(v) "Purchase Price" shall mean an amount equal to 85% of the Fair
--------------
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(w) "Reserves" means the sum of the number of shares of Common Stock
--------
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(x) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Eligibility.
-----------
(a) General. Any individual who is an Employee on a given Enrollment
-------
Date shall be eligible to participate in the Plan for the Offer Period
commencing with such Enrollment Date.
(b) Limitations on Grant and Accrual. Any provisions of the Plan to
--------------------------------
the contrary notwithstanding, no Employee shall be granted an option under the
Plan (i) if, immediately after the grant, such Employee (taking into account
stock owned by any other person whose stock would be attributed to such Employee
pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding
options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or of any
Parent or Subsidiary, or (ii) which permits the Employee's rights to purchase
stock under all employee stock purchase plans of the Company and its Parents or
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the Fair Market Value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time. The determination of the accrual of the right to
purchase stock shall be made in accordance with Section 423(b)(8) of the Code
and the regulations thereunder.
(c) Other Limits on Eligibility. Notwithstanding Subsection (a),
---------------------------
above, the following Employees shall not be eligible to participate in the Plan
for any relevant Offer Period: (i) Employees whose customary employment is fewer
than 20 hours per week; (ii) Employees whose customary employment is for not
more than 5 or fewer months in any calendar year; (iii) Employees who have been
employed for 10 or fewer days; and (iv) Employees who are subject to rules or
laws of a foreign jurisdiction that prohibit or make impractical the
participation of such Employees in the Plan.
4. Offer Periods.
-------------
(a) The Plan shall be implemented through overlapping or consecutive
Offer Periods until such time as the Plan shall have been terminated in
accordance with Section 19 or 22 hereof. The maximum duration of an Offer Period
shall be twenty-seven (27) months.
4
<PAGE>
Initially, the Plan shall be implemented through overlapping Offer Periods of
twenty-four (24) months' duration commencing each June 1 and December 1
following the Effective Date (except that the initial Offer Period shall
commence on the Effective Date and shall end on November 30, 2001).
(b) A Participant shall be granted a separate option for each Offer
Period in which he or she participates. The option shall be granted on the
Enrollment Date and shall be automatically exercised in successive installments
on the Exercise Dates ending within the Offer Period.
(c) An Employee may participate in only one Offer Period at a time.
Accordingly, except as provided in Section 4(d), an Employee who wishes to join
a new Offer Period must withdraw from the current Offer Period in which the
Employee is participating and must also enroll in the new Offer Period prior to
the Enrollment Date for that Offer Period.
(d) If on the first day of any Purchase Period in an Offer Period in
which a Participant is participating, the Fair Market Value of the Common Stock
is less than the Fair Market Value of the Common Stock on the Enrollment Date of
the Offer Period (after taking into account any adjustment during the Offer
Period pursuant to Section 18(a)), the Offer Period shall be terminated
automatically and the Participant shall be enrolled automatically in the new
Offer Period which has its first Purchase Period commencing on that date,
provided the Participant is eligible to participate in the Plan on that date and
has not elected to terminate participation in the Plan.
(e) Except as specifically provided herein, the acquisition of Common
Stock through participation in the Plan for any Offer Period shall neither limit
nor require the acquisition of Common Stock by a Participant in any subsequent
Offer Period.
5. Participation.
-------------
(a) An eligible Employee may become a Participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the designated payroll office of
the Company at least ten (10) business days prior to the Enrollment Date for the
Offer Period in which such participation will commence, unless a later time for
filing the subscription agreement is set by the Plan Administrator for all
eligible Employees with respect to a given Offer Period.
(b) Payroll deductions for a Participant shall commence with the first
partial or full payroll period beginning on the Enrollment Date and shall end on
the last complete payroll period during the Offer Period, unless sooner
terminated by the Participant as provided in Section 10.
6. Payroll Deductions.
------------------
(a) At the time a Participant files a subscription agreement, the
Participant shall elect to have payroll deductions made during the Offer Period
in amounts between one percent
5
<PAGE>
(1%) and not exceeding fifteen percent (15%) of the Compensation which the
Participant receives during the Offer Period.
(b) All payroll deductions made for a Participant shall be credited to
the Participant's account under the Plan and will be withheld in whole
percentages only. A Participant may not make any additional payments into such
account.
(c) A Participant may discontinue participation in the Plan as
provided in Section 10, or may increase or decrease the rate of payroll
deductions during the Offer Period by completing and filing with the Company a
change of status notice in the form of Exhibit B to this Plan authorizing an
increase or decrease in the payroll deduction rate. Any increase or decrease in
the rate of a Participant's payroll deductions shall be effective with the first
full payroll period commencing ten (10) business days after the Company's
receipt of the change of status notice unless the Company elects to process a
given change in participation more quickly. A Participant's subscription
agreement (as modified by any change of status notice) shall remain in effect
for successive Offer Periods unless terminated as provided in Section 10. The
Plan Administrator shall be authorized to limit the number of payroll deduction
rate changes during any Offer Period.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a Participant's
payroll deductions may be decreased to 0% at such time during any Purchase
Period which is scheduled to end during the current calendar year (the "Current
Purchase Period") that the aggregate of all payroll deductions which were
previously used to purchase stock under the Plan in a prior Purchase Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Purchase Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such Participant's subscription
agreement, as amended, at the beginning of the first Purchase Period which is
scheduled to end in the following calendar year, unless terminated by the
Participant as provided in Section 10.
7. Grant of Option. On the Enrollment Date, each Participant shall
---------------
be granted an option to purchase (at the applicable Purchase Price) three
thousand (3,000) shares of the Common Stock, subject to adjustment as provided
in Section 18 hereof; provided (i) that such option shall be subject to the
limitations set forth in Sections 3(b), 6 and 12 hereof, and (ii) the maximum
number of shares of Common Stock a Participant shall be permitted to purchase in
any Purchase Period shall be seven hundred fifty (750) shares, subject to
adjustment as provided in Section 18 hereof. Exercise of the option shall occur
as provided in Section 8, unless the Participant has withdrawn pursuant to
Section 10, and the option, to the extent not exercised, shall expire on the
last day of the Offer Period.
8. Exercise of Option. Unless a Participant withdraws from the Plan
------------------
as provided in Section 10, below, the Participant's option for the purchase of
shares will be exercised automatically on each Exercise Date, by applying the
accumulated payroll deductions in the Participant's account to purchase the
number of full shares subject to the option by dividing such Participant's
payroll deductions accumulated prior to such Exercise Date and retained in the
6
<PAGE>
Participant's account as of the Exercise Date by the applicable Purchase Price.
No fractional shares will be purchased; any payroll deductions accumulated in a
Participant's account which are not sufficient to purchase a full share shall be
carried over to the next Purchase Period or Offer Period, whichever applies, or
returned to the Participant, if the Participant withdraws from the Plan.
Notwithstanding the foregoing, any amount remaining in a Participant's account
following the purchase of shares on the Exercise Date due to the application of
Section 423(b)(8) of the Code or Section 7, above, shall be returned to the
Participant and shall not be carried over to the next Offer Period. During a
Participant's lifetime, a Participant's option to purchase shares hereunder is
exercisable only by the Participant.
9. Delivery. Upon receipt of a request from a Participant after each
--------
Exercise Date on which a purchase of shares occurs, the Company shall arrange
the delivery to such Participant, as promptly as practicable, of a certificate
representing the shares purchased upon exercise of the Participant's option.
10. Withdrawal; Termination of Employment.
-------------------------------------
(a) A Participant may either (i) withdraw all but not less than all
the payroll deductions credited to the Participant's account and not yet used to
exercise the Participant's option under the Plan or (ii) terminate future
payroll deductions, but allow accumulated payroll deductions to be used to
exercise the Participant's option under the Plan at any time by giving written
notice to the Company in the form of Exhibit B to this Plan. If the Participant
elects withdrawal alternative (i) described above, all of the Participant's
payroll deductions credited to the Participant's account will be paid to such
Participant as promptly as practicable after receipt of notice of withdrawal,
such Participant's option for the Offer Period will be automatically terminated,
and no further payroll deductions for the purchase of shares will be made during
the Offer Period. If the Participant elects withdrawal alternative (ii)
described above, no further payroll deductions for the purchase of shares will
be made during the Offer Period, all of the Participant's payroll deductions
credited to the Participant's account will be applied to the exercise of the
Participant's option on the next Exercise Date, and after such Exercise Date,
such Participant's option for the Offer Period will be automatically terminated.
If a Participant withdraws from an Offer Period, payroll deductions will not
resume at the beginning of the succeeding Offer Period unless the Participant
delivers to the Company a new subscription agreement.
(b) Upon termination of a Participant's employment relationship (as
described in Section 2(k)) at any time prior to the next scheduled Exercise
Date, the payroll deductions credited to such Participant's account during the
Offer Period but not yet used to exercise the option will be returned to such
Participant or, in the case of his/her death, to the person or persons entitled
thereto under Section 14, and such Participant's option will be automatically
terminated.
11. Interest. No interest shall accrue on the payroll deductions
--------
credited to a Participant's account under the Plan.
7
<PAGE>
12. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 18, the maximum number of shares of Common Stock
which shall be made available for sale under the Plan shall be 625,000 shares,
plus an annual increase to be added on the first day of the Company's fiscal
year beginning in 2001 equal to the lesser of (i) 250,000 shares, (ii) one
percent (1%) of the fully-diluted number of outstanding shares on such date, or
(iii) a lesser number of shares determined by the Plan Administrator. For
purposes of determining the outstanding number of Shares under this Section
12(a), all outstanding classes of securities of the Company, convertible notes,
stock options, other equity compensation arrangements (excluding options granted
under this Plan), and warrants that are convertible or exercisable presently or
in the future by the holder into Shares, shall be deemed to have been fully
converted or exercised (notwithstanding any limits on such conversions or
exercises) into the number of Shares represented by such securities, notes,
stock options, other equity compensation arrangements, and warrants calculated
using the treasury stock method. If on a given Exercise Date the number of
shares with respect to which options are to be exercised exceeds the number of
shares then available under the Plan, the Plan Administrator shall make a pro
rata allocation of the shares remaining available for purchase in as uniform a
manner as shall be practicable and as it shall determine to be equitable.
(b) A Participant will have no interest or voting right in shares
covered by the Participant's option until such shares are actually purchased on
the Participant's behalf in accordance with the applicable provisions of the
Plan. No adjustment shall be made for dividends, distributions or other rights
for which the record date is prior to the date of such purchase.
(c) Shares to be delivered to a Participant under the Plan will be
registered in the name of the Participant or in the name of the Participant and
his or her spouse.
13. Administration. The Plan shall be administered by the Plan
--------------
Administrator which shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Plan Administrator shall, to the full
extent permitted by Applicable Law, be final and binding upon all persons.
14. Designation of Beneficiary.
--------------------------
(a) Each Participant will file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the Participant's account
under the Plan in the event of such Participant's death. If a Participant is
married and the designated beneficiary is not the spouse, spousal consent shall
be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the Participant
(and the Participant's spouse, if any) at any time by written notice. In the
event of the death of a Participant and in the absence of a beneficiary validly
designated under the Plan who is living (or in existence) at the time of such
Participant's death, the Company shall deliver such shares
8
<PAGE>
and/or cash to the executor or administrator of the estate of the Participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Plan Administrator), the Plan Administrator shall deliver such shares and/or
cash to the spouse (or domestic partner, as determined by the Administrator) of
the Participant, or if no spouse (or domestic partner) is known to the Plan
Administrator, then to the issue of the Participant, such distribution to be
made per stirpes (by right of representation), or if no issue are known to the
Plan Administrator, then to the heirs at law of the Participant determined in
accordance with Section 27.
15. Transferability. Neither payroll deductions credited to a
---------------
Participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the Participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Plan Administrator may treat such act as an election to
withdraw funds from an Offer Period in accordance with Section 10.
16. Use of Funds. All payroll deductions received or held by the
------------
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each
-------
Participant in the Plan. Statements of account will be given to Participants at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
18. Adjustments Upon Changes in Capitalization; Corporate
-----------------------------------------------------
Transactions.
- ------------
(a) Adjustments Upon Changes in Capitalization. Subject to any
------------------------------------------
required action by the stockholders of the Company, the Reserves, the Purchase
Price, as well as any other terms that the Plan Administrator determines require
adjustment shall be proportionately adjusted for (i) any increase or decrease in
the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, (ii) any other increase or decrease in the number of issued shares
of Common Stock effected without receipt of consideration by the Company, or
(iii) as the Plan Administrator may determine in its discretion, any other
transaction with respect to Common Stock to which Section 424(a) of the Code
applies; provided, however that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Plan Administrator and its
determination shall be final, binding and conclusive. Except as the Plan
Administrator determines, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason hereof shall be made with respect to, the
Reserves and the Purchase Price.
(b) Corporate Transactions. In the event of a proposed Corporate
----------------------
Transaction, each option under the Plan shall be assumed by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Plan Administrator determines, in the
9
<PAGE>
exercise of its sole discretion and in lieu of such assumption, to shorten the
Offer Period then in progress by setting a new Exercise Date (the "New Exercise
Date"). If the Plan Administrator shortens the Offer Period then in progress in
lieu of assumption in the event of a Corporate Transaction, the Plan
Administrator shall notify each Participant in writing, at least ten (10) days
prior to the New Exercise Date, that the Exercise Date for the Participant's
option has been changed to the New Exercise Date and that the Participant's
option will be exercised automatically on the New Exercise Date, unless prior to
such date the Participant has withdrawn from the Offer Period as provided in
Section 10. For purposes of this Subsection, an option granted under the Plan
shall be deemed to be assumed if, in connection with the Corporate Transaction,
the option is replaced with a comparable option with respect to shares of
capital stock of the successor corporation or Parent thereof. The determination
of option comparability shall be made by the Plan Administrator prior to the
Corporate Transaction and its determination shall be final, binding and
conclusive on all persons.
19. Amendment or Termination.
------------------------
(a) The Plan Administrator may at any time and for any reason
terminate or amend the Plan. Except as provided in Section 18, no such
termination can affect options previously granted, provided that an Offer Period
may be terminated by the Plan Administrator on any Exercise Date if the Plan
Administrator determines that the termination of the Offer Period is in the best
interests of the Company and its stockholders. Except as provided in Section 18,
no amendment may make any change in any option theretofore granted which
adversely affects the rights of any Participant without the consent of affected
Participants. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other Applicable Law), the Company shall
obtain stockholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
Participant rights may be considered to have been "adversely affected," the Plan
Administrator shall be entitled to limit the frequency and/or number of changes
in the amount withheld during Offer Periods, change the length of Purchase
Periods within any Offer Period, determine the length of any future Offer
Period, whether future Offer Periods shall be consecutive or overlapping,
establish the exchange ratio applicable to amounts withheld in a currency other
than U.S. dollars, establish additional terms, conditions, rules or procedures
to accommodate the rules or laws of applicable foreign jurisdictions, permit
payroll withholding in excess of the amount designated by a Participant in order
to adjust for delays or mistakes in the Company's processing of properly
completed withholding elections, establish reasonable waiting and adjustment
periods and/or accounting and crediting procedures to ensure that amounts
applied toward the purchase of Common Stock for each Participant properly
correspond with amounts withheld from the Participant's Compensation, and
establish such other limitations or procedures as the Plan Administrator
determines in its sole discretion advisable and which are consistent with the
Plan.
20. Notices. All notices or other communications by a Participant to
-------
the Company under or in connection with the Plan shall be deemed to have been
duly given when
10
<PAGE>
received in the form specified by the Plan Administrator at the
location, or by the person, designated by the Plan Administrator for the receipt
thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all Applicable
Laws and shall be further subject to the approval of counsel for the Company
with respect to such compliance. As a condition to the exercise of an option,
the Company may require the Participant to represent and warrant at the time of
any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned Applicable Laws. In addition, no options shall be exercised
or shares issued hereunder before the Plan shall have been approved by
stockholders of the Company as provided in Section 23.
22. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the stockholders of the
Company. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 19.
23. Stockholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the degree and manner required under Applicable Laws.
24. No Employment Rights. The Plan does not, directly or indirectly,
--------------------
create any right for the benefit of any employee or class of employees to
purchase any shares under the Plan, or create in any employee or class of
employees any right with respect to continuation of employment by the Company or
a Designated Parent or Subsidiary, and it shall not be deemed to interfere in
any way with such employer's right to terminate, or otherwise modify, an
employee's employment at any time.
25. No Effect on Retirement and Other Benefit Plans. Except as
-----------------------------------------------
specifically provided in a retirement or other benefit plan of the Company or a
Designated Parent or Subsidiary, participation in the Plan shall not be deemed
compensation for purposes of computing benefits or contributions under any
retirement plan of the Company or a Designated Parent or Subsidiary, and shall
not affect any benefits under any other benefit plan of any kind or any benefit
plan subsequently instituted under which the availability or amount of benefits
is related to level of compensation. The Plan is not a "Retirement Plan" or
"Welfare Plan" under the Employee Retirement Income Security Act of 1974, as
amended.
26. Effect of Plan. The provisions of the Plan shall, in accordance
--------------
with its terms, be binding upon, and inure to the benefit of, all successors of
each Participant, including, without limitation, such Participant's estate and
the executors, administrators or trustees thereof, heirs and legatees, and any
receiver, trustee in bankruptcy or representative of creditors of such
Participant.
11
<PAGE>
27. Governing Law. The Plan is to be construed in accordance with and
-------------
governed by the internal laws of the State of Oregon without giving effect to
any choice of law rule that would cause the application of the laws of any
jurisdiction other than the internal laws of the State of Oregon to the rights
and duties of the parties, except to the extent the internal laws of the State
of Oregon are superseded by the laws of the United States. Should any provision
of the Plan be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
28. Dispute Resolution. The provisions of this Section 28 shall be the
------------------
exclusive means of resolving disputes arising out of or relating to the Plan.
The Company, the Grantee, and the Grantee's beneficiary pursuant to Section 14
(the "parties") shall attempt in good faith to resolve any disputes arising out
of or relating to the Plan by negotiation between individuals who have authority
to settle the controversy. Negotiations shall be commenced by either party by
notice of a written statement of the party's position and the name and title of
the individual who will represent the party. Within thirty (30) days of the
written notification, the parties shall meet at a mutually acceptable time and
place, and thereafter as often as they reasonably deem necessary, to resolve the
dispute. If the dispute has not been resolved by negotiation, the parties agree
that any suit, action, or proceeding arising out of or relating to the Plan
shall be brought before the U.S. District Court, District of Oregon, and that
the parties shall submit to the jurisdiction of such court. If the U.S.
District Court, District of Oregon, does not have jurisdiction over the dispute,
the parties agree that any suit, action, or proceeding arising out of or related
to the Plan shall be brought before the Oregon Circuit Court, 4th Judicial
District, located in Portland, Oregon, and that the parties shall submit to the
jurisdiction of such court. The parties irrevocably waive, to the fullest
extent permitted by law, any objection the party may have to the laying of venue
for any such suit, action or proceeding brought in such courts. THE PARTIES
ALSO EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH
SUIT, ACTION OR PROCEEDING. If any one or more provisions of this Section 28
shall for any reason be held invalid or unenforceable, it is the specific intent
of the parties that such provisions shall be modified to the minimum extent
necessary to make it or its application valid and enforceable.
------------------------------------------------
12
<PAGE>
Exhibit A
Digimarc Corporation 1999 Employee Stock Purchase Plan
SUBSCRIPTION AGREEMENT
Effective with the Offer Period beginning on:
[_] ESPP Effective Date [_] June 1, 200__ or [_] December 1, 200__
1. Personal Information
<TABLE>
<S> <C> <C>
Legal Name (Please Print)___________________________________________________________ ______________________ ____________________
(Last) (First) (MI) Location Department
Street Address______________________________________________________________________ ___________________________________________
Daytime Telephone
City, State/Country, Zip____________________________________________________________ ___________________________________________
E-Mail Address
Social Security No. __ __ __ - __ __ - __ __ __ __ Employee I.D. No. ______________ ___________________________________________
Manager Mgr. Location
</TABLE>
2. Eligibility Any Employee whose customary employment is more than 20 hours
per week and more than 5 months per calendar year, who has been an Employee
for more than 10 days and who does not hold (directly or indirectly) five
percent (5%) or more of the combined voting power of the Company, a parent
or a subsidiary, whether in stock or options to acquire stock is eligible to
participate in the Digimarc Corporation 1999 Employee Stock Purchase Plan
(the "ESPP"); provided, however, that Employees who are subject to the rules
or laws of a foreign jurisdiction that prohibit or make impractical the
participation of such Employees in the ESPP are not eligible to participate.
3. Definitions Each capitalized term in this Subscription Agreement shall have
the meaning set forth in the ESPP.
4. Subscription I hereby elect to participate in the ESPP and subscribe to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the ESPP. I have received a complete copy of the
ESPP and a prospectus describing the ESPP and understand that my
participation in the ESPP is in all respects subject to the terms of the
ESPP. The effectiveness of this Subscription Agreement is dependent on my
eligibility to participate in the ESPP.
5. Payroll Deduction Authorization I hereby authorize payroll deductions from
my Compensation during the Offer Period in the percentage specified below
(payroll reductions may not exceed 15% of Compensation nor $21,250 per
calendar year):
============================================================================
Percentage to be Deducted (circle one)
1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15%
----------------------------------------------------------------------------
6. ESPP Accounts and Purchase Price I understand that all payroll deductions
will be credited to my account under the ESPP. No additional payments may be
made to my account. No interest will be credited on funds held in the
account at any time including any refund of the account caused by withdrawal
from the ESPP. All payroll deductions shall be accumulated for the purchase
of Company Common Stock at the applicable Purchase Price determined in
accordance with the ESPP.
7. Withdrawal and Changes in Payroll Deduction I understand that I may
discontinue my participation in the ESPP at any time prior to an Exercise
Date as provided in Section 10 of the ESPP, but if I do not withdraw from
the ESPP, any accumulated payroll deductions will be applied automatically
to purchase Company Common Stock. I may increase or decrease the rate of my
payroll deductions in whole percentage increments to not less than one
percent (1%) on one occasion during any Purchase Period by completing and
timely filing a Change of Status Notice. Any increase or decrease will be
effective for the full payroll period occurring after ten (10) business days
from the Company's receipt of the Change of Status Notice.
A-1
<PAGE>
8. Perpetual Subscription I understand that this Subscription Agreement shall
remain in effect for successive Offer Periods until I withdraw from
participation in the ESPP, or termination of the ESPP.
9. Taxes I have reviewed the ESPP prospectus discussion of the federal tax
consequences of participation in the ESPP and consulted with tax consultants
as I deemed advisable prior to my participation in the ESPP. I hereby agree
to notify the Company in writing within thirty (30) days of any disposition
(transfer or sale) of any shares purchased under the ESPP if such
disposition occurs within two (2) years of the Enrollment Date (the first
day of the Offer Period during which the shares were purchased) or within
one (1) year of the Exercise Date (the date I purchased such shares), and I
will make adequate provision to the Company for foreign, federal, state or
other tax withholding obligations, if any, which arise upon the disposition
of the shares. In addition, the Company may withhold from my Compensation
any amount necessary to meet applicable tax withholding obligations incident
to my participation in the ESPP, including any withholding necessary to make
available to the Company any tax deductions or benefits contingent on such
withholding.
10. Designation of Beneficiary In the event of my death, I hereby designate the
following person or trust as my beneficiary to receive all payments and
shares due to me under the ESPP: [_] I am single [_] I am married
<TABLE>
<S> <C>
Beneficiary (please print)_________________________________________________________________ Relationship to Beneficiary (if any)
(Last) (First) (MI)
Street Address____________________________________________________________________________ _____________________________________
City, State/Country, Zip__________________________________________________________________
</TABLE>
11. Termination of ESPP I understand that the Company has the right, exercisable
in its sole discretion, to amend or terminate the ESPP at any time, and a
termination may be effective as early as an Exercise Date (after purchase of
shares on such date) within each outstanding Offer Period.
<TABLE>
<S> <C>
Date: ___________________________________ Employee Signature: ______________________________________________________________
_____________________________________________________________
spouse's signature (if beneficiary is other than spouse)
</TABLE>
A-2
<PAGE>
Exhibit B
Digimarc Corporation 1999 Employee Stock Purchase Plan
CHANGE OF STATUS NOTICE
____________________________________________
Participant Name (Please Print)
____________________________________________
Social Security Number
================================================================================
Withdrawal From ESPP
I hereby withdraw from the Digimarc Corporation 1999 Employee Stock
Purchase Plan (the "ESPP") and agree that my option under the applicable
Offer Period will be automatically terminated and all accumulated payroll
deductions credited to my account will be refunded to me or applied to the
purchase of Common Stock depending on the alternative indicated below. No
further payroll deductions will be made for the purchase of shares in the
applicable Offer Period and I shall be eligible to participate in a future
Offer Period only by timely delivery to the Company of a new Subscription
Agreement.
[_] Withdrawal and Purchase of Common Stock
Payroll deductions will terminate, but your account balance will be applied
to purchase Common Stock on the next Exercise Date. Any remaining balance
will be refunded.
[_] Withdrawal Without Purchase of Common Stock
Entire account balance will be refunded to me and no Common Stock will be
purchased on the next Exercise Date provided this notice is submitted to
the Company ten (10) business days prior to the next Exercise Date.
================================================================================
[_] Change in Payroll Deduction
I hereby elect to change my rate of payroll deduction under the ESPP as
follows (select one):
================================================================================
Percentage to be Deducted (circle one)
1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following rule under the ESPP applies to changing your payroll
deduction rate:
An increase or a decrease in payroll deduction will be effective for
the first full payroll period commencing no fewer than ten (10)
business days following the Company's receipt of this notice, unless
this change is processed more quickly.
================================================================================
B-1
<PAGE>
================================================================================
[_] Change of Beneficiary [_] I am single [_] I am married
This change of beneficiary shall terminate my previous beneficiary
designation under the ESPP. In the event of my death, I hereby designate
the following person or trust as my beneficiary to receive all payments and
shares due to me under the ESPP:
<TABLE>
<S> <C>
Beneficiary (please print)________________________________________________________________ Relationship to Beneficiary (if any)
(Last) (First) (MI)
Street Address ___________________________________________________________________________ _____________________________________
City, State/Country, Zip _________________________________________________________________
</TABLE>
===============================================================================
<TABLE>
<S> <C>
Date: ___________________________________ Employee Signature: ______________________________________________________________
_____________________________________________________________
spouse's signature (if beneficiary is other than spouse)
</TABLE>
B-1
<PAGE>
EXHIBIT 10.9
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 couterfeiting.
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 [*].
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
[*] 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.
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
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
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;
"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 [*] of [*] 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
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
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;
"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 ([*]);
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
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 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 the [*];
"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;
[*];
[*];
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
[*];
[*];
[*] 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 [*];
"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;
[*];
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
"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
[*];
"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
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
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;
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" [*]
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
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 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
[*].
2.4 The Offer (i) for [*] shall remain open until [*] and (ii) for the [*]
shall remain open until
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
[*] 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 the [*] to which the Offer is addressed,
to grant to an [*] a [*] to [*] in connection with [*] of the [*] on terms no
less favourable to that [*] than those set out in whichever of Schedules "K-1"
and "K-2" is applicable.
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 [*] 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
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
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 [*]s 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 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
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
[*] 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 [*] 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 the
[*] 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 [*].
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 the [*] invoiced under this Agreement
including, without limitation, time sheets showing the hours spent
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
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, 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.
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
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 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).
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
<PAGE>
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.
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.
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
<PAGE>
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.
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
<PAGE>
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 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
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
<PAGE>
(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 of [*], 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.
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.
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
<PAGE>
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 a [*].
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.
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) [*]
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
<PAGE>
(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 [*] 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.
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
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
<PAGE>
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.
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;
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
<PAGE>
(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;
(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
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
<PAGE>
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 [*] 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 [*].
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
<PAGE>
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.
12. CONFIDENTIALITY
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
<PAGE>
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
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
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.
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
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 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
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
continue the performance of that Work, and Digimarc shall act in accordance
with those instructions, subject to payment in accordance with clause 3.2.
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
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 [*] 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
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
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.
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
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
(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.
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 [*] 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
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
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.
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.
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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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.
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:
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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(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".
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 communique
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
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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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:
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
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 [*]
________________
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filed separately with the Securities and Exchange Commission.
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2.1 [*]
2.1.1 [*]
1. [*]
2. [*]
3. [*]
4. [*]
2.1.2 [*]
1. [*]
2. [*]
3. [*]
4. [*]
5. [*]
________________
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filed separately with the Securities and Exchange Commission.
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2.1.3 [*]
1. [*]
2.2 [*]
1. [*]
2. [*]
3. [*]
4. [*]
(a) [*]
(b) [*]
(c) [*]
5. [*]
6. [*]
7. [*]
________________
[*] Omitted pursuant to a confidential treatment request. The material has been
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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 [*], 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 [*].
________________
[*] Omitted pursuant to a confidential treatment request. The material has been
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4. [*].
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
________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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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 [*].
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
________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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2.1 [*]
[*]:
2.1.1 [*]
1. [*].
2. [*].
3. [*].
4. [*].
5. [*].
6. [*].
2.1.2 [*]
1. [*].
2. [*].
2.1.3 [*]
1. [*].
2. [*].
3. [*]
4. [*].
5. [*].
6. [*].
2.2 [*]
________________
[*] Omitted pursuant to a confidential treatment request. The material has been
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2.2.1 [*]:
1. [*].
2. [*]:
(a) [*].
(b) [*].
3. [*].
4. [*].
5. [*].
6. [*]
7. [*]:
(a) [*].
(b) [*] CDS [*].
(c) [*].
________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
5
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Attachment 1
BASELINE, EXTENDED BASELINE, AND OPTIONAL TESTS
1.0 [*]
1.1 [*]
1.1.1 [*]
1.1.2 [*]
1.1.3 [*]
1.1.3.1 [*]
1.1.3.2 [*]
1.1.3.3 [*]
1.2 [*]
1.2.1 [*]
1.2.3 [*]
1.2.4 [*]
1.2.5 [*]
[*]
2.0 [*]
2.1 [*]
2.1.1 [*]
2.1.2 [*]
2.1.3 [*]
2.1.4 [*]
2.1.5 [*]
2.1.6 [*]
2.1.7 [*]
2.1.8 [*]
________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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2.2 [*]
2.2.1 [*]
2.2.2 [*]
2.2.3 [*]
2.2.4 [*]
3.0 [*]
3.1 [*]
3.2 [*]
3.2.1 [*]
3.2.2 [*]
3.2.3 [*]
________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
2
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Attachment 2
CDS PHASE 1 DELIVERY SCHEDULE
[*]
[*]
________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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Attachment 3
DEVICE VENDORS
[*] [*] [*]
- --- --- ---
[*] [*] [*]
________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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SCHEDULE "C"
[*] STATEMENT OF WORK
Subject to the agreement to the contrary as part of the process defined in
the Agreement for determining the [*], Digimarc shall deliver the following
deliverables [*]:
1.0 [*]
1.1 [*] will meet the following requirements:
1.1.1 be capable of being integrated into [*]
1.1.2 meets all the specifications [*].
1.1.3 [*].
1.1.4 [*].
1.1.5 [*] may, at its option, evaluate the production version of each [*] into
which the [*] has been implemented. The DLA Project Manager shall identify to
Digimarc any concerns which [*] may have relating to [*] resistance or
performance. Digimarc shall make a proposal to the DLA Project Manager to
address those concerns for approval by the DLA Project Manager.
2.0 [*] Prototype
This deliverable is a prototype of the system that records [*]. The
system prototype includes prototype tools intended for use [*].
3.0 [*] Prototype
This deliverable is a prototype of [*] module that integrates [*]. The
specific [*] to be supported will be agreed to between Digimarc and the [*].
4.0 [*] Study
This is [*] that attempts to characterise the relationship between [*].
The study is intended to be expanded [*] to characterise the strength
relationship between [*].
____________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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5.0 [*]
5.1 Digimarc shall integrate [*].
5.2 Digimarc shall provide [*].
5.3 Digimarc shall implement an [*].
5.4 Digimarc shall license the [*] to at least [*] in addition to those
required by [*] and [*], all of which vendors shall be selected from the list in
Schedule B or otherwise agreed between the parties' respective Project Managers.
6.0 Outreach / Market Research
6.1 Digimarc shall continue to build CDS program awareness and [*] adoption
across the [*], with a focus on [*].
6.2 Digimarc shall support any [*] initiatives, if any, to expand use of the
CDS [*].
6.3 Digimarc shall track and summarize computer technology and product trends
that affect the CDS [*] and development strategy.
7.0 [*] Study
7.1 Digimarc shall investigate the feasibility of [*]. The study will
investigate methods including [*].
7.2 [*] shall assist in the conduct of the study by [*] from files supplied
by Digimarc [*].
8.0 Certification Program
8.1 Digimarc shall develop and implement a certification program acceptable
to [*] for the ongoing review and certification of Devices that include [*] will
be required to submit their products for certification prior to shipment.
Digimarc will use an appropriate test suite to confirm operation and compliance
of the [*]. Certification will test that vendors' [*]; vendors' [*] meets
minimum [*] performance criteria for false positive and false negative
characteristics; and vendors' [*] of the [*] follows agreed to security
guidelines to help guard against code-centric attacks.
____________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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9.0 Verification Tests
Digimarc shall develop for approval by the DLA Project Manager a series
of tests to be used by Digimarc to determine if a [*].
____________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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SCHEDULE "D"
[*]
Subject to the agreement to the contrary as part of the process defined in
the Agreement for determining [*], Digimarc shall deliver the following
deliverables [*]:
1.0 [*]
1.1 [*]
2.0 [*]
2.1 completion of the [*] and integration of this system with [*].
3.0 [*]
[*] will meet the following requirements:
3.1 Meets all the specifications for v 2.0.
3.2 Includes a [*] module to be integrated into [*].
3.3 Includes [*] and [*].
4.0 [*]
4.1 Digimarc shall integrate [*].
4.2 Digimarc shall provide [*] support to [*].
4.3 Digimarc shall continue [*] certification program, expanding it to include
[*].
4.4 Digimarc shall license the [*] to at least [*] in addition to those
required by [*] and [*] in addition to those required by [*], all of which
vendors shall be selected from the list in Schedule B or as otherwise agreed
with the DLA Project Manager.
5.0 [*].
__________________
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filed separately with the Securities and Exchange Commission.
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5.1 [*].
6.0 Outreach / Market Research
6.1 Digimarc shall [*] the CDS [*].
6.2 Digimarc shall [*] the CDS [*].
__________________
[*] Omitted pursuant to a confidential treatment requested. The material has
been filed separately with the Securities and Exchange Commission.
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SCHEDULE "E"
ARBITRATION AGREEMENT
An Agreement dated June 21, 1999, by and among the Parties (as defined
below) to submit for final and binding resolution by international arbitration
all Disputes (as defined below) arising out of or otherwise connected to a
project relating to the development and potential licensing, marketing and
servicing of a Counterfeit Deterrence System (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 Oregon, USA, is developing, in conjunction with [*], technology to [*]
(the "Counterfeit Deterrence System" or "CDS" as defined in the Development and
License Agreement identified below);
WHEREAS, the [*], to provide it with limited assistance in connection with
the development and potential subsequent licensing of the CDS as set out in a
Development and Licensing Agreement (the "DLA") effective from [*];
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 be directed
to issue licenses to [*] in accordance with standard forms of license agreement
which are attached at Schedules K-1, K-2, L-1 and L-2 to the DLA;
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 [*] on the terms described in Schedule P
to the DLA to assist [*];
WHEREAS, the [*] have, pursuant to an Indemnity Agreement of or of
approximately the same date as this Arbitration Agreement (the "Indemnity
Agreement"), agreed to compensate and to indemnify and hold harmless the [*] in
respect of any liability in connection with the project;
WHEREAS, given the international nature of the Agreements (as defined
below), all the Parties (as defined below) to the Agreements (as defined below)
are desirous to avoid recourse to
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national 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 international 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 CDS 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 marketing
or servicing of the CDS 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 licensed [*] 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
________________
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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, [*] or any
licensed [*] to intervene into a particular arbitration as an Arbitrating
Party even when it is not a 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 as listed in Schedule A and any entity which in accordance with
Articles 6 and 7 of this Arbitration Agreement also becomes a signatory to
this Arbitration Agreement.
(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 commencement of this Arbitration Agreement 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. The language used in any arbitration shall be English. All documents
submitted into any arbitration shall be in English or submitted with a complete
English translation. Oral evidence may be submitted in a language other than
English provided that the Arbitrating Party submitting the oral evidence makes
provision for its simultaneous interpretation into English. The cost of any
translation or interpretation into English shall be borne entirely by the
Arbitrating Party on whose behalf the non-English document or oral evidence is
submitted and shall not be included among the "costs of arbitration" apportioned
pursuant to Article 40 of the [*].
4. The place of Arbitration shall be [*].
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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 relating to the
performance of an Agreement or which alters or amends in any material respect
any of the rights or obligations of any Party under any Agreement, except as
follows: (a) the contract or agreement shall contain the clause set out in
Schedule D and (b) the parties to the contract or agreement shall sign
counterparts to the Arbitration Agreement, thereby expressly consenting to be
added to the list of Parties at Schedule A and to the addition of the contract
or agreement to Schedule B, said signed counterparts and notice of these
additions being sent to all Parties. Each Party to this Arbitration Agreement
hereby expressly accepts the addition of said parties to Schedule A and of said
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 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.
________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
4
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(e) The [*], Digimarc, [*], and any licensed [*], 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, [*], and any licensed [*] 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 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.
________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
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(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 [*] 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 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 [*] notwithstanding.
Nothing in this Arbitration Agreement shall operate or be regarded as a waiver,
renunciation or other modification of the privileges, immunities and exemptions
enjoyed by the
________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
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[*] for itself or in respect of its assets, 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 assets has or
hereafter may acquire any right of immunity, whether characterized as sovereign
immunity or otherwise, 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,
immunity from jurisdiction of any arbitral tribunal, immunity from service of
process, immunity from execution of judgment and immunity of any of its property
from attachment prior to the rendering of an arbitral award under this
Arbitration Agreement or entry of judgment, it hereby expressly and irrevocably
waives all such immunity.
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,
[*] or any licensed [*] 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 international commercial matters. All
arbitrators shall have a full command of the English language.
(d) The arbitrators appointed in accordance with this Arbitration Agreement
shall be remunerated in accordance with the provisions of the Rules of
[*] in effect at the time any arbitration is commenced.
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.
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.
________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
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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, 1999.
[Signatures]
________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
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<PAGE>
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.
________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
1
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Schedule B to Arbitration Agreement
The following are considered to be Agreements:
1. Development and License Agreement
2. Indemnity Agreement
3. Escrow Agreement
4. [*] License Agreements - [*]
5. [*] License Agreements - [*]
6. [*] License Agreements - [*]
7. [*] License Agreements - [*]
8. System Support Services Agreements
________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
1
<PAGE>
Schedule C to Arbitration Agreement
In accordance with Article 1.1 of the [*], in addition to such other
modifications of the [*] as are contained in this Arbitration Agreement, the
Parties to this Arbitration Agreement and to the Agreements modify the [*] as
follows:
(a) Notwithstanding Article 3.1 of the [*], 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 3.2 of the [*], 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 3.3(g), Article 3.4(a) and Article 3.4(b) of the
[*], 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 19.3 of the [*], 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 20 of the [*], 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 23 of the [*], 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 26 of the [*], 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.
________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
1
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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
dated [ ], a copy of which is attached as Appendix [ ] to this
[Agreement] (the "Arbitration Agreement") [or, alternatively, "entered
into between the parties and others effective 1 January 1999 "].
"[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."
________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
1
<PAGE>
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: [*]
[*]
[*]
[*]
[*]
______________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
<PAGE>
SCHEDULE "G"
DIGIMARC TECHNOLOGY
The Digimarc Technology includes techniques and system applications for [*].
This technology is partially described in the following issued U.S. patents:
US 5850481
US 5841978
US 5841886
US 5832119
US 5822436
US 5809160
US 5768426
US 5765152
US 5748783
US 5748763
US 5745604
US 5721788
US 5710834
US 5636292
US 5862260
_____________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
-1-
<PAGE>
SCHEDULE "H"
PROJECT TECHNOLOGY
The Project Technology will include:
1. The modification of techniques for using the Digimarc and [*] Technologies
in the [*].
2. The effects and behaviours [*].
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. [*].
__________
[*] Omitted pursuant to confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
<PAGE>
SCHEDULE "I"
ALLOWABLE COSTS
1. For the purposes of this Schedule I:
[*]
__________
[*] Omitted pursuant to confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
1
<PAGE>
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.
_____________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities Exchange Commission.
-1-
<PAGE>
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 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 [*] and/or Statement of Work.
____________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities Exchange Commission.
-2-
<PAGE>
SCHEDULE"K-1"
[*] LICENSE AGREEMENT - [*]
This [*] LICENSE AGREEMENT (the "Agreement") is made
BETWEEN
(name and address of [*]) ("[*]")
- AND -
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")
RECITALS
- --------
Digimarc has expertise in, and owns extensive intellectual property,
including patents, patent applications, copyrights and trade secrets related to
digital watermarks, counterfeit deterrence, 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, [*] (the "Counterfeit Deterrence System" or "CDS");
and
[*] desires to obtain a license to certain components of the CDS so it
can [*] which include the CDS [*].
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:
_______________
[*] Omitted Pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
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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 1999;
"Attachment" means a document specified as being attached to this Agreement;
[*]
[*]
[*]
[*] the CDS;
[*]
"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 the [*];
[*]
"Counterfeit Deterrence System" (or "CDS" or "System") [*]
"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 CDS;
_______________
[*] Omitted Pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
2
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"Digital Watermark" refers to markings (including texturing) that are detectable
from data produced by visible light scanning of documents, which convey multiple
bits of digital data and yet do not significantly detract from the aesthetics of
the item or image marked thereby. Examples include, but are not limited to:
1. generally imperceptible changes to line density or placement in line art
imagery;
2. texturing of a substrate, where the texturing feels substantially uniform
to human touch;
3. slight localized changes to optical density or reflectance of a printed
document;
4. slight changes to sampled data; or
5. visible background patterns of substantially uniform character.
"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;
[*]
[*]
_______________
[*] Omitted Pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
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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 [*];
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
_______________
[*] Omitted Pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
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(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" [*]
2. GRANT OF RIGHTS AND SERVICES
2.1 Subject to the terms of this Agreement, Digimarc hereby grants to [*], a
no charge, non-exclusive, non-transferable 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 with [*], 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
_______________
[*] Omitted Pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
5
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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.
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 [*], and grant the foregoing license to [*].
_______________
[*] Omitted Pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
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3. SERVICE FEES
3.1 [*] shall pay to Digimarc a fee for the Services as detailed below. The
fee for Services provided:
(a) [*], is as set out in Attachment 3;
(b) [*], will be no greater than the fee then paid to Digimarc for similar
services by Digimarc's most favoured customer.
3.2 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 country of the [*]'s principal place of
business which Digimarc is obliged to collect and remit to such government(s) 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 the [*] IPR
or the Digimarc IPR, or permit or suffer the [*] IPR 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, the [*] IPR 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
_______________
[*] Omitted Pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
7
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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) [*]
(ii) [*]
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) Digital
Watermarks [*]; (ii) the technology for [*], and (iii) the technology for [*]
and (iv) any other part of the CDS, which improvements [*] 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 [*].
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 Not less frequently than twice in each calendar year of the Term, [*] (or
Digimarc if [*] so designates), shall conduct Verification Tests on
representative samples of [*]. 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) [*], [*] shall pay Digimarc the fees set out in Attachment 3;
(ii) [*], [*] shall pay Digimarc the fees then paid to Digimarc for similar
services by Digimarc's most favoured customer .
_______________
[*] Omitted Pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
8
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5.10 In the event that said Tests do not indicate, to [*]'s 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.
_______________
[*] Omitted Pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
9
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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 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 7.7 inclusive Digimarc
shall, at its own expense:
(a) negotiate the resolution of any such Claim;
(b) pay all costs associated with the Claim; and
_______________
[*] Omitted Pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
10
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(c) defend any action based on the Claim.
7.3 [*] shall, at Digimarc's expense, comply with all reasonable requests 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 [*] against and save [*] and all the [*] 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 [*]. 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 agreement entered into between Digimarc
and [*] pursuant to the provisions of the [*] 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.
8. REPRESENTATIONS AND WARRANTIES OF DIGIMARC
8.1 General - 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 Oregon, U.S.A. or some other state in the United
States with full corporate power and authority to enter into this
Agreement;
_______________
[*] Omitted Pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
11
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(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) [*] 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
(b) this Agreement when executed and delivered by [*] shall constitute a valid,
binding
_______________
[*] Omitted Pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
12
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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 [*] that have already been produced will continue to be licensed, but
no further production of [*] for [*] 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 [*]
as of the date of such termination.
___________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
13
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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, Licensee 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 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.
12.3 Any notice to [*] shall be sent to both of, and any notice from [*] shall
be sent by either:
Name1 Name2
___________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
14
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Address1 Address2
12.4 Any notice to Digimarc shall be sent to both of, and any notice from
Digimarc shall be sent by either:
___________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
15
<PAGE>
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
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
___________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
16
<PAGE>
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 press releases and other public announcements
concerning benefits arising from the CDS. Each party agrees to submit for
approval by the other party any press release 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
___________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
2
<PAGE>
hereto as of the Effective Date.
DIGIMARC CORPORATION ([*])
By: ________________ By: ________________
Name: ________________ Name: ________________
Title: ________________ Title: ________________
Date: ________________ Date: ________________
___________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
3
<PAGE>
ATTACHMENT 1
[*]
[*] will cause the following [*] to take place:
(a) [*]
(b) [*] CDS [*]
(c) [*]
___________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
4
<PAGE>
ATTACHMENT 2
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.
___________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
1
<PAGE>
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 US funds.
[*] 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 by any governments other than the United States of America.
___________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
<PAGE>
ATTACHMENT 4
IDENTIFICATION OF [*]
ATTACHMENT 5
[*]
___________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
<PAGE>
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
Oregon and having its head office at One Centerpointe Drive, Suite
500, Lake Oswego, Oregon. U.S.A. 97035-8615 ("Digimarc")
RECITALS
- --------
Digimarc has expertise in, and owns extensive intellectual property,
including patents, patent applications, copyrights and trade secrets related to
digital watermarks, counterfeit deterrence, copyright protection, and device
control (the "Digimarc IPR");
[*] possesses or will possess intellectual property rights related to
the application of such intellectual property to [*];
Digimarc and [*] have cooperated in the development of means, using
such intellectual property, to [*] (the "Counterfeit Deterrence System"
or "CDS");
and
[*] desires to obtain a license to certain components of the CDS so it
can [*] which include the CDS [*].
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:
__________________
[*] Omitted pursuant to confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
1
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1. 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 effective 1 January 1999;
"Attachment" means a document specified as being attached to this Agreement;
[*];
[*];
[*];
[*] the CDS;
[*]
"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 the Digimarc IPR and [*];
[*]
"Counterfeit Deterrence System" (or "CDS" or "System") [*];
"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 CDS;
_____________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
2
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"Digital Watermark" refers to markings (including texturing) that are detectable
from data produced by visible light scanning of documents, which convey multiple
bits of digital data and yet do not significantly detract from the aesthetics of
the item or image marked thereby. Examples include, but are not limited to:
1. generally imperceptible changes to line density or placement in line art
imagery;
2. texturing of a substrate, where the texturing feels substantially uniform
to human touch;
3. slight localized changes to optical density or reflectance of a printed
document;
4. slight changes to sampled data; or
5. visible background patterns of substantially uniform character.
"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;
[*]
[*]
____________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
3
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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 [*];
and
"Verification Test" means a test or tests developed under the [*] License to
determine if [*].
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
_______________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
4
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(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" [*]
2. GRANT OF RIGHTS AND SERVICES
2.1 Subject to the terms of this Agreement, Digimarc hereby grants to [*], a
no charge, non-exclusive, non-transferable license under the Digimarc IPR and
the [*] IPR, in the Field of Use only, to [*].
2.2 [*] acknowledges and agrees that the Digimarc IPR, and any technology
developed by Digimarc during the course of its work with [*], is the property of
Digimarc and that [*] has no right to sublicense it. [*] acknowledges that [*]
may not [*].
___________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
5
<PAGE>
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 by [*].
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 [*], 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) [*], is as set out in Attachment 4;
(b) [*], will be no greater than the fee then paid to Digimarc for similar
services by Digimarc's most favoured customer.
3.2 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 country of the [*]'s principal place of
business which Digimarc is obliged to collect and remit to such government(s) 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
________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
6
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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.
4.2 Digimarc shall not unreasonably withhold its consent to any qualifications
which [*]'s 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 [*] IPR
or the Digimarc IPR, or permit or suffer the [*] IPR 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, the [*] IPR 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) [*]
(ii) [*]
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
7
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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) Digital
Watermarks [*]; (ii) the technology for [*], and (iii) the technology for [*]
and (iv) any other part of the CDS which improvements [*] 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 [*].
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 Not less frequently than twice in each calendar year of the Term, [*] (or
Digimarc if [*] so designates), shall conduct Verification Tests on
representative samples [*]. 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) [*], [*] shall pay Digimarc the fees set out in Attachment 4 ;
(ii) [*], [*] 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 [*]'s 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.
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
8
<PAGE>
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
(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
_______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
9
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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 [*] 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 a [*].
7. INTELLECTUAL PROPERTY INDEMNIFICATION
NOTE - THIS PROTECTION IS AVAILABLE UPON PAYMENT OF A FEE BY [*] TO BE
NEGOTIATED BETWEEN [*] AND DIGIMARC
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 for
assistance from [*] in connection with the settlement or defence of the Claim.
________________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
10
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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 [*] 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 [*]. 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 agreement entered into between Digimarc
and [*] pursuant to the provisions of the [*] 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.
8. REPRESENTATIONS AND WARRANTIES OF DIGIMARC
8.1 General - 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 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;
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
11
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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.
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 [*] 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
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
12
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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 [*] that have already been produced will continue to
be licensed, but no further production of [*] for [*] 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
[*] 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
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
13
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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 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.
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. Bruce Davis President and CEO
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
14
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Digimarc Corporation Mr. William Y. Conwell
One Centerpointe Drive Klarquist, Sparkman, Campbell,
Suite 500 Leigh & Whinston
Lake Oswego, Oregon 97035 USA 121 SW Salmon Street
FAX: (503) 968-0219 Suite 1600
Portland, Oregon 97204 USA
FAX: (503) 228-9446
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.
Schedule K2 June 28, 1999
<PAGE>
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 press releases and other public announcements
concerning benefits arising from the CDS. Each party agrees to submit for
approval by the other party any press release 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.
2.18 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.
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
DIGIMARC CORPORATION ([*])
By: ___________________________ By: _________________________
Name: ___________________________ Name: _________________________
Title: ___________________________ Title: _________________________
Date: ___________________________ Date: _________________________
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
ATTACHMENT 1
[*]
[*] will cause the following [*] to take place:
(a) [*]
(b) [*] CDS [*].
(c) [*]
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
1
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ATTACHMENT 2
DRAFT OPINION OF COUNSEL
Digimarc Corporation
One Centerpointe Drive
Suite 500
Lake Oswego, Oregon,
U.S.A. 97035-8615
Attention: Mr. Bruce Davis
President and CEO
Dear Mr. Davis:
In connection with your proposal to grant a license to (name of [*]) to use
the Counterfeit Deterrence System and for no other purpose, we confirm that:
(b) each provision of this Agreement is valid and enforceable against (name of
[*]) under the laws of (name of jurisdiction); 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
[*]).
[*]
Yours truly,
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
1
<PAGE>
ATTACHMENT 3
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.
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE>
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 in US funds.
[*] 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 by any governments other than the United States of America.
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
1
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ATTACHMENT 5
IDENTIFICATION OF [*]
ATTACHMENT 6
[*]
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
1
<PAGE>
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 Oregon and having its head office at One Centerpointe Drive, Suite
500, Lake Oswego, Oregon. U.S.A. 97035-8615 ("Digimarc")
"[*]" ...........
...........
RECITALS
Digimarc has expertise in, and owns extensive intellectual property,
including patents, patent applications, copyrights and trade secrets related to
digital watermarks, counterfeit deterrence, 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 [*] (the "Counterfeit Deterrence System" or
"CDS"); [*]
Digimarc is licensing its CDS [*] 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 [*] and
______________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
1
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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
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 1999;
"Attachment" means a document specified as being attached to this Agreement;
[*]
[*]
[*]
[*] the CDS;
"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 [*];
[*]
"Counterfeit Deterrence System" ("CDS" or "System") [*];
"Consulting Services" means the Integration Support and all other services that
Digimarc
______________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
2
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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 the CDS;
"Digital Watermark" refers to markings (including texturing) that are detectable
from data produced by visible light scanning of documents, which convey multiple
bits of digital data and yet do not significantly detract from the aesthetics of
the item or image marked thereby. Examples include, but are not limited to:
1. generally imperceptible changes to line density or placement in line art
imagery;
2. texturing of a substrate where the texturing feels substantially uniform to
human touch;
3. slight localized changes to optical density or reflectance of a printed
document;
4. slight changes to sampled data; or
5. visible background patterns of substantially uniform character;
"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 [*];
[*]
[*]
"Field of Use" means the field of [*]
"Improvement" means an improvement provided to [*] under clause 2.14 of the [*]
Agreement;
"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,
______________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
3
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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 Verification Tests, the Training, and the Consulting
Services, or any of them;
"Term" means the period commencing on the Effective Date and ending on [*]
"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
[*]
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:
______________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
4
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(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
2. GRANT OF RIGHTS
2.1 Subject to the terms of this Agreement, Digimarc hereby grants to
Licensee a no charge non-exclusive, non - transferable license in the Field of
Use to use the [*] the Digimarc IPR and the [*] IPR at the Facilities to:
______________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
5
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(a) [*]
(b) [*]
(c) [*] and
(d) [*] to [*].
2.2 For greater certainty, the foregoing license applies [*]
2.3 Licensee shall not use [*] the Digimarc IPR or the [*] IPR at, or transfer
the Digimarc IPR or [*] IPR to, any place other than the Facilities.
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 therefor 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 royalty-free, non-exclusive,
sub-licenseable worldwide license to use the improvements described in clause
2.8 and in any patents thereon
______________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
6
<PAGE>
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 provide the Training to Licensee within ten (10) days after
the Effective Date or at such other time as the parties may agree.
3.2 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 provided that in 1999 the sixty (60) Business Day limit
shall apply only [*] licensed by Digimarc to use the CDS which require such
Integration Support.
3.3 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.
3.4 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.
3.5 Digimarc shall periodically apprise Licensee of improvements which Digimarc
makes to [*]. 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) [*], is as set out in Attachment 3;
______________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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<PAGE>
(b) [*] 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 the country of the 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 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 [*] 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)
Digital Watermarks [*]; (ii) [*], (iii) [*] and (iv) any other part of the CDS,
which improvements Licensee 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.
__________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
8
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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 [*] 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 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 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;
(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
__________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
9
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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 which the production 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 software 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, [*] 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:
__________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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(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.
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
__________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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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 Licensed [*]
10. INTELLECTUAL PROPERTY INDEMNIFICATION
10.1 Licensee 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").
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.
__________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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10.3 Licensee shall, at Digimarc's expense, comply with all reasonable requests
for assistance from [*] 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 [*]. 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 agreement entered into between Digimarc
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.
10. 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, [*] 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
__________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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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
[*] 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.
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
__________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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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
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.
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
13.4 Any notice to Digimarc shall be sent to both of, and any notice from
Digimarc shall be sent by either:
Mr. Bruce Davis and Mr. William Y. Conwell
President and CEO Klarquist, Sparkman, Campbell
Digimarc Corporation Leigh & Whinston
One Centrepoint 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
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
__________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
15
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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
__________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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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 press releases and other public announcements
concerning benefits arising from the CDS. Each party agrees to submit for
approval by the other party any press release 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 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:__________________________
__________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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ATTACHMENT 1
[*]
[*] will cause the following [*] to take place:
(a) [*]
(b) [*] CDS [*]
(c) [*]
__________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
1
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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 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.
__________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
1
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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 US funds.
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 by any government other than the United
States of America.
__________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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ATTACHMENT 4
[*]
ATTACHMENT 5
IDENTIFICATION OF [*]
__________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
1
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ATTACHMENT 6
TRAINING
1.0 As part of [*], Digimarc shall develop a program of training acceptable to
the DLA Project Manager 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 facilities of Licensee or, at
the request of Licensee, at Digimarc's facilities 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.
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 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 in English.
__________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
1
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SCHEDULE "L-2"
[*] 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 Oregon and having its head office at One Centerpointe Drive, Suite
500, Lake Oswego, Oregon. U.S.A. 97035-8615 ("Digimarc")
"[*]" ..................
..................
RECITALS
Digimarc has expertise in, and owns extensive intellectual property,
including patents, patent applications, copyrights and trade secrets related to
digital watermarks, counterfeit deterrence, copyright protection, and device
control;
[*] 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, [*] (the "Counterfeit Deterrence System" or "CDS"); and
Digimarc is licensing its CDS [*] 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 [*] and
In consideration of these premises, the covenants set out in this Agreement
and for
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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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
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 1999;
"Attachment" means a document specified as being attached to this Agreement;
[*]
[*]
[*]
[*] CDS;
"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 [*];
"Counterfeit Deterrence System" ("CDS" or "System") [*];
"Consulting Services" means the Integration Support and all other services that
Digimarc
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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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 the CDS;
"Digital Watermark" refers to markings (including texturing) that are detectable
from data produced by visible light scanning of documents, which convey multiple
bits of digital data and yet do not significantly detract from the aesthetics of
the item or image marked thereby. Examples include, but are not limited to:
1. generally imperceptible changes to line density or placement in line art
imagery;
2. texturing of a substrate where the texturing feels substantially uniform to
human touch;
3. slight localized changes to optical density or reflectance of a printed
document;
4. slight changes to sampled data; or
5. visible background patterns of substantially uniform character;
"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 [*];
[*]
"Field of Use" means the field of [*];
"Improvement" means an improvement provided to [*] under clause 2.14 of the [*]
Agreement;
"Integration Support" means the consulting and programming services to be
provided by Digimarc to Licensee to assist Licensee [*];
"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,
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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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 Verification Tests, the Training, and the Consulting
Services, or any of them;
"Term" means the period commencing on the Effective Date and ending on [*];
"Training" means the training in the use of [*] described in Attachment 7; and
"Verification Test" means a test or tests developed under the [*] Agreement to
[*].
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;
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
4
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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
2. GRANT OF RIGHTS
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
5
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2.1 Subject to the terms of this Agreement, Digimarc hereby grants to Licensee
a no charge non-exclusive, non-transferable license in the Field of Use to use
[*], the Digimarc IPR and the [*] IPR at the Facilities to:
(a) [*]
(b) [*]
(c) [*] and
(d) [*] to [*].
2.2 For greater certainty, the foregoing license applies [*]
2.3 Licensee shall not use [*], the Digimarc IPR or the [*] IPR at, or transfer
the Digimarc IPR or [*] IPR to, any place other than the Facilities.
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 therefor 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
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
6
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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 royalty-free, non-exclusive, sub-
licenseable worldwide 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 provide the Training to Licensee within ten (10) days after
the Effective Date or at such other time as the parties may agree.
3.2 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 provided that in 1999 the sixty (60) Business Day limit shall apply
[*] licensed by Digimarc to use the CDS which require such Integration Support.
3.3 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.
3.4 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.
3.5 Digimarc shall periodically apprise Licensee of improvements which Digimarc
makes to [*]. Rights to employ such improvements shall automatically be granted
to Licensee pursuant to the terms of clause 2 at no additional charge to
Licensee.
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
7
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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) [*] is as set out in Attachment 4;
(b) [*] 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 the country of the 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 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 [*] 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.
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
8
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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 [*] of the Problem Report attached as Attachment 3;
(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)
Digital Watermarks [*]; (ii) [*], (iii) [*] and (iv) any other part of the CDS,
which improvements Licensee 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 [*] to confirm that they pass the Verification Tests.
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
9
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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 [*] 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 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;
(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 which the production of [*] first
commences, meet the Specifications for that version of [*] accepted by [*];
(b) until the last day of the Term, [*]
(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
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
10
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delivery of a component of [*] to search for, detect and eliminate software
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, [*] 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 corrected [*] 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.
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
11
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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
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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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 Licensed [*].
10. INTELLECTUAL PROPERTY INDEMNIFICATION
NOTE - THIS PROTECTION IS AVAILABLE UPON PAYMENT OF A FEE BY LICENSEE TO BE
NEGOTIATED BETWEEN [*] AND DIGIMARC
10.1 Licensee 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").
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 for assistance
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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from [*] 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 [*]. 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 agreement entered into between
Digimarc 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.
10. 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, [*]; 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
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
14
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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 [*] 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.
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;
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
15
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(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
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.
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
13.4 Any notice to Digimarc shall be sent to both of, and any notice from
Digimarc shall be sent by either:
Mr. Bruce Davis and Mr. William Y. Conwell
President and CEO Klarquist, Sparkman, Campbell
Digimarc Corporation Leigh & Whinston
One Centrepoint 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
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.
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
16
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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 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
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
17
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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 press releases and other public announcements
concerning benefits arising from the CDS. Each party agrees to submit for
approval by the other party any press release 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 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: ______________________
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
18
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______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
19
<PAGE>
ATTACHMENT 1
[*]
[*] will cause the following [*] to take place:
(a) [*]
(b) [*] CDS [*].
(c) [*]
ATTACHMENT 2
DRAFT OPINION OF COUNSEL
Digimarc Corporation
One Centerpointe Drive
Suite 500
Lake Oswego, Oregon,
U.S.A. 97035-8615
Attention: Mr. Bruce Davis
President and CEO
Dear Mr. Davis:
In connection with your proposal to grant a license to (name of Licensee)
to use the Counterfeit Deterrence System 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 (name of jurisdiction); 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 ).
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
1
<PAGE>
[*]
Yours truly,
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
2
<PAGE>
ATTACHMENT 3
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.
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
3
<PAGE>
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 US
funds.
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 by any government other than the United
States of America.
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
1
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ATTACHMENT 5
[*]
ATTACHMENT 6
IDENTIFICATION OF [*]
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
1
<PAGE>
ATTACHMENT 7
TRAINING
1.0 As part of [*], Digimarc shall develop a program of training acceptable
to the DLA Project Manager 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 facilities of Licensee or, at
the request of Licensee , at Digimarc's facilities 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.
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 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 in English.
______________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
1
<PAGE>
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
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
-1-
<PAGE>
1.6 "Technology" means the CDS Technology as defined in the Licence Agreement.
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;
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
-2-
<PAGE>
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.
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
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
-3-
<PAGE>
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.
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
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
-4-
<PAGE>
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.
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 ((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.
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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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.
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
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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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
DIGIMARC CORPORATION
Signature
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
-7-
<PAGE>
Name: Bruce Davis
Title: President & CEO (Authorized Signatory)
Date:
[*] ESCROW INTERNATIONAL LIMITED
Signature
Name:
Title: (Authorized Signatory)
Date:
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
-8-
<PAGE>
SCHEDULE 1
[*]'s Fees (St(Pounds))
<TABLE>
<CAPTION>
DESCRIPTION FEE DIGIMARC [*]
- ----------- --- -------- ---
<S> <C> <C> <C>
1 Initial Fee (Pounds)700 NIL 100%
2 Annual Fee
(payable on completion of this
Agreement and on each
anniversary thereafter) (Pounds)385 NIL 100%
3 Update Fee
(per update after the first 4 updates
per annum) (Pounds)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
((Pounds)100 per (Pounds)500,000 of liability
exceeding (Pounds)500,000, per annum) Not Applicable NIL Not Applicable
6 Release Fee
(plus [*]'s reasonable expenses) (Pounds)500 NIL 100%
7. Verification Fee (Pounds)700 per day NIL 100%
(plus [*]'s reasonable expenses)
</TABLE>
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.
_________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
1
<PAGE>
SCHEDULE "N"
PROGRESS REPORTS AND PROJECT REVIEWS
1. TASK STATUS
Within ten (10) Business Days after the end of every calendar month [*],
Digimarc shall deliver a report to the DLA Project Manager describing progress
to date. The report will be formatted according to major task and will reference
the status provided in the previous report. The report will declare whether a
major task or Deliverable is ahead of, behind, or on schedule as of the
reporting date. The report will also forecast whether the task will complete on
time.
2. SCHEDULE UPDATE
Included with the report will be an updated Gantt schedule prepared
according to Digimarc's format.
3. PROBLEM REPORT
Digimarc shall report to the DLA Project Manager on problems that impact
technical or schedule performance in the report. Each problem will be reported
in a Problem List that includes the following information:
Problem title
Date reported
Tasks affected
Task impact
Proposed corrective action
Current status
Date closed
Red Flag reports (see paragraph 8) will be included on the problem list. A
problem will remain on the list until closed or otherwise resolved.
4. PROGRESS REVIEWS
[*] and Digimarc shall hold progress review meetings once every three (3)
months on
_______________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
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average throughout the period [*] are being performed at a mutually agreeable
date and location. At least half of the reviews will be held at Digimarc's
facilities.
The objective of each meeting is to review the: Status of each major task;
Status of deliverable items; Contractual and administrative matters; Contract
changes and amendments, as necessary; Technical reports or data; Market and user
factors and marketing activities; and other topics as necessary and relevant.
Each meeting 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
Managers or suitable designees. To ensure meeting effectiveness, [*] will be
limited to ten (10) or fewer persons including any outside vendors or
consultants deemed necessary by agreement of the parties' respective Project
Managers to be necessary to ensure an effective meeting.
In between the quarterly meetings described above, the technical
representatives of Digimarc and [*] shall meet every six (6) weeks on average to
review technical 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.
5. AGENDA
An agenda will be prepared by Digimarc and sent to [*] fifteen (15) days in
advance of each meeting for review and comment or approval.
6. MEETING MATERIALS
Meeting materials will consist of viewgraph presentations, technical data,
marketing white papers, studies, technical specifications analyses and other
reports.
7. REPORT
Within five (5) Business Days after the review meeting, Digimarc shall
prepare and deliver to [*] a report summarizing the essential topics discussed
including the action items assigned during the meeting. Meeting Materials will
be appended to the report.
8. RED FLAG REPORT
_______________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
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<PAGE>
Digimarc shall prepare and deliver to the DLA Project Manager a "Red Flag"
report when a problem requiring the immediate attention of [*] is required. The
report will contain a description of the problem and the proposed action to
correct the problem. Red Flag reports may be informative; e.g., a report about a
vendor 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.
_______________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
3
<PAGE>
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
________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
1
<PAGE>
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", "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;
________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
2
<PAGE>
"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 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;
________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
3
<PAGE>
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;
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:
________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
4
<PAGE>
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.
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:
________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
5
<PAGE>
(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 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 [*] 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 [*]
________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
6
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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.
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
________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
7
<PAGE>
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.
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
________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
8
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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 [*] 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 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
(b) this Agreement when executed and delivered by Licensee shall
constitute a valid, binding and enforceable obligation of Licensee.
________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
9
<PAGE>
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
________________
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
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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.
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,
___________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
11
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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 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
___________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
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Mr. William Y. Conwell
Klarquist, Sparkman, Campbell,
Leigh & Whinston
121 SW Salmon Street
Suite 1600
Portland, Oregon 97204 USA
FAX: (503) 228-9446
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
___________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
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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 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
___________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
14
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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.
___________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
15
<PAGE>
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.
TBD
Signature
Name:
Title:
Date
DIGIMARC CORPORATION
Signature
Name:
Title:
Date:
___________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
16
<PAGE>
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.
___________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
1
<PAGE>
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.
___________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
<PAGE>
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.
__________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filled separately with the Securities and Exchange Commission.
<PAGE>
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.
______________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
<PAGE>
SCHEDULE "S"
PROFORMA INVOICE
MONTH, YEAR
COUNTERFEIT DETERRENT SYSTEM
DIRECT COSTS
Hours
$ -
CDS Development:
Salaries
(Name of Deliverables [*]
Program Management -
Travel time -
Payroll Taxes and benefits -
Recruitment -
Business travel and external liaisons -
Outside consultants
[*] development -
Specification development -
Administrative costs -
Security improvements -
Legal counsel costs -
Total CDS Development Costs -
ALLOCATED INDIRECT COSTS
Month
Salaries -
Payroll Taxes and benefits -
Employee training/education -
Business travel and external liaisons -
Recruitment -
Facilities -
Office administrative costs -
_____________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
1
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Promotional activities -
Marketing materials -
Depreciation and amortization -
Insurance -
Outside professional services:
Legal counsel costs -
Accounting costs -
Taxes and licenses -
Interest expense -
Total Indirect Costs -
Total Direct Costs - All business -
Total Direct Costs - CDS Development
Allocation Factor 0.00%
Allocable Indirect Costs -
Total Allowable Costs - Month, Year
Markup on Total Costs [*]%-
Total Due -
BALANCE DUE $-
Wiring Instructions: [*], Payable to Digimarc Corporation, General Account
NOTE: Expense categories listed above are not intended to be all inclusive.
Certain allowable expenses could be incurred outside of these categories.
_____________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
2
<PAGE>
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)]
___________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission.
1
<PAGE>
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,
[*]
______________________
[*] Omitted pursuant to a confidential treatment request. The material has
been filed separately with the Securities and Exchange Commission
-1-
<PAGE>
EXHIBIT 23.2
CONSENT OF KPMG LLP, INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Digimarc Corporation:
We consent to the use of our "Form of Independent Auditors' Report," dated
March 9, 1999, except as to note 12(b) which is as of November , 1999,
relating to the balance sheets of Digimarc Corporation as of December 31, 1997
and 1998, and the related statements of operations, stockholders' equity
(deficit) and cash flows for each of the years in the three-year period ended
December 31, 1998 which form of report is included in the Registration
Statement and Prospectus, dated November 24, 1999, of Digimarc Corporation, and
to the reference to our firm under the headings "Selected Financial Data" and
"Experts" in the Prospectus.
/s/ KPMG LLP
Portland, Oregon
November 24, 1999
