Pursuant to the definitive agreement, Digimarc’s Digital Watermarking business, together with all of Digimarc’s cash, will, immediately prior to closing of the acquisition, be contributed to a wholly-owned subsidiary of Digimarc which will be distributed to Digimarc’s shareholders in a taxable spin-off transaction. Digimarc and L-1 will finalize the details of allocations between the Digital Watermarking business and the ID Systems business to be acquired by L-1, as well as the terms of transition services and license agreements between the two entities, with the next 45 days.

According to Bruce Davis, Digimarc Chairman and CEO, “The leadership of our companies shares a common vision for the future of identity management and the tremendous significance it has on the security and prosperity of people around the world. High quality and timely provision of ID solutions is particularly important in the United States where federal and state governments are investing in much more comprehensive and secure systems than at any time in our past. The addition of Digimarc’s ID business to L-1’s secure identity management portfolio will help our customers and theirs to rapidly move toward compliance with new federal regulations such as the REAL ID Act. The extensive offering made possible by this combination will more effectively address many important goals, including strengthening national security, enhancing transportation safety, and protecting legitimate commercial interests. In the international arena, this combination will enable L-1 to play a more significant role in the substantial global market for secure identification solutions.”

“The synergies between our secure credentialing businesses make this a natural combination and one that will deliver great benefit to our customers and the industry,” said Robert V. LaPenta, Chairman and CEO of L-1 Identity Solutions. “Digimarc’s expertise in centralized production, together with L-1’s biometric recognition and document authentication capabilities, will enable us to provide a secure end-to-end solution for issuance of government credentials like driver’s licenses. Additionally, we believe that together we will offer the best in class technology to meet the needs of U.S. and international credentialing programs.”

“This relationship comes at a particularly opportune time for Digimarc, as we are experiencing an inflection point in adoption and revenue growth for digital watermarking,” continues Davis. “Our technology is beginning to permeate the full range of media content, from banknotes and secure credentials to television, movies, music, video games, digital images, advertisements, packaging, and industrial goods. This transaction represents a great step forward for our shareholders, employees, and customers. As we combine our ID Systems assets with global leader L-1 to form a more comprehensive offering responsive to our customers’ evolving needs, we are also redoubling our focus on the realization of our founding vision to making digital watermarking a standard feature in all media content. This is a very exciting moment in our history.”

Under the terms of the definitive agreement, Digimarc stockholders will receive 50 percent of the purchase consideration in shares of L-1 stock and 50 percent in cash, subject to variations in the price of L-1 stock. The cash consideration is approximately $120 million. The number of L-1 shares to be issued will be based on the average price of L-1 stock over the 20 consecutive trading days ending five days prior to closing of the transaction, which based on the current market price of L-1 stock is approximately 10.3 million shares. If the price of L-1 stock exceeds $14 per share, the number of shares will be reduced. Under the definitive agreement, the maximum number of L-1 shares that can be issued is 11.3 million. As part of the transaction, L-1 has agreed to purchase $5 million of the common stock of the new digital watermarking company at fair market value immediately following the spin-off. For a more detailed description of the terms and conditions of the transaction, please review the public filing of the agreement.

The transaction is expected to close in the second half of 2008 and is subject to customary regulatory approvals, including expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, completion of the spin-off of Digimarc’s Digital Watermarking business, and other closing conditions, including approval by Digimarc stockholders at the stockholder meeting.