EXHIBIT 10.1

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made effective as of July 16,
2001 (the “Effective Date”) at Tualatin, Oregon between DIGIMARC CORPORATION, a
Delaware corporation (“Digimarc”) with offices at 19801 SW 72ND Avenue,
Tualatin, OR 97062, and BRUCE DAVIS (“Executive”).

 

WITNESSETH:

 

WHEREAS, Executive is Chief Executive Officer of Digimarc; and

 

WHEREAS, Digimarc and Executive wish to memorialize the terms of Executive’s
employment in a written agreement.

 

NOW, THEREFORE, in consideration of the foregoing and in consideration of the
mutual promises and agreements contained herein, the parties hereto agree as
follows:

 

1.             PERIOD OF EMPLOYMENT.

 

Digimarc agrees to employ Executive, and Executive agrees to be so employed, on
the terms and conditions set forth herein for the period beginning on the
Effective Date and ending December 31, 2002, subject to automatic renewal or
early termination as set forth below.  This Agreement will automatically renew
for successive two-year periods unless terminated by written notice received at
least one year prior to any scheduled termination or expiration of this
Agreement.  “Term”, as used herein shall include the initial term and any such
renewals.

 

2.             DUTIES AND RESPONSIBILITIES.

 

a.             Position.  Executive will serve as Chief Executive Officer of
Digimarc in conformity with general management policies, guidelines and
directions issued by the Board of Directors of Digimarc (the “Board”), and shall
perform all services appropriate to that position as designated from time to
time by the Board.  Executive will report directly to the Board, and will have
general charge and supervision of those functions and such other
responsibilities as are customary for his position.  As long as Executive serves
as Chief Executive Officer, it is the intention of the Company that he will be
nominated to serve on the Board and, as of the date of the next annual meeting
of shareholders, will be nominated to serve as Chairman of the Board in addition
to continuing to serve as Chief Executive Officer.

 

b.             Duties.  Executive will work exclusively for Digimarc on a
full-time basis, devoting all of his time and attention during normal business
hours to Digimarc’s business.  Executive will perform his duties and
responsibilities hereunder diligently,

 

 

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faithfully and loyally in order to facilitate the proper, efficient and
successful operation of Digimarc’s business.

 

 

c.             Other Activity.  Except upon the prior approval of the Board,
Executive (during the Term) shall not (i) accept any other employment; or (ii)
engage, directly or indirectly, in any other business, commercial, or
professional activity (whether or not pursued for pecuniary advantage) that is
or may be competitive with Digimarc, that might create a conflict of interest
with Digimarc, or that otherwise might interfere with the business of Digimarc,
or any Affiliate.  An “Affiliate” shall mean any person or entity that directly
or indirectly controls, is controlled by, or is under common control with
Digimarc.  So that Digimarc may be aware of the extent of any other demands upon
Executive’s time and attention, Executive shall disclose in confidence to
Digimarc the nature and scope of any other business activity in which he is or
becomes engaged during the Term.

 

3.             COMPENSATION AND BENEFITS.

 

As compensation for Executive’s services, Executive will receive a cash salary
and bonus and participate in stock-based compensation plans, subject to the
terms and conditions set forth in this Agreement.

 

a.             Salary.  Executive will be paid a salary of not less than
$300,000 per year payable in such installments as are consistent with Digimarc’s
general payroll practices as they may be amended, by Digimarc in its sole
discretion, during the Term.  Digimarc will review Executive’s salary prior to
the end of each calendar year during the term of the Agreement and adjust the
salary as appropriate in light of Executive’s performance and data and
recommendations from a mutually agreeable compensation consultant regarding
compensation of similarly situated executives.  All compensation and comparable
payments to be paid to Executive under this Agreement shall be less withholdings
required by law.

 

b.             Performance Bonus.  Digimarc will pay a performance bonus to
Executive within forty five days of the end of each calendar quarter of up to
50% of Executive’s salary earned during the quarter, based on the Board’s
assessment of Executive’s performance against mutually agreed upon objectives,
which shall be made in the Board’s discretion without regard to any of
Digimarc’s bonus policies which may apply to other employees. Executive must be
employed with Digimarc on the last day of any applicable calendar quarter in
order to receive a bonus for that quarter.

 

c.             Stock options.  Digimarc will grant additional stock options to
Executive consistent with general market practices for similarly situated
executives as determined by periodic market surveys and analyses performed by a
mutually agreeable compensation consultant.  Such surveys will be conducted not
less than once per year.

 

d.             Vacation.  Executive will be entitled to four weeks vacation per
year.

 

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e.             Other Benefits. Digimarc will provide Executive with the same
health, disability, retirement and death and other fringe benefits as are
generally provided to other executives of the Company.  The amount and extent of
benefits to which Executive is entitled shall be governed by the specific
benefit plan, as it may be amended from time to time.  Digimarc reserves the
ability, in its sole discretion, to adjust Executive’s benefits provided under
this Agreement.

 

4.             TERMINATION.

 

a.             Executive’s employment will terminate automatically upon
Executive’s death.

 

b.             Digimarc may terminate Executive’s employment at any time, upon
thirty (30) days written notice to Executive, if Executive becomes permanently
disabled.  Digimarc will determine permanent disability in good faith according
to the same standards applicable to other executives of Digimarc.

 

c.             Digimarc may terminate Executive’s employment under this
Agreement at any time (i) immediately for “cause” (which will mean for any
action or inaction of Executive which is adverse to Digimarc’s interests,
including, without limitation, Executive’s dishonesty, grossly negligent
misconduct, willful misconduct, disloyalty, act of bad faith, neglect of duty or
material breach of this Agreement or of any Digimarc policy applicable to its
Executives generally), or (ii) without cause upon thirty (30) days written
notice to Executive.

 

d.             Executive may terminate his employment under this Agreement due
to “adverse change in conditions of employment” at any time upon thirty (30)
days prior written notice to Digimarc.  “Adverse change” shall include any of
the following changes, if done without Executive’s prior written consent: 
reduction in title or responsibilities, or mandatory relocation more than 35
miles from current place of employment.

 

e.             Executive may otherwise voluntarily terminate his employment at
any time upon thirty (30) days prior written notice to Digimarc.

 

5.             EFFECTS OF TERMINATION.

 

a.             If Executive’s employment is automatically terminated by reason
of Executive’s death or permanent disability or Executive voluntarily terminates
his employment (except for a termination under Section 4(d) above), all Digimarc
obligations under this Agreement will end except for payment of any Compensation
payable under Section 3 for services performed prior to termination and
reimbursement of properly authorized business expenses.

 

b.             If Digimarc terminates Executive for cause as defined in Section
4(c) above, all of Digimarc obligations under this Agreement will end except for
payment of any

 

 

 

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Compensation payable under Section 3 for services performed prior to termination
and reimbursement of properly authorized business expenses.

 

c.             If Digimarc terminates Executive without cause or Executive
terminates his employment under Section 4(d) above, all Digimarc obligations
under this Agreement will end, except that Executive’s stock options will
immediately and fully vest and Digimarc will continue to pay Salary and Bonus to
Executive and provide continued benefits (or if unavailable under the general
terms and provisions of the applicable plan, their equivalent) for Executive and
his dependents, for two years from the date of termination, provided, however,
that Digimarc shall have no obligation to make any such payments in the event
Executive breaches Sections 7 or 8 of this Agreement.  The annualized
compensation to be paid will be the sum of Executive’s Salary at the date of
termination plus any Bonus earned in the most recent fiscal year.  The
compensation will be paid according to Digimarc’s standard payroll schedules
from the date of termination, as if Davis had not been terminated.  At the end
of the second year after such a termination, all of Digimarc’s obligations under
this Agreement shall end.

 

6.             EXCISE TAXES

 

a.             In the event that any payment, benefit or distribution or
combination thereof (within the meaning of Section 280G(b)(2) of the Internal
Revenue Code of 1986, as amended (the “Code”)) to Executive or for Executive’s
benefit, paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise in connection with, or arising out of,
Executive’s employment with Digimarc (a “Payment” or “Payments”), would be
subject to the excise tax imposed by Code Section 4999, or any interest or
penalties are incurred by Executive with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter collectively
referred to as the “Excise Tax”), then Executive will be entitled to receive an
additional payment (a “Gross-Up Payment”) in an amount such that after payment
by Executive of all taxes (including any interest or penalties (other than
interest and penalties imposed by reason of Executive’s failure to file timely a
tax return or pay taxes shown due on Executive’s return) imposed with respect to
such taxes and the Excise Tax), including any Excise Tax imposed upon the
Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments.

b.             An initial determination as to whether a Gross-Up Payment is
required pursuant to this Agreement and the amount of such Gross-Up Payment
shall be made by Digimarc.  Digimarc shall provide its determination (the
“Determination”), together with detailed supporting calculations and
documentation, to Executive within fifteen (15) days of Executive’s termination
date, if applicable, or such other time as requested by Executive (provided
Executive reasonably believes that any of the Payments may be subject to the
Excise Tax).  If requested by Executive, Digimarc shall furnish Executive, at
Digimarc’s expense, with an opinion reasonably acceptable to Executive from
Digimarc’s accounting firm (or an accounting firm of equivalent stature
reasonably acceptable to Executive) that there is a reasonable basis for the
Determination.  Any Gross-Up Payment determined

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pursuant to this Section 6(b) shall be paid by Digimarc to Executive within five
(5) days of receipt of the Determination.

c.             As a result of the uncertainty in the application of
Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a
portion thereof) will be paid which should not have been paid (an “Excess
Payment”) or a Gross-Up Payment (or a portion thereof) which should have been
paid will not have been paid (an “Underpayment”).

                1.             An Underpayment shall be deemed to have occurred
(i) upon notice (formal or informal) to Executive from any governmental taxing
authority that Executive’s tax liability (whether in respect of Executive’s
current taxable year or in respect of any prior taxable year) may be increased
by reason of the imposition of the Excise Tax on a Payment or Payments with
respect to which Digimarc has failed to make a sufficient Gross-Up Payment,
(ii) upon a determination by a court, or (iii) by reason of determination by
Digimarc (which shall include the position taken by Digimarc, together with its
consolidated group, on its federal income tax return).  If an Underpayment
occurs, Executive shall notify Digimarc in writing of any claim by any
government taxing authority that, if successful, would require the payment by
Digimarc of any Gross-Up Payment or additional Gross-Up Payment.  Such
notification shall be given as soon as practicable but no later than ten (10)
business days after Executive is informed in writing of such claim and shall
apprise Digimarc of the nature of such claim and the date on which such claim is
requested to be paid.  Executive shall not pay such claim prior to the
expiration of the thirty (30) day period following the date on which it gives
such notice to Digimarc (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due).  If Digimarc notifies
Executive in writing prior to the expiration of such period that it desires to
contest such claim, Executive shall (i) give Digimarc any information reasonably
requested by Digimarc relating to such claim, (ii) take such action in
connection with contesting such claim as Digimarc shall reasonably request in
writing from time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably selected by
Digimarc, (iii) cooperate with Digimarc in good faith in order to effectively
contest such claim and (iv) permit Digimarc to participate in any proceedings
relating to such claim; provided, however, that Digimarc shall bear and pay
directly all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses (other than interest and
penalties imposed by reason of Executive’s failure to file timely a tax return
or pay taxes shown due on Executive’s return).  Without limitation on the
foregoing provisions of this Section 6, Digimarc shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at its sole option,
either direct Executive to pay the tax claimed and sue for a refund or contest
the claim in any permissible manner, and Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as Digimarc shall
determine; provided,

 

 

 

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further, that if Digimarc directs Executive to pay such claim and sue for a
refund, Digimarc shall advance the amount of such payment to Executive, on an
interest-free basis, and shall indemnify and hold Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; provided, further,
that if Executive is required to extend the statute of limitations to enable
Digimarc to contest such claim, Executive may limit this extension solely to
such contested amount.  Digimarc’s control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the applicable governmental taxing authority.

 

                2.             An Excess Payment shall be deemed to have
occurred upon a Final Determination (as hereinafter defined) that the Excise Tax
shall not be imposed upon a Payment or Payments (or portion thereof) with
respect to which Executive had previously received a Gross-Up Payment.  A “Final
Determination” shall be deemed to have occurred when Executive has received from
the applicable government taxing authority a refund of taxes or other reduction
in Executive’s tax liability by reason of the Excess Payment and upon either
(i) the date a determination is made by, or an agreement is entered into with,
the applicable governmental taxing authority which finally and conclusively
binds Executive and such taxing authority, or in the event that a claim is
brought before a court of competent jurisdiction, the date upon which a final
determination has been made by such court and either all appeals have been taken
and finally resolved or the time for all appeals has expired or (ii) the statute
of limitations with respect to Executive’s applicable tax return has expired. 
If an Excess Payment is determined to have been made, the amount of the Excess
Payment shall be treated as a loan by Digimarc to Executive, which loan
Executive must repay to Digimarc together with interest at the applicable
federal rate under Code Section 7872(f)(2); provided, that no loan shall be
deemed to have been made and no amount will be payable by Executive to Digimarc
unless, and only to the extent that, the deemed loan and payment would either
reduce the amount on which Executive is subject to tax under Code Section 4999
or generate a refund of tax imposed under Code Section 4999.

d.             Notwithstanding anything contained in this Agreement to the
contrary, in the event that, according to the Determination, an Excise Tax will
be imposed on any Payment or Payments, Digimarc shall pay to the applicable
government taxing authorities, as Excise Tax withholding, the amount of the
Excise Tax that Digimarc has actually withheld from the Payment or Payments.

7.             TERMINATION OBLIGATIONS.

 

a.             Executive agrees that all property, including, without
limitation, all equipment, tangible Proprietary Information (as defined below),
documents, books, records, reports, notes, contracts, lists, computer disks (and
other computer-generated files and data), and copies thereof, created on any
medium and furnished to, obtained by, or prepared by

 

 

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Executive in the course of or incident to his employment, belongs to Digimarc
and shall be returned promptly to Digimarc upon termination of the Term.

 

b.             All benefits to which Executive is otherwise entitled shall cease
upon Executive’s termination, unless explicitly continued either under this
Agreement or under any specific written policy or benefit plan of Digimarc.

 

c.             Upon termination of the Term, Executive shall be deemed to have
resigned from all offices and directorships then held with Digimarc or any
Affiliate.

 

d.             The representations and warranties contained in this Agreement
and Executive’s obligations under this Section 7 on Termination Obligations and
Section 8 on Proprietary Information shall survive the termination of the Term
and the expiration of this Agreement.

 

e.             Following any termination of the Term, Executive shall fully
cooperate with Digimarc in all matters relating to the winding up of pending
work on behalf of Digimarc and the orderly transfer of work to other executives
of Digimarc.  Executive shall also cooperate in the defense of any action
brought by any third party against Digimarc that relates in any way to
Executive’s acts or omissions while employed by Digimarc.

 

f.              Prior to beginning any employment within two years (2) year
following any termination of the Term, Executive shall first provide Digimarc
with the name and address of his prospective employer so that Digimarc may
provide the new employer with a copy of this Agreement.

 

 

8.             PROPRIETARY INFORMATION AND COVENANT NOT TO

                COMPETE.

 

a.             Defined.  “Proprietary Information” is all information and any
idea in whatever form, tangible or intangible, pertaining in any manner to the
business of Digimarc, or any Affiliate, or its employees, clients, consultants,
or business associates, which was produced by any employee of Digimarc in the
course of his or her employment or otherwise produced or acquired by or on
behalf of Digimarc.  All Proprietary Information not generally known outside of
Digimarc’s organization, and all Proprietary Information so known only through
improper means, shall be deemed “Confidential Information.”  Without limiting
the foregoing definition, Proprietary and Confidential Information shall
include, but not be limited to:  (i) formulas, teaching and development
techniques, processes, trade secrets, computer programs, electronic codes,
inventions, improvements, and research projects;  (ii) information about costs,
profits, markets, sales, and lists of customers or clients;  (iii) business,
marketing, and strategic plans; and (iv) employee personnel files and
compensation information.  Executive should consult any Digimarc procedures
instituted to identify and protect certain types of Confidential Information,
which are considered by Digimarc to be safeguards in addition to the protection
provided

 

 

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by this Agreement.  Nothing contained in those procedures or in this Agreement
is intended to limit the effect of the other.

 

b.             General Restrictions on Use.  During the Term, Executive shall
use Proprietary Information, and shall disclose Confidential Information, only
for the benefit of Digimarc and as is necessary to carry out his
responsibilities under this Agreement.  Following termination, Executive shall
neither, directly or indirectly, use any Proprietary Information nor disclose
any Confidential Information, except as expressly and specifically authorized in
writing by Digimarc.  The publication of any Proprietary Information through
literature or speeches must be approved in advance in writing by Digimarc.

 

c.             Location and Reproduction.  Executive shall maintain at his work
station and/or any other place under his control only such Confidential
Information as he has a current “need to know.”  Executive shall return to the
appropriate person or location or otherwise properly dispose of Confidential
Information once that need to know no longer exists.  Executive shall not make
copies of or otherwise reproduce Confidential Information unless there is a
legitimate business need for reproduction.

 

d.             Prior Actions and Knowledge.  Executive represents and warrants
that from the time of his first contact with Digimarc, he has held in strict
confidence all Confidential Information and has not disclosed any Confidential
Information, directly or indirectly, to anyone outside of Digimarc, or used,
copied, published, or summarized any Confidential Information, except to the
extent otherwise permitted in this Agreement.

 

e.             Third-Party Information.  Executive acknowledges that Digimarc
has received and in the future will receive from third parties their
confidential information subject to a duty on Digimarc’s part to maintain the
confidentiality of this information and to use it only for certain limited
purposes.  Executive agrees that he owes Digimarc and these third parties,
during the Term and thereafter, a duty to hold all such confidential information
in the strictest confidence and not to disclose or use it, except as necessary
to perform his obligations hereunder and as is consistent with Digimarc’s
agreement with third parties.

 

f.              No Competition.  In the interest of preventing the use or
disclosure of Confidential Information in breach of the preceding subsections
and in consideration for Digimarc agreeing to make the post-termination payments
to Executive described in Section 5(c),  Executive shall not, during his term of
employment or for two (2) years following the termination of that employment,
for any reason, perform work for any of Digimarc’s business competitors whether
as an employee or as a consultant, and shall not serve as a director, partner,
agent or shareholder of such competitor (except that Executive may hold less
than 5% of the outstanding stock of any public company for investment
purposes).  Additionally, Executive agrees that for a period of two (2) years
after termination of the Term, he shall not, directly or indirectly, (i) divert
or attempt to divert from Digimarc (or any Affiliate) any business of any kind
in which it is engaged; or (ii) employ or recommend for employment any person
employed by Digimarc (or any

 

 

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Affiliate), unless Executive can prove that any action taken in contravention of
this subsection was done without the use in any way of Confidential
Information.  The parties to this Agreement hereby acknowledge and agree that
this Agreement is a memorialization of Executive’s promotion and intended
further promotion to Chairman of the Board, and that the agreements contained in
this Section 8 are part of the consideration for such advancement in position.

 

g.             Interference with Business.  In order to avoid disruption of
Digimarc’s business, Executive agrees that for a period of two (2) years after
termination of the Term, he shall not, directly or indirectly, (i) solicit any
customer of Digimarc (or any Affiliate) known to Executive during the Term to
have been a customer; or (ii) solicit for employment any person employed by
Digimarc (or any Affiliate).

 

9.             NOTICES.

 

Any notice to be given hereunder by Digimarc to Executive will be deemed to be
given if delivered to Executive in person, or if mailed to Executive, by
certified mail, postage prepaid, return receipt requested, at his address last
shown on the records of Digimarc.  Any notice to be given by Executive to
Digimarc will be deemed to be given if delivered in person or by mail, postage
prepaid, return receipt requested to the Chief Financial Officer at Digimarc’s
principal executive office, unless Executive or Digimarc will have duly notified
the other party in writing of a change of address. If mailed, notice will be
deemed to have been given when deposited in the mail as set forth above.

 

10.          AMENDMENTS.

 

This Agreement will not be modified or discharged, in whole or in part, except
by an agreement in writing signed by an executive officer of Digimarc other than
Executive on the one hand, and Executive on the other hand.

 

11.          ENTIRE AGREEMENT.

 

This Agreement, together with any and all other written agreement(s) made
contemporaneously herewith and applicable options and benefits plans of the
company, constitute the entire agreement between the parties with respect to
Executive’s employment by Digimarc from and after the Effective Date. The
parties are not relying on any other representation or understanding with
respect thereto, express or implied, oral or written. This Agreement, as
supplemented by such contemporaneous agreement(s), supersedes any prior
employment agreement, written or oral, of Digimarc with respect to Executive.

 

12.          CAPTIONS.

 

The captions contained in this Agreement are for convenience of reference only
and do not affect the meaning of any terms or provisions hereof.

 

 

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13.          BINDING EFFECT.

 

The rights and obligations of Digimarc hereunder will inure to the benefit of,
and will be binding upon, Digimarc and its respective successors and assigns,
and the rights and obligations of Executive hereunder will inure to the benefit
of, and will be binding upon, Executive and his heirs, personal representatives
and estate.

 

14.          SEVERABLE PROVISIONS.

 

If any provision of this Agreement, or its application to any person, place, or
circumstance, is held by an arbitrator or a court of competent jurisdiction to
be invalid, unenforceable, or void, such provision shall be enforced to the
greatest extent permitted by law, and the remainder of this Agreement and such
provision as applied to other persons, places, and circumstances shall remain in
full force and effect.

 

15.          GOVERNING LAW.

 

This Agreement will be interpreted, construed, and enforced in all respects in
accordance with the laws of the State of Oregon.

 

16.          INTERPRETATION.

 

This Agreement shall be construed as a whole, according to its fair meaning, and
not in favor of or against any party.  By way of example and not in limitation,
this Agreement shall not be construed in favor of the party receiving a benefit
nor against the party responsible for any particular language in this
Agreement.  Captions are used for reference purposes only and should be ignored
in the interpretation of the Agreement.

 

17.          EMPLOYEE ACKNOWLEDGEMENT.

 

Executive acknowledges that he has had the opportunity to consult legal counsel
in regard to this Agreement, that he has read and understands this Agreement,
that he is fully aware of its legal effect, and that he has entered into it
freely and voluntarily and based on his own judgment and not on any
representations or promises other than those contained in this Agreement.

 

[SIGNATURE PAGE FOLLOWS]

 

 

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     IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the

Effective Date.

 

 

 

 

DIGIMARC CORPORATION

 

EXECUTIVE

 

 

 

 

 

 

 

 

 

 

BY:

 

/s/ PHILIP MONEGO

 

/s/ BRUCE DAVIS

 

 

PHILIP MONEGO

 

BRUCE DAVIS

 

 

CHAIRMAN

 

 

 

 

 

 

 

 

 

 

 

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