Exhibit 10.1

 

PURCHASE AGREEMENT

 

This PURCHASE AGREEMENT (the “Agreement”) is made as of the 22nd day of August,
2003, by and between Digimarc Corporation (the “Company”), a corporation
organized under the laws of the State of Delaware, with its principal offices at
19801 S.W. 72nd Avenue, Suite 250, Tualatin, Oregon 97062, and the purchaser
whose name and address is set forth on the signature page hereof (the
“Purchaser”).

 

IN CONSIDERATION of the mutual covenants contained in this Agreement, the
Company and the Purchaser agree as follows:

 

SECTION 1.           Authorization of Sale of the Units.  Subject to the terms
and conditions of this Agreement, the Company has authorized the issuance and
sale of up to 1,785,996 separable units (the “Units”), with each Unit
representing (i) one share of common stock, par value $0.001 per share (“Common
Stock”), of the Company (collectively, the “Shares”) and (ii) a Warrant in the
form of Exhibit A hereto to purchase an additional 0.15 of a share of Common
Stock on the terms and conditions set forth therein (collectively, the
“Warrants”).

 

SECTION 2.           Agreement to Sell and Purchase the Units.  At the Closing
(as defined in Section 3), the Company will issue and sell to the Purchaser, and
the Purchaser will buy from the Company, upon the terms and conditions
hereinafter set forth, the number of Units (at the purchase price per Unit
below) shown below:

 

Number of Units
to Be
Purchased

 

Purchase Price Per
Unit In
Dollars

 

Aggregate
Price

 

 

 

$

14.00

 

$

   

 

 

The Company proposes to enter into the same form of purchase agreement with
certain other investors (the “Other Purchasers”) and expects to complete sales
of the Units at the same price per Unit to them. The Purchaser and the Other
Purchasers are hereinafter sometimes collectively referred to as the
“Purchasers,” and this Agreement and the agreements executed by the Other
Purchasers are hereinafter sometimes collectively referred to as the
“Agreements.”  The term “Placement Agent” shall mean SG Cowen Securities
Corporation.  The Company and the Purchaser agree that the obligations of each
Purchaser are several and not joint, and the Purchaser shall not be responsible
in any way for the performance of the obligations of Other Purchasers.  The
decision of the Purchaser to purchase Units pursuant to this Agreement has been
made by the Purchaser independently of any Other Purchaser and independently of
any information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company or of any subsidiary of the
Company which may have been made or given by any Other Purchaser or by any agent
or employee of any Other Purchaser, and neither the Purchaser nor any of its
agents or employees shall have any liability to any Other Purchaser (or any
other person) relating to or arising from any such information, materials,
statements or opinions.  Nothing contained in this Agreement, and no action
taken by the Purchaser or any of the Other Purchasers, shall be deemed to
constitute the Purchaser and any or all of the

 

--------------------------------------------------------------------------------

 

Other Purchasers as a partnership, an association, a joint venture, or any other
kind of entity, or create the presumption that the Purchaser and any or all of
the Other Purchasers are in any way acting in concert or as a group with respect
to such obligations or the transactions contemplated by this Agreement.  The
Purchaser acknowledges that no Other Purchaser has acted as agent for the
Purchaser in connection with making its investment hereunder and that no Other
Purchaser will be acting as agent of the Purchaser in connection with monitoring
its investment hereunder.  The Purchaser shall be entitled to independently
protect and enforce its rights, including, without limitation, the rights
arising out of this Agreement, and it shall not be necessary for any Other
Purchaser to be joined as an additional party in any proceeding for such
purpose.

 

SECTION 3.           Delivery of the Units at the Closing.  The completion of
the purchase and sale of the Units (the “Closing”) shall occur at the offices of
Morrison & Foerster LLP, 425 Market Street, San Francisco, California 94105-2482
as soon as practicable and as agreed to by the parties hereto, on the same day
of execution of the Agreements, or on such later date or at such different
location as the parties shall agree, but not prior to the date that the
conditions for Closing set forth below have been satisfied or waived by the
appropriate party (the “Closing Date”); provided, however, that if the Closing
shall not have occurred by 5:00 p.m. (Pacific Time) on August 27, 2003, the
Agreement may be terminated by the Purchaser or the Company upon written notice
to the other party.

 

At the Closing, the Company shall deliver to the Purchaser (i) one or more stock
certificates registered in the name of the Purchaser, or, if so indicated on the
Certificate Questionnaire attached hereto as Appendix I, in such nominee name(s)
as designated by the Purchaser, evidencing such number of Shares included in the
Units set forth in Section 2 above, and (ii) a Warrant, registered in the name
of the Purchaser, pursuant to which the Purchaser shall have the right to
acquire such number of shares of Common Stock issuable upon exercise of the
Warrant, on the terms set forth therein, in each such case of (i) and (ii)
above, bearing an appropriate legend referring to the fact that the Shares and
Warrant were sold in reliance upon the exemption from registration under the
Securities Act of 1933, as amended (the “Securities Act”), provided by Section
4(2) thereof and Rule 506 thereunder.  The name(s) in which the stock
certificates and Warrant are to be registered are set forth in the Certificate
Questionnaire attached hereto as Appendix I.  The Company’s obligation to
complete the purchase and sale of the Units and deliver such stock
certificate(s) and Warrant to the Purchaser at the Closing shall be subject to
the following conditions, any one or more of which may be waived by the
Company:  (a) all documents incident to the offering and sale of the Units shall
be reasonably satisfactory in form and substance to the Company; (b) receipt by
the Company of same-day funds in the full amount of the aggregate purchase price
for the Units being purchased hereunder; (c) completion of the purchases and
sales under the Agreements with the Other Purchasers; and (d) the accuracy in
all material respects of the representations and warranties made by the
Purchaser herein (as if such representations and warranties were made on the
Closing Date) and the fulfillment of those undertakings of the Purchaser to be
fulfilled prior to the Closing.  The Purchaser’s obligation to accept delivery
of such stock certificate(s) and Warrant and to pay for the Units shall be
subject to the following conditions, any one or more of which may be waived by
the Purchaser: (a) all documents incident to the offering and sale of the Units
shall be reasonably satisfactory in form and substance to the Purchaser;
(b) approval of the offering and sale of the Units (including the shares of
Common Stock issuable upon exercise of the Warrants) by the Company’s Board of
Directors and/or, if applicable, a committee thereof; (c) the accuracy in all
material respects of the representations and warranties of the Company made
herein (as if such representations and warranties were made on the Closing
Date), except for those representations and warranties that address matters as
of a particular date, which representations and warranties shall be accurate in
all material respects as of such date;

 

2

--------------------------------------------------------------------------------

 

(d) the delivery to the Purchaser of a copy of the legal opinion called for by
Section 4.20 substantially in the form of Exhibit B hereto; and (e) the
fulfillment in all material respects of those undertakings of the Company to be
fulfilled prior to Closing.  The Company’s and the Purchaser’s obligations
hereunder are expressly conditioned on the purchase by any or all of the
Purchasers of at least 1,500,000 Units.

 

SECTION 4.           Representations, Warranties and Covenants of the Company. 
Except as set forth in the Schedule of Exceptions, dated as of the date hereof
(the “Schedule of Exceptions”), attached to this Agreement (which Schedule of
Exceptions shall be deemed to be representations and warranties to the Purchaser
and which Schedule of Exceptions shall expressly identify the specific
representation, warranty or covenant in this Section 4 to which such exception
pertains), the Company hereby represents and warrants to, and covenants with,
the Purchaser as follows:

 

4.1           Organization and Qualification.  The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and the Company is qualified to do business as a foreign corporation
in each jurisdiction in which qualification is required, except where failure to
so qualify would not reasonably be expected to have a Material Adverse Effect
(as defined herein).  The material subsidiaries of the Company are listed on
Exhibit C hereto (each a “Subsidiary” and collectively, the “Subsidiaries”). 
Each Subsidiary is a direct or indirect wholly owned subsidiary of the Company. 
The Company owns, directly or indirectly, all of the capital stock or comparable
equity interests of each Subsidiary free and clear of any lien, charge, claim,
security interest, encumbrance, right of first refusal or other restriction and
all the issued and outstanding shares of capital stock or comparable equity
interest of each Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights.  Each Subsidiary is
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization and is qualified to do business as a foreign entity
in each jurisdiction in which qualification is required, except where failure to
so qualify would not reasonably be expected to have a Material Adverse Effect. 
For purposes of this Agreement, the term “Material Adverse Effect” shall mean a
material adverse effect upon the business, financial condition, properties or
results of operations of the Company and its Subsidiaries, taken as a whole, or
on the ability of the Company to perform its obligations hereunder.

 

4.2           Authorized Capital Stock.  The Company’s authorized capital stock
consists of a total of 100,000,000 shares of Common Stock, $0.001 par value per
share, of which 18,029,004 shares of Common Stock were issued and outstanding as
of August 15, 2003, and a total of 5,000,000 shares of preferred stock of the
Company, $0.001 par value per share (“Preferred Stock”), none of which Preferred
Stock is issued or outstanding as of the date hereof.  The issued and
outstanding shares of the Company’s Common Stock have been duly authorized and
validly issued, are fully paid and nonassessable, have been issued in compliance
with all federal and state securities laws, and were not issued in violation of
or subject to any preemptive rights or other rights to subscribe for or purchase
securities.  Except for outstanding options to purchase 6,548,997 shares of
Common Stock and an additional 1,727,090 shares of Common Stock reserved for
issuance under the Company’s stock incentive plans and employee stock purchase
plan, each as of August 15, 2003, and except for the shares of Common Stock
issuable upon exercise of the Warrants (the “Underlying Shares”), there are not
outstanding any options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition from the Company of any
shares of its capital stock.  The issuance and sale of the Shares, Warrants and,
if applicable, the Underlying Shares will not obligate the Company to issue
shares of Common Stock or other securities to any person or entity (other than
the Purchasers) and

 

3

--------------------------------------------------------------------------------

 

will not result in a right of any holder of securities of the Company to adjust
the exercise, conversion, exchange or reset price under such securities.

 

4.3           Issuance, Sale and Delivery of the Shares.  The Shares, the
Warrants and the Underlying Shares have been duly authorized and, when issued,
delivered and paid for in accordance with this Agreement and the Warrants, as
applicable, will be duly authorized, validly issued, fully paid and
nonassessable and free and clear of all pledges, liens, restrictions and
encumbrances (other than restrictions on transfer under state and/or federal
securities laws) as a result of the Company’s actions.  No preemptive rights or
other rights to subscribe for or purchase exist with respect to the issuance and
sale of the Units or the Underlying Shares by the Company pursuant to this
Agreement.  Except as set forth in the Schedule of Exceptions, no stockholder of
the Company has any right (which has not been waived or has not expired,
including by reason of lapse of time following notification of the Company’s
intent to file the registration statement to be filed by it pursuant to Section
7.1 (the “Registration Statement”)) to require the Company to register the sale
of any shares owned by such stockholder under the Securities Act in the
Registration Statement.  No further approval or authority of the stockholders or
the Board of Directors of the Company will be required for the issuance and sale
of the Units or the Underlying Shares to be sold by the Company as contemplated
herein.  The Company has reserved from its duly authorized capital stock shares
of Common Stock issuable upon exercise of the Warrants.

 

4.4           Due Execution, Delivery and Performance.  The Company has full
legal right, corporate power and authority to enter into this Agreement,
including the Warrants, and perform the transactions contemplated hereby.  This
Agreement has been duly authorized, executed and delivered by the Company.  The
execution, delivery and performance of this Agreement, including the Warrants,
by the Company and the consummation of the transactions herein contemplated will
not violate any provision of the certificate of incorporation or bylaws of the
Company or any of its Subsidiaries and will not result in the creation of any
lien, charge, security interest or encumbrance upon any assets of the Company or
any of its Subsidiaries pursuant to the terms or provisions of, and will not (i)
conflict with, result in the breach or violation of, or constitute, either by
itself or upon notice or the passage of time or both, a default under (A) any
agreement, lease, franchise, license, permit or other instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries or any of their respective properties may be bound or affected
and in each case which would have a Material Adverse Effect, or (B) to the
Company’s knowledge, any statute or any judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or other
governmental body applicable to the Company or any of its Subsidiaries or any of
their respective properties where such conflict, breach, violation or default is
likely to result in a Material Adverse Effect.  No registration with, consent,
authorization or approval of, notice to, other action by, or other order of any
court, regulatory body, administrative agency or other governmental body is
required for the execution and delivery of this Agreement or the consummation of
the transactions contemplated by this Agreement, except for compliance with the
blue sky laws and federal securities laws applicable to the offering of the
Units, including the filing of a Form D in accordance with Regulation D under
the Securities Act.  Upon the execution and delivery of this Agreement and the
Warrant, and assuming the valid execution of the Agreement by the Purchaser,
this Agreement and the Warrant will constitute a valid and binding obligation of
the Company, enforceable in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors’ and contracting parties’ rights generally
and except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) and except as the

 

4

--------------------------------------------------------------------------------

 

indemnification agreements of the Company in Section 7.3 hereof may be limited
by federal or state securities laws or the public policy underlying such laws.

 

4.5           Accountants.  The firm of KPMG LLP, which has expressed its
opinion with respect to the consolidated financial statements to be included or
incorporated by reference in the Registration Statement and the prospectus which
forms a part thereof (the “Prospectus”), is an independent accountant as
required by the Securities Act and the rules and regulations promulgated
thereunder (the “Rules and Regulations”).

 

4.6           No Defaults.  Except as disclosed in the Company’s filings with
the Securities and Exchange Commission (the “Commission”) made at least two (2)
business days prior to the date hereof, neither the Company nor any of its
Subsidiaries is in violation or default of any provision of its certificate of
incorporation or bylaws, or in breach of or default with respect to any
provision of any agreement, judgment, decree, order, lease, franchise, license,
permit or other instrument to which it is a party or by which it or any of its
properties are bound which could reasonably be expected to have a Material
Adverse Effect and there does not exist any state of facts which, with notice or
lapse of time or both, would constitute an event of default as defined in such
documents on the part of the Company or any of its Subsidiaries and which would
have a Material Adverse Effect.

 

4.7           Contracts.  The material contracts described in the Company’s
filings with the Commission, to the extent that they continue to be material to
the Company, are in full force and effect on the date hereof; and neither the
Company nor any of its Subsidiaries is, nor, to the Company’s knowledge, is any
other party in material breach of or default under any material contracts which
would have a Material Adverse Effect.

 

4.8           No Actions.  Except as disclosed in the Company’s filings with the
Commission made at least two (2) business days prior to the date hereof, (1)
there are no legal or governmental actions, suits or proceedings pending and (2)
to the Company’s knowledge, there are no inquiries or investigations, nor are
there any legal or governmental actions, suits, or proceedings threatened to
which the Company or any of its Subsidiaries is or may be a party or of which
property owned or leased by the Company or any of its Subsidiaries is or may be
the subject, or related to environmental or discrimination matters, which
actions, suits or proceedings, individually or in the aggregate, might
reasonably be expected to have a Material Adverse Effect; and no labor
disturbance by the employees of the Company exists or, to the Company’s
knowledge, is imminent which might reasonably be expected to have a Material
Adverse Effect.  Neither the Company nor any of its Subsidiaries is party to or
subject to the provisions of any injunction, judgment, decree or order of any
court, regulatory body, administrative agency or other governmental body which
might reasonably be expected to have a Material Adverse Effect.

 

4.9           Properties.  The Company and the Subsidiaries have good and
marketable title to all properties and assets reflected as currently owned in
the financial statements included in the Company’s filings with the Commission
made at least two (2) business days prior to the date hereof, subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except (i) those, if
any, reflected in such financial statements, or (ii) those which are not
material in amount and do not adversely affect the use of such property by the
Company and its Subsidiaries.  To the Company’s knowledge, each of the Company
and its Subsidiaries holds its leased properties under valid and binding leases,
with such exceptions as are not materially significant in relation to its

 

5

--------------------------------------------------------------------------------

 

business taken as a whole.  Except as disclosed in the Company’s filings with
the Commission, the Company owns or leases all such properties as are necessary
to its operations as now conducted.

 

4.10         No Material Change.  Since December 31, 2002, and except as
described in the Company’s filings with the Commission made at least two (2)
business days prior to the date hereof, (i) the Company and its Subsidiaries
have not incurred any material liabilities or obligations, indirect or
contingent, or entered into any material oral or written agreement or other
transaction which is not in the ordinary course of business or which could
reasonably be expected to result in a material reduction in the future earnings
of the Company and its Subsidiaries, (ii) the Company and its Subsidiaries have
not sustained any material loss or interference with their businesses or
properties from fire, flood, windstorm, accident or other calamity not covered
by insurance, (iii) the Company has not paid or declared any dividends or other
distributions with respect to its capital stock and neither the Company nor any
of its Subsidiaries is in default in the payment of principal or interest on any
outstanding debt obligations, (iv) there has not been any change in the capital
stock of the Company or any of its Subsidiaries other than the sale of the Units
hereunder, shares or options issued pursuant to equity incentive plans or
employee stock purchase plans approved by the Company’s Board of Directors and
repurchases of shares or options pursuant to repurchase plans already approved
by the Company’s Board of Directors, or indebtedness not incurred in the
ordinary course of business that is material to the Company and its
Subsidiaries, taken as a whole, and (v) there has not been any other event which
has caused a Material Adverse Effect.

 

4.11         Intellectual Property.  Except as described in the Company’s
filings with the Commission made at least two (2) business days prior to the
date hereof, the Company’s business, as presently conducted, does not infringe
or violate in any material respect any patent, copyright, trademark or trade
secret of any other person, where such infringement or violation would have a
Material Adverse Effect.  Except as described in the Company’s filings with the
Commission made at least two (2) business days prior to the date hereof, the
Company or its Subsidiaries own or have a valid right to use all patents,
copyrights, trademarks and trade secrets used in and necessary for the Company’s
business as presently conducted.  Notwithstanding the foregoing two sentences,
the Company makes no representation or warranty with respect to third-party
patents that have not, to the knowledge of the Company’s executive officers,
been asserted in writing against the Company as of the date hereof, other than
third-party patents that the Company, as of the date hereof, has asked legal
counsel to analyze whether such patents read on the Company’s current or
anticipated products.  During the past two years none of the Company or its
Subsidiaries has received any written communications alleging that the Company
or its Subsidiaries have infringed or violated a patent, copyright, trademark or
trade secret of any other person where such infringement or violation, if true,
would have a Material Adverse Effect.

 

4.12         Compliance.  Neither the Company nor any of its Subsidiaries has
been advised, nor has reason to believe, that it is not conducting its business
in compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting its business, including, without
limitation, all applicable local, state and federal environmental laws and
regulations, except where failure to be so in compliance would not have a
Material Adverse Effect.

 

4.13         Taxes.  Each of the Company and its Subsidiaries has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid or accrued all taxes shown as due thereon, and neither the Company nor any
of its Subsidiaries has knowledge of a tax

 

6

--------------------------------------------------------------------------------

 

deficiency which has been or might be asserted or threatened against it which
might reasonably be expected to have a Material Adverse Effect.

 

4.14         Transfer Taxes.  On the Closing Date, all stock transfer or other
taxes (other than income taxes) which are required to be paid in connection with
the sale and transfer of the Units to be sold to the Purchaser hereunder will
be, or will have been, fully paid or provided for by the Company and all laws
imposing such taxes will be or will have been complied with.

 

4.15         Investment Company.  The Company is not, and will not be following
the sale of the Units to the Purchasers at the Closing, an “investment company”
or an “affiliated person” of, or “promoter” or “principal underwriter” for an
investment company, within the meaning of the Investment Company Act of 1940, as
amended.

 

4.16         Offering Materials.  The Company has not distributed and will not
distribute prior to the Closing Date any offering material in connection with
the offering and sale of the Units other than the materials entitled “Digimarc
Corporation Information Concerning Possible Private Placement to Selected
Institutional Accredited Investors” (the “Materials”), or any amendment or
supplement thereto, but only to the extent that such materials might be deemed
offering material.  Neither the Company nor any person acting on its behalf has
in the past or will hereafter take any action to sell, offer for sale or solicit
offers to buy any securities of the Company which would subject the offer,
issuance or sale of the Units, as contemplated by this Agreement, to the
registration requirements of Section 5 of the Securities Act.  Neither the
Company nor any person or entity acting on the Company’s behalf (including the
Placement Agent) has sold or offered to sell or solicited any offer to buy the
Units by means of any form of general solicitation or advertising.  Neither the
Company nor any of its affiliates nor any person or entity acting on their
behalf (including the Placement Agent) has, directly or indirectly, at any time
within the past six months, made any offer or sale of any security or
solicitation of any offer to buy any security under circumstances that would (i)
eliminate the availability of the exemption from registration under Regulation D
under the Securities Act in connection with the offer and sale by the Company of
the Units as contemplated hereby or (ii) cause the offering of the Units
pursuant to the Agreements to be integrated with prior offerings by the Company
for purposes of any applicable law, regulation or stockholder approval
provisions, including, without limitation, under the rules and regulations of
the Nasdaq National Market.  Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 5(a) herein and in the other
Agreements, no registration under the Securities Act is required for the offer
and sale of the Units by the Company to the Purchasers as contemplated herein.

 

4.17         Insurance.  The Company and its Subsidiaries maintain insurance of
the types and in the amounts that the Company believes are reasonably adequate
for their businesses, including, but not limited to, insurance covering all real
and personal property leased by the Company and its Subsidiaries against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against by similarly situated companies, all of which insurance is in full force
and effect.

 

7

--------------------------------------------------------------------------------

 

4.18         Additional Information.  The information contained in the following
documents, which the Placement Agent has furnished to the Purchaser, or will
furnish prior to the Closing, does not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading, as of their respective filing dates or,
if amended, as so amended:

 

(a)           the Company’s Annual Report on Form 10-K for the year ended
December 31, 2002;

 

(b)           the Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2003;

 

(c)           the Company’s Current Report on Form 8-K filed on April 22, 2003;

 

(d)           the Company’s definitive Proxy Statement for the Annual Meeting of
Stockholders held on May 22, 2003;

 

(e)           the Company’s Current Report on Form 8-K filed on July 22, 2003;

 

(f)            the Company’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003;

 

(g)           the Company’s Current Report on Form 8-K filed on August 18, 2003;
and

 

(h)           all other documents, if any, filed by the Company with the
Commission since December 31, 2002, pursuant to the reporting requirements of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

As of their respective dates, the Company’s filings with the Commission complied
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the Commission promulgated thereunder.  The financial
statements of the Company included in the Company’s filings with the Commission
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing.  Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved (“GAAP”), except as may be otherwise specified
in such financial statements or the notes thereto, and fairly present in all
material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial year-end audit adjustments and to the fact
that they may not contain footnotes required by GAAP.

 

4.19         Price of Common Stock.  The Company has not taken, and will not
take, directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of the Common Stock to
facilitate the sale or resale of the Shares or the Underlying Shares.

 

8

--------------------------------------------------------------------------------

 

4.20         Legal Opinion.  At the Closing, the Company will use its best
efforts to cause legal counsel to the Company to deliver a legal opinion in
connection with the offering and sale of the Units, substantially in the form of
Exhibit B hereto.  Such opinion also shall state that each of the Purchasers may
rely thereon as though it were addressed directly to such Purchaser.

 

4.21         Certificate.  At the Closing, the Company will deliver to Purchaser
a certificate executed by the chief executive officer and the chief financial or
accounting officer of the Company, dated as of the Closing Date, in form and
substance reasonably satisfactory to the Purchasers, to the effect that the
representations and warranties of the Company set forth in this Section 4 are
true and correct as of the date of this Agreement and as of the Closing Date and
that the Company has complied with all the agreements and satisfied all the
conditions herein on its part to be performed or satisfied on or prior to such
Closing Date.

 

4.22         Form S-3.  The Company is eligible to register its Common Stock for
resale using Form S-3 promulgated under the Securities Act.

 

4.23         Nonpublic Information.  The Company has not disclosed to the
Purchaser, whether in the Materials or otherwise, information that would
constitute material nonpublic information as of the time immediately following
the Company’s public announcement of the transactions contemplated by this
Agreement.

 

4.24         Listing.  The Company shall file a listing application and any
other documents required by the Nasdaq National Market in connection with the
listing of the Shares and the Underlying Shares.

 

4.25         Public Announcement.  Following the Closing, the Company shall
promptly issue a press release describing the transactions contemplated by this
Agreement and, to the extent appropriate, the Company may include the names of
Purchasers in such press release.

 

SECTION 5.           Representations, Warranties and Covenants of the
Purchaser.  (a) The Purchaser represents and warrants to, and covenants with,
the Company that:  (i) the Purchaser is knowledgeable, sophisticated and
experienced in making, and is qualified to make, decisions with respect to
investments in shares representing an investment decision like that involved in
the purchase of the Shares, Warrants and Underlying Shares, including
investments in securities issued by the Company and comparable entities, and has
had the opportunity to request, receive, review and consider all information it
deems relevant in making an informed decision to purchase the Units; (ii) the
Purchaser is acquiring the amount of Shares and Warrants reflected in Section 2
above, and when and if applicable, the Underlying Shares, in the ordinary course
of its business and for its own account for investment purposes only and with no
present intention of distributing any of the Shares, Warrants or Underlying
Shares, and no arrangement or understanding exists with any other persons
regarding the distribution of such Shares, Warrants or Underlying Shares (this
representation and warranty not limiting the Purchaser’s right to sell pursuant
to the Registration Statement or in compliance with the Securities Act and the
Rules and Regulations, or, other than with respect to any claims arising out of
a breach of this representation and warranty, the Purchaser’s right to
indemnification under Section 7.3); (iii) the Purchaser will not, directly or
indirectly, (A) offer, sell, pledge, transfer or otherwise dispose of (or
solicit any offers to buy, purchase or otherwise acquire or take a pledge of)
any of the Shares, Warrants or Underlying Shares except in compliance with the
Securities Act, the Rules and Regulations and such state securities or blue sky
laws as may be applicable, (B) engage in any short sale prior to the Closing in
connection with any of the Shares,

 

9

--------------------------------------------------------------------------------

 

Warrants or Underlying Shares and, thereafter, only in compliance with the
Securities Act, the Rules and Regulations and such state securities or blue sky
laws as may be applicable, or (C) hedge the economic risk of the Purchaser’s
investment in the Shares, Warrants or Underlying Shares prior to the Closing
and, thereafter, only in compliance with the Securities Act, the Rules and
Regulations and such state securities or blue sky laws as may be applicable;
(iv) the Purchaser has completed or caused to be completed the Registration
Statement Questionnaire, attached hereto as part of Appendix I, for use in
preparation of the Registration Statement and the answers thereto are true and
correct in all material respects as of the date hereof and will be true and
correct in all material respects as of the effective date of the Registration
Statement and the Purchaser will notify the Company promptly of any material
change in any such information provided in the Registration Statement
Questionnaire until such time as the Purchaser has sold all of its Shares and
Underlying Shares, if any, or until the Company is no longer required to keep
the Registration Statement effective; (v) the Purchaser has, in connection with
its decision to purchase the Units reflected in Section 2 above, relied solely
upon the Materials and the documents filed by the Company with the Commission at
least two (2) business days prior to the date hereof and the documents included
therein or incorporated by reference and the representations and warranties of
the Company contained herein; (vi) the Purchaser has had an opportunity to
discuss this investment with representatives of the Company and ask questions of
them; (vii) the Purchaser is an “accredited investor” within the meaning of Rule
501(a) of Regulation D promulgated under the Securities Act; (viii) the
Purchaser agrees to notify the Company promptly of any change in any of the
foregoing information until such time as the Purchaser has sold all of its
Shares and Underlying Shares, if any, or the Company is no longer required to
keep the Registration Statement effective; and (ix) the Purchaser has not
engaged, directly or indirectly, from and including the date the Purchaser first
became aware of the potential offering of the Shares by the Company through and
including the date hereof, and will not engage through the Closing Date,
directly or indirectly, in any short sale or hedge of shares of Common Stock of
the Company.  Notwithstanding anything to the contrary in this Agreement, if the
Purchaser is an affiliate of a broker-dealer, the Purchaser shall not be
prohibited in engaging in its ordinary course of business market making
activities and trading activities in the unrestricted shares of Common Stock of
the Company.

 

(b)           The Purchaser understands that the Shares, Warrants and the
Underlying Shares are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of the Securities Act, the Rules
and Regulations and state securities laws and that the Company is relying upon
the truth and accuracy of, and the Purchaser’s compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Purchaser set forth herein in order to determine the availability of such
exemptions and the eligibility of the Purchaser to acquire the Shares, Warrants
and the Underlying Shares.

 

(c)           For the benefit of the Company, the Purchaser previously agreed
orally with the Placement Agent to keep confidential all information concerning
the private placement transaction contemplated by the Agreements. The Purchaser
understands that the information contained in the Materials is strictly
confidential and proprietary to the Company and has been prepared from the
Company’s publicly available documents and other information and is being
submitted to the Purchaser solely for such Purchaser’s confidential use.  The
Purchaser agrees to use the information contained in the Materials for the sole
purpose of evaluating a possible investment in the Shares and Warrants and the
Purchaser hereby acknowledges that it is prohibited from reproducing or
distributing the Materials, this Agreement, or any offering materials or other
information provided by the Company in connection with the Purchaser’s
consideration of its investment in the Company, in whole or in part, or
divulging or discussing any of their contents,

 

10

--------------------------------------------------------------------------------

 

except to its financial, investment or legal advisors in connection with its
proposed investment in the Shares and Warrants, which advisors shall also be
bound by this paragraph.  Further, the Purchaser understands that the existence
and nature of all conversations and presentations, if any, regarding the Company
and this offering must be kept strictly confidential.  The Purchaser understands
that the federal securities laws impose restrictions on trading based on
information regarding this offering.  In addition, the Purchaser hereby
acknowledges that unauthorized disclosure of information regarding this offering
may result in a violation of Regulation FD.  This obligation will terminate upon
the issuance by the Company of a press release or press releases describing this
offering to the extent of the information contained in such press release or
press releases.  In addition to the above, the Purchaser shall maintain in
confidence the receipt and content of any notice of a Suspension (as defined in
Section 5(h) below).  The foregoing agreements shall not apply to any
information that is or becomes publicly available through no fault of the
Purchaser, or that the Purchaser is legally required to disclose; provided,
however, that if the Purchaser is requested or ordered to disclose any such
information pursuant to any court or other government order or any other
applicable legal procedure, it shall provide the Company with prompt notice of
any such request or order to enable the Company to seek an appropriate
protective order and the Purchaser shall cooperate with the Company, if
requested and at the Company’s expense, in seeking such appropriate protective
order.

 

(d)           The Purchaser understands that its investment in the Shares,
Warrants and Underlying Shares involves a significant degree of risk, including
a risk of total loss of the Purchaser’s investment, and the Purchaser has full
cognizance of and understands all of the risk factors related to the Purchaser’s
purchase of the Shares, Warrants and Underlying Shares, including, but not
limited to, those set forth under the caption “Risk Factors” in the Materials. 
The Purchaser understands that the market price of the Common Stock has been
volatile and that no representation is being made as to the future value of the
Common Stock.  The Purchaser has the knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the Shares, the Warrants and Underlying Shares and has the ability
to bear the economic risks of an investment in the Shares, Warrants and
Underlying Shares.

 

(e)           The Purchaser understands that no United States federal or state
agency or any other government or governmental agency has passed upon or made
any recommendation or endorsement of the Shares, the Warrants and Underlying
Shares.

 

(f)            The Purchaser understands that, until such time as the Shares and
the Underlying Shares have been sold pursuant to the Registration Statement or
Rule 144 under the Securities Act or may be sold by non-affiliates pursuant to
Rule 144 under the Securities Act without any restriction as to the number of
securities as of a particular date that can then be immediately sold, the
Shares, the Warrants and the Underlying Shares will bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against the transfer of the certificates for the Shares, the Warrants and the
Underlying Shares):

 

“[Neither] These securities [nor the securities into which these securities are
exercisable] have [not] been registered under the Securities Act of 1933, as
amended (the “Securities Act”), or the securities laws of any state or other
jurisdiction.  [Neither] These securities [nor the securities into which these
securities are exercisable] may [not] be offered, sold, pledged or otherwise
transferred except (1) pursuant to an exemption from registration under the
Securities Act or (2) pursuant to an effective registration

 

11

--------------------------------------------------------------------------------

 

statement under the Securities Act, in each case in accordance with all
applicable securities laws of the states and other jurisdictions, and in the
case of a transaction exempt from registration, unless the Company has received
an opinion of counsel reasonably satisfactory to it that such transaction does
not require registration under the Securities Act and such other applicable
laws.”

 

(g)           The Purchaser’s principal executive offices are in the
jurisdiction set forth immediately below the Purchaser’s name on the signature
pages hereto.

 

(h)           The Purchaser hereby covenants with the Company not to make any
sale of the Shares or the Underlying Shares under the Registration Statement
without complying with the provisions of this Agreement and without effectively
causing the prospectus delivery requirement under the Securities Act to be
satisfied, and the Purchaser acknowledges and agrees that such Shares and
Underlying Shares are not transferable on the books of the Company unless the
certificate submitted to the transfer agent evidencing the Shares or Underlying
Shares is accompanied by a separate Purchaser’s Certificate of Subsequent Sale: 
(i) in the form of Appendix II hereto; (ii) executed by an officer of, or other
authorized person designated by, the Purchaser; and (iii) to the effect that (A)
the Shares or Underlying Shares have been sold in accordance with the
Registration Statement, the Securities Act and any applicable state securities
or blue sky laws and (B) the requirement of delivering a current prospectus has
been satisfied.  Alternatively, certificates evidencing Shares or Underlying
Shares may have the legend set forth in Section 5(f) above removed following the
date upon which the Registration Statement covering the resale of such Shares or
Underlying Shares is declared effective under the Securities Act and the Company
shall promptly cause such legend to be removed for the Purchaser, provided: (i)
the Company may continue to keep in place any stop-transfer order against the
transfer of the certificates for the Shares or the Underlying Shares until such
time as otherwise provided herein; (ii) the Purchaser shall provide a written
request to the Company to delegend such Shares or Underlying Shares, shall
affirmatively covenant in such request to sell or otherwise transfer any such
Shares or Underlying Shares only in accordance with the Registration Statement
and the “Plan of Distribution” set forth therein, the Securities Act and any
applicable state securities or blue sky laws and to satisfy the current
prospectus delivery requirements, and shall delivery to the Company the legended
certificate representing such Shares or Underlying Shares; and (iii) prior to
any individual sale of the Shares or Underlying Shares pursuant to the
Registration Statement, the Purchaser shall notify the Company of its intention
to sell or otherwise transfer such Shares or Underlying Shares and the amount of
Shares or Underlying Shares to be sold or otherwise transferred pursuant to the
Registration Statement (each, a “Registered Sale Notice”).  Upon receipt of such
Registered Sale Notice, the Company shall promptly take steps to lift any
stop-transfer order placed against the transfer of the certificates for the
Shares or the Underlying Shares to be sold or otherwise transferred in
accordance with the Registered Sale Notice.  The Purchaser will notify the
Company promptly after the sale of all of its Shares and Underlying Shares.  The
Purchaser acknowledges that there may occasionally be times when the Company
must suspend the use of the Prospectus forming a part of the Registration
Statement (a “Suspension”) until such time as an amendment to the Registration
Statement has been filed by the Company and declared effective by the
Commission, or such time as the Prospectus has been supplemented, or until such
time as the Company has filed an appropriate report with the Commission pursuant
to the Exchange Act.  In no event shall the Company, without the prior written
consent of a Purchaser, disclose to such Purchaser any of the facts or
circumstances regarding material nonpublic information giving rise to the
Suspension.  The Purchaser hereby covenants that it will not sell any Shares or
Underlying Shares pursuant to said Prospectus during the period

 

12

--------------------------------------------------------------------------------

 

commencing at the time at which the Company gives the Purchaser written notice
of the Suspension of the use of said Prospectus and ending at the time the
Company gives the Purchaser written notice that the Purchaser may thereafter
effect sales pursuant to said Prospectus.  Notwithstanding the foregoing, the
Company agrees that no individual Suspension shall be for a period of longer
than 30 consecutive days, and no Suspensions, collectively, shall be for a
period of an aggregate in any 365-day period of longer than 90 days.

 

(i)            The Purchaser further represents and warrants to, and covenants
with, the Company that (i) the Purchaser has full right, power, authority and
capacity to enter into this Agreement and to consummate the transactions
contemplated hereby and has taken all necessary action to authorize the
execution, delivery and performance of this Agreement, (ii) the making and
performance of this Agreement by the Purchaser and the consummation of the
transactions herein contemplated will not (A) violate any provision of the
organizational documents of the Purchaser or (B) conflict with, result in the
breach or violation of, or constitute, either by itself or upon notice or the
passage of time or both, a default under any agreement, mortgage, deed of trust,
lease, franchise, license, indenture, permit or other instrument to which the
Purchaser is a party, or any statute or any authorization, judgment, decree,
order, rule or regulation of any court or any regulatory body, administrative
agency or other governmental body applicable to the Purchaser, in each case
where such conflict, breach, violation or default is likely to result in a
material adverse effect upon the business, financial condition, properties or
results of operations of the Purchaser and its subsidiaries, taken as a whole,
or on the ability of the Purchaser to perform its obligations hereunder, (iii)
no consent, approval, authorization or other order of any court, regulatory
body, administrative agency or other governmental body is required on the part
of the Purchaser for the execution and delivery of this Agreement or the
consummation of the transactions contemplated by this Agreement, (iv) upon the
execution and delivery of this Agreement, this Agreement shall constitute a
legal, valid and binding obligation of the Purchaser, enforceable in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors’ and contracting parties’ rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
and except to the extent enforcement of the indemnification provisions, set
forth in Section 7.3 of this Agreement, may be limited by federal or state
securities laws or the public policy underlying such laws, and (v) there is not
in effect any order enjoining or restraining the Purchaser from entering into or
engaging in any of the transactions contemplated by this Agreement.

 

SECTION 6.           Survival of Representations, Warranties and Agreements. 
Notwithstanding any investigation made by any party to this Agreement or by the
Placement Agent, all covenants, agreements, representations and warranties made
by the Company and the Purchaser herein and in the certificates for the Shares,
the Warrants and the Underlying Shares delivered in accordance herewith shall
survive the execution of this Agreement, the delivery to the Purchaser of the
Shares, the Warrants and the Underlying Shares being purchased and the payment
therefor.

 

13

--------------------------------------------------------------------------------

 

SECTION 7.           Registration; Compliance with the Securities Act.

 

7.1           Registration Procedures and Expenses.  The Company shall:

 

(a)           subject to receipt of necessary information in writing from the
Purchasers, as soon as reasonably practicable, but in no event later than thirty
(30) days following the Closing Date (the “Filing Date”), prepare and file with
the Commission the Registration Statement on Form S-3 or other available form
relating to the sale or other transfer of Common Stock (including Underlying
Shares) issued or issuable to the Purchaser and the Other Purchasers pursuant to
the Agreements and the Warrants (collectively, “Registrable Securities”) from
time to time on the Nasdaq National Market or the facilities of any national
securities exchange on which the Common Stock is then traded or in
privately-negotiated transactions; provided, however, that, if the Company shall
have received a request in writing from a Purchaser within ten (10) days of the
Closing and if, at the time of receiving such request, the Company shall not
have filed such Registration Statement with the Commission, the Company shall
provide such Purchaser a reasonable opportunity, but not longer than two (2)
business days, to review and provide comments with respect to the “Plan of
Distribution” of the Registration Statement and any information regarding such
Purchaser to be included in such Registration Statement;

 

(b)           use its commercially reasonable efforts, subject to receipt of
necessary information from the Purchasers, to cause the Commission to declare
the Registration Statement effective within ninety (90) calendar days after the
Closing Date (such date, the “Required Effective Date”); provided, however,
that, if the Registration Statement receives Commission review, then the
Required Effective Date shall be one hundred twenty (120) calendar days after
the Closing Date;

 

(c)           use its reasonably commercial efforts to promptly prepare and file
with the Commission such amendments and supplements to the Registration
Statement and the prospectus used in connection therewith as may be necessary to
keep the Registration Statement effective, subject to receipt of necessary
information from the Purchasers, until the earliest of (i) two years after the
expiration of the Warrants, (ii) such time as the Registrable Securities become
eligible for resale by non-affiliates pursuant to Rule 144(k) under the
Securities Act or (iii) such time as all Registrable Securities purchased by the
Purchaser and all Other Purchasers under the Agreements and the Warrants and
included in the Registration Statement have been sold to the public. 
Thereafter, the Company shall be entitled to file a post-effective amendment to
de-register the shares not otherwise sold under the Registration Statement and
the Purchasers shall have no further right to offer or sell any of the
Registrable Securities pursuant to the Registration Statement;

 

(d)           furnish to the Purchaser with respect to the Registrable
Securities registered under the Registration Statement such number of copies of
prospectuses and such other documents, in each case as the Purchaser may
reasonably request, in order to facilitate the public sale or other disposition
of all or any of the Registrable Securities by the Purchaser;

 

(e)           file documents required of the Company for normal blue sky
clearance in states specified in writing by the Purchaser and reasonably
acceptable to the Company; provided, however, that the Company shall not be
required to:  (i) qualify to do business where it would not otherwise be
required to qualify but for this Section 7.1; (ii) file a general consent to
service of process in any such jurisdiction; (iii) subject itself to taxation in
any such jurisdiction; (iv) provide any undertakings that cause material expense
or burden to the Company; or (v) make

 

14

--------------------------------------------------------------------------------

 

any change to its organizational documents, which in each case the Board of
Directors of the Company determines to be contrary to the best interests of the
Company and its stockholders;

 

(f)            bear all expenses in connection with the procedures in paragraphs
(a) through (e) of this Section 7.1 and the registration of the Registrable
Securities pursuant to the Registration Statement, other than fees and expenses,
if any, of counsel or other advisers to the Purchaser or the Other Purchasers or
discounts, brokerage fees and commissions incurred by the Purchaser or the Other
Purchasers, if any; and

 

(g)           notify promptly the Purchaser of the effectiveness of the
Registration Statement and any post-effective amendments thereto.

 

Notwithstanding the foregoing, if the information provided by the Purchaser
pursuant to Appendix I to this Agreement shall not be sufficient for purposes of
effecting the registration of the Registrable Securities, it shall be a
condition precedent to the obligations of the Company to take any action
pursuant to paragraphs (a) through (g) of this Section 7.1, that the Purchaser
shall furnish to the Company such information regarding itself, the Registrable
Securities to be sold or transferred by the Purchaser, and the intended method
of disposition of such Registrable Securities as shall be required to effect the
registration of the Registrable Securities, all of which information shall be
furnished to the Company in writing specifically for use in the Registration
Statement.

 

Notwithstanding the foregoing, the parties understand and agree that the Company
shall not be obligated to retain an underwriter with respect to the offer and
sale of Registrable Securities pursuant to the Registration Statement.

 

7.2           Transfer After Registration.  The Purchaser agrees that it will
not effect any disposition of the Shares, the Warrants and the Underlying Shares
or its right to purchase the Shares, the Warrants and the Underlying Shares that
would constitute a sale within the meaning of the Securities Act or any
applicable state securities laws, except as contemplated in the Registration
Statement referred to in Section 7.1 or as otherwise permitted by law, the
Agreement and the Warrants, and that it will promptly notify the Company of any
changes in the information set forth in the Registration Statement regarding the
Purchaser or its plan of distribution.

 

7.3           Indemnification.  For the purpose of this Section 7.3:

 

(i)         the term “Purchaser/Affiliate” shall mean any affiliate of the
Purchaser (as defined in Rule 405 promulgated under the Securities Act),
including a transferee who is an affiliate of the Purchaser, and any person who
controls the Purchaser or any affiliate of the Purchaser within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act; and

 

(ii)        the term “Registration Statement” shall include any final
prospectus, exhibit, supplement or amendment included in or relating to, and any
document incorporated by reference in, the Registration Statement referred to in
Section 7.1 hereof.

 

(a)           The Company agrees to indemnify and hold harmless each Purchaser
and each Purchaser/Affiliate against any losses, claims, damages, liabilities or
expenses, joint or

 

15

--------------------------------------------------------------------------------

 

several, to which such Purchaser or Purchaser/Affiliate may become subject,
under the Securities Act, the Exchange Act, or any 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 prior
written consent of the Company), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated below)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, including the
Prospectus, financial statements and schedules, and all other documents filed as
a part thereof, as amended at the time of effectiveness of the Registration
Statement, including any information deemed to be a part thereof as of the time
of effectiveness pursuant to paragraph (b) of Rule 430A, of the Rules and
Regulations, or the Prospectus, in the form first filed with the Commission
pursuant to Rule 424(b) of the Regulations, or filed as part of the Registration
Statement at the time of effectiveness if no Rule 424(b) filing is required, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state in any of them a material fact required to
be stated therein or necessary to make the statements in any of them (and in the
case of the Prospectus, in the light of the circumstances under which they were
made) not misleading, and will promptly reimburse each such Purchaser and each
such Purchaser/Affiliate for any legal and other expenses as such expenses are
reasonably incurred by such Purchaser or such Purchaser/Affiliate in connection
with investigating, defending or preparing to defend, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; provided,
however, that the Company will not be liable in any such case to the extent, but
only to the extent, that any such loss, claim, damage, liability or expense
arises out of or is based upon (i) an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
the Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with information furnished to the Company by or on behalf of the
Purchaser expressly for use therein, or (ii) any statement or omission in any
Prospectus that is corrected in any subsequent Prospectus that was delivered to
the Purchaser prior to the pertinent sale or sales by the Purchaser.

 

(b)           The Purchaser will severally 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 Section 15 of the Securities Act or Section 20 of the Exchange Act, against
any losses, claims, damages, liabilities or expenses to which the Company, each
of its directors, each of its officers who signed the Registration Statement or
controlling person may become subject, under the Securities Act, the Exchange
Act, or any 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 Purchaser) insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in the Registration Statement, the
Prospectus, or any amendment or supplement thereto, or arise out of or are 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, the Prospectus, or any amendment or supplement thereto,
in reliance upon and in conformity with information furnished to the Company by
or on behalf of the Purchaser expressly for use therein, and will reimburse the
Company, each of its directors, each of its officers who signed the Registration
Statement or controlling person for any legal and other expense reasonably
incurred by the Company, each of its directors, each of its officers who signed
the Registration Statement or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action.

 

16

--------------------------------------------------------------------------------

 

(c)           Promptly after receipt by an indemnified party under this Section
7.3 of notice of the threat or 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 7.3, promptly notify the indemnifying party in writing
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 under the indemnity agreement contained in this
Section 7.3 to the extent it is not prejudiced as a 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 may wish, jointly with all other indemnifying parties similarly
notified, to assume the defense thereof with counsel reasonably satisfactory to
such indemnified party; provided, however, (i) if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded, based on an opinion of
counsel reasonably satisfactory to the indemnifying party, that there may be a
conflict of interest 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, or (ii) if the defendants
in any such action include both the indemnified party and the indemnifying
party, and if the indemnified party is an affiliate of a broker-dealer, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses, at the indemnified party’s sole expense, 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 its election 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 7.3 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 such counsel in connection with the assumption of legal defenses in
accordance with proviso (i) to the preceding sentence or (ii) the indemnifying
party shall not have employed counsel reasonably satisfactory to the indemnified
party to represent the indemnified party within a reasonable time after notice
of commencement of action, in each of which cases the reasonable fees and
expenses of counsel shall be at the expense of the indemnifying party (it being
understood, however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel, reasonably satisfactory to such
indemnifying party, representing all of the indemnified parties who are parties
to such action).  In no event shall any indemnifying party be liable in respect
of any amounts paid in settlement of any action unless the indemnifying party
shall have approved in writing the terms of such settlement; provided that such
consent shall not be unreasonably withheld.  No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement includes
an unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.

 

(d)           If the indemnification provided for in this Section 7.3 is
required by its terms but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party under paragraphs
(a), (b) or (c) of this Section 7.3 in respect to any losses, claims, damages,
liabilities or expenses referred to herein, then each applicable indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of any losses, claims, damages, liabilities or expenses referred to
herein (i) in such proportion as is appropriate to reflect

 

17

--------------------------------------------------------------------------------

 

the relative benefits received by the Company and the Purchaser from the private
placement of Common Stock hereunder or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but the relative fault of the Company and the Purchaser in connection with
the statements or omissions or inaccuracies in the representations and
warranties or failure to comply with the covenants and agreements in this
Agreement and/or the Registration Statement which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations.  The respective relative benefits received by the
Company on the one hand and each Purchaser on the other shall be deemed to be in
the same proportion as the amount paid by such Purchaser to the Company pursuant
to this Agreement for the Shares and Underlying Shares purchased by such
Purchaser that were sold pursuant to the Registration Statement bears to the
difference (the “Difference”) between the amount such Purchaser paid for the
Shares and Underlying Shares that were sold pursuant to the Registration
Statement and the amount received by such Purchaser from such sale.  The
relative fault of the Company, on the one hand, and each Purchaser on the other
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 or the inaccurate or the alleged inaccurate
representation and/or warranty relates to information supplied by the Company or
by such Purchaser and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission. 
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in paragraph (c) of this Section 7.3, any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim.  The provisions set forth
in paragraph (c) of this Section 7.3 with respect to the notice of the threat or
commencement of any threat or action shall apply if a claim for contribution is
to be made under this paragraph (d); provided, however, that no additional
notice shall be required with respect to any threat or action for which notice
has been given under paragraph (c) for purposes of indemnification.  The Company
and each Purchaser agree that it would not be just and equitable if contribution
pursuant to this Section 7.3 were determined solely by pro rata allocation (even
if the Purchaser were 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 in this paragraph.  Notwithstanding the provisions of this Section
7.3, no Purchaser shall be required to contribute any amount in excess of the
amount by which the Difference exceeds the amount of any damages that such
Purchaser has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.  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 Purchasers’ obligations to
contribute pursuant to this Section 7.3 are several and not joint.

 

(e)           Notwithstanding the provisions of this Section 7.3, the Purchaser
shall not be required to indemnify or contribute any amount in excess of the
aggregate amount of the net proceeds received by the Purchaser upon the sale of
the Registrable Securities giving rise to such indemnification or contribution
obligation.

 

7.4           Termination of Conditions and Obligations.  The restrictions
imposed by Section 5 or this Section 7 upon the transferability of the Shares
and the Underlying Shares shall cease and terminate as to any particular number
of the Shares and Underlying Shares, as applicable, upon the earliest to occur
of (i) the sale of the Shares or Underlying Shares, as applicable, pursuant to
the Registration Statement, (ii) the sale of the Shares or Underlying Shares, as
applicable, pursuant to Rule 144 under the Securities Act, (iii) the passage of
two (2) years from

 

18

--------------------------------------------------------------------------------

 

the expiration date of the Warrants or (iv) such time as an opinion of counsel
satisfactory in form and substance to the Company shall have been rendered to
the effect that such conditions are not necessary in order to comply with the
Securities Act.

 

7.5           Information Available.  So long as the Registration Statement is
effective, the Company will furnish to the Purchaser:

 

(a)           as soon as practicable after available (but in the case of the
Annual Report to the Stockholders, within 150 days after the end of each fiscal
year of the Company), one copy of (i) its Annual Report to Stockholders (which
Annual Report shall contain financial statements audited in accordance with
generally accepted accounting principles by a national firm of certified public
accountants), (ii) if not included in substance in the Annual Report to
Stockholders, upon the request of Purchaser, its Annual Report on Form 10-K,
(iii) upon request of Purchaser, its quarterly reports on Form 10-Q, and (iv)
the Registration Statement (the foregoing, in each case, excluding exhibits);
and

 

(b)           upon the reasonable request of the Purchaser, a reasonable number
of copies of the Prospectuses, and any supplements thereto, to supply to any
other party requiring such Prospectuses;

 

and the Company, upon the reasonable request of the Purchaser and with prior
notice, will be available to the Purchaser or a representative thereof at the
Company’s headquarters to discuss information relevant for disclosure in the
Registration Statement and will otherwise cooperate with any Purchaser
conducting an investigation for the purpose of reducing or eliminating such
Purchaser’s exposure to liability under the Securities Act, including the
reasonable production of information at the Company’s headquarters, subject to
appropriate confidentiality limitations.

 

7.6           Cooperation.  It shall be a condition precedent to the obligations
of the Company to take any action under Section 7.1 that the Purchaser shall
forward to the Company all such information and materials and shall take all
action as may be reasonably required to permit the Company to comply with the
applicable requirements of the Securities Act and the Commission.

 

7.7           Delay in Effectiveness of Registration Statement.  If the
Registration Statement is not filed by the Company with the Commission on or
prior to the Filing Date, then for each month, consisting of a thirty (30) day
period (a “Month”) (or pro rata portion thereof), following the Filing Date,
until but excluding the date the Registration Statement is filed, or if the
Registration Statement is not declared effective by the Commission by the
Required Effective Date, then for each Month (or pro rata portion thereof)
following the Required Effective Date, until but excluding the date the
Commission declares the Registration Statement effective, the Company shall, for
each such Month (pro rated for any period less than thirty (30) days), pay the
Purchaser with respect to any such failure, as liquidated damages and not as a
penalty, an amount equal to one and one-half percent (1.5%) of the aggregate
purchase price paid by such Purchaser for its Units pursuant to this Agreement;
and for any such Month, such payment shall be made no later than the fifth (5th)
business day of the calendar month next succeeding the applicable Month for
which payment is to be made by the Company.  Notwithstanding the foregoing
provisions, in no event shall the Company be obligated to pay such liquidated
damages to more than one Purchaser in respect of the same Shares for the same
period of time and in no event shall the Company be required to pay aggregate
liquidated damages under this Section 7.7 in excess of

 

19

--------------------------------------------------------------------------------

 

twelve percent (12%) of the aggregate purchase price paid by the Purchasers for
the Units pursuant to this Agreement.  Such payments shall be made to the
Purchaser in cash.

 

7.8           Registration.  Notwithstanding anything to the contrary contained
in the Agreement, the Company shall not be obligated to include in the
Registration Statement any Underlying Shares if the inclusion of the Underlying
Shares would violate any applicable law, rule or regulation or would constitute
a breach of the Company’s obligations under its agreements with the National
Association of Securities Dealers, Inc. or the Nasdaq Stock Market, Inc. or the
rules and regulations promulgated thereunder.  In such event, the Company shall
use commercially reasonable efforts to register such Underlying Shares for
resale, including by filing a separate registration statement, and, if the
Company shall file a separate registration statement, such registration
statement shall be deemed, for purposes of this Agreement, a “Registration
Statement” with the meaning of such defined term herein.

 

7.9           Lock-up.  The Company agrees that, during the period prior to
effectiveness of the Registration Statement, it will not, without the prior
written consent of Purchasers holding a majority of the Units sold by the
Company, directly or indirectly, (i) pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant for the sale of, or otherwise dispose of or
transfer (any such transaction, a “Transfer”), any shares of the Company’s
Common Stock or any securities convertible into or exchangeable or exercisable
for Common Stock (collectively, the “Lock-Up Securities”) or (ii) enter into any
swap or any other agreement or any transaction that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of the
Lock-Up Securities, whether any such swap or transaction is to be settled by
delivery of Common Stock or other securities, in cash or otherwise.  The
foregoing sentence shall not apply to any Transfer involving (A) the shares of
Common Stock to be sold to the Purchasers upon exercise of the Warrants, (B)
shares of Common Stock issued by the Company upon the conversion of convertible
securities outstanding as of the date hereof or upon the exercise of warrants
outstanding as of the date hereof or permitted to be granted hereunder, or upon
the exercise of options granted under the Company’s stock incentive plans, (C)
shares of Common Stock issued under the Company’s employee stock purchase plan
after the date hereof, (D) shares of Common Stock issued in connection with
acquisitions, licensing agreements, joint ventures, strategic alliances or other
similar transactions approved by the Company’s Board of Directors, and (E)
warrants to purchase Common Stock issued to consultants, lessors, lenders or
other similar parties approved by the Company’s Board of Directors.

 

SECTION 8.           Broker’s Fee.  The Purchaser acknowledges that the Company
intends to pay to the Placement Agent a fee in respect of the sale of the Units
and Underlying Shares to the Purchasers.  Each of the parties hereto hereby
represents that, on the basis of any actions and agreements by it, there are no
other brokers or finders entitled to compensation in connection with the sale of
the Shares, the Warrants and the Underlying Shares to the Purchasers.

 

20

--------------------------------------------------------------------------------

 

SECTION 9.           Notices.  All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and shall be
deemed effectively given: (i) upon delivery to the party to be notified; (ii)
when received by confirmed facsimile; (iii) one (1) business day after deposit
with a nationally recognized overnight carrier, specifying next business day
delivery, with written verification of receipt; or (iv) three (3) business days
after being deposited in the U.S. mail, with postage prepaid, addressed to the
party to be notified.  All communications shall be sent to the Company and the
Purchaser as follows or at such other addresses as the Company or the Purchaser
may designate upon ten (10) days’ advance written notice to the other party:

 

(a)           if to the Company, to:

 

Digimarc Corporation
19801 SW 72nd Ave., Suite 250
Tualatin, Oregon 97062
Attention:  Robert P. Chamness, Esq.
Facsimile:  (503) 495-4577

 

with a copy to:

 

Morrison & Foerster LLP
425 Market Street
San Francisco, California  94105-2482
Attention:  Gavin B. Grover, Esq.
Facsimile:  (415) 268-7522

(b)           if to the Purchaser, at its address as set forth at the end of
this Agreement.

 

SECTION 10.         Changes.  Except in connection with the provisions of
Section 7 of this Agreement, this Agreement may not be modified or amended
except pursuant to an instrument in writing signed by the Company and the
Purchaser.  The terms and provisions of Section 7 of this Agreement may be
modified, amended or waived, or consent for the departure therefrom granted, by
the written consent of the Company and the Purchasers holding at least fifty
percent (50%) of the Registrable Securities then held by all Purchasers.  Any
modification, amendment, waiver or consent effected in accordance with the
preceding sentence of this Section 10 shall be binding upon each of the Company
and the Purchasers, and each of their respective successors and assigns.  Each
such waiver or consent shall be effective only in the specific instance and for
the purpose for which it was given, and shall not constitute a continuing waiver
or consent.  By acceptance of any benefits under Section 7 of this Agreement,
the Purchaser hereby agrees to be bound by the provisions of this Section 10.

 

21

--------------------------------------------------------------------------------

 

SECTION 11.         Headings.  The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.

 

SECTION 12.         Severability.  In case any provision contained in this
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.

 

SECTION 13.         Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of New York and the federal
law of the United States of America.  Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby may be instituted in the federal courts of the United States District
Court for the Southern District of New York (collectively, the “Specified
Courts”), and each party irrevocably submits to the non-exclusive jurisdiction
of such Specified 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
herein shall be effective service of process for any suit, action or other
proceeding brought in any such Specified Courts.  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.

 

SECTION 14.         Counterparts.  This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument, and shall become effective
when one or more counterparts have been signed by each party hereto and
delivered (including by facsimile) to the other parties.

 

SECTION 15.         Entire Agreement. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Purchaser makes any
representation, warranty, covenant or undertaking with respect to such matters.

 

SECTION 16.         Assignment.  Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
parties hereto and their respective permitted successors, assigns, heirs,
executors and administrators.  This Agreement and the rights of the Purchaser
hereunder may be assigned by the Purchaser with the prior written consent of the
Company, which consent will not be unreasonably withheld, except such consent
shall not be required in cases of assignments by an investment adviser to a fund
for which it is the adviser or by or among funds that are under common control,
provided that such assignee agrees to be bound by the terms of this Agreement. 
Notwithstanding anything to the contrary in this Agreement, the Purchaser may
not assign or otherwise transfer the Warrants, or any rights therein, and any
attempt to do so shall be null and void.

 

22

--------------------------------------------------------------------------------

 

SECTION 17.         Further Assurances.  Each party agrees to cooperate fully
with the other parties and to execute such further instruments, documents and
agreements and to give such further written assurance as may be reasonably
requested by any other party to evidence and reflect the transactions described
herein and contemplated hereby and to carry into effect the intents and purposes
of this Agreement.

 

[Remainder of Page Left Intentionally Blank]

 

23

--------------------------------------------------------------------------------

 

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

 

 

 

DIGIMARC CORPORATION

 

 

 

 

 

By

  /s/ Bruce Davis

 

 

 

 

 

 

Print or Type:

 

 

 

 

Name of Purchaser

 

(Individual or Institution):

 

 

 

 

 

 

 

 

Name of Individual representing

 

Purchaser (if an Institution):

 

 

 

 

 

 

 

 

Title of Individual representing

 

Purchaser (if an Institution):

 

 

 

 

 

 

 

 

 

 

Signature by:

 

 

 

 

 

Individual Purchaser or Individual

 

representing Purchaser:

 

 

 

 

 

 

 

 

 

 

Address:

 

 

 

 

 

Telephone:

 

 

 

 

 

Telecopier:

 

 

 

24

--------------------------------------------------------------------------------

 

SUMMARY INSTRUCTION SHEET FOR PURCHASER

 

(to be read in conjunction with the entire
Purchase Agreement which this follows)

 

A.            Complete the following items on BOTH Purchase Agreements (Please
sign two originals):

 

1.                                       Page 24 - Signature:

 

(i)                                     Name of Purchaser (Individual or
Institution)

 

(ii)                                  Name of Individual representing Purchaser
(if an Institution)

 

(iii)                               Title of Individual representing Purchaser
(if an Institution)

 

(iv)                              Signature of Individual Purchaser or
Individual representing Purchaser

 

2.                                       Appendix I - Certificate
Questionnaire/Registration Statement Questionnaire:

 

Provide the information requested by the Certificate Questionnaire and the
Registration Statement Questionnaire.

 

3.                                       Return BOTH properly completed and
signed Purchase Agreements including the properly completed Appendix I to
(initially by facsimile with hard copy by overnight delivery):

 

SG Cowen Securities Corporation
Private Equity Group
1221 Avenue of the Americas
New York, New York  10020
Attention:  Richard E. Gormley
Facsimile:  212-278-5503

 

B.            Instructions regarding the transfer of funds for the purchase of
Units will be sent by facsimile to the Purchaser by the Placement Agent at a
later date.

 

C.            Upon the resale of the Registrable Securities by the Purchasers
after the Registration Statement covering the Registrable Securities is
effective, as described in the Purchase Agreement, the Purchaser:

 

(i)                                     must deliver a current prospectus of the
Company to the buyer (prospectuses must be obtained from the Company at the
Purchaser’s request); and

 

--------------------------------------------------------------------------------

 

(ii)                                  must send a letter in the form of Appendix
II to the Company so that the Registrable Securities may be properly
transferred.

 

--------------------------------------------------------------------------------

 

APPENDIX I

 

DIGIMARC CORPORATION
CERTIFICATE QUESTIONNAIRE

 

Pursuant to Section 3 of the Agreement, please provide us with the following
information:

 

1.

 

The exact name that your Shares, Warrant and any Underlying Shares are to be
registered in (this is the name that will appear on your stock certificate(s)
and Warrant).  You may only use a nominee name for your stock certificate(s). 
The Warrant shall be in the name of the Purchaser:

 

 

 

 

 

 

 

2.

 

The relationship between the Purchaser of the Shares, the Warrant and Underlying
Shares and the Registered Holder listed in response to item 1 above, if
different:

 

 

 

 

 

 

 

3.

 

The mailing address of the Registered Holder listed in response to item 1 above:

 

 

 

 

 

 

 

 

 

 

 

 

4.

 

The Social Security Number or Tax Identification Number, if any, of the
Purchaser and, if applicable, the Registered Holder listed in response to item 1
above:

 

 

 

1

--------------------------------------------------------------------------------

 

DIGIMARC CORPORATION
REGISTRATION STATEMENT QUESTIONNAIRE

 

In connection with the preparation of the Registration Statement, please provide
us with the following information:

 

SECTION 1.  Pursuant to the “Selling Stockholder” section of the Registration
Statement, please state your or your organization’s name exactly as it should
appear in the Registration Statement:

 

SECTION 2.  Please provide the number of shares that you or your organization
will own immediately after Closing, including those Shares purchased by you or
your organization pursuant to this Purchase Agreement, the number of Underlying
Shares issuable upon exercise of your Warrant and those shares purchased by you
or your organization through other transactions:

 

SECTION 3.  Please provide the names, titles and contact information of all
natural persons who have voting or investment control over the Registrable
Securities purchased by you or your organization pursuant to this Purchase
Agreement and purchasable by you or your organization pursuant to the Warrant:

 

 

 

 

SECTION 4.  Have you or your organization had any position, office or other
material relationship within the past three years with the Company or its
affiliates?

 

o Yes      o No

 

If yes, please indicate the nature of any such relationships below:

 

 

 

2

--------------------------------------------------------------------------------

 

SECTION 5.  (a) Are you (i) an NASD Member (see definition), (ii) a Controlling
(see definition) shareholder of an NASD Member, (iii) a Person Associated with a
Member of the NASD (see definition), or (iv) an Underwriter or a Related Person
(see definition) with respect to the proposed offering; or (b) do you own any
shares or other securities of any NASD Member not purchased in the open market;
or (c) have you made any outstanding subordinated loans to any NASD Member?

 

Answer:  o Yes    o No   If “yes,” please describe below

 

 

 

 

NASD Member.  The term “NASD member” means either any broker or any dealer
admitted to membership in the National Association of Securities Dealers, Inc.
(“NASD”).  (NASD Manual, By-laws Article I, Definitions)

 

Control.  The term “control” (including the terms “controlling,” “controlled by”
and “under common control with”) means the possession, direct or indirect, of
the power, either individually or with others, to direct or cause the direction
of the management and policies of a person, whether through the ownership of
voting securities, by contract, or otherwise.  (Rule 405 under the Securities
Act of 1933, as amended)

 

Person Associated with a member of the NASD.  The term “person associated with a
member of the NASD” means every sole proprietor, partner, officer, director,
branch manager or executive representative of any NASD Member, or any natural
person occupying a similar status or performing similar functions, or any
natural person engaged in the investment banking or securities business who is
directly or indirectly controlling or controlled by a NASD Member, whether or
not such person is registered or exempt from registration with the NASD pursuant
to its bylaws.  (NASD Manual, By-laws Article I, Definitions)

 

Underwriter or a Related Person.  The term “underwriter or a related person”
means, with respect to a proposed offering, underwriters, underwriters’ counsel,
financial consultants and advisors, finders, members of the selling or
distribution group, and any and all other persons associated with or related to
any of such persons.  (NASD Interpretation)

 

3

--------------------------------------------------------------------------------

 

APPENDIX II

[Transfer Agent]
[Address]

 

Attention:

 

PURCHASER’S CERTIFICATE OF SUBSEQUENT SALE

 

The undersigned, [an officer of, or other person duly authorized by]

 

                                                                                                                                                  
hereby certifies
[fill in official name of individual or institution]

 

that he/she [said institution] is the Purchaser of the shares evidenced by the
attached certificate,

 

and as such, sold such shares on                                       in
accordance with the terms of the
[date]

 

Purchase Agreement and in accordance with Registration Statement

 

number
                                                                                                              
or otherwise in accordance with

[fill in the number of or otherwise identify Registration Statement]

 

the Securities Act of 1933, as amended, and, in the case of a transfer pursuant
to the Registration

 

Statement, the requirement of delivering a current prospectus by the Company has
been

 

complied with in connection with such sale.

 

Print or Type:

 

Name of Purchaser
(Individual or
Institution):

 

 

 

Name of Individual
representing
Purchaser (if an
Institution):

 

 

 

Title of Individual
representing
Purchaser (if an
Institution):

 

 

 

Signature by:
Individual Purchaser
or Individual repre-
senting Purchaser:

 

 

--------------------------------------------------------------------------------

 

EXHIBIT A

Form of Warrant

 

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION.  NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE EXERCISABLE MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT (1) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS
OF THE STATES AND OTHER JURISDICTIONS, AND IN THE CASE OF A TRANSACTION EXEMPT
FROM REGISTRATION, UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT REQUIRE
REGISTRATION UNDER THE SECURITIES ACT AND SUCH OTHER APPLICABLE LAWS.

 

DIGIMARC CORPORATION

 

WARRANT TO PURCHASE SHARES OF COMMON STOCK

 

Warrant No. [           ]

 

Dated: August [     ], 2003

 

Digimarc Corporation, a Delaware corporation (the “Company”), hereby certifies
that, for value received, [                    ] (the “Holder”), is entitled to
purchase from the Company up to a total of [                     ] shares of
common stock, $0.001 par value per share (“Common Stock”), of the Company (each
such share, a “Warrant Share” and all such shares, the “Warrant Shares”) at an
exercise price equal to $14.00 per share (as adjusted from time to time as
provided in Section 8, the “Exercise Price”), at any time and from time to time
from and including the date the Registration Statement is declared effective by
the Commission (the “Effective Date”) and through and including the 15th
calendar day (or if such calendar day is a Saturday, Sunday or federal holiday,
the next business day) after the Effective Date (the “Expiration Date”), subject
to the terms and conditions herein, provided, however, that if there is a
Suspension of the Registration Statement following the Effective Date and prior
to the original Expiration Date, such original Expiration Date shall be
automatically extended until such time as the Suspension is terminated and,
thereafter, the Expiration Date, for purposes of this Warrant, shall be such
date following the number of days remaining in the original exercise period as
of the date of the Suspension. This Warrant to Purchase Shares of Common Stock
(this “Warrant”) is one of a series of similar Warrants issued pursuant to those
certain Purchase Agreements, each dated as of the date hereof, by and between
the Company and each of the purchasers whose names are set forth on the
signature pages thereof (hereinafter, the “Purchase Agreement”).

 

1.   Definitions.  In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein have the meanings given
to such terms in the Purchase Agreement.

 

--------------------------------------------------------------------------------

 

2.   Registration of Warrant.  The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose, in the name of the
Holder. The Company may deem and treat the registered Holder as the absolute
owner of this Warrant for the purpose of any exercise hereof and for all other
purposes.

 

3.   Exercise and Duration of Warrant.

 

(a)  Subject to the other terms and conditions contained herein, this Warrant
shall be exercisable by the registered Holder at any time and from time to time
on or after the Effective Date and through and including the Expiration Date. 
At 6:30 P.M., New York City time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value and
this Warrant shall be terminated and no longer outstanding.

 

(b)  The Holder may exercise this Warrant by delivering to the Company (i) an
exercise notice, in the form attached hereto (the “Exercise Notice”), completed
and duly signed, (ii) payment of the Exercise Price for the number of Warrant
Shares as to which this Warrant is being exercised, and (iii) the original
Warrant, and the date such items are delivered to the Company (as determined in
accordance with the notice provisions hereof) is an “Exercise Date.” The
delivery by the Holder of the Exercise Notice, the applicable Exercise Price and
the Warrant as provided above shall constitute the Holder’s certification to the
Company that its representations contained in Sections 5(a)(i)-(viii), (b), (d),
(e), (f), (h) and (i) of the Purchase Agreement as to the Warrant Shares to be
purchased pursuant to this Warrant are true and correct as of the Exercise Date
as if remade in their entirety herein.

 

4.   Delivery of Warrant Shares.

 

(a)  Subject to the other terms and conditions contained herein, upon exercise
of this Warrant, the Company shall promptly issue or cause to be issued and
cause to be delivered to or upon the written order of the Holder and in such
name or names as the Holder may designate a certificate for the Warrant Shares
issuable upon such exercise. The Holder, or any Person so designated by the
Holder to receive Warrant Shares, shall be deemed to have become holder of
record of such Warrant Shares as of the Exercise Date.

 

(b)  This Warrant is exercisable either in its entirety or, from time to time as
provided herein, for a portion of the number of Warrant Shares. Upon surrender
of this Warrant following a partial exercise, the Company shall promptly issue
or cause to be issued, at its expense, a new Warrant evidencing the right to
purchase the remaining number of Warrant Shares.

 

5.   Charges, Taxes and Expenses.   Issuance and delivery of certificates for
shares of Common Stock upon exercise of this Warrant shall be made without
charge to the Holder for any issue or transfer tax, withholding tax, transfer
agent fee or other incidental tax or expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Company;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the registration of any
certificates for Warrant Shares in a name other than that of the Holder or an
affiliate thereof. The Holder shall be

 

--------------------------------------------------------------------------------

 

responsible for all other tax liability that may arise as a result of holding
this Warrant or receiving Warrant Shares upon exercise hereof.

 

6.   Replacement of Warrant.   If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a new Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and, if
requested, customary and reasonable indemnity, if requested. If the Holder seeks
a new Warrant under such circumstances, it shall also comply with such other
reasonable regulations and procedures and pay such other reasonable third party
costs as the Company may prescribe.

 

7.   Issuance of Warrant Shares.   The Company covenants that all Warrant Shares
issuable and deliverable upon exercise hereof shall, upon issuance and the
payment of the applicable Exercise Price in accordance with the terms hereof, be
duly and validly authorized and issued, fully paid and nonassessable.

 

8.   Certain Adjustments.   The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 8.

 

(a)  Stock Dividends and Splits.   If the Company, at any time while this
Warrant is outstanding, (i) pays a stock dividend on its Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in
shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into
a larger number of shares, or (iii) combines outstanding shares of Common Stock
into a smaller number of shares, then in each such case the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clauses (ii) or (iii) of this paragraph shall
become effective immediately after the effective date of such subdivision or
combination.

 

(b)  Pro Rata Distributions.   If the Company, at any time while this Warrant is
outstanding, distributes to all holders of Common Stock (i) evidences of its
indebtedness, (ii) any security (other than a distribution of Common Stock
covered by the preceding paragraph), (iii) rights or warrants to subscribe for
or purchase any security, or (iv) any other asset (in each case, “Distributed
Property”), then, upon the exercise of the Warrant that occurs after the record
date fixed for determination of stockholders entitled to receive such
distribution, the Holder shall be entitled to receive, in addition to the
Warrant Shares otherwise issuable upon such exercise (if applicable), the
Distributed Property distributed in respect of one share of Common Stock to
holders of Common Stock as of such record date times the number of Warrant
Shares for which the Holder exercises this Warrant (appropriately adjusted for
any stock splits, combination or similar event between such record date and such
exercise).

 

--------------------------------------------------------------------------------

 

(c)  Fundamental Transactions.   If, at any time while this Warrant is
outstanding, (i) the Company effects any merger or consolidation of the Company
with or into another person, (ii) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions,
(iii) any tender offer or exchange offer (whether by the Company or another
person) is consummated pursuant to which a majority of holders of Common Stock
tender or exchange their shares for other securities, cash or property, or (iv)
the Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities, cash or property (other than as a result of a
subdivision or combination of shares of Common Stock covered by Section 8(a)
above) (in any such case, a “Fundamental Transaction”), then the Holder shall
have the right thereafter to receive, upon exercise of this Warrant, the same
amount and kind of securities, cash or property as it would have been entitled
to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of the number of
Warrant Shares then issuable upon exercise in full of this Warrant (the
“Alternate Consideration”). The aggregate Exercise Price for this Warrant will
not be affected by any such Fundamental Transaction, but the Company shall
apportion such aggregate Exercise Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components of
the Alternate Consideration. If holders of Common Stock are given any choice as
to the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any exercise of this Warrant following such Fundamental
Transaction. At the Holder’s request, any successor to the Company or surviving
entity in such Fundamental Transaction shall issue to the Holder a new Warrant
consistent with the foregoing provisions and evidencing the Holder’s right to
purchase the Alternate Consideration for the aggregate Exercise Price upon
exercise thereof. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or
surviving entity to comply with the provisions of this paragraph (c) and
insuring that the Warrant (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

 

(d)  Number of Warrant Shares.   Simultaneously with any adjustment to the
Exercise Price pursuant to paragraph (a) of this Section, the number of Warrant
Shares that may be purchased upon exercise of this Warrant shall be increased or
decreased proportionately, so that after such adjustment the aggregate Exercise
Price payable hereunder for the increased or decreased number of Warrant Shares
shall be the same as the aggregate Exercise Price in effect immediately prior to
such adjustment.

 

(e)  Calculations.   All calculations under this Section 8 shall be made to the
nearest cent or the nearest 1/100th of a share, as applicable. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company; provided that such shares,
upon disposition to a third party, shall then be considered outstanding. Any
interpretation or determination required by this Warrant shall be made by the
Company’s Board of Directors in good faith.

 

(f)  Notice of Adjustments.   Upon the occurrence of each adjustment pursuant to
this Section 8, the Company at its expense will, at the written request of the
Holder, promptly compute such adjustment in accordance with the terms of this
Warrant and prepare a certificate

 

--------------------------------------------------------------------------------

 

setting forth such adjustment, including a statement of the adjusted Exercise
Price and adjusted number or type of Warrant Shares or other securities issuable
upon exercise of this Warrant (as applicable), describing the transactions
giving rise to such adjustments and showing in reasonable detail the facts upon
which such adjustment is based, and deliver a copy of each such certificate to
the Holder.

 

(g)  Notice of Corporate Events.   If, while this Warrant is outstanding, the
Company (i) declares a dividend or any other distribution of cash, securities or
other property in respect of all of its Common Stock, (ii) authorizes or
approves, enters into any agreement contemplating or solicits stockholder
approval for any Fundamental Transaction or (iii) authorizes the voluntary
dissolution, liquidation or winding up of the affairs of the Company, then the
Company shall deliver to the Holder a notice describing the material terms and
conditions of such transaction, at least 15 business days prior to the
applicable record or effective date on which a person would need to hold Common
Stock in order to participate in or vote with respect to such transaction, and
the Company will take all steps necessary in order to insure that the Holder is
given the practical opportunity to exercise this Warrant, pursuant to the terms
and conditions herein, prior to such time so as to participate in or vote with
respect to such transaction; provided, however, that the failure to deliver such
notice or any defect therein shall not affect the validity of the corporate
action required to be described in such notice.

 

9.   Payment of Exercise Price.   The Holder shall pay the Exercise Price in
immediately available funds.

 

10.     Limitation on Exercise.   Notwithstanding anything to the contrary
contained in this Warrant, if the sale of Warrant Shares upon exercise of this
Warrant would violate any law, rule or regulation or the issuance of such
Warrant Shares would constitute a breach of the Company’s obligations under its
agreements with the National Association of Securities Dealers, Inc. or the
Nasdaq Stock Market, Inc. or the rules and regulations promulgated thereunder,
the Company shall use commercially reasonable efforts upon exercise of the
Warrant to issue as “restricted securities” (within the meaning of the
Securities Act of 1933, as amended) the Warrant Shares or an equivalent number
of shares of Common Stock to the Holder for the aggregate Exercise Price.

 

11.     Fractional Shares.   The Company shall not be required to issue or cause
to be issued fractional Warrant Shares on the exercise of this Warrant. If any
fraction of a Warrant Share would, except for the provisions of this Section, be
issuable upon exercise of this Warrant, the number of Warrant Shares to be
issued will be rounded down to the nearest whole share.

 

12.     Notices.   All notices, requests, consents and other communications
required or permitted hereunder (including without limitation any Exercise
Notice) shall be in writing and shall be deemed effectively given: (i) upon
delivery to the party to be notified; (ii) when received by confirmed facsimile;
(iii) one (1) business day after deposit with a nationally recognized overnight
carrier, specifying next business day delivery, with written verification of
receipt; or (iv) three (3) business days after being deposited in the U.S. mail,
with postage prepaid, addressed to the party to be notified.  The address and
facsimile numbers for such notices or communications shall be as set forth in
the Purchase Agreement.

 

--------------------------------------------------------------------------------

 

13.     Miscellaneous.

 

(a)  Notwithstanding anything to the contrary in this Purchase Agreement, the
Holder may not assign or otherwise transfer this Warrant, or any rights herein,
and any attempt to do so shall be null and void.  This Warrant may not be
assigned by the Company except to a successor in the event of a Fundamental
Transaction. Nothing in this Warrant shall be construed to give to any person
other than the Company and the Holder any legal or equitable right, remedy or
cause of action under this Warrant. This Warrant may be amended only in writing
signed by the Company and the Holder.

 

(b)  The Company will not, by amendment of its governing documents or through
any reorganization, 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 of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder against impairment.

 

(c)  This Warrant shall be governed by and construed in accordance with the laws
of the State of New York and the federal law of the United States of America. 
Any legal suit, action or proceeding arising out of or based upon this Warrant
or the transactions contemplated hereby may be instituted in the federal courts
of the United States District Court for the Southern District of New York
(collectively, the “Specified Courts”), and each party irrevocably submits to
the non-exclusive jurisdiction of such Specified 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 herein shall be effective service of process for
any suit, action or other proceeding brought in any such Specified Courts.  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.

 

(d)  The headings herein are for convenience only, do not constitute a part of
this Warrant and shall not be deemed to limit or affect any of the provisions
hereof.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK, SIGNATURE PAGE
FOLLOWS]

 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
its authorized officer as of the date first indicated above.

 

 

DIGIMARC CORPORATION

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

--------------------------------------------------------------------------------

 

FORM OF EXERCISE NOTICE

 

(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under
the foregoing Warrant)

 

To:

DIGIMARC CORPORATION

 

Attn:

Controller

 

The undersigned is the Holder of Warrant No.              (the “Warrant”) issued
by DIGIMARC CORPORATION, a Delaware corporation (the “Company”). Capitalized
terms used herein and not otherwise defined have the respective meanings set
forth in the Warrant.

 

1.                    The Warrant is currently exercisable to purchase a total
of               Warrant Shares.

 

2.                    The undersigned Holder hereby exercises its right to
purchase              Warrant Shares pursuant to the Warrant.

 

3.                    The Holder shall pay the sum of $             to the
Company in accordance with the terms of the Warrant.

 

4.                    Pursuant to this exercise, the Company shall deliver to
the holder              Warrant Shares in accordance with the terms of the
Warrant.

 

5.                    Following this exercise, the Warrant shall be exercisable
to purchase a total of               Warrant Shares.

 

 

Dated:

 

,

Name of Holder:

 

 

 

 

 

(Print)

 

 

 

 

 

 

 

 

By:

 

 

 

 

 

 

 

 

Name:

 

 

 

 

 

 

 

 

Title

 

 

 

 

 

 

 

 

(Signature must conform in all respects to name of holder as specified on the
face of the Warrant)

 

--------------------------------------------------------------------------------

 

EXHIBIT B

Form of Legal Opinion

 

[Morrison & Foerster LLP Letterhead]

 

 

August [    ], 2003

 

 

SG Cowen Securities Corporation
Attn:  Private Equity Group
1221 Avenue of the Americas
New York, New York  10020

 

Re:  Digimarc Corporation

 

Ladies and Gentlemen:

 

We have acted as counsel for Digimarc Corporation, a Delaware corporation (the
“Company”), in connection with the issuance and sale of up to 1,785,996
separable units (the “Units”), with each Unit representing (i) one share of
common stock, par value $0.001 per share (“Common Stock”), of the Company and
(ii) a Warrant to purchase an additional 0.15 of a share of Common Stock on the
terms and conditions set forth therein (collectively, the “Warrants”).  The
Units are being issued and sold pursuant to the Purchase Agreements, dated as of
August 22, 2003 (each an “Agreement” and, collectively, the “Agreements”), by
and between the Company and each of the purchasers whose names are set forth on
the signature pages thereof (each a “Purchaser” and, collectively, the
“Purchasers”).  This opinion is furnished to you pursuant to Section 4.20 of the
Agreements.

 

We have examined originals or copies of the Agreements, including the form of
Warrant attached thereto as Exhibit A, and such records, documents and
certificates of public officials and a certificate of Robert P. Chamness, Esq.,
Vice President of Human Resources, General Counsel, Chief Legal Officer and
Secretary of the Company, dated August [    ], 2003 (the “Opinion Certificate”),
made such inquiries of certain officers of the Company and considered such
questions of law as we have deemed necessary for the purpose of rendering the
opinion set forth herein.  In rendering this opinion, we have relied upon the
Opinion Certificate as to certain factual matters.  We have made no independent
investigation of the accuracy or completeness of such matters, but we have no
actual knowledge of any such inaccuracy or incompleteness.

 

We have assumed the genuineness of all signatures, the authenticity of all items
submitted to us as originals and the conformity with originals of all items
submitted to us as copies.  In making our examination of the Agreements, we have
assumed that each party to the Agreements (other than the Company) has capacity
(with respect to any party that is an

 

--------------------------------------------------------------------------------

 

individual) and the power and authority (with respect to any party that is not
an individual) to execute and deliver, and to perform and observe the provisions
of, the applicable Agreement, and has duly authorized, executed and delivered
such Agreement, and that such Agreement constitutes the legal, valid and binding
obligations of such party, enforceable against such party in accordance with its
terms.  We also have assumed that the current Board of Directors of the Company
was validly elected.

 

Our opinion in paragraph 1 below as to the good standing of the Company is based
solely on a certificate of the Secretary of State of the State of Delaware.  We
have made no independent investigations as to whether the certificate is
accurate or complete, but we have no actual knowledge of any such inaccuracy or
incompleteness.

 

With respect to the opinions expressed in paragraphs 6 and 7 below, we have
assumed that the Purchasers are acquiring the Units with no present intention of
distributing the same.  In rendering our opinion expressed in paragraphs 6 and 7
below, we also have relied upon (i) the representations and warranties of the
Purchasers contained in the Agreements, which we have assumed to be true and
correct in all respects as of the date hereof, and (ii) the Opinion Certificate.

 

Our opinions in paragraphs 3(ii) and 7 are based on a review of those statutes
and regulations of the State of New York, the General Corporation Law of the
State of Delaware and the federal laws of the United States of America which, in
our experience, are normally applicable to the transactions of the type
contemplated by the Agreements.

 

Whenever our opinion herein with respect to the existence or absence of facts is
indicated to be based on our knowledge, it is intended to signify that, in the
course of our representation of the Company in connection with the transaction
referred to in the first paragraph hereof, none of Gavin Grover or Peter Romo
has acquired actual knowledge of the existence or absence of such facts.  While
the above named persons are the principal attorneys of this firm who have been
actively engaged in the representation of the Company in connection with that
matter, other attorneys of the firm have represented and continue to represent
the Company on other matters.  We have not undertaken any independent
investigation to determine the existence or absence of such facts, and no
inference as to our knowledge of the existence or absence of such facts should
be drawn from the fact of our representation of the Company.

 

The opinions hereinafter expressed are subject to the following further
qualifications and exceptions:

 

(i)            We express no opinion as to the effect of bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws relating to or
affecting the rights of creditors generally, including, without limitation, laws
relating to fraudulent transfers or conveyances, preferences and equitable
subordination;

 

(ii)           We express no opinion as to limitations imposed by general
principles of equity upon the availability of equitable remedies or the
enforcement of provisions of the Agreements, and the effect of judicial
decisions which have held that certain provisions are unenforceable where their
enforcement would violate the implied covenant of good faith and fair dealing,
or

 

--------------------------------------------------------------------------------

 

would be commercially unreasonable, or where a default under a provision of any
Agreement is not material;

 

(iii)          Except to the extent encompassed by an opinion set forth below
with respect to the Company, we express no opinion as to the effect on the
opinions expressed herein of (a) the compliance or non-compliance of any party
to an Agreement with any law, regulation or order applicable to it, or (b) the
legal or regulatory status or the nature of the business of any such party.

 

(iv)          We express no opinion as to compliance by the Company with any
state securities or “blue sky” law.

 

(v)           We express no opinion as to the effect of judicial decisions which
may permit the introduction of extrinsic evidence to supplement the terms of the
Agreements or to aid in the interpretation of the Agreements;

 

(vi)          We express no opinion as to the enforceability of provisions of
the Agreements providing for indemnification or contribution, to the extent such
indemnification or contribution is against public policy;

 

(vii)         We express no opinion as to the enforceability of provisions of
the Agreements which are construed as effectively imposing a penalty;

 

(viii)        We express no opinion as to the enforceability of a requirement
that provisions of the Agreements may only be modified in writing to the extent
an oral agreement has been executed modifying provisions of an Agreement;

 

(ix)           We express no opinion as to the enforceability of any provisions
of the Agreements requiring the Company to submit to the jurisdiction of any New
York federal court or providing that disputes arising under the Agreements are
to be determined by any such court;

 

(x)            Our opinion is based upon current statutes, rules, regulations,
cases and official interpretive opinions, and it covers certain items that are
not directly or definitively addressed by such authorities;

 

(xi)           We express no opinion as to compliance with applicable antifraud
statutes, rules or regulations of applicable state and federal laws concerning
the issuance or sale of securities;

 

(xii)          We express no opinion as to compliance with any federal or state
antitrust laws, or other federal or state laws governing restricted trade or
unfair competition, including, without limitation, the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended;

 

(xiii)         We express no opinion as to the enforceability of provisions of
the Agreements expressly or by implication waiving broadly or vaguely stated
rights, or waiving rights granted by law, where such waivers are against public
policy;

 

(xiv)        We express no opinion as to the circumstances under which rights of
setoff may be exercised;

 

--------------------------------------------------------------------------------

 

(xv)         We express no opinion as to the tax treatment of the transactions
contemplated by the Agreements; and

 

(xvi)        We express no opinion as to the fairness of the transactions
contemplated by the Agreements to the Company or its stockholders.

 

Based upon and subject to the foregoing, we are of the opinion that:

 

1.             The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.

 

2.             The Company has the corporate power and authority to execute and
deliver and to perform and observe its obligations under the Agreements.  The
Agreements and the Warrants have each been duly authorized, executed and
delivered by the Company and each Agreement and Warrant constitutes a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms.

 

3.             The execution and delivery by the Company of the Agreements, and
the issuance of the Units as contemplated therein, (i) do not violate any
provision of the Second Amended and Restated Certificate of Incorporation, as
amended (the “Certificate of Incorporation”), or the Amended and Restated
Bylaws, as amended (the “Bylaws”), of the Company, and (ii) do not violate any
federal or New York state statute or regulation applicable to the Company, or
the General Corporation Law of the State of Delaware.

 

4.             The Units to be received by each Purchaser pursuant to the
Agreement, and the Common Stock to be received by each Purchaser pursuant to the
exercise of the Warrants, have been duly authorized and, upon issuance and
delivery against payment therefor in accordance with the terms of the Agreement
and, in the case of Common Stock issuable pursuant to the exercise of the
Warrants, in accordance with the terms of the Warrants, will be validly issued,
fully paid and nonassessable.

 

5.             There are no pre-emptive rights to subscribe for or purchase any
shares of the Company’s capital stock pursuant to the Certificate of
Incorporation or the Bylaws.

 

6.             Assuming the filing of a Form D in accordance with Regulation D
under the Securities Act of 1933, as amended (the “Securities Act”), the offer
and sale of the Units pursuant to the terms of the Agreements are exempt from
the registration requirements of the Securities Act.

 

7.             Other than the filing of a Form D in accordance with Regulation D
under the Securities Act, no registration with, consent or approval of, notice
to, or other action by, any New York, Delaware corporate or federal governmental
entity is required on the part of the Company for the execution and delivery by
the Company of the Agreements, or for the issuance and sale by the Company of
the Units, or (except for state securities and “blue sky” laws, as to which we
express no opinion) if required, such registration has been made, such consent
or approval has been obtained, such notice has been given or such other
appropriate action has been taken.

 

We express no opinion as to matters governed by any laws other than the
substantive laws of the State of New York, the General Corporation Law of the
State of Delaware and the federal laws of the United States of America, in each
case which are in effect on the date hereof. 

 

--------------------------------------------------------------------------------

 

We express no opinion as to the effect on the opinions express herein of any
laws other than the laws of the State of New York, the General Corporation Law
of the State of Delaware and the federal laws of the United States of America. 
We have assumed that no provision of the Agreements violates the public policy
of any jurisdiction, other than the State of New York, having a substantial
relationship to the transactions contemplated by the Agreements, or federal laws
of the United States, and that no provision of the law of the State of New York,
the corporate law of the State of Delaware or federal law applicable to the
Agreements violates the public policy of any such other jurisdiction.  We
express no opinion as to whether the laws of any particular jurisdiction apply,
and no opinion to the extent the laws of any jurisdiction, other than those
identified above, are applicable to the subject matter hereof.

 

This opinion is solely for your benefit and the benefit of each of the
Purchasers and may not be relied on by, nor may copies be delivered to, any
other person, other than each of the Purchasers, without our prior written
consent.

 

Very truly yours,

 

--------------------------------------------------------------------------------

 

EXHIBIT C

 

Name of Subsidiary

 

Jurisdiction of Formation

 

 

 

Digimarc ID Systems, LLC

 

Delaware

 

 

 

Digimarc ID Systems II, LLC

 

Delaware

 

 

 

Digimarc ID Systems International

 

Cayman Islands

 

 

 

Digimarc ID Systems (UK) Limited

 

United Kingdom

 

 

 

Digimarc ID Systems Canada Co.

 

Canada

 

 

 

Digimarc ID Systems Brasil, Ltda.

 

Brazil

 

--------------------------------------------------------------------------------

 

Schedule of Exceptions

 

This Schedule of Exceptions, dated as of August 22, 2003, is delivered to the
Purchaser (as defined below) in connection with the Purchase Agreements, dated
as of August 22, 2003 (collectively, the “Agreements”), by and between Digimarc
Corporation, a Delaware corporation (the “Company”), and each of the purchasers
whose names are set forth on the signature pages thereof (each a “Purchaser”). 
Any information disclosed or incorporated herein under any section number of
this Schedule of Exceptions and any information disclosed in any documents
incorporated herein by reference shall be deemed to be disclosed only for
purposes of the sections to which it relates, unless a reasonable person would
determine that the disclosure contained in such section contains enough
information to qualify or otherwise apply to other representations and
warranties of the Company.  Section headings are provided for convenience only. 
Where any representation or warranty is limited or qualified by the materiality
of the matters to which the representation or warranty is given, the inclusion
of any matter in this Schedule of Exceptions does not constitute a determination
by the Company that such matter is material.  Unless otherwise defined, any
capitalized terms in this Schedule of Exceptions shall have the same meanings
assigned to such terms in the Agreements.  Nothing in this Schedule of
Exceptions constitutes an admission of any liability or obligation of the
Company to any third party, nor an admission against the Company’s interests.

 

4.3          Issuance, Sale and Delivery of the Shares.

 

                The Company has granted registration rights with respect to the
Company’s securities pursuant to the following agreements:

 

                1)  The Second Amended and Restated Investor Rights Agreement,
dated as of November 2, 1999, by and among the Company and certain stockholders
of the Company listed on the signature pages thereto; and

 

                2)  Each of two (2) Strategic Investment Agreements, each dated
as of September 17, 2000, as amended, between the Company and each of
Macrovision Corporation and Koninklijke Philips Electronics N.V.

 

                The Company will use commercially reasonable efforts to obtain
from the applicable stockholders waivers of their rights to require the Company
to register the sale of any shares owned by such stockholders under the
Securities Act in the Registration Statement.

 

--------------------------------------------------------------------------------

 

SCHEDULE REGARDING OMITTED DOCUMENTS PURSUANT TO ITEM 601(a) OF REGULATION S-K

 

Digimarc Corporation entered into a Purchase Agreement in the form set forth
above with each of the following purchasers in connection with each such
purchaser’s purchase of the following number of Units (as defined in the
Purchase Agreement) at the aggregate price set forth below:

 

Name and Address
of Investor

 

Number of
Units

 

Aggregate
Price

 

 

 

 

 

SF Capital Partners Ltd.
c/o Staro Asset Management,
L.L.C.
3600 South Lake Drive
St. Francis, WI  53235

 

100,000

 

$

1,400,000.00

 

 

 

 

 

Haff Partners LP
c/o Burnham Asset
Management Corporation
1325 Avenue of the Americas,
26th Floor
New York, NY  10019

 

  50,000

 

$

700,000.00

 

 

 

 

 

Harvey Gelfenbein
c/o Burnham Asset
Management Corporation
1325 Avenue of the Americas,
26th Floor
New York, NY  10019

 

  12,500

 

$

175,000.00

 

 

 

 

 

Irwin W. Silverberg
c/o Burnham Asset
Management Corporation
1325 Avenue of the Americas,
26th Floor
New York, NY  10019

 

  18,500

 

$

259,000.00

 

 

 

 

 

Suzanne Chase
c/o Burnham Asset
Management Corporation
1325 Avenue of the Americas,
26th Floor
New York, NY  10019

 

  4,000

 

$

56,000.00

 

 

 

 

 

John P. Rosenthal
c/o Burnham Asset
Management Corporation
1325 Avenue of the Americas,
26th Floor
New York, NY  10019

 

15,000

 

$

210,000.00

 

--------------------------------------------------------------------------------

 

Paisley Pacific Master Fund
Unit Trust
388 Market Street, Suite 1700
San Francisco, CA  94111

 

  30,000

 

$

420,000.00

 

 

 

 

 

The Paisley Fund, L.P.
388 Market Street, Suite 1700
San Francisco, CA  94111

 

  45,000

 

$

630,000.00

 

 

 

 

 

Portside Growth and
Opportunity Fund
c/o Ramius Capital Group,
LLC
666 Third Avenue, 26th Floor
New York, NY  10017

 

107,142

 

$

1,499,988.00

 

 

 

 

 

BayStar Capital Management
LLC
80 E. Sir Francis Drake Blvd.,
#2B
Larkspur, CA  94939

 

146,428

 

$

2,049,992.00

 

 

 

 

 

Gem Partners L.P.
153 E. 53rd Street, 48th Floor
New York, NY  10022

 

  85,714

 

$

1,199,996.00

 

 

 

 

 

UBS O’Connor LLC f/b/o
O’Connor Global Convertible
Arbitrage Master Limited
One North Wacker Drive,
32nd Floor
Chicago, IL  60606

 

  81,600

 

$

1,142,400.00

 

 

 

 

 

UBS O’Connor LLC f/b/o
Pipes Corporate Strategies
Ltd.
One North Wacker Drive,
32nd Floor
Chicago, IL  60606

 

  54,400

 

$

761,600.00

 

 

 

 

 

Crestview Capital Fund II,
L.P.
95 Revere Drive, Suite F
Northbrook, IL  60062

 

107,142

 

$

1,499,988.00

 

 

 

 

 

Goldman, Sachs & Co.
One New York Plaza
New York, NY  10004

 

714,285

 

$

9,999,990.00

 

 

 

 

 

Smithfield Fiduciary LLC
c/o Highbridge Capital
Management, LLC
9 West 57th Street, 27th Floor
New York, NY  10019

 

214,285

 

$

2,999,990.00

 

--------------------------------------------------------------------------------