Under the terms of the definitive agreement, Digimarc stockholders will receive approximately 50 percent of the purchase consideration in shares of L-1 stock and 50 percent in cash. Digimarc stockholders will also receive shares in a new company bearing the Digimarc name and holding Digimarc's digital watermarking business. The cash consideration is approximately USD 120 million. The number of L-1 shares to be issued will be based on the average price of the stock over the 20 consecutive trading days ending five days prior to closing of the transaction, and will be fixed at approximately 10.3 million shares if the average trading price of L-1's stock is between USD 11 and USD 14. If the price of L-1 shares exceeds USD 14 per share, the number of shares to be issued will be reduced. Under the definitive agreement, the maximum number of L-1 shares that can be issued is 11.3 million. L-1 has agreed to invest USD 5 million in new Digimarc.

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

Following the closing of the transaction, on a pro forma calendar 2008 basis, L-1 is expected to have revenues of approximately USD 670 million, adjusted EBITDA of USD 110 million including operational efficiencies, unlevered free cash flow of USD 75 million and a backlog of approximately USD 1 billion. In addition, L-1 expects to recognize synergies and additional operating efficiencies once the businesses are combined. The transaction is expected to be accretive to L-1 earnings.

"L-1 has state-of-the-art biometric recognition and authentication capabilities that are integral to making our credential production process for national and international customers more secure and complete," said Bruce Davis, CEO and chairman of the board of Digimarc. "Furthermore, our combined knowledge in international markets will enable us to reach more potential customers with an expanded portfolio of innovative credentialing solutions, including national ID cards. The combination of the two will also help speed adoption globally by introducing a more streamlined and cost effective process into the international marketplace."

L-1 believes that the combination of L-1 and Digimarc's Secure ID business will bring significant synergies and benefits to the identity management industry. The increased industry knowledge and cross-border relationships will help secure identities across the globe in emerging markets such as Russia and Asia-Pacific, as well as with Canadian and Mexican biometric credentialing programs. Leveraged synergies between the businesses will reduce the cost structures of both organizations to drive greater operational efficiency and shareholder value. These benefits also will be passed directly to the customer for improved customer service from the combined call center and field service teams, bolstered competency of the entire organization from acquired back office systems and processes, and valuable savings with more competitive pricing from economies of scale.

The transaction is expected to close in the second half of 2008 and is subject to customary regulatory approvals and other closing conditions, including approval by Digimarc stockholders at the stockholder meeting and the spin-off of the digital watermarking business. The company may also consider a stock buyback depending upon market conditions and subject to compliance with applicable law.