**Summary of Key Terms of Non-Employee Director CompensationArrangements**

Directors who are also employees of Digimarc receiveno additional compensation for their services as directors. Directors who arenot employees of Digimarc receive cash compensation and equity compensation asdescribed below. All directors are also reimbursed for reasonable and necessarytravel, communications, and other out-of-pocket business expenses incurred inconnection with their attendance at meetings, while on corporate business orfor continuing education related to their board service.
| Annual Cash Retainer                                 |   | $30,000                                                   |   |
|------------------------------------------------------|--------|-----------------------------------------------------------|--------|
|                                                 |   |                                                      |   |
| Additional Annual Cash  Retainers for:               |   |                                                      |   |
|                                                 |   |                                                      |   |
| Lead Director                                        |   | $30,000                                                   |   |
|                                                 |   |                                                      |   |
| Audit Committee Chair                                |   | $20,000                                                   |   |
|                                                 |   |                                                      |   |
| Audit Committee  Member                              |   | $10,000                                                   |   |
|                                                 |   |                                                      |   |
| Compensation  Committee Chair                        |   | $10,000                                                   |   |
|                                                 |   |                                                      |   |
| Compensation  Committee Member                       |   | $5,000                                                    |   |
|                                                 |   |                                                      |   |
| Other Standing  Committee Chair                      |   | $7,500                                                    |   |
|                                                 |   |                                                      |   |
| Other Standing  Committee Member                     |   | $3,750                                                    |   |
|                                                 |   |                                                      |   |
| Additional fee for  excess meetings *                |   | $1,000 for in-person attendance/  $500 for teleconference |   |
|                                                 |   |                                                      |   |
| Initial Option Grant                                 |   | 20,000  shares                                            |   |
|                                                 |   |                                                      |   |
| Annual Option Grant  (Continuing Director)           |   | 6,000  shares                                             |   |
|                                                 |   |                                                      |   |
| Annual restricted Stock  Grant (Continuing Director) |   | 3,000  shares                                             |   |
|                                                 |   |                                                      |   |
| Annual Standing Committee Member Option Grant **     |   | 3,000 shares                                              |   |

 

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*    In excess of eight meetings per year.

**  In 2006 the Board elected not to grant theseawards.

Alloptions are granted with an exercise price equal to the fair market value ofour stock on the grant date. Initial option grants vest and become exercisablein 36 equal installments on each monthly anniversary of the grant date, suchthat the stock option will be fully exercisable three years after the grantdate.  Annual option grants to continuingdirectors, including annual option grants to standing committee members, aremade immediately following each annual meeting of shareholders and vest andbecome exercisable in twelve equal installments on each monthly anniversary ofthe grant date, such that the stock option will be fully exercisable one yearafter the grant date.

Therestricted stock awards are subject to a forfeiture restriction that lapses asto 100% of the shares subject to the award one year after the grant date.

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The Board of Directors has discretion to elect not tomake the annual option and restricted stock grants to continuing directors andstanding committee members.  In 2006, theBoard elected not to make the annual 3,000 share grant to directors for serviceon one or more committees.

 

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