Exhibit 2.1

EXECUTION VERSION

AGREEMENT AND PLAN OF MERGER

Dated as of March 23, 2008

by and among

L-1 IDENTITY SOLUTIONS, INC

DOLOMITE ACQUISITION CO.

and

DIGIMARC CORPORATION

TABLE OF CONTENTS

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EXHIBITS

SCHEDULES

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AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER, dated as of March 23, 2008 (this “Agreement”), is by and among L-1 IDENTITY SOLUTIONS, INC., a Delaware corporation (“Parent”), DOLOMITE ACQUISITION CO., a Delaware corporation and a direct, wholly owned Subsidiary of Parent (“Merger Sub”), and DIGIMARC CORPORATION, a Delaware corporation (the “Company”).  Certain terms used in this Agreement are used as defined in Section 8.11.

WHEREAS, the parties intend that Merger Sub be merged with and into the Company, with the Company surviving the merger on the terms and subject to the conditions set forth in this Agreement (the “Merger”);

WHEREAS, the board of directors of the Company has (a) determined that it is in the best interests of the Company and its stockholders, and declared it advisable, to enter into this Agreement, (b) approved the execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby, including the Merger, and (c) resolved to recommend adoption of this Agreement by the stockholders of the Company;

WHEREAS, the boards of directors of Parent and Merger Sub have approved this Agreement and declared it advisable for Parent and Merger Sub, respectively, to enter into this Agreement;

WHEREAS, simultaneously with the execution and delivery of this Agreement and as a condition and inducement to the willingness of Parent and Merger Sub to enter into this Agreement, Parent and certain stockholders of the Company are entering into a support agreement substantially in the form attached hereto as Exhibit A (the “Support Agreement”), pursuant to which, among other things, such stockholders have agreed to vote to adopt this Agreement and to take certain other actions in furtherance of the Merger, in each case, upon the terms and subject to the conditions set forth therein; and

WHEREAS, in connection with the Merger, prior to the Closing, the Company shall (a) contribute certain assets relating to the Company’s Digital Watermarking Business to a newly formed subsidiary (“Newco”) and (b) effect a distribution of 100% of the common stock of Newco to the Company’s stockholders in accordance with the conditions of this Agreement and the Separation Agreement.

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement, and intending to be legally bound hereby, Parent, Merger Sub and the Company hereby agree as follows:

ARTICLE I

THE MERGER

SECTION 1.1               The Merger.  Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the General Corporation Law of the State of Delaware (the “DGCL”), at the Effective Time Merger Sub shall be merged with and into the

Company, and the separate corporate existence of Merger Sub shall thereupon cease, and the Company shall be the surviving corporation in the Merger (the “Surviving Corporation”).

SECTION 1.2               Closing.  The closing of the Merger (the “Closing”) shall take place at 9:00 a.m. (Pacific time), on a date to be specified by the parties (the “Closing Date”), which date shall be no later than the second Business Day after satisfaction or waiver of the conditions set forth in Article VI (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions at such time), at the offices of Weil, Gotshal & Manges LLP, 201 Redwood Shores Parkway, Redwood Shores, California 94065, unless another time, date or place is agreed to in writing by the parties hereto.

SECTION 1.3               Effective Time.  Subject to the provisions of this Agreement, as soon as practicable on the Closing Date the parties shall file with the Secretary of State of the State of Delaware a certificate of merger, executed in accordance with the relevant provisions of the DGCL (the “Certificate of Merger”).  The Merger shall become effective upon the filing of the Certificate of Merger or at such later time as is agreed to by the parties hereto and specified in the Certificate of Merger (the time at which the Merger becomes effective is herein referred to as the “Effective Time”).

SECTION 1.4               Effects of the Merger.  The Merger shall have the effects set forth in the DGCL.  Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the properties, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

SECTION 1.5               Certificate of Incorporation and Bylaws of the Surviving Corporation.

(a)           At the Effective Time, the Company shall cause its certificate of incorporation to be amended, as of the Effective Time, to read in its entirety as set forth in Exhibit B-1 attached hereto and, as so amended, such certificate of incorporation shall be the certificate of incorporation of the Surviving Corporation until thereafter amended as provided therein or by applicable Law.

(b)           At the Effective Time, the Company shall cause its bylaws to be amended, as of the Effective Time, to read in their entirety as set forth in Exhibit B-2 attached hereto and, as so amended, such bylaws shall be the bylaws of the Surviving Corporation until thereafter amended as provided therein or by applicable Law.

SECTION 1.6               Directors and Officers of the Surviving Corporation.

(a)           The directors of Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation immediately following the Effective Time, until their respective successors are duly elected or appointed and qualified or their earlier death, resignation or removal in accordance with the certificate of incorporation and bylaws of the Surviving Corporation.

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(f)            No Fractional Shares.  No certificates or scrip representing fractional shares of Parent Common Stock shall be issued upon the surrender for exchange of Certificates, no dividends or other distributions of Parent shall relate to such fractional share interests and such fractional share interests will not entitle the owner thereof to vote or to any rights of a stockholder of Parent.  In lieu of such fractional share interests, Parent shall pay to each holder of a Certificate (upon surrender thereof as provided in this Article II) an amount in cash equal to the product obtained by multiplying (i) the fractional share interest to which such holder (after taking into account all shares of Company Common Stock held at the Effective Time by such holder) would otherwise be entitled by (ii) the per share closing price of Parent Common Stock on the NYSE as of the Closing Date.

(g)           Lost, Stolen or Destroyed Certificates.  If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by Parent, the posting by such Person of a bond, in such reasonable amount as Parent may direct, as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue, in exchange for such lost, stolen or destroyed Certificate, the Merger Consideration, any dividends or other distributions to which the holder of such Certificate would be entitled and cash in lieu of any fractional shares of Parent Common Stock to which such holder would be entitled pursuant to Section 2.2(f), in each case pursuant to this Agreement.

(h)           Termination of Fund.  Any portion of the Exchange Fund that remains undistributed to the holders of the Certificates for one hundred eighty (180) days after the Effective Time shall be delivered to Parent, upon demand, and any holders of Certificates who have not theretofore complied with this Article II shall thereafter look only to Parent for payment of their claim for the Merger Consideration, any dividends or other distributions with respect to shares of Parent Common Stock and cash in lieu of any fractional shares of Parent Common Stock in accordance with this Article II.  If any Certificate shall not have been surrendered immediately prior to such date on which any Merger Consideration (and all dividends or other distributions payable with respect to such shares and all cash payable in lieu of fractional shares pursuant to Section 2.2(f)) would otherwise escheat to or become property of any Governmental Authority, any such Merger Consideration (and all dividends or other distributions payable with respect to such shares and all cash payable in lieu of fractional shares pursuant to Section 2.2(f)) shall become, to the extent permitted by applicable Law, the property of Parent, free and clear of all claims or interest of any Person previously entitled thereto.

(i)            No Liability.  Notwithstanding any provision of this Agreement to the contrary, none of the parties hereto, the Surviving Corporation or the Exchange Agent shall be liable to any Person in respect of any shares of Parent Common Stock (or dividends or other distributions with respect thereto) or cash in lieu of any fractional shares of Parent Common Stock or cash from the Exchange Fund, in each case delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law.

(j)            Withholding Taxes.  Parent and the Exchange Agent shall be entitled to deduct and withhold from the consideration otherwise payable to a holder of shares of Company Common Stock pursuant to this Agreement such amounts as may be required to be deducted and withheld with respect to the making of such payment under the Code, or under any provision of

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(f)            Prior to the Spin-Off, the board of directors of the Company (or, if appropriate, any committee of the board of directors of the Company administering the Company Stock Option Plans) shall adopt such resolutions or take such other actions as may be required to effect the provisions of this Section 2.3.

SECTION 2.4                 Appraisal Rights.

(a)           Notwithstanding anything in this Agreement to the contrary, shares of Company Common Stock that are issued and outstanding immediately prior to the Effective Time and which are held by a stockholder who did not vote in favor of the Merger (or consent thereto in writing) and who is entitled to demand and properly demands appraisal of such shares pursuant to, and who complies in all respects with, the provisions of Section 262 of the DGCL (the “Dissenting Stockholders”) shall not be converted into or be exchangeable for the right to receive the Merger Consideration (the “Dissenting Shares”), but instead such holder shall be entitled to payment of the appraised value of such shares of Company Common Stock as may be determined to be due to such Dissenting Stockholder pursuant to Section 262 of the DGCL (and at the Effective Time, such Dissenting Shares shall no longer be outstanding and shall automatically be cancelled and cease to exist, and such Dissenting Stockholder shall cease to have any rights with respect thereto, except the right to receive the appraised value of such Dissenting Shares in accordance with the provisions of Section 262 of the DGCL), unless and until such holder shall have failed to perfect or shall have effectively withdrawn or lost rights to appraisal under the DGCL.  The Proxy Statement shall include a notice complying with the provisions of Section 262 of the DGCL concerning the rights of stockholders to exercise appraisal rights and a copy of the provisions of Section 262 of the DGCL.

(b)           Notwithstanding the foregoing, if any Dissenting Stockholder shall have failed to perfect or shall have effectively withdrawn or lost such right to seek payment of the appraised value of such Dissenting Shares, such Dissenting Stockholder’s shares of Company Common Stock shall thereupon be treated as if they had been converted into and become exchangeable for the right to receive, as of the Effective Time, the Merger Consideration, in accordance with Section 2.1(c), without any interest thereon.  Parent shall promptly deposit with the Exchange Agent any additional funds necessary to pay in full the Merger Consideration so due and payable to such Dissenting Stockholders who have failed to perfect or who shall have effectively withdrawn or lost such right to seek payment of the appraisal value of such Dissenting Shares.

(c)           The Company shall provide Parent (i) prompt notice of any written demands for appraisal of any shares of Company Common Stock, attempted withdrawals of such demands and any other instruments served pursuant to the DGCL and received by the Company and (ii) the opportunity to direct all negotiations and proceedings with respect to the exercise of appraisal rights under the DGCL.  The Company shall not, except with the prior written consent of Parent or as otherwise required by applicable Law, make any payment with respect to any such exercise of appraisal rights or offer to settle or settle any such rights.

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representatives correct and complete copies of the minutes (or, in the case of minutes that have not yet been finalized, drafts thereof) of all meetings of stockholders, the board of directors and each standing committee of the board of directors of the Company and each of its Subsidiaries held since December 31, 2005.

SECTION 3.2                 Capitalization.

(a)           The authorized capital stock of the Company consists of 100,000,000 shares of Company Common Stock and 5,000,000 shares of preferred stock, par value $.001 per share (“Company Preferred Stock”), of which 300,000 shares have been designated Series A Company Preferred Stock, which are issuable upon exercise of the purchase rights (the “Company Rights”) pursuant to the Company Rights Agreement.  At the close of business on March 21, 2008, (i) 22,177,235 shares of Company Common Stock were issued and outstanding, (ii) no shares of Company Common Stock were held by the Company in its treasury, (iii) 15,888,765 shares of Company Common Stock were reserved for issuance under the Company Stock Option Plans (of which 6,874,670 shares of Company Common Stock were subject to outstanding Company Stock Options granted under the Company Stock Option Plans), (iv) no shares of Company Preferred Stock were issued or outstanding and (v) 1,928,535 shares of Company Common Stock were reserved for issuance under the Company Purchase Plan.  All outstanding shares of Company Common Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights.  Included in Section 3.2(a) of the Company Disclosure Schedule are correct and complete lists, as of March 21, 2008, of (A) all outstanding options or other rights to purchase or receive shares of Company Common Stock granted under the Company Stock Option Plans or otherwise, and, for each such option or other right, the number of shares of Company Common Stock subject thereto, the terms of vesting, the grant and expiration dates and exercise price thereof and the name of the holder thereof and (B) all outstanding shares of Company Restricted Stock and, for each such share of Company Restricted Stock, the terms of vesting, the grant or purchase dates, the repurchase price thereof and the name of the holder thereof.  All Company Stock Options have an exercise price equal to no less than the fair market value of the underlying shares of Company Common Stock on the date of grant.  Since March 21, 2008, the Company has not issued any shares of its capital stock, voting securities or equity interests, or any securities convertible into or exchangeable or exercisable for any shares of its capital stock, voting securities or equity interests, other than pursuant to the outstanding Company Stock Options referred to above in this Section 3.2(a).  Except as set forth above in this Section 3.2(a), and except as permitted by Section 5.2(b)(i)(A)(2), as of the date of this Agreement there are not, and as of the Effective Time there will not be, any shares of capital stock, voting securities or equity interests of the Company issued and outstanding or any subscriptions, options, warrants, calls, convertible or exchangeable securities, rights, commitments or agreements of any character providing for the issuance of any shares of capital stock, voting securities or equity interests of the Company, including any representing the right to purchase or otherwise receive any Company Common Stock.

(b)           None of the Company or any of its Subsidiaries has issued or is bound by any outstanding subscriptions, options, warrants, calls, convertible or exchangeable securities, rights, commitments or agreements of any character providing for the issuance or disposition of any shares of capital stock, voting securities or equity interests of any Subsidiary of the Company.  Except for shares of Company Restricted Stock, there are no outstanding obligations

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of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock, voting securities or equity interests (or any options, warrants or other rights to acquire any shares of capital stock, voting securities or equity interests) of the Company or any of its Subsidiaries.

SECTION 3.3                 Authority; Noncontravention; Voting Requirements.

(a)           The Company has all necessary corporate power and authority to execute and deliver this Agreement and, subject to obtaining the Company Stockholder Approval, to perform its obligations hereunder and to consummate the Transactions.  The execution, delivery and performance by the Company of this Agreement, and the consummation by it of the Transactions, have been duly authorized and approved by its board of directors, and except for obtaining the Company Stockholder Approval, no other corporate action on the part of the Company is necessary to authorize the execution, delivery and performance by the Company of this Agreement and the consummation by it of the Transactions.  This Agreement has been duly executed and delivered by the Company and, assuming due authorization, execution and delivery hereof by the other parties hereto, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except that such enforceability (i) may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar Laws of general application affecting or relating to the enforcement of creditors’ rights generally and (ii) is subject to general principles of equity, whether considered in a proceeding at Law or in equity (the “Bankruptcy and Equity Exception”).

(b)           The Company’s board of directors, at a meeting duly called and held, has unanimously (i) approved and declared advisable this Agreement and the Transactions, including the Merger, and (ii) resolved to recommend that the stockholders of the Company adopt this Agreement.

(c)           Neither the execution and delivery of this Agreement by the Company nor the consummation by the Company of the Transactions, nor compliance by the Company with any of the terms or provisions hereof, will (i) conflict with or violate any provision of the Company Charter Documents or any of the Subsidiary Documents or (ii) assuming that the authorizations, consents and approvals referred to in Section 3.4 and the Company Stockholder Approval are obtained and the filings referred to in Section 3.4 are made, (A) violate any applicable Law, judgment, writ or injunction of any Governmental Authority applicable to the Company or any of its Subsidiaries or any of their respective properties or assets or (B) violate, conflict with, result in the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of the Company or any of its Subsidiaries under, any of the terms, conditions or provisions of any written or oral loan or credit agreement, debenture, note, bond, mortgage, indenture, deed of trust, license, lease, contract or other agreement, instrument or obligation (each, a “Contract”) or Permit to which the Company or any of its Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected, except, in the case of clause (B), (1) solely with respect to state Laws applicable to Government Contracts, to the Knowledge of the Company, or (2) for such

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violations, conflicts, losses, defaults, terminations, cancellations, accelerations or Liens as, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect.

(d)           The affirmative vote (in person or by proxy) of the holders of a majority of the outstanding shares of Company Common Stock at the Company Stockholders Meeting or any adjournment or postponement thereof in favor of the adoption of this Agreement (the “Company Stockholder Approval”) is the only vote or approval of the holders of any class or series of capital stock of the Company or any of its Subsidiaries which is necessary to adopt this Agreement and approve the Transactions.

SECTION 3.4                 Governmental Approvals.  Except for (a) the filing with the SEC of a proxy statement relating to the Company Stockholders Meeting (as amended or supplemented from time to time, the “Proxy Statement”), and other filings required under, and compliance with other applicable requirements of, the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “Exchange Act”), and the rules of the Nasdaq Stock Market, (b) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware pursuant to the DGCL, (c) filings required under, and compliance with other applicable requirements of, the HSR Act and (d) filings required under, and compliance with other applicable requirements of, non-U.S. Laws intended to prohibit, restrict or regulate actions or transactions having the purpose or effect of monopolization, restraint of trade, harm to competition or effectuating foreign investment (collectively, “Foreign Antitrust Laws”), no consents or approvals of, or filings, declarations or registrations with, any Governmental Authority are necessary for the execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the Transactions, other than such other consents, approvals, filings, declarations or registrations that, if not obtained, made or given, would not, individually or in the aggregate, reasonably be expected to impair in any material respect the ability of the Company to perform its obligations hereunder, or prevent or materially impede, interfere with, hinder or delay the consummation of the Transactions.  Notwithstanding the foregoing, solely with respect to state Laws applicable to Government Contracts, the provisions of this Section 3.4 shall be to the Knowledge of the Company.

SECTION 3.5                 Company SEC Documents; Undisclosed Liabilities.

(a)           The Company has filed and furnished all required reports, schedules, forms, certifications, prospectuses, and registration, proxy and other statements with the SEC since December 31, 2005 (collectively and together with all documents filed on a voluntary basis on Form 8-K, and in each case including all exhibits and schedules thereto and documents incorporated by reference therein, the “Company SEC Documents”).  None of the Company’s Subsidiaries is required to file periodic reports with the SEC pursuant to the Exchange Act.  As of their respective effective dates (in the case of Company SEC Documents that are registration statements filed pursuant to the requirements of the Securities Act) and as of their respective SEC filing dates (in the case of all other Company SEC Documents), the Company SEC Documents complied in all material respects with the requirements of the Exchange Act or the Securities Act, as the case may be, applicable to such Company SEC Documents, and none of the Company SEC Documents as of such respective dates contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order

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SECTION 3.6                 Absence of Certain Changes or Events.  From the Balance Sheet Date to the date of this Agreement, there have not been any events, changes, occurrences or state of facts that, individually or in the aggregate, have had or would reasonably be expected to have a Company Material Adverse Effect.  Except as disclosed in the Filed Company SEC Documents, since the Balance Sheet Date (a) the Company and its Subsidiaries have carried on and operated their respective businesses in all material respects in the ordinary course of business consistent with past practice and (b) neither the Company nor any of its Subsidiaries has taken any action that would be prohibited by Section 5.2(b) if taken after the date hereof.  Without limiting the foregoing, except as disclosed in the Filed Company SEC Documents, since the Balance Sheet Date there has not occurred any damage, destruction or loss (whether or not covered by insurance) of any material asset of the Company or any of its Subsidiaries which materially affects the use thereof.

SECTION 3.7                 Legal Proceedings.  Except as set forth on Section 3.7 of the Company Disclosure Schedule or as would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, there is no pending or, to the Knowledge of the Company, threatened, legal, administrative, arbitral or other proceeding, claim, suit or action against, or governmental or regulatory investigation of, the Company or any of its Subsidiaries, nor is there any injunction, order, judgment, ruling or decree imposed (or, to the Knowledge of the Company, threatened to be imposed) upon the Company, any of its Subsidiaries or the assets of the Company or any of its Subsidiaries, by or before any Governmental Authority (“Legal Proceedings”).

SECTION 3.8                 Compliance With Laws; Permits.

(a)           The Company and its Subsidiaries are (and since December 31, 2005 have been) in compliance in all material respects with all laws (including common law), statutes, ordinances, codes, rules, regulations, decrees and orders of Governmental Authorities, (collectively, “Laws”) applicable to the Company or any of its Subsidiaries, any of their properties or other assets or any of their businesses or operations.

(b)           The Company and each of its Subsidiaries holds all licenses, franchises, permits, certificates, approvals and authorizations from Governmental Authorities, or required by Governmental Authorities to be obtained, in each case necessary for the lawful conduct of their respective businesses (collectively, “Permits”).  The Company and its Subsidiaries are (and since December 31, 2005 have been) in compliance with the terms of all Permits, except for instances of noncompliance that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect.  Since December 31, 2005, neither the Company nor any of its Subsidiaries has received written notice to the effect that a Governmental Authority (i) claimed or alleged that the Company or any of its Subsidiaries was not in material compliance with any Permit or (ii) was considering the amendment, termination, revocation or cancellation of any Permit.

SECTION 3.9                 Information Supplied.  Subject to the accuracy of the representations and warranties of Parent and Merger Sub set forth in Section 4.6, none of the information supplied (or to be supplied) in writing by or on behalf of the Company specifically for inclusion or incorporation by reference in (a) the registration statement on Form S-4 to be filed with the SEC by Parent in connection with the issuance of shares of Parent Common Stock in the Merger (as amended or supplemented from time to time, the “Form S-4”) will, at the time the Form S-4, or any amendment or supplement thereto, is filed with the SEC or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they are made, not misleading, (b) the registration statement on Form 10 to be

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filed with the SEC by Parent in connection with the issuance of shares of Parent Common Stock in the Merger (as amended or supplemented from time to time, the “Form S-4”) will, at the time the Form S-4, or any amendment or supplement thereto, is filed with the SEC or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they are made, not misleading, (b) the registration statement on Form 10 to be filed with the SEC by the Company in connection with the issuance of shares of Newco common stock in the Spin-Off (as amended or supplemented from time to time, the “Form 10”) will, at the time the Form 10, or any amendment or supplement thereto, is filed with the SEC or at the time it becomes effective under the Exchange Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they are made, not misleading and (c) the Proxy Statement will, on the date it is first mailed to stockholders of the Company, and at the time of the Company Stockholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading.  Each of the Form 10 and Proxy Statement will comply as to form in all material respects with the applicable requirements of the Securities Act and the Exchange Act.  Notwithstanding the foregoing, the Company makes no representation or warranty with respect to information supplied by or on behalf of Parent or Merger Sub for inclusion or incorporation by reference in any of the foregoing documents.

SECTION 3.10               Tax Matters.

(a)           Each of the Company and its Subsidiaries has timely filed, or has caused to be timely filed on its behalf (taking into account any extension of time within which to file), all material Tax Returns required to be filed by it, and all such filed Tax Returns are correct and complete in all material respects.  All material amounts of Tax required to be paid by the Company or any of its Subsidiaries have been timely paid.

(b)           Each of the Company and its Subsidiaries has complied in all material respects with all applicable Laws relating to the payment and withholding of Taxes and has duly and timely withheld and paid over to the appropriate Governmental Authority all material amounts required to be so withheld and paid under all applicable Laws.

(c)           The most recent financial statements contained in the Filed Company SEC Documents reflect an adequate reserve for all Taxes payable by the Company and its Subsidiaries for all taxable periods and portions thereof through the date of such financial statements.

(d)           All deficiencies asserted or assessments made as a result of any examinations by any Governmental Authority of the Tax Returns of, or including, the Company or any of its Subsidiaries have been fully paid, and there are no other audits or investigations by any Governmental Authority in progress, nor has the Company or any of its Subsidiaries received any notice from any Governmental Authority that it intends to conduct such an audit or investigation.

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SECTION 3.11               Employee Benefits and Labor Matters.

(a)           Section 3.11(a) of the Company Disclosure Schedule sets forth a correct and complete list of:  (i) all “employee benefit plans” (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)), (ii) all other material employee benefit plans, policies, agreements or arrangements, and (iii) all material payroll practices, including employment, consulting, termination, severance, retention, change in control or other compensation agreements, or retirement, bonus or other incentive compensation, stock purchase, equity or equity-based compensation, deferred compensation, change in control, severance pay, sick leave, vacation pay, loans, salary continuation for disability, life insurance, educational assistance and employee assistance plans, policies, agreements or arrangements with respect to which the Company or any of its Subsidiaries has any material obligation or liability, contingent or otherwise, for current or former employees, consultants or directors of the Company or any of its Subsidiaries (collectively, the “Company Plans”).  Neither the Company nor any of its Subsidiaries and any trade or business (whether or not incorporated) which is or at any time during the last six (6) years was under common control, or which is or during the last six (6) years was treated as a single employer, with any of them under Section 414(b), (c), (m) or (o) of the Code has in the last six (6) years (and while treated as a single employer or as being under common control with the Company or any of its Subsidiaries) sponsored, maintained, contributed or been obligated to contribute to any “employee pension plans”, as defined in Section 3(2) of ERISA, subject to Title IV of ERISA or Section 412 of the Code, including any multiemployer plan, as defined in Section 4001(a)(3) of ERISA.

(b)           Except as set forth on Section 3.11(b) of the Company Disclosure Schedule, correct and complete copies of the following documents with respect to each of the Company Plans (other than a “multiemployer plan,” as defined in Section 3(37) or 4001(a)(3) of ERISA) have been delivered to Parent by the Company to the extent applicable:  (i) the plan document as currently in effect and any related trust documents, insurance contracts or other funding arrangements (all as currently in effect), (ii) the two (2) most recent Forms 5500 and all schedules thereto, (iii) the two (2) most recent actuarial reports, if any, (iv) the most recent IRS determination letter, (v) the most recent summary plan description and (vi) written summaries of all non-written Company Plans.

(c)           The Company Plans have been maintained in all material respects in accordance with their terms and with all applicable provisions of ERISA, the Code and other Laws (including rules and regulations thereunder), and the Company and its Subsidiaries have performed and complied in all material respects with all of their obligations under or with respect to each Company Plan.  To the Knowledge of the Company, except as would not reasonably be expected to result in a Company Material Adverse Effect, no fiduciary has any liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of any Company Plan.

(d)           Each of the Company Plans intended to qualify under Section 401 of the Code (i) is the subject of an unrevoked favorable determination letter from the IRS with respect to such Company Plan’s qualified status under the Code, (ii) has remaining a period of time under the Code or applicable Treasury regulations or IRS pronouncements in which to request, and make any amendments necessary to obtain, such a letter from the IRS or (iii) is a prototype

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plan or volume submitter plan entitled under applicable IRS guidance to rely on the favorable opinion or advisory letter issued by the IRS to the sponsor of such prototype or volume submitter plan.  To the Knowledge of the Company, nothing has occurred with respect to the operation of any such Company Plan that would reasonably be expected to cause the loss of such qualification or exemption, thereby resulting in a material liability to the Company.

(e)           Each Company Plan that is a “nonqualified deferred compensation plan” (as defined for purposes of Section 409A(d)(1) of the Code) has been operated since January 1, 2005 in good faith compliance with Section 409A of the Code and all IRS guidance promulgated thereunder, to the extent applicable to such Company Plan.

(f)            Except as would not result in a material liability to the Company, all contributions (including all employer contributions and employee salary reduction contributions) required to have been made under any of the Company Plans (including workers compensation) to any funds or trusts established thereunder or in connection therewith have been made by the due date thereof (including any valid extension), and all contributions for any period ending on or before the Closing Date that are not yet due will have been paid or sufficient accruals for such contributions and other payments in accordance with GAAP are duly and fully provided for on the balance sheet.

(g)           There are no pending actions, claims or lawsuits (other than routine benefit claims) that have been asserted or instituted against the Company Plans, the assets of any of the trusts under the Company Plans, the sponsor or administrator of any of the Company Plans, or, to the Knowledge of the Company, any fiduciary of the Company Plans with respect to the operation of any of the Company Plans (nor, to the Knowledge of the Company, is there a reasonable basis for any such action, claim or lawsuit), which if decided adversely to the Company would reasonably be expected to result in a Company Material Adverse Effect.

(h)           None of the Company Plans provides for post-employment life or health insurance, benefits or coverage for any participant or any beneficiary of a participant, except as may be required under applicable Law, including, without limitation, the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), or coverage through the last day of the month following the date of termination of employment.

(i)            Except as required by applicable Law, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will, either alone or together with other event(s), (i) result in any payment becoming due to any Employee, (ii) increase any benefits otherwise payable under any Company Plan, (iii) result in the acceleration of the time of payment, funding or vesting of any such benefits under any Company Plan, (iv) require any contributions or payments to fund any obligations under any Company Plan or (v) limit the right to merge, amend or terminate any Company Plan.

(j)            To the Knowledge of the Company, the Company and its Subsidiaries have reasonably classified for all purposes (including for all Tax purposes and for purposes of determining eligibility and benefits under any Company Plan) all employees, leased employees, consultants and independent contractors, and have withheld and paid all applicable Taxes and made all required filings in connection with services provided by such persons.  Each

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independent contractor under contract with the Company or any of its Subsidiaries has executed a written independent contractor agreement.

(k)           None of the employees of the Company or its Subsidiaries is represented in his or her capacity as an employee of the Company or any of its Subsidiaries by any labor organization.  Neither the Company nor any of its Subsidiaries has recognized any labor organization, nor has any labor organization been elected as the collective bargaining agent of any employees, nor has the Company or any of its Subsidiaries entered into any collective bargaining agreement or union contract recognizing any labor organization as the bargaining agent of any employees.  There is no union organization activity involving any of the employees of the Company or any of its Subsidiaries pending or, to the Knowledge of the Company, threatened, nor has there ever been union representation involving any of the employees of the Company or any of its Subsidiaries.  There is no picketing pending or, to the Knowledge of the Company, threatened, and there are no strikes, slowdowns, work stoppages, other job actions, lockouts, arbitrations, grievances or other labor disputes involving any of the employees of the Company or any of its Subsidiaries pending or, to the Knowledge of the Company, threatened.  There are no complaints, charges or claims against the Company or any of its Subsidiaries pending or, to the Knowledge of the Company, threatened that could be brought or filed with any Governmental Authority or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment or failure to employ by the Company or any of its Subsidiaries of any individual.  The Company and its Subsidiaries are in compliance with all Laws relating to the employment of labor, including all such Laws relating to wages, hours, the Worker Adjustment and Retraining Notification Act and any similar state or local “mass layoff” or “plant closing” law (“WARN”), collective bargaining, discrimination, civil rights, safety and health, workers’ compensation and the collection and payment of withholding and/or social security Taxes and any similar Tax, except for immaterial non-compliance.  There has been no “mass layoff” or “plant closing” (as defined by WARN) with respect to the Company or any of its Subsidiaries during the six-month period prior to the Closing.

SECTION 3.12               Environmental Matters.

(a)           Except for those matters that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect, (i) each of the Company and its Subsidiaries is, and has been, in compliance with all applicable Environmental Laws, (ii) there is no investigation, suit, claim, action or proceeding relating to or arising under Environmental Laws that is pending or, to the Knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries or any real property currently or, to the Knowledge of the Company, formerly owned, operated or leased by the Company or any of its Subsidiaries, (iii) neither the Company nor any of its Subsidiaries has received any notice of or entered into or assumed by Contract or operation of Law or otherwise, any obligation, liability, order, settlement, judgment, injunction or decree relating to or arising under Environmental Laws and (iv) no facts, circumstances or conditions exist with respect to the Company or any of its Subsidiaries or any property currently (or, to the Knowledge of the Company, formerly) owned, operated or leased by the Company or any of its Subsidiaries or any property to or at which the Company or any of its Subsidiaries transported or arranged for the disposal or treatment of Hazardous Materials that would reasonably be expected to result in the

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any of its Subsidiaries has received any notice of termination or cancellation under any Material Contract.

SECTION 3.14               Government Contracts.

(a)           As used herein, “Government Contract” means any Contract to which the Company is a party with any Governmental Authority or any Contract to which the Company is a party that is a subcontract (at any tier) with another Person that holds either a prime Contract with any Governmental Authority or a subcontract (at any tier) under such a prime Contract, except for such Contracts which relate primarily to the Digital Watermarking Business and will be assumed by Newco in connection with the Restructuring and Spin-Off.

(b)           Section 3.14(b) of the Company Disclosure Schedule contains a complete and correct list of all Government Contracts (including subcontracts) that are either currently active in performance or, to the Knowledge of the Company, have been active in the four-year period prior to the date of this Agreement but have not been closed after receiving final payment, or have been active in performance at any time during the four-year period prior to the date of this Agreement.  The Company has not been awarded, nor is there any outstanding bid by the Company for, any “small business set aside Contract,” “woman-owned set aside Contract,” any other “set aside Contract” or other order or Contract requiring small business or other special status at any time during the four-year period prior to the date of this Agreement.  No Contract termination, default notice or show cause notice is, or has been at any time during the four-year period prior to the date of this Agreement, in effect pertaining to any Government Contract.

(c)           The Company is not and has not been a party to any Government Contract with a U.S. Governmental Authority.

(d)           Neither (i) the Company nor any of its officers or directors, nor (ii) to the Knowledge of the Company, any of its employees nor any of the Company’s predecessors has been debarred, suspended, deemed non-responsible or otherwise excluded from participation in the award of any Government Contract, nor has any debarment, suspension or exclusion proceeding been initiated against the Company or any of its predecessors, officers, directors or employees.

(e)           There have been no Legal Proceedings involving or related to the Company or, to the Knowledge of the Company, any of its predecessors, officers, directors or employees with respect to an alleged or potential violation of a Contract requirement or any applicable Law pertaining to any Government Contract, since December 31, 2007.  No Person has filed or, to the Knowledge of the Company, threatened to file a protest with any Governmental Authority challenging a Government Contract award to the Company.

(f)            Except as set forth on Section 3.14(f) of the Company Disclosure Schedule, other than audits conducted by Governmental Authorities for which the Company has not been provided any notice or which otherwise have not been made known to the Company and other than routine pre-award audits, there have been no audits, there are no ongoing audits and, to the Knowledge of the Company, there are no audits impending or expected under or relating to any Government Contract.  None of the audits (including the pre-award audits and

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the system review audits) identified on Section 3.14(f) of the Company Disclosure Schedule has resulted or would reasonably be expected to result in a material change to any Government Contract or has otherwise identified any actual or potential non-compliance issue in respect of the Company.  All such audits identified on Section 3.14(f) of the Company Disclosure Schedule constitute routine audits conducted in the ordinary course of business, and such audits have not, and, to the Company’s Knowledge, will not, result in any liability by the Company to any Governmental Authority.

(g)           The Company has not conducted any internal investigation in connection with which the Company has engaged any outside legal counsel, auditor, accountant or investigator, or has made any disclosure to any Governmental Authority or other customer or prime contractor or higher-tier subcontractor related to any suspected, alleged or possible violation of a Contract requirement or violation of any Law with respect to any Government Contract.

(h)           Neither the Company nor, to the Knowledge of the Company, any of the employees, members, officers or directors of the Company have violated any legal, administrative or contractual restriction concerning the employment of (or discussions concerning possible employment with) current or former officials or employees of a state, local or federal government (regardless of the branch of government).

(i)            All representations, certifications and statements executed, acknowledged or submitted by or on behalf of the Company to a Governmental Authority, prime contractor or higher-tier subcontractor in connection with any Government Contract (or a change or modification thereto) during the four-year period prior to the date of this Agreement, including any statements made in connection with Contract clauses, representations or certifications, were true, complete and correct in all material respects as of their respective effective dates and, to the Knowledge of the Company, with respect only to any such representations or certifications (or the portion thereof) that are continuing in nature, are true, complete and correct in all material respects as of the date hereof.

(j)            Except as would not, individually or in the aggregate, be material to the Company, the Company does not have any pending or anticipated claims, requests for equitable adjustment or requests for waiver or deviation from Contract requirements with respect to any Government Contract, and the Company has no Knowledge of any claim or threatened claim against the Company by any customer agency with respect to any Government Contract, including any claim for a reduction in price under any Government Contract.

(k)           Except as set forth on Section 3.14(k) of the Company Disclosure Schedule, with respect to any Government Contract, (i) there is, as of the date of this Agreement, no request by any Governmental  Authority for a Contract price adjustment based on a claimed disallowance by the applicable Governmental Authority or claim of defective pricing and (ii) there has been no dispute between the Company and a Governmental Authority which, during the four-year period prior to the date hereof, has resulted in a government contracting officer’s final decision.

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manufactured, processed, assembled, distributed, shipped or sold and any services rendered in the conduct of the business of the Company or any of its Subsidiaries have been in conformity with all applicable contractual commitments and all express or implied warranties, except where the failure to be in conformity, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect.  All warranties of each of the Company and its Subsidiaries are in conformity with the requirements of applicable Laws, except where any failure to be in conformity, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect.

SECTION 3.18             Affiliate Transactions.  No executive officer or director of the Company or any of its Subsidiaries or any Person owning five percent (5%) or more of the Company Common Stock or, to the Company’s Knowledge, any Affiliate or family member of any such officer, director or owner (an “Affiliated Party”) is a party to any Contract with or binding upon the Company or any of its Subsidiaries or has any material interest in any property or assets owned by the Company or any of its Subsidiaries or has engaged in any transaction (other than those related to employment or incentive arrangements) with the Company that is material to the Company within the last twelve (12) months, in each case, of the type that would be required to be disclosed under Item 404 of Regulation S-K under the Securities Act.

SECTION 3.19             Opinion of Financial Advisor.  The board of directors of the Company has received the opinion of Imperial Capital, LLC (“Imperial Capital”), dated the date of this Agreement, to the effect that, as of such date, and subject to the various assumptions and qualifications set forth therein, the Merger Consideration is fair from a financial point of view to the holders of shares of Company Common Stock (the “Fairness Opinion”).  A correct and complete copy of the Fairness Opinion has been delivered to Parent.  The Company has been authorized by Imperial Capital to permit the inclusion of the Fairness Opinion and/or references thereto in the Proxy Statement.

SECTION 3.20             Brokers and Other Advisors.  Except for Imperial Capital and RA Capital Advisors LLC (“RA”), the fees and expenses of which will be paid by Newco in accordance with Section 5.10, no broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission, or the reimbursement of expenses, in connection with the Transactions based upon arrangements made by or on behalf of the Company or any of its Subsidiaries.  The Company has heretofore delivered to Parent correct and complete copies of the Company’s engagement letters with Imperial Capital and RA, which letters describe all fees payable to Imperial Capital and RA in connection with the Transactions, all agreements under which any such fees or any expenses are payable and all indemnification and other agreements related to the engagement of Imperial Capital and RA (the “Engagement Letters”).

SECTION 3.21             State Takeover Statutes.  To the Knowledge of the Company, no “fair price”, “moratorium”, “control share acquisition” or other similar antitakeover statute or regulation enacted under state or federal Laws in the United States (with the exception of Section 203 of the DGCL) applicable to the Company is applicable to the Merger or the other Transactions.  The action of the board of directors of the Company in approving this Agreement and the Transactions is sufficient to render inapplicable to this Agreement and the Transactions

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SECTION 4.3               Authority; Noncontravention.

(a)           Each of Parent and Merger Sub has all necessary corporate power and authority to execute and deliver this Agreement and to perform its respective obligations hereunder and to consummate the Transactions.  The execution, delivery and performance by Parent and Merger Sub of this Agreement, and the consummation by Parent and Merger Sub of the Transactions, have been duly authorized and approved by their respective boards of directors (and prior to the Effective Time will be adopted by Parent as the sole stockholder of Merger Sub) and no other corporate action on the part of Parent and Merger Sub is necessary to authorize the execution, delivery and performance by Parent and Merger Sub of this Agreement and the consummation by them of the Transactions.  This Agreement has been duly executed and delivered by Parent and Merger Sub and, assuming due authorization, execution and delivery hereof by the Company, constitutes a legal, valid and binding obligation of each of Parent and Merger Sub, enforceable against each of them in accordance with its terms, subject to the Bankruptcy and Equity Exception.

(b)           Neither the execution and delivery of this Agreement by Parent and Merger Sub, nor the consummation by Parent or Merger Sub of the Transactions, nor compliance by Parent or Merger Sub with any of the terms or provisions hereof, will (i) conflict with or violate any provision of the certificate of incorporation or bylaws of Parent or Merger Sub or (ii) assuming that the authorizations, consents and approvals referred to in Section 4.4 are obtained and the filings referred to in Section 4.4 are made, (A) violate any Law, judgment, writ or injunction of any Governmental Authority applicable to Parent or any of its Subsidiaries or any of their respective properties or assets, or (B) violate, conflict with, result in the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of, Parent or Merger Sub or any of their respective Subsidiaries under, any of the terms, conditions or provisions of any Contract or Parent Permit to which Parent, Merger Sub or any of their respective Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected, except, in the case of clause (B), for such violations, conflicts, losses, defaults, terminations, cancellations, accelerations or Liens as, individually or in the aggregate, would not reasonably be expected to have a Parent Material Adverse Effect or impair in any material respect the ability of Parent or Merger Sub to perform its obligations hereunder, or prevent or materially impede, interfere with, hinder or delay the consummation of the Transactions.

SECTION 4.4               Governmental Approvals.  Except for (a) the filing with the SEC of the Form S-4 and the Proxy Statement and other filings required under, and compliance with other applicable requirements of, the Securities Act, the Exchange Act and the rules of the NYSE, (b) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware pursuant to the DGCL and (c) filings required under, and compliance with other applicable requirements of, the HSR Act and Foreign Antitrust Laws, no consents or approvals of, or filings, declarations or registrations with, any Governmental Authority are necessary for the execution and delivery of this Agreement by Parent and Merger Sub or the consummation by Parent and Merger Sub of the Transactions, other than such other consents, approvals, filings, declarations or registrations that, if not obtained, made or given, would not, individually or in the

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business consistent with past practice or (iv) that would not, individually or in the aggregate, reasonably be expected to have a Parent Material Adverse Effect.

(f)            Neither Parent nor any of its Subsidiaries is a party to, or has any commitment to become a party to, any joint venture, off-balance sheet partnership or any similar Contract (including any Contract or arrangement relating to any transaction or relationship between or among Parent and any of its Subsidiaries, on the one hand, and any unconsolidated Affiliate, including any structured finance, special purpose or limited purpose entity or Person, on the other hand, or any “off-balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K of the SEC)), where the result, purpose or effect of such Contract is to avoid disclosure of any material transaction involving, or material liabilities of, Parent or any of its Subsidiaries in Parent’s or such Subsidiary’s published financial statements or any Parent SEC Documents.

SECTION 4.6                 Information Supplied.  Subject to the accuracy of the representations and warranties of the Company set forth in Section 3.9, none of the information supplied (or to be supplied) in writing by or on behalf of Parent or Merger Sub specifically for inclusion or incorporation by reference in (a) the Form S-4 will, at the time the Form S-4 or any amendment or supplement thereto is filed with the SEC or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they are made, not misleading, (b) the Form 10 will, at the time the Form 10 or any amendment or supplement thereto is filed with the SEC or at the time it becomes effective under the Exchange Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they are made, not misleading and (c) the Proxy Statement will, on the date it is first mailed to stockholders of the Company, and at the time of the Company Stockholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they are made, not misleading.  The Form S-4 will comply as to form in all material respects with the applicable requirements of the Securities Act and the Exchange Act.  Notwithstanding the foregoing, Parent and Merger Sub make no representation or warranty with respect to any information supplied by or on behalf of the Company for inclusion or incorporation by reference in the foregoing documents.

SECTION 4.7                 Ownership and Operations of Merger Sub.  Parent owns beneficially and of record all of the outstanding capital stock of Merger Sub.  Merger Sub was formed solely for the purpose of engaging in the Transactions, has engaged in no other business activities and has conducted its operations only as contemplated hereby.

SECTION 4.8                 Brokers and Other Advisors.  Except for Jefferies & Company, the fees and expenses of which will be paid by Parent, no broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission, or the reimbursement of expenses, in connection with the Transactions based upon arrangements made by or on behalf of Parent or any of its Subsidiaries.

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SECTION 4.14               Ownership of Shares.  As of the date of this Agreement, Parent does not own any shares of Company Common Stock.

SECTION 4.15               Material Customers and Suppliers.  Since December 31, 2007, no material customer or supplier of Parent or its Subsidiaries, including any Governmental Authority, has given Parent or its Subsidiaries any written notice terminating, suspending or reducing in any material respect, or specifying an intention to terminate, suspend or reduce in any material respect in the future, or otherwise reflecting a material adverse change in, the business relationship between such customer or supplier and Parent or its Subsidiaries, and there has not been any materially adverse change in the business relationship of Parent or its Subsidiaries with any such customer or supplier.

SECTION 4.16               Export Controls.  Each of Parent and its Subsidiaries is conducting, and has conducted, its export transactions in accordance in all material respects with all applicable U.S. export and re-export control Laws and, to the Knowledge of the Company, all other applicable import/export controls in other countries in which Parent and its Subsidiaries conduct business.  Neither Parent nor any of its Subsidiaries has a customer, supplier or distributor relationship with, or is a party to any agreement with, any Person (a) organized or domiciled in or that is a citizen of, the Balkans, Burma (Myanmar), Cuba, Iran, Liberia, North Korea, Sudan, Syria or Zimbabwe (including any Governmental Authority of any such country) or (b) that appears on the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Controls in the United States Department of the Treasury, or in the Annexes to the United States Executive Order 13224 - Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism.

ARTICLE V

ADDITIONAL COVENANTS AND AGREEMENTS

SECTION 5.1                 Preparation of the Form S-4, the Form 10 and the Proxy Statement; Stockholder Meeting.

(a)           As soon as practicable after the execution of this Agreement, the Company shall prepare and file with the SEC the Proxy Statement and the Form 10, and the Company and Parent shall prepare, and Parent shall file with the SEC, the Form S-4.  Each of the Company and Parent shall use its reasonable best efforts to have the Form S-4 declared effective under the Securities Act as promptly as practicable after such filing and keep the Form S-4 effective for so long as necessary to consummate the Merger.  The Company shall use its reasonable best efforts to (i) have the Form 10 declared effective under the Exchange Act as promptly as practicable after such filing and keep the Form 10 effective for so long as necessary to consummate the Spin-Off and (ii) cause the Proxy Statement to be mailed to its stockholders as promptly as practicable after the Form S-4 is declared effective under the Securities Act; provided, however, that in no event shall the Proxy Statement be mailed to the Company’s stockholders prior to the execution and delivery of the Spin-Off Agreements.  No filing of, or amendment or supplement to, the Form S-4 will be made by Parent, and no filing of, or amendment or supplement to, the Proxy Statement or the Form 10 will be made by the Company, in each case without providing the other party a reasonable opportunity to review and comment thereon.  If at any time prior to

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employees, in each case, to the end that its goodwill and ongoing business shall be unimpaired at the Effective Time;

(iv)          keep in full force and effect all material insurance policies maintained by the Company and its Subsidiaries, other than changes to such policies made in the ordinary course of business; and

(v)           (A) maintain the books, accounts and records of the Company and its Subsidiaries in the ordinary course of business; (B) continue to collect accounts receivable and pay accounts payable utilizing normal procedures and without discounting or accelerating payment of such accounts, except for discounts made in the ordinary course of business consistent with past practice; and (C) comply with all contractual and other obligations applicable to the operation of the Company and its Subsidiaries, except for obligations disputed by the Company in good faith.

(b)           Without limiting the generality of the foregoing, except as expressly permitted by this Agreement (including Section 5.11), as set forth on Schedule 5.2(b), as required by applicable Law or with the prior written consent of Parent, which consent shall not be unreasonably withheld, delayed or conditioned, during the period from the date of this Agreement until the earlier of the date on which this Agreement is terminated and the Effective Time, the Company shall not, and shall not permit any of its Subsidiaries to:

(i)            except in connection with the Restructuring and Spin-Off, (A) issue, sell, grant, dispose of, pledge or otherwise encumber any shares of its capital stock, voting securities or equity interests, or any securities or rights convertible into, exchangeable or exercisable for, or evidencing the right to subscribe for, any shares of its capital stock, voting securities or equity interests, or any rights, warrants, options, calls, commitments or any other agreements of any character to purchase or acquire any shares of its capital stock, voting securities or equity interests or any securities or rights convertible into, exchangeable or exercisable for, or evidencing the right to subscribe for, any shares of its capital stock, voting securities or equity interests; provided that the Company may (1) issue shares of Company Common Stock upon the exercise of Company Stock Options granted under the Company Stock Option Plans that are outstanding on the date of this Agreement and in accordance with the terms thereof and (2) grant shares of Company Restricted Stock and Company Stock Options, at fair market value on the date of grant, in the numbers and for the purposes set forth on Schedule 5.2(b)(i) and in accordance with the Company Stock Option Plans; (B) redeem, purchase or otherwise acquire any of its outstanding shares of capital stock, voting securities or equity interests, or any rights, warrants, options, calls, commitments or any other agreements of any character to acquire any shares of its capital stock, voting securities or equity interests; (C) declare, set aside for payment or pay any dividend on, or make any other distribution in respect of, any shares of its capital stock or otherwise make any payments to its stockholders in their capacity as such (other than dividends by a direct or indirect wholly owned Subsidiary of the Company to its parent); (D) 

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split, combine, subdivide or reclassify any shares of its capital stock; or (E) except as set forth in this Agreement, amend (including by reducing an exercise price or extending a term) or waive any of its rights under, or accelerate the vesting under, any provision of the Company Stock Option Plans or any agreement evidencing any outstanding stock option or other right to acquire capital stock of the Company or any restricted stock purchase agreement or any similar or related contract;

(ii)           incur or assume any indebtedness for borrowed money or guarantee any indebtedness (or enter into a “keep well” or similar agreement) or issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities of the Company or any of its Subsidiaries, other than borrowings from the Company by a direct or indirect wholly owned Subsidiary of the Company in the ordinary course of business consistent with past practice;

(iii)          sell, transfer, lease, mortgage, encumber or otherwise dispose of or subject to any Lien (including pursuant to a sale-leaseback transaction or an asset securitization transaction) any of its material properties or assets (including securities of Subsidiaries), except (A) sales of inventory in the ordinary course of business consistent with past practice, (B) pursuant to Contracts in force at the date of this Agreement and listed on Schedule 5.2(b)(iii), correct and complete copies of which have been made available to Parent, (C) in connection with the Spin-Off or (D) dispositions of obsolete or worthless assets;

(iv)          make any capital expenditure or expenditures which (A) involves the purchase of real property or (B) are not contemplated by the Company’s 2008 Capital Expenditure Plan set forth in Schedule 5.2(b)(iv), other than capital expenditures in the ordinary course of business in connection with the performance of Government Contracts;

(v)           directly or indirectly acquire (A) by merging or consolidating with, or by purchasing all of or a substantial equity interest in, or by any other manner, any Person or division, business or equity interest of any Person or, (B) except in the ordinary course of business consistent with past practice and except for capital expenditures permitted by clause (b)(iv) of this Section 5.2, any assets that, individually, have a purchase price in excess of $1,000,000 or, in the aggregate, have a purchase price in excess of $2,000,000;

(vi)          make any investment (by contribution to capital, property transfers, purchase of securities or otherwise) in, or loan or advance (other than travel and similar advances to its employees in the ordinary course of business consistent with past practice) to, any Person other than a direct or indirect wholly owned Subsidiary of the Company in the ordinary course of business;

(vii)         (A) terminate any Material Contract or, other than in the ordinary course of business consistent with past practice, (1) enter into or amend any Material Contract or (2) enter into, terminate or amend any other Contract that is

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payment, discharge, settlement or satisfaction in accordance with their terms of liabilities, claims or obligations reflected or reserved against in the most recent consolidated financial statements (or the notes thereto) of the Company included in the Filed Company SEC Documents or incurred since the date of such financial statements in the ordinary course of business consistent with past practice;

(xiv)        settle or compromise any litigation, proceeding or investigation material to the Company and its Subsidiaries taken as a whole (this covenant being in addition to the Company’s agreement set forth in Section 5.9 hereof); or

(xv)         agree, in writing or otherwise, to take any of the foregoing actions, or take any action or agree, in writing or otherwise, to take any action which would in any material respect impede or delay the ability of the parties to satisfy any of the conditions to the Merger set forth in this Agreement.

SECTION 5.3                 Parent Conduct of Business.

(a)           Except as expressly permitted by this Agreement, as required by applicable Law or with the prior written consent of the Company, which consent shall not be unreasonably withheld, delayed or conditioned, during the period from the date of this Agreement until the earlier of the date on which this Agreement is terminated and the Effective Time, Parent shall not, and shall not permit any of its Subsidiaries to:

(i)            amend its certificate of incorporation or bylaws in a manner adverse to the holders of Parent Common Stock;

(ii)           declare, set aside or pay any dividends payable in cash, stock or property with respect to shares of its capital stock;

(iii)          split, combine, subdivide or reclassify any shares of capital stock of Parent without appropriate adjustment being made to the Merger Consideration payable to the holders of Company Common Stock in the Merger;

(iv)          adopt a plan of complete or partial liquidation or dissolution;

(v)           acquire (whether pursuant to a merger, stock or asset purchase or otherwise) in one transaction or a series of related transactions any equity interests in any Person or any business or division of any Person or all or substantially all of the assets of any Person (or business or division thereof), unless such acquisition or the entering into of a definitive agreement relating to the completion of such acquisition would not, in the reasonable judgment of Parent at the time of such determination, (A) impose any material delay in the obtaining of, or materially increase the risk of not obtaining, any authorizations, consents, orders, declarations or approvals of any Governmental Authority necessary to complete the Merger or the expiration or termination of any applicable waiting period under the HSR Act or (B) materially increase the risk of any Governmental Authority entering an order prohibiting the completion of the Merger; or

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(vi)          authorize or enter into an agreement to do any of the actions referred to in clauses (i) through (v) above.

SECTION 5.4                 No Solicitation.

(a)           The Company shall, and shall cause its Subsidiaries and the Company’s and its Subsidiaries’ respective directors, officers, employees, investment bankers, financial advisors, attorneys, accountants, agents and other representatives (collectively, “Representatives”) to, immediately cease and cause to be terminated any discussions or negotiations with any Person conducted heretofore with respect to a Takeover Proposal.  From the date hereof until the earlier of the date on which this Agreement is terminated and the Effective Time, the Company shall not, and shall cause its Subsidiaries and Representatives not to, directly or indirectly (i) knowingly solicit, knowingly initiate, cause, facilitate or encourage (including by way of furnishing information) any inquiries or proposals that constitute, or may reasonably be expected to lead to, any Takeover Proposal, (ii) participate in any discussions or negotiations with any third party regarding any Takeover Proposal or (iii) enter into any agreement related to any Takeover Proposal.

(b)           Notwithstanding anything to the contrary in this Section 5.4, subject to the Company’s compliance in all material respects with this Section 5.4, if after the date hereof the board of directors of the Company receives an unsolicited, bona fide written Takeover Proposal made after the date hereof, and the board of directors of the Company reasonably determines in good faith that such Takeover Proposal constitutes or could reasonably be expected to lead to a Superior Proposal and with respect to which the board of directors determines in good faith, after consulting with outside legal counsel, that the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties under applicable Law, the Company may, at any time prior to obtaining the Company Stockholder Approval (but in no event after obtaining the Company Stockholder Approval) and after providing Parent not less than twenty-four (24) hours written notice of its intention to take such actions (i) furnish information with respect to the Company and its Subsidiaries to the Person making such Takeover Proposal, but only after such Person enters into a customary confidentiality agreement with the Company (which confidentiality agreement must be no less favorable to the Company than the Confidentiality Agreement); provided that (A) such confidentiality agreement may not include any provision calling for an exclusive right to negotiate with the Company and may not restrict the Company from complying with this Section 5.4 and (B) the Company advises Parent of all such non-public information delivered to such Person concurrently with its delivery to such Person and concurrently with its delivery to such Person the Company delivers to Parent all such information not previously provided to Parent, and (ii) participate in discussions and negotiations with such Person regarding such Takeover Proposal.  Without limiting the foregoing, it is understood that any violation of the foregoing restrictions by the Company’s Subsidiaries or Representatives shall be deemed to be a breach of this Section 5.4 by the Company.  The Company shall provide Parent with a correct and complete copy of any confidentiality agreement entered into pursuant to this paragraph within twenty-four (24) hours of the execution thereof.

(c)           In addition to the other obligations of the Company set forth in this Section 5.4, the Company shall promptly advise Parent, orally and in writing, and in no event later than twenty-four (24) hours after receipt, if any proposal, offer, inquiry or other contact is

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received by, any information is requested from, or any discussions or negotiations are sought to be initiated or continued with, the Company or any of its Representatives in respect of any Takeover Proposal, and shall, in any such notice to Parent, indicate the identity of the Person making such proposal, offer, inquiry or other contact and the terms and conditions of any proposals or offers or the nature of any inquiries or contacts (and shall include with such notice copies of any written materials received from or on behalf of such Person relating to such proposal, offer, inquiry or request), and thereafter shall promptly keep Parent fully informed of all material developments affecting the status and terms of any such proposals, offers, inquiries or requests (and the Company shall provide Parent with copies of any additional written materials received that relate to such proposals, offers, inquiries or requests) and of the status of any such discussions or negotiations.  None of the Company or any of its Subsidiaries shall, after the date of this Agreement, enter into any agreement that would prohibit them from providing such information to Parent.

(d)           Except as expressly permitted by Section 5.4(e) and subject to Section 5.4(f), neither the board of directors of the Company nor any committee thereof shall (i) (A) withdraw or modify, or propose publicly to withdraw or modify, in a manner adverse to Parent, the Company Board Recommendation or (B) approve or recommend, or propose publicly to approve or recommend, any Takeover Proposal (any action described in this clause (i) being referred to as a “Company Adverse Recommendation Change”) or (ii) cause or authorize the Company or any of its Subsidiaries to enter into any letter of intent, agreement in principle, memorandum of understanding, merger, acquisition, purchase or joint venture agreement or other agreement related to any Takeover Proposal (other than a confidentiality agreement in accordance with Section 5.4(b)).

(e)           Notwithstanding anything to the contrary herein, but subject to the provisions of Section 5.4(f), prior to obtaining the Company Stockholder Approval, the board of directors of the Company may make a Company Adverse Recommendation Change if the board of directors of the Company receives a Takeover Proposal that has not been withdrawn that the board of directors of the Company determines in good faith, after consulting with outside legal counsel, constitutes a Superior Proposal and if the board of directors determines in good faith, after consulting with outside legal counsel, that the failure to make such Company Adverse Recommendation Change would reasonably be likely to be inconsistent with its fiduciary duties under applicable Law; provided, however, that the Company shall not enter into a definitive agreement providing for the implementation of a transaction that is a Superior Proposal unless this Agreement shall have been terminated by the Company in accordance with Section 7.1(d)(iii).

(f)            The Company shall not be entitled to effect a Company Adverse Recommendation Change with respect to a Superior Proposal unless (i) the Company has complied in all material respects with this Section 5.4, (ii) the Company has provided written notice (a “Company Adverse Recommendation Notice”) to Parent that the Company intends to take such action and specifying the terms and conditions of such Superior Proposal, including with such Company Adverse Recommendation Notice a copy of the relevant proposed transaction agreements with the party making such Superior Proposal and other material documents, (iii) during the five (5) Business Day period following Parent’s receipt of the Company Adverse Recommendation Notice, the Company shall, and shall cause its financial and

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legal advisors to, negotiate with Parent and Merger Sub in good faith (to the extent Parent and Merger Sub desire to negotiate) to make such adjustments in the terms and conditions of this Agreement so that such Superior Proposal ceases to constitute a Superior Proposal and (iv) following the end of such five (5) Business Day period, the board of directors of the Company shall have determined in good faith, taking into account any changes to the terms of this Agreement proposed by Parent to the Company in response to the Company Adverse Recommendation Notice or otherwise, that the Superior Proposal giving rise to the Company Adverse Recommendation Notice continues to constitute a Superior Proposal.  Any amendment to the financial terms or any other material amendment of such Superior Proposal shall require a new Company Adverse Recommendation Notice and the Company shall be required to comply again with the requirements of this Section 5.4(f).

(g)           Nothing in this Section 5.4 shall prohibit the board of directors of the Company from taking and disclosing to the stockholders of the Company a position contemplated by Rule 14e-2(a), Rule 14d-9 or Item 1012(a) of Regulation M-A promulgated under the Exchange Act if the board of directors of the Company determines in good faith, after consultation with outside legal counsel, that disclosing such position is required to comply with such rules and regulations; provided, however, that in no event shall the Company or the board of directors of the Company or any committee thereof take, or agree or resolve to take, any action prohibited by Section 5.4(d), unless in each case the applicable requirements of Section 5.4(e) and Section 5.4(f) shall have been satisfied.  In addition, it is understood and agreed that, for purposes of this Agreement (including Article VII), a factually accurate public statement by the Company that describes the Company’s receipt of a Takeover Proposal and the operation of this Agreement with respect thereto, or any “stop, look and listen” communication by the board of directors of the Company pursuant to Rule 14d-9(f) of the Exchange Act or any similar communication to the stockholders of the Company, shall not constitute a Company Adverse Recommendation Change or an approval or recommendation with respect to any Takeover Proposal.

(h)           For purposes of this Agreement:

“Takeover Proposal” means any inquiry, proposal or offer from any Person or “group” (as defined in Section 13(d) of the Exchange Act), other than Parent and its Subsidiaries, relating to any (i) direct or indirect acquisition (whether in a single transaction or a series of related transactions) of assets of the Company and its Subsidiaries (including securities of Subsidiaries) equal to twenty percent (20%) or more of the Company’s consolidated assets or to which twenty percent (20%) or more of the Company’s revenues on a consolidated basis are attributable, (ii) direct or indirect acquisition (whether in a single transaction or a series of related transactions) of beneficial ownership (within the meaning of Section 13 under the Exchange Act) of twenty percent (20%) or more of any class of equity securities of the Company, (iii) tender offer or exchange offer that if consummated would result in any Person or “group” (as defined in Section 13(d) of the Exchange Act) beneficially owning twenty percent (20%) or more of any class of equity securities of the Company or (iv) merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company or any of its Subsidiaries; in each case, other than the Transactions.

“Superior Proposal” means a written Takeover Proposal on terms and conditions

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which the board of directors of the Company determines in its good faith and reasonable judgment (after consultation with outside legal counsel and its financial advisor) to be more favorable to the Company’s stockholders from a financial point of view than the Merger and the other Transactions, taking into account at the time of determination all of the terms and conditions of such proposal (including the ability of the Person making such proposal to consummate the transactions contemplated by such proposal (based upon, among other things, the availability of financing and the expectation of obtaining required approvals)) and this Agreement (including any changes to the terms of this Agreement committed to by Parent to the Company in writing in response to such proposal or otherwise); provided, however, that for purposes of the definition of “Superior Proposal,” the references to “twenty percent (20%)” in the definition of Takeover Proposal shall be deemed to be references to “fifty percent (50%).

SECTION 5.5               Reasonable Best Efforts.

(a)           Subject to the terms and conditions of this Agreement (including Section 5.4(d)), each of the parties hereto shall cooperate with the other parties and use (and shall cause their respective Subsidiaries to use) their respective reasonable best efforts to promptly (i) take, or cause to be taken, all actions, and do, or cause to be done, all things, necessary, proper or advisable to cause the conditions to Closing to be satisfied as promptly as practicable and to consummate and make effective, in the most expeditious manner practicable, the Transactions, including preparing and filing promptly and fully all documentation to effect all necessary filings, notices, petitions, statements, registrations, submissions of information, applications and other documents (including any required or recommended filings under applicable Antitrust Laws) and (ii) obtain all approvals, consents, registrations, permits, authorizations and other confirmations from any Governmental Authority or third party necessary, proper or advisable to consummate the Transactions.  For purposes hereof, “Antitrust Laws” means the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as amended, all applicable Foreign Antitrust Laws and all other applicable Laws issued by a Governmental Authority that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade or lessening of competition through merger or acquisition.

(b)           In furtherance and not in limitation of the foregoing, (i) each party hereto agrees to make an appropriate filing of a Notification and Report Form pursuant to the HSR Act with respect to the Transactions as promptly as practicable and in any event within fifteen (15) Business Days of the date hereof and to supply as promptly as practicable any additional information and documentary material that may be requested pursuant to the HSR Act and use its reasonable best efforts to take, or cause to be taken, all other actions consistent with this Section 5.5 necessary to cause the expiration or termination of the applicable waiting periods under the HSR Act as soon as practicable and (ii) the Company and Parent shall each use its reasonable best efforts to (A) take all action necessary to ensure that no state takeover statute or similar Law is or becomes applicable to any of the Transactions and (B) if any state takeover statute or similar Law becomes applicable to any of the Transactions, take all action necessary to ensure that the Transactions may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise minimize the effect of such Law on the Transactions.

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(c)           Each of the parties hereto shall use its reasonable best efforts to (i) cooperate in all respects with each other in connection with any filing or submission with a Governmental Authority in connection with the Transactions and in connection with any investigation or other inquiry by or before a Governmental Authority relating to the Transactions, including any proceeding initiated by a private party and (ii) keep the other party informed in all material respects and on a reasonably timely basis of any material communication received by such party from, or given by such party to, the Federal Trade Commission, the Antitrust Division of the Department of Justice, or any other Governmental Authority and of any material communication received or given in connection with any proceeding by a private party, in each case regarding any of the Transactions.  Subject to applicable Laws relating to the exchange of information, each of the parties hereto shall have the right to review in advance, and to the extent practicable each will consult the other on, all the information relating to the other parties and their respective Subsidiaries, as the case may be, that appears in any filing made with, or written materials submitted to, any third party and/or any Governmental Authority in connection with the Transactions.  No party to this Agreement shall consent to any voluntary delay of the Closing at the behest of any Governmental Authority without the consent of the other parties to this Agreement, which consent shall not be unreasonably withheld.

(d)           Notwithstanding the foregoing or any other provision of this Agreement, the Company shall not, without Parent’s prior written consent, commit to any divestiture transaction or agree to any restriction on its business, and nothing in this Section 5.5 shall (i) limit any applicable rights a party may have to terminate this Agreement pursuant to Section 7.1 so long as such party has up to then complied in all material respects with its obligations under this Section 5.5 or (ii) require Parent to offer, accept or agree to (A) dispose or hold separate any part of its or the Company’s businesses, operations, assets or product lines (or a combination of Parent’s and the Company’s respective businesses, operations, assets or product lines), (B) not compete in any geographic area or line of business and/or (C) restrict the manner in which, or whether, Parent, the Company, the Surviving Corporation or any of their Affiliates may carry on business in any part of the world.

(e)           All filing fees incurred by the parties in connection with filings required under the HSR Act shall be paid by Parent.

SECTION 5.6               Public Announcements.  The initial press release with respect to the execution of this Agreement shall be a joint press release to be reasonably agreed upon by Parent and the Company.  Neither the Company nor Parent shall issue or cause the publication of any press release or other public announcement (to the extent not previously issued or made in accordance with this Agreement) with respect to the Merger, this Agreement or the other Transactions without the prior consent of the other party (which consent shall not be unreasonably withheld or delayed), except as may be required by Law or by any applicable listing agreement with the NYSE or Nasdaq Stock Market, as applicable, as determined in the good faith judgment of the party proposing to make such release (in which case such party shall not issue or cause the publication of such press release or other public announcement without prior consultation with the other party).

SECTION 5.7               Access to Information; Confidentiality.  Subject to applicable Law relating to the exchange of information, each party shall afford the other party and its

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SECTION 5.10             Fees and Expenses.  Except as provided in Section 7.3, all fees and expenses incurred in connection with this Agreement, the Merger and the Transactions shall be paid by the party incurring such fees or expenses, whether or not the Merger is consummated; provided, however, that any fees and expenses of the Company not paid or satisfied immediately prior to the Effective Time shall be transferred to and assumed by, and shall become the obligations of, Newco in connection with the Restructuring and the Spin-Off.

SECTION 5.11             Spin-Off.

(a)           As soon as practicable following the date hereof but following the execution and delivery of the Spin-Off Agreements contemplated by Section 5.11(b), the Company shall, in accordance with the terms and conditions of the Spin-Off Agreements, (i) cause the Spin-Off Assets to be contributed to Newco (the “Restructuring”) and (ii) following the completion of the Restructuring, but prior to the Effective Time, effect a distribution of 100% of Newco’s common stock to the Company’s stockholders (the “Spin-Off”).  Parent and the Company agree to cooperate in good faith to structure the Restructuring and Spin-Off in a tax efficient manner.

(b)           Promptly following the date hereof, Parent and the Company shall negotiate in good faith the definitive agreements to be entered into in connection with the Restructuring and the Spin-Off, including the Separation Agreement, the Transition Services Agreement and the License Agreement (collectively, the “Spin-Off Agreements”), and shall use their reasonable best efforts to execute and deliver, and the Company shall cause Newco to execute and deliver, the Spin-Off Agreements on or before the date that is forty-five (45) days from the date hereof.  The terms and conditions of the Spin-Off Agreements shall be mutually agreed upon by Parent, the Company, Newco and any other party thereto; provided, however, that Parent and the Company hereby agree that the Spin-Off Agreements will contain provisions regarding each of the agreements set forth on Schedule 5.11 hereto.

SECTION 5.12             Rule 16b-3.  Prior to the Effective Time, the Company and Parent shall take such steps as may be reasonably requested by any party hereto to cause dispositions of Company equity securities (including derivative securities) pursuant to the transactions contemplated by this Agreement by each individual who is a director or officer of the Company to be exempt under Rule 16b-3 promulgated under the Exchange Act in accordance with that certain No-Action Letter dated January 12, 1999 issued by the SEC regarding such matters.

SECTION 5.13             Employee Benefits and Labor Matters.

(a)           As of the Effective Time, and for a period of at least twelve (12) months thereafter, Parent shall provide or cause its Subsidiaries (including the Surviving Corporation) to provide to employees of the Company and its Subsidiaries who are employed by Parent or any of its Subsidiaries (including the Surviving Corporation) immediately after the Effective Time (the “Continuing Employees”) employee benefits (excluding any equity-based plan and retention agreements) that, at Parent’s election (i) are the same as those provided to similarly situated employees of Parent or (ii) in the aggregate, are no less favorable to the Continuing Employees (and their spouses and dependents) than those in effect under the Company Plans for such

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Continuing Employees (and their spouses and dependents) immediately prior to the Effective Time.  With respect to each benefit plan, program, practice, policy and arrangement maintained by Parent or its Subsidiaries (including the Surviving Corporation) following the Effective Time and in which any of the Continuing Employees participate or are eligible to participate (the “Parent Plans”), for purposes of determining eligibility to participate, vesting, accrual of and entitlement to benefits and all other purposes (but not for accrual of benefits under any “defined benefit plan,” as defined in Section 3(35) of ERISA), service with the Company and its Subsidiaries (or predecessor employers to the extent the Company provides past service credit) shall be treated as service with Parent and its Subsidiaries.  With respect to each Parent Plan that is a welfare benefit plan, within the meaning of Section 3(1) of ERISA, (A) Parent shall waive or cause to be waived any and all eligibility waiting periods, evidence of insurability requirements and pre-existing condition limitations to the extent waived, satisfied or not included under the corresponding Company Plan, and (B) Parent shall recognize or cause to be recognized for each Continuing Employee for purposes of applying annual deductible, co-payment and out-of-pocket maximums under such Parent Plan any deductible, co-payment and out-of-pocket expenses paid by such Continuing Employee and his or her spouse and dependents under a corresponding Company Plan during the calendar year in which occurs the later of the Effective Time and the date on which such Continuing Employee begins participation in such Parent Plan.

(b)           At and after the Effective Time, Parent and the buying group (as defined in Treasury Regulation Section 54.4980B-9, Q&A-2(c)) of which it is a part shall be solely responsible for providing continuation coverage under COBRA to those individuals who are M&A qualified beneficiaries (as defined in Treasury Regulation Section 54.4980B-9, Q&A-4(b)) with respect to the transactions contemplated by this Agreement (collectively, the “M&A Qualified Beneficiaries”), other than those M&A Qualified Beneficiaries whose most recent employment with the Company and its Subsidiaries prior to the Effective Time was related primarily to the Spin-Off Assets.

(c)           During the period from the date of this Agreement until the earlier of the date on which this Agreement is terminated and the Effective Time, the Company shall not issue any broadly distributed communication of a general nature to employees (including general communications relating to benefits and compensation) without first consulting with, and considering in good faith any comments or suggestions made by, Parent, except for communications in the ordinary course of business that do not relate to the Transactions.

(d)           Prior to the Spin-Off, the Company shall take all action that may be necessary to cause all participants’ rights under all current offering periods under the Company Purchase Plan to terminate on or prior to the day immediately preceding the Spin-Off, and on such date all accumulated payroll deductions allocated to each participant’s account under the Company Purchase Plan shall thereupon be returned to each participant as provided by the terms of the Company Purchase Plan and no shares of Company Common Stock shall be purchased under the Company Purchase Plan for such final offering period.  As of the close of business on the day immediately prior to the Spin-Off, the Company shall have terminated the Company Purchase Plan and provided such notice of termination as may be required by the terms of the Company Purchase Plan.  The form and substance of any such notice regarding the Company Purchase Plan termination shall be subject to the review and approval of Parent, which shall not be unreasonably withheld.

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(b)           Antitrust.  The waiting period (and any extension thereof) applicable to the Merger under the HSR Act and any other applicable competition, merger control, antitrust or similar Law shall have been terminated or shall have expired;

(c)           No Injunctions or Restraints.  No Law, injunction, judgment or ruling enacted, promulgated, issued, entered, amended or enforced by any Governmental Authority  (collectively, “Restraints”) shall be in effect enjoining, restraining, preventing or prohibiting consummation of the Merger or making the consummation of the Merger illegal;

(d)           Form S-4; Proxy Statement.  The Form S-4 shall have become effective under the Securities Act and no stop order suspending the effectiveness of the Form S-4 shall have been issued and no proceedings for that purpose, and no similar proceedings in respect of the Proxy Statement, shall have been initiated or threatened by the SEC;

(e)           Spin-Off.  The Company, Newco and any other necessary parties to the Spin-Off Agreements shall have entered into the Spin-Off Agreements and shall not have amended, supplemented or otherwise altered the terms of the Spin-Off Agreements, none of the parties to the Spin-Off Agreements shall have waived compliance with any term or condition of the Spin-Off Agreements, the Restructuring and Spin-Off shall have occurred in accordance with the terms and conditions of the Separation Agreement (including the issuance of the warrants to Parent as contemplated thereby) and the Company shall have delivered to Parent prior to the Closing Date evidence reasonably satisfactory to Parent of the completion of the Restructuring and Spin-Off in accordance with the Separation Agreement, including evidence of the distribution to the Company’s stockholders; and

(f)            NYSE Listing.  The shares of Parent Common Stock to be issued in connection with the Merger shall have been authorized for listing on the NYSE, subject to official notice of issuance.

SECTION 6.2               Conditions to Obligations of Parent and Merger Sub.  The obligations of Parent and Merger Sub to effect the Merger are further subject to the satisfaction (or waiver, if permissible under applicable Law) on or prior to the Closing Date of the following conditions:

(a)           Representations and Warranties.  The representations and warranties of the Company (i) set forth in the second and third sentences of Section 3.2(a), in the first and last sentences of Section 3.2(b), in the first sentence of Section 3.6 and in Section 3.20 shall be true and correct in all respects as of the Closing Date as if made on and as of the Closing Date (or, if given as of a specific date, at and as of such date) and (ii) set forth in Article III hereof (other than as described in clause (i) above), disregarding all qualifications and exceptions contained therein relating to materiality or Company Material Adverse Effect, shall be true and correct as of the Closing Date as if made on and as of the Closing Date (or, if given as of a specific date, at and as of such date), except in this clause (ii) where the failure to be so true and correct would not have or would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, and Parent shall have received a certificate signed on behalf of the Company by an executive officer of the Company as to such effect;

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that Parent shall not have the right to terminate this Agreement pursuant to this Section 7.1(c)(i) if it is then in material breach of any of its representations, warranties, covenants or other agreements hereunder that would result in the conditions to Closing set forth in Section 6.3(a) or Section 6.3(b) not being satisfied; or

(ii)           if (A) the board of directors of the Company shall have effected a Company Adverse Recommendation Change, (B) a tender offer or exchange offer for shares of capital stock of the Company that constitutes a Takeover Proposal is commenced prior to obtaining the Company Stockholder Approval and the board of directors of the Company fails to recommend against acceptance of such tender offer or exchange offer by its stockholders (including, for these purposes, by taking no position with respect to the acceptance of such tender offer or exchange offer by its stockholders, which shall constitute a failure to recommend against acceptance of such tender offer or exchange offer) within ten (10) Business Days after commencement, (C) the Company enters into a definitive agreement with respect to any Takeover Proposal or (D) the Company fails to include in the Proxy Statement the Company Board Recommendation;

(d)           by the Company:

(i)            if Parent or Merger Sub shall have materially breached or failed to perform any of its representations, warranties, covenants or agreements contained in this Agreement, which breach or failure to perform (A) would give rise to the failure of a condition set forth in Section 6.3(a) or Section 6.3(b) and (B) cannot be cured by Parent or Merger Sub by the Walk-Away Date or, if capable of being cured, shall not have been cured within thirty (30) calendar days following receipt of written notice from the Company stating the Company’s intention to terminate this Agreement pursuant to this Section 7.1(d)(i) and the basis for such termination; provided, however, that the Company shall not have the right to terminate this Agreement pursuant to this Section 7.1(d)(i) if it is then in material breach of any of its representations, warranties, covenants or other agreements hereunder that would result in the conditions to Closing set forth in Section 6.2(a) or Section 6.2(b) not being satisfied;

(ii)           if all of the conditions to (A) the consummation of the Spin-Off pursuant to the Separation Agreement have been satisfied and (B) Closing set forth in Section 6.1 (other than Sections 6.1(e) and 6.1(f)) and Section 6.2 have been satisfied (other than those conditions that by their nature are to be satisfied by actions taken at the Closing but which conditions would be satisfied if such date were the Closing Date) and Parent or Merger Sub has failed to consummate the Merger no later than five (5) Business Days after the date on which the Company notifies Parent that all conditions to Closing set forth in Section 6.3 have been satisfied or waived (other than those conditions that by their nature are to be satisfied by actions taken at the Closing but which conditions would be satisfied if such date were the Closing Date); or

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(iii)          in order to enter into a definitive agreement providing for the implementation of a transaction that is a Superior Proposal, prior to the receipt of the Company Stockholder Approval, if (A) the Company has complied with Section 5.4(e) and Section 5.4(f) and (B) prior to or concurrently with such termination, the Company pays the Termination Fee.

SECTION 7.2                 Effect of Termination.  In the event of the termination of this Agreement as provided in Section 7.1, written notice thereof shall be given to the other party or parties, specifying the provision hereof pursuant to which such termination is made, and this Agreement shall forthwith become null and void (other than the provisions of the first sentence of Section 3.20, the last sentence of Section 5.7, Sections 5.10, 7.2 and 7.3, and Article VIII, all of which shall survive termination of this Agreement), and there shall be no liability on the part of Parent, Merger Sub or the Company or their respective directors, officers and Affiliates, except (a) Parent or the Company may have liability as provided in Section 7.3, and (b) nothing shall relieve any party from liability for fraud or any willful breach of this Agreement.

SECTION 7.3                 Termination Fee.

(a)           In the event that:

(i)            (A) a Takeover Proposal shall have been made known to the Company or shall have been made directly to its stockholders generally or any Person shall have publicly announced an intention (whether or not conditional or withdrawn) to make a Takeover Proposal, (B) thereafter, this Agreement is terminated by Parent or the Company pursuant to Section 7.1(b)(i) or Section 7.1(b)(iii) or Parent pursuant to Section 7.1(c)(i) and (C) the Company enters into a definitive agreement with respect to, or consummates, a transaction contemplated by any Takeover Proposal within twelve (12) months of the date this Agreement is terminated;

(ii)           this Agreement is terminated by Parent pursuant to Section 7.1(c)(ii); or

(iii)          this Agreement is terminated by the Company pursuant to Section 7.1(d)(iii);

then in any such event the Company shall pay to Parent a termination fee in cash equal to $7,500,000 (the “Termination Fee”).

(b)           In the event that (i) a Takeover Proposal shall have been made known to the Company or shall have been made directly to its stockholders generally or any Person shall have publicly announced an intention (whether or not conditional or withdrawn) to make a Takeover Proposal and thereafter this Agreement is terminated by the Company or Parent pursuant to Section 7.1(b)(i) or Section 7.1(b)(iii) and no Termination Fee is payable in respect thereof pursuant to Section 7.3(a)(i) or (ii) this Agreement is terminated by Parent pursuant to Section 7.1(c)(i) and no Termination Fee is payable in respect thereof pursuant to Section 7.3(a)(i), then in each such case the Company shall pay to Parent all of the Expenses of Parent and Merger Sub and thereafter the Company shall be obligated to pay to Parent the Termination

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Fee (net of the amount of Expenses previously actually paid to Parent pursuant to this sentence) in the event such fee is payable pursuant to Section 7.3(a)(i); provided, however, that the Company shall not be obligated to pay to Parent the Expenses of Parent and Merger Sub pursuant to clause (i) above in connection with a termination pursuant to Section 7.1(b)(i) unless the condition set forth in Section 6.1(b) has been satisfied prior to such termination.  In the event this Agreement is terminated by the Company pursuant to Section 7.1(d)(i), Parent shall pay to the Company all of the Expenses of the Company.  As used herein, “Expenses” means all out-of-pocket fees and expenses (including all fees and expenses of counsel, accountants, financial advisors and investment bankers to a party hereto and its Affiliates) incurred by a party or on its behalf in connection with or related to the authorization, preparation, negotiation, execution and performance of this Agreement, the preparation, printing, filing and mailing of the Proxy Statement, the Form 10 and the Form S-4 and the prospectus contained therein, the filing of any required notices under applicable Antitrust Laws or other regulations and all other matters related to the Merger and the other Transactions; provided, however, that in no event shall Expenses exceed $3,000,000.

(c)           In the event that the Company shall terminate this Agreement pursuant to Section 7.1(d)(ii), Parent shall pay to the Company a termination fee in cash equal to $7,500,000 (the “Parent Termination Fee”).  If the Parent Termination Fee becomes payable pursuant to this Section 7.3(c), such payment shall be made to the Company no later than two (2) Business Days after the termination of this Agreement.  Any such payment shall be made by wire transfer of immediately available funds to an account to be designated by the Company.

(d)           Any payment required to be made pursuant to Section 7.3(a)(i) shall be made to Parent promptly following the earlier of the execution of a definitive agreement with respect to, or the consummation of, any transaction contemplated by a Takeover Proposal (and in any event not later than two (2) Business Days after delivery to the Company of notice of demand for payment).  Any payment required to be made pursuant to Section 7.3(a)(ii) shall be made to Parent promptly following termination of this Agreement by Parent pursuant to Section 7.1(c)(ii) (and in any event not later than two (2) Business Days after delivery to the Company of notice of demand for payment).  Any payment required to be made pursuant to Section 7.3(a)(iii) shall be made to Parent prior to or contemporaneously with the termination of this Agreement by the Company pursuant to Section 7.1(d)(iii) (and any purported termination pursuant to Section 7.1(d)(iii) or this Section 7.3 shall be void and of no force or effect unless the Company shall have made such payment).  In circumstances in which Expenses of Parent and Merger Sub or the Company are payable, such payment shall be made to Parent or the Company, as applicable, not later than two (2) Business Days after delivery to the Company or Parent, as applicable, of an itemization setting forth in reasonable detail all Expenses of Parent and Merger Sub or the Company (which itemization may be supplemented and updated from time to time by such party until the 60th day after such party delivers such notice of demand for payment).  All such payments shall be made by wire transfer of immediately available funds to an account to be designated by Parent.

(e)           Each of the parties hereto acknowledges that the agreements contained in this Section 7.3 are an integral part of the transactions contemplated hereby, and that without these agreements, the other party would not enter into this Agreement.  Accordingly, if the Company or Parent, as the case may be, fails to timely pay any amount due pursuant to this

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or change to the provisions hereof which by Law would require further approval by the stockholders of the Company without such approval.

SECTION 8.3                 Extension of Time; Waiver.  At any time prior to the Effective Time, any party may, subject to applicable Law, (a) waive any inaccuracies in the representations and warranties of any other party hereto, (b) extend the time for the performance of any of the obligations or acts of any other party hereto or (c) waive compliance by the other party with any of the agreements contained herein or, except as otherwise provided herein, waive any of such party’s conditions.  Notwithstanding the foregoing, no failure or delay by the Company, Parent or Merger Sub in exercising any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right hereunder.  Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party.

SECTION 8.4                 Assignment.  Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, in whole or in part, by operation of Law or otherwise, by any of the parties without the prior written consent of the other parties, except that Merger Sub may assign, in its sole discretion, any of or all its rights, interests and obligations under this Agreement to any direct, wholly owned Subsidiary of Parent, but no such assignment shall relieve Merger Sub of any of its obligations hereunder.  Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and permitted assigns.  Any purported assignment not permitted under this Section 8.4 shall be null and void.

SECTION 8.5                 Counterparts.  This Agreement may be executed in counterparts (each of which shall be deemed to be an original but all of which taken together shall constitute one and the same agreement) and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties.

SECTION 8.6                 Entire Agreement; No Third-Party Beneficiaries.  This Agreement, the Company Disclosure Schedule, the Support Agreement and the Confidentiality Agreement (a) constitute the entire agreement, and supersede all other prior agreements and understandings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof and thereof and (b) except as set forth in Section 5.14(d), are not intended to and shall not confer upon any Person other than the parties hereto any rights or remedies hereunder.

SECTION 8.7                 Governing Law; Jurisdiction; Waiver of Jury Trial.

(a)           This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, applicable to contracts executed in and to be performed entirely within that State.

(b)           All actions and proceedings arising out of or relating to this Agreement shall be heard and determined in the Chancery Court of the State of Delaware or any federal court sitting in the State of Delaware, and the parties hereto hereby irrevocably submit to the

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“Publicly Available Software” means any “open source,” “shareware” and free Software (including any Software licensed pursuant to a GNU public license) and any Software having similar licensing or distribution models, and any other Software that requires as a condition of use, modification or distribution that other Software incorporated into, derived from or distributed with such Software (i) be disclosed or distributed in source code form, (ii) be licensed for the purpose of making derivative works or (iii) be redistributable at no charge.

“Separation Agreement” means the Separation Agreement to be entered into by and among Parent, the Company and Newco to effect the Restructuring and Spin-Off.  The transactions contemplated by the Separation Agreement are, by the terms of the Separation Agreement, to be consummated at or prior to the Effective Time.

“Software” means any and all (i) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code, object code or other form, (ii) databases and compilations, including any and all data and collections of data, whether machine-readable or otherwise, (iii) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing and (iv) documentation, including user manuals and training materials, related to any of the foregoing.

“Spin-Off Assets” shall mean all assets primarily related to the Digital Watermarking Business and any other assets contemplated by the Spin-Off Agreements.

“Subsidiary” when used with respect to any party, means any corporation, limited liability company, partnership, association, trust or other entity the accounts of which would be consolidated with those of such party in such party’s consolidated financial statements if such financial statements were prepared in accordance with GAAP, as well as any other corporation, limited liability company, partnership, association, trust or other entity of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power (or, in the case of a partnership, more than 50% of the general partnership interests) are, as of such date, owned by such party or one or more Subsidiaries of such party or by such party and one or more Subsidiaries of such party.

“Technology” means all designs, formulas, algorithms, procedures, techniques, ideas, know-how, Software (whether in source code, object code or human readable form), databases and data collections, Internet websites and web content, tools, inventions (whether patentable or unpatentable and whether or not reduced to practice), invention disclosures, developments, creations, improvements, works of authorship, other similar materials and all recordings, graphs, drawings, reports, analyses, other writings and any other embodiment of the above, in any form or media, whether or not specifically listed herein.

“Transition Services Agreement” means the Transition Services Agreement to be entered into by and among Parent, the Company and Newco prior to the consummation of the transactions contemplated by the Separation Agreement.

“Transactions” refers collectively to this Agreement and the transactions contemplated hereby, including the Merger, the Restructuring and the Spin-Off, and the Support Agreement and the transactions contemplated thereby.

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“Walk-Away Date” means December 31, 2008.

The following terms defined on the page of this Agreement set forth after such term below shall have the respective meaning therein defined:

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