-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MWwlN/jByk00DWPvYKZEl4b4Ox0jurzOMwBXRw+1pjp0UrzBw9rbJ7AawvFDAK5d 2NfKhfQYnJwu99lx2xeVdA== 0001016843-97-000178.txt : 19970508 0001016843-97-000178.hdr.sgml : 19970508 ACCESSION NUMBER: 0001016843-97-000178 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEOMEDIA TECHNOLOGIES INC CENTRAL INDEX KEY: 0001022701 STANDARD INDUSTRIAL CLASSIFICATION: 7373 IRS NUMBER: 363680347 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-21743 FILM NUMBER: 97565671 BUSINESS ADDRESS: STREET 1: 280 WEST SHUMAN BLVD STREET 2: STE 100 CITY: NAPERVILLE STATE: IL ZIP: 60563 BUSINESS PHONE: 6303554404 MAIL ADDRESS: STREET 1: 280 WEST SHUMAN BLVD SUITE 100 CITY: NAPERVILLE STATE: IL ZIP: 60563 FORMER COMPANY: FORMER CONFORMED NAME: DEVSYS INC DATE OF NAME CHANGE: 19960911 10KSB 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------------- FORM 10-KSB (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) COMMISSION FILE NUMBER 0-21743 NEOMEDIA TECHNOLOGIES, INC. --------------------------- (Name of Small Business Issuer in Its Charter) DELAWARE 36-3680347 -------- ---------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 2201 SECOND STREET, SUITE 600, FORT MYERS, FLORIDA 33901 - - -------------------------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) Issuer's Telephone Number (Including Area Code) 941-337-3434 Securities Registered Under Section 12(b) of the Exchange Act: NONE Securities Registered Under Section 12(g) of the Exchange Act: TITLE OF EACH CLASS ------------------- COMMON STOCK, PAR VALUE $.01 REDEEMABLE COMMON STOCK PURCHASE WARRANTS Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSM [ ] Issuer's consolidated revenue for its most recent fiscal year was $17,518,000. The aggregate market value of the voting stock held by non-affiliates of the issuer based on the price at which shares of common stock closed on March 14, 1997 was $12,500,944. As of March 14, 1997, there were outstanding 5,369,768 shares of the issuer's Common Stock and 3,130,938 warrants. PART I ITEM 1. BUSINESS GENERAL ORGANIZATIONAL HISTORY. The Registrant, NeoMedia Technologies, Inc. ("Technologies"), was incorporated under the laws of the State of Delaware on July 29, 1996, under the name DevSys, Inc. to acquire by tax-free merger Dev-Tech Associates, Inc. ("Dev-Tech"), Technologies' predecessor, which was organized in Illinois in December, 1989. In October, 1996, the Registrant's name was changed from DevSys, Inc. to NeoMedia Technologies, Inc. In March, 1996, Dev-Tech's common stock was split, with an aggregate of 2,551,120 shares of common stock being issued in exchange for the 164 then issued and outstanding shares of common stock. On August 5, 1996, Technologies acquired all of the shares of Dev-Tech in exchange for the issuance of shares of Technologies' common stock to Dev- Tech's stockholders ("Dev-Tech Merger"). Each stockholder of Dev-Tech received one share of NeoMedia's common stock in exchange for one share of Dev-Tech's common stock, or an aggregate of 2,551,120 shares. The Dev-Tech Merger was effected under applicable provisions of the Internal Revenue Code as a tax-free transaction to the corporations and stockholders. As a result of the Dev-Tech Merger, holders of options and warrants to purchase Dev-Tech's common stock have the right to purchase Technologies' common stock. As an additional result of the Dev-Tech Merger, NeoMedia is the successor to the business and the operations of Dev-Tech. In November, 1996, a reverse stock split was effected whereby each shareholder received .90386 shares of common stock for each one share of common stock then owned. In November, 1996, Dev-Tech Migration, Inc., an Illinois corporation ("DTM") and an affiliate of Dev-Tech, was merged into a subsidiary of Technologies. DTM provides migration services. Migration services consist of adapting computer software that operates only with a specific brand of hardware and operating and data base software (called a "legacy system"), such as Wang, to operate with most, if not all brands of hardware and operating software (called an "open system platform" or an "open system environment"). Management determined that DTM's services complimented Dev-Tech's services as a systems integrator, and that the synergies between the two companies would be beneficial. Accordingly, on November 20, 1996, DTM was merged ("Migration Merger") into NeoMedia Migration, Inc. ("Migration), a wholly-owned subsidiary of Technologies in exchange for the issuance of shares of Technologies' common stock to Charles W. Fritz, the sole stockholder of DTM and a principal shareholder, officer and director of Technologies. Mr. Charles Fritz received an aggregate of 827,525 shares of common stock on the basis of one share of DTM's common stock for .90386 share of Technologies' Common Stock. As a result of the Migration Merger, holders of options to purchase DTM common stock have the right to purchase Technologies' common stock. Accordingly, an aggregate of 330,816 shares of Technologies' common stock have been reserved for issuance upon exercise of such options. The Migration Merger was also effected under applicable provisions of the Internal Revenue Code as a tax free transaction to the corporations and Mr. Fritz. As a result of Migration Merger, Migration is the successor to the business and operations of DTM. These two mergers were accounted for in a manner similar to the pooling of interests method of accounting using historical book values rather than fair market value as all entities involved were under common control. As a result of NeoMedia's reverse stock split in November, 1996, and following the Migration Merger, there were 3,133,378 shares of common stock issued and outstanding as of November 20, 1996. In August, 1996, Migration formed a wholly-owned subsidiary, Distribuidora Vallarta, S.P.A., a Guatemalan corporation where NeoMedia employs computer software developers and system integrators. Unless the context indicates otherwise, all references herein to "NeoMedia", "Technologies" or the "Company" mean and refer to the Registrant and its wholly-owned subsidiaries. 1 INITIAL PUBLIC OFFERING. On November 25, 1996, NeoMedia completed an initial public offering of 1,700,000 units at $6.00 per unit (the"IPO"). Each unit consisted of one share of common stock, $.01 par value and one five-year redeemable common stock purchase warrant ("Warrant"). The common stock and the warrants are traded on the NASDAQ SmallCap Market under the symbols "NEOM" and "NEOMW," respectively. Of the 1,700,000 units of NeoMedia offered, 1,235,000 shares of common stock and 1,700,000 warrants were sold by NeoMedia and 465,000 shares of common stock were sold by certain stockholders of NeoMedia (the "Bridge Financing Selling Stockholders"). NeoMedia did not receive any of the proceeds from sale of common stock by the Bridge Financing Selling Stockholders. On January 16, 1997, an additional 255,000 units were sold by NeoMedia upon the exercise by Joseph Charles & Associates, Inc., the representative of the underwriters in the IPO ("Joseph Charles"), of its option to cover over-allotments in the IPO. BRIDGE FINANCING PRIVATE PLACEMENT. Prior to the IPO, in August 1996, NeoMedia consummated the sale of an aggregate of $2,975,000 principal amount of 10% Unsecured Subordinated Convertible Promissory Notes, due September 30, 1997 (the "Bridge Promissory Notes"), in a private placement to certain investors (the "Bridge Financing Private Placement"). On November 23, 1996, NeoMedia prepaid an aggregate of $262,500 principal amount of the Notes. Upon consummation of the IPO, the Bridge Promissory Notes were automatically converted for each $50,000 principal amount into 13,750 shares of common stock and 13,750 warrants. Since $2,712,500 aggregate principal amount of Notes were outstanding following such prepayment, upon the consummation of the IPO, the Bridge Promissory Notes were automatically converted into an aggregate of 745,938 shares of common stock of NeoMedia and 745,938 warrants, and the Bridge Promissory Notes were no longer outstanding. 465,000 of the converted common shares were sold in IPO and the remaining 280,938 converted common shares may be sold from time to time in the open market by the holders of the converted common shares (the "Bridge Financing Selling Stockholders"), at any time after November 25, 1997. The Warrants owned by the Bridge Financing Selling Stockholders are not subject to any restrictions on sale and may be sold at any time; however, the common stock received by a Bridge Financing Selling Stockholder upon exercise of such a Warrant may not be sold by a Bridge Financing Selling Stockholder until after November 25, 1997. BUSINESS OVERVIEW NeoMedia provides computer software and consulting services: * to link printed documents to the computer, the Internet and the World Wide Web; * to assist clients in the creation, production and management of printed documents; and * to enable clients to update their computer software that operates only with a specific brand of hardware such as Wang, to operate with most, if not all, brands of hardware. NeoMedia has developed its own technology, and has rights to use the technology of others, to generate printed documents which can be automatically "read" by machines, such as computers equipped with scanners and appropriate software. These "machine readable" documents incorporate printed codes which contain thousands of bytes of information, including computer programs rendering them functionally equivalent to a computer floppy disk with a limited capacity to hold information. These codes are referred to in the industry as "high capacity symbologies" and "multi-dimensional" or "two-dimensional" bar codes. This technology has been thoroughly designed, developed and tested during the past decade, and has resulted in its recent commercial introduction in a variety of applications, such as shipping documents and identification cards, in the United States and abroad. NeoMedia currently provides software and services to support these applications. In addition, the potential applications of using high capacity symbologies to link printed material to electronic media are limitless. NeoMedia believes that its Intelligent Document technology is broad and generally innovative which can be applied in a variety of industries including information management services, banking and financial services, health care, government services, publishing, advertising, gaming and entertainment. 2 NeoMedia refers to documents that incorporate high capacity symbologies as "Intelligent Documents", and intends to offer systems that incorporate this technology, including those containing proprietary components and configurations. Management believes that NeoMedia has the expertise, and is positioned, to commercially link the worlds of print and electronic media through this technology. NeoMedia provides consulting, software and systems integration services for printing and document processing applications. NeoMedia provides these solutions using its own proprietary software products, and equipment and software of third parties, such as IBM Corporation, Xerox Corporation, Oce Printing Systems (formerly Siemens Nixdorf Printing Systems), Sun Microsystems Computer Company, and Oracle Corporation. These products and services enable their customers, such as Fidelity Investments, Discover Card Services, Inc., Charles Schwab & Co., Inc. and the State of Wisconsin, to reduce their costs by using computer technology to produce on demand customized forms instead of using more expensive pre-printed stock forms. These products and services also allow NeoMedia's customers to customize the data contained in these forms on demand for marketing and communications purposes. In addition, they also allow them to implement their high speed production printing systems on lower cost distributed client-server platforms. NeoMedia places special emphasis on applications that involve both print and electronic media. Such solutions often require NeoMedia to recommend, specify, supply and install equipment and software products from third party suppliers, many of whom have associations with NeoMedia. NeoMedia acts as a re- marketer of equipment and software products for a number of suppliers and, to date, has generated substantial revenue from these activities. Migration provides consulting and systems integration services to facilitate the migration of business applications running on legacy systems, such as the Wang environment, to open-system platforms, such as Unix. Such migrations can reduce customer capital, training and operating costs as well as improve performance and increase functionality in the new system environment. Migration has a group of proprietary programs ("tools") which facilitate this process and reduce the time, cost and risk involved in such development efforts. The products and services offered by Migration complement NeoMedia's more general systems integration products and services, which management believes provide clear synergies with NeoMedia's other commercial activities. NeoMedia currently offers its services and products through its three principal business units, the Document Systems Solutions Unit, the Systems Transition Solutions Unit and Intelligent Document Solutions Unit which, although separate in name, often function as a team in providing solutions for its customers. As part of the services provided in connection with the solutions it offers, NeoMedia often recommends, specifies, supplies and installs equipment and software products from third party suppliers, many of whom have associations with NeoMedia. NeoMedia acts as a re-marketer of equipment and software products for a number of suppliers and, to date, has generated the largest portion of its revenue from these activities. NeoMedia renders its services to all sizes and types of organizations, from the small, privately-owned company to large, multi-national organizations, and has performed services for many customers, such as Discover Card Services, Inc., Sun Trust Bank, Inc., Charles Schwab & Co., Inc., Fidelity Investments and the State of Wisconsin. In addition, NeoMedia currently has strategic business relationships with many industry leaders, such as IBM Corporation, Sun Microsystems Computer Company, Xerox Corporation, Symbol Technologies, Inc., Oracle Corporation, Netscape and Oce Printing Systems (formerly Siemens Nixdorf Printing Systems). INTELLIGENT DOCUMENT SOLUTIONS UNIT THE LIMITATIONS OF PRINTED DOCUMENTS. Printed documents constitute the principal means by which information has been transmitted and exchanged in recorded form for hundreds of years. As such, they have provided the basis and infrastructure for formal communication and commerce worldwide. 3 During the past half century, electronic data processing systems have played an increased role in the distribution and storage of information and are rapidly supplanting the use of printed information as the standard for communication. However, even in today's world of electronic "information on demand", it is useful, and often necessary, to transfer computer based information into printed form since paper continues to be an inexpensive, portable and non-volatile display and storage media ideally suited for computer-to-human communications. The result, therefore, has been that instead of decreasing the number of documents generated, the adoption of electronic data processing has actually increased the volume of computer generated print documents. Unfortunately, the conversion of information to print has traditionally been a one way street -- from electronic media to a printed form. Although it is now easier to convert information from electronic media ("machine readable information") to printed human readable information through "print-on-demand", it is exceedingly difficult, and often impossible, to reverse this process and convert information in printed form back into a machine readable format. This is not a trivial problem. For example, it is common in business and government operations to take information stored in an electronic media format and print it into human readable form and then re-enter the same information back into electronic format. This process of printing and re-entering into electronic format often occurs multiple times since the information in the electronic format must be available for multiple parties or business departments in traditional human readable print in addition to its original electronic format. Text conversion from printed "human readable" form to a machine readable format can be accomplished through either manual re-entry or through the use of optical character recognition ("OCR") software contained in scanning devices. Neither manual transcription nor the use of scanning devices are an efficient or effective method of conversion. Manual transcription is both labor intensive and error prone. Scanning devices are, at best, 98% efficient which is not suitable for transcription of un-proofed text and is potentially disastrous for the conversion of documents containing numerical information. Furthermore, neither method can fully restore a print document to its original machine readable form which often contains non-printable "latent" information, such as spreadsheet formulas, database references, embedded programs and multi-media data. HIGH CAPACITY SYMBOLOGIES: PRESERVING MACHINE READABLE INFORMATION IN HUMAN READABLE PRINT DOCUMENTS. The use of high capacity symbologies is today the most effective and efficient means of transmitting printed information between computers. High capacity symbologies are data communications protocols which allow the preservation and communication of virtually all machine readable data represented as highly structured patterns on conventional print media. These patterns can be decoded using conventional document scanning devices and appropriate software. The result is a system which literally functions as a "modem" for print, virtually eliminating the need for manual or OCR conversion while providing 100% accuracy and preserving the "latent" elements previously available only in the electronic data processing environment. Management believes that Intelligent Document technology can be used to increase operational efficiencies in a business by reducing the labor currently required to manually re-enter data conveyed by computer generated print documents into data processing systems for transaction, document and record management purposes. In contrast to traditional "first generation" linear bar codes which, due to space limitations, only hold less than 40 characters, the high capacity symbologies used in Intelligent Documents convey significantly greater amounts of information; up to 2,000 characters in single symbols and tens of thousands when multiple symbols are used. In addition, unlike traditional linear bar codes, high capacity symbologies are not limited to representing character information but can also convey pure binary data including formatting information, charts and graphs, multi-media elements such as color photographs and audio and fully executable programs and macros. High capacity symbologies, in conjunction with other Intelligent Document software technology that NeoMedia has developed, can also be used to automatically link any printed document, such as books, newspapers, magazines, invoices and cards to on-line sources of computer information including those available through the Internet and the World Wide Web. Since the Intelligent Document Solutions Unit has only been formed recently, to date it has provided only limited software and consulting services. However, due to the rapidly emerging era of electronic commerce fostered by the proliferation of the Internet and the World Wide Web, NeoMedia anticipates that the large number of potential 4 Intelligent Document applications will, in terms of revenue, make this the fastest growing unit of NeoMedia, although no assurances can be given that this will occur. SERVICES AND PRODUCTS. NeoMedia either currently provides or plans to provide the following Intelligent Document service and software products: /bullet/ TECHNOLOGY AND SOLUTIONS CONSULTING are engagements where NeoMedia consults with clients to advise them on general capabilities of Intelligent Document technology and specific advantages and limitations of different implementations, including custom solution designs and impact studies to assist them in their businesses. /bullet/ SYSTEMS DEVELOPMENT AND INTEGRATION is the design, development, implementation and service of Intelligent Document systems and applications for client purposes. It is anticipated that these systems will incorporate both equipment and software available from third party suppliers, as well as proprietary components and licenses developed by and controlled by NeoMedia. /bullet/ INTELLIGENT DOCUMENT MIDDLEWARE includes multi-platform utility software products, such as print drivers, symbology encoders and decoders, compaction modules and application engines which support and enable Intelligent Document applications. NeoMedia believes that it is currently the leading provider of high capacity symbology print drivers to the high speed printing environment. NeoMedia has provided such services to various customers, such as UPS and Symbol Technologies, Inc. and their customers, such as J.C, Penney, Amway, various state departments of motor vehicles, and the country of Bahrain. /bullet/ INTELLIGENT DOCUMENT APPLICATIONS includes specific applications software which apply Intelligent Document technology and principles to provide specific commercial solutions. DOCUMENT SYSTEMS SOLUTIONS UNIT The function of the Document Systems Solutions Unit is to assist clients in optimizing their document creation, production and management processes. These efforts have historically focused on designing and providing high speed document formatting and printing solutions, although services of this unit have recently been expanded to include document management, scanning and archive management, as well as automated format conversion for alternative electronic distribution channels, such as the Internet. In connection with the services of this unit, NeoMedia is a supplier of proprietary and third party software and third party equipment. The companies represented by NeoMedia in the sale of software and/or equipment include Oracle Corporation, IBM Corporation, Xerox Corporation, Symbol Technologies, Oce Printing Systems (formerly Siemens Nixdorf Printing systems), Elixir, I-Data, and PrintSoft Americas. The services of this unit are directed principally to firms which operate high speed and large volume printing operations. The development of reliable high speed laser printers not only resulted in the creation of large print-to- mail operations, it also facilitated the production and delivery of large volumes of documents in relatively short time frames, permitting printing and mailing of as many as 30 million documents in a month. The United States Postal Service ("USPS") has encouraged the production of high speed computer generated mail by providing postage discounts to those companies which produce their mail in a manner that assists the USPS routing and delivery process. Large volume mailers have been able to reduce their postage expenses significantly by using computers to prepare and print mail in USPS specified delivery sequence. There are now many print-to-mail sites in the United States generating enormous volumes of documents per month. The Document Systems Solutions Unit provides services and products to these high volume printing operations to automate and control their document production process. The 5 services performed by the Document Systems Solutions Unit represented 18.8% of NeoMedia's total sales for the year ended December 31, 1996. SERVICES. NeoMedia provides services in this market as both a consultant and systems integrator, consisting of the following: /bullet/ ENTERPRISE OUTPUT STRATEGIES are consulting engagements in which NeoMedia professionals analyze customer business requirements and design comprehensive document systems solutions to resolve business problems. NeoMedia has rendered services to a number of Fortune 100 and 500 clients since its inception in 1989, which typically have focused on business enablement and market share growth through enhanced document solutions. Recent emphasis has focused on the design of systems that provide a technology bridge from paper to electronic media. /bullet/ DOCUMENT MANUFACTURING EXECUTION SYSTEMS is the application of technology used in the typical manufacturing operation to the document production process. Large scale print-to-mail operations are essentially manufacturing operations. However, unlike successful manufacturing operations, print-to-mail operations typically lack control systems, such as those to ensure quality. NeoMedia actively consults in these areas and is currently developing customized versions of established manufacturing execution systems for the document generation environment. /bullet/ INTELLIGENT DOCUMENT SOLUTIONS, in the context of the Document Systems Solutions Unit, are the consulting and systems integration of the software products and applications provided by the Intelligent Document Solutions Unit. As related to the document production process, Intelligent Documents can also be used to control such processes and facilitate document return processing and archive retrieval. SOFTWARE PRODUCTS. NeoMedia offers a variety of third-party and proprietary software products to be used in connection with its document systems solutions. STRATEGIC PARTNERS. In providing Document Systems Solutions to customers, NeoMedia often "partners" with companies such as PrintSoft Americas, Elixir Technologies, Xerox Corporation, Oce Printing Systems (formerly Siemens Nixdorf Printing Systems), IBM and I-Data. These arrangements often result in the "partner" introducing customers to NeoMedia, that purchase NeoMedia's and/or the "partner's" services and/or products, the use by the partner of NeoMedia as a subcontractor, the re-marketing by NeoMedia of the "partner's" products, and the sharing of responsibility with the partner. Depending upon the product or service involved, the association with the partner may be on an exclusive basis. SYSTEMS TRANSITION SOLUTIONS UNIT LEGACY ENVIRONMENT AND OPEN SYSTEMS DEVELOPMENT. Prior to the late 1980's, mid-sized to large companies relied upon either a mainframe or minicomputers to perform critical business functions, such as inventory and production control, financial reporting, document generation and mailing and administrative support functions. Each manufacturer of these computers sought to differentiate and gain competitive advantage by developing "closed" environments which would work only with that manufacturer's proprietary equipment and software products. This approach effectively "locked" a customer into a given supplier for equipment and systems software including data- communications networks, databases and application development environments. This in turn resulted in the development of business software which would run only on these closed proprietary systems. These closed, proprietary systems and applications are referred to in the industry as "legacy systems". In the late 1980's and early 1990's, widespread technological advances in microprocessors and memory devices, communications networks, peripheral storage devices and system software made practical the implementation of 6 enterprise wide distributed computing environments which offered price/performance advantages over traditional closed systems. It became possible to connect large numbers of personal computers ("PCs") via local area networks ("LANs"). Even though the operating systems for these PCs and LANs were generally proprietary (e.g., MS DOS, Novell, branded-UNIX), they were "open" in that they could be installed on equipment from a variety of manufacturers and allowed widespread software development in standard computer languages. The result was rapid proliferation of these "open system platforms" solutions, and market competition led to rapid improvements in price/performance for open systems. In addition to price/performance benefits, software written for use with these open systems also provided functionality which was largely absent from traditional legacy systems. A significant innovation was the widespread implementation of graphical user interfaces ("GUIs)" - "point and click" applications - on networked PCs and workstations, which greatly improved ease of use and training and increased productivity. Another advantage of using open systems is the ability to facilitate cooperative work among users by managing the distribution of data and applications in a networked client-server environment. In addition, client-server systems are scalable in that additional capacity can be added in small increments, essentially on an individual workstation basis, as compared to the major investment required to add incremental capacity to traditional mainframe and minicomputer systems. MIGRATION TO OPEN SYSTEM ENVIRONMENT. As a result of these developments and the cost and productivity advantages of the open system environment, many business users employing legacy systems desired to convert their systems to the open system environment. However, in many cases, the applications used on the legacy systems could not be moved directly from their "closed" environment to the open, client-server system. Two solutions typically used to implement this conversion have been (1) to move directly to a client-server application, resulting in the loss of use of the existing applications on the legacy system, incurring the consequent loss of specific functionality and increase in training, or (2) to rewrite the existing application in the open systems environment, which was expensive, time-consuming and often not entirely effective in transferring functionality. A third approach to this conversion, and the one employed by NeoMedia, is to employ migration "tools" (programs) which translate legacy application programs and databases from their closed proprietary form to equivalent source code and record structures which can be run directly in the open client-server environment. The advantages of this migration approach is that (1) most, if not all, of the functionality of the original legacy application is maintained in the new open environment, (2) the conversion entails less time, resources and risk than other methods, and (3) the conversion provides a base for modernization of the legacy application in the new open environment. Since technology in the computer industry changes so rapidly, the "new and improved" system of today is the legacy system of tomorrow. Consequently, NeoMedia believes that there is a substantial and will continue to be a continuing market for transition services. THE NEOMEDIA SOLUTION. In 1994, Migration acquired and has since further developed a group of automated legacy conversion tools. These proprietary tools support migrations from proprietary Wang VS and Hewlett Packard HP3000 to multiple varieties of UNIX systems. NeoMedia takes an evolutionary, rather than a revolutionary, approach to migration. When assisted by NeoMedia, the client takes smaller, safer and more manageable steps toward its conversion objective. At the completion of each "migration" stage, the client evaluates a variety of "modernization" paths which may be available to it, such as running Microsoft Windows interfaces to their applications, taking advantage of special features of a new database or development environment, integrating their custom application with third-party applications or enhancing their abilities to create custom form documents from their internal applications. The "modernization" aspect of NeoMedia's migration services highlights the synergies that exist with NeoMedia's expertise in providing products and services for open systems. After NeoMedia has completed the migration of the client's legacy software to an open system, this software can be modernized (i.e. updated) to take 7 advantage of modern technologies to improve system performance, enhance user interfaces and generally bring the system into an up-to-date condition. NeoMedia's "migration and modernization" approach allows for fast, cost effective migration of legacy software with a minimum of disruption to the client's business operations, coupled with controlled modernization projects that, in a well-planned and logical manner, result in the legacy software having the latest technology. Since NeoMedia has the expertise to accomplish both the migration from the legacy platform to the open system and to modernize the software, it acts as "one-stop shopping" for all of its client's needs. NeoMedia believes that since it has the capability to be a single source of solutions for its customers, it has a competitive advantage. SERVICES. The Systems Transition Solutions Unit of NeoMedia presently offers four approaches to assist clients to implement business applications in open computing environments: /bullet/ OPEN SYSTEM DEVELOPMENT. This approach is employed when an application must be written or rewritten for use on an open systems platform. NeoMedia provides consulting services for technology assessment, systems analysis and design as well as full systems integration and support services. These services include mainframe and workstation integration, application program selection and design, custom program development, equipment and software installation, customer training and acceptance testing. The initial focus of these services was on the Unix workstation and server environment due to its "open" nature and ability to support enterprise database applications on workstation environments. These services have broadened to include other platforms, including Windows NT, which NeoMedia believes will be increasingly competitive during the latter half of this decade. /bullet/ TOTAL ASSISTED MIGRATION. This approach is employed when the legacy application effectively can be converted and "ported" (moved) to the open system environment using largely automated processes with minimal custom development. This approach is superior to the Open System Development in time, cost and development risk. Consequently, it is usually preferred. Conversion and porting of the legacy application is accomplished by the use of the proprietary migration tools employed by NeoMedia. NeoMedia's migration-development tools and application products are based on the technology of widely used Informix, Microsoft Corporation, IBM, Hewlett Packard, Oracle Corporation, Sun Microsystems Computer Company, Micro Focus Cobol and Accucobol. /bullet/ MICRO-MAINFRAME PORTS. In the first half of 1996, IBM introduced a family of products (IBM P390 and R390 processors), which allows users to run mainframe applications on a downsized air cooled platform in addition to either OS2 or AIX (IBM's version of Unix). On these new systems, users can run and maintain the integrity of existing and proven mainframe systems at a price and support cost comparable to the cost of an open system. While the transfer of applications to these new processors is not a conversion, it does involve migration services since special expertise is required in the configuration and tuning of the new processors in order to co-host the proprietary IBM applications in conjunction with either OS2 or AIX. NeoMedia, as an authorized re-marketer for IBM, offers these new systems and provides migration services in connection with their installation. /bullet/ INTERNET EXTENSIONS. Information currently on the Internet is predominately housed in open system environments, primarily UNIX servers which have become the machine of choice in academic and other distributed computing environments during the past decade. The vast majority of new information currently being formatted for the World Wide Web is also hosted in open system environments. However, the majority of corporate information is housed in legacy mainframe and mini-computer environments which are not connected to the Internet, primarily for security reasons. This condition is the major barrier to the application of Internet technology to inter and intra enterprise communications and applications often referred to as Intranet solutions. NeoMedia offers services in this arena, which include: 8 * Implementation of new Internet compatible systems through open systems integration products and services. * Migrations of existing proprietary legacy applications and databases to open system platforms compatible with modernization to the Internet environment. * Porting of IBM mainframe applications to air cooled micro-frames which bridge both legacy and open system environments. /bullet/ MILLENNIA IMPACT STUDIES AND CORRECTIONS. Computer programs within the past thirty-five years have relied on the assumption that the dates used in calculations occur within the twentieth century. For example, in these programs the year "1901" is represented only by the last two digits ("01"), with the "19" assumed. This method of programming allowed computer programmers to make optimal use of memory resources which, until recently, were limited. Unfortunately, at the turn of the century, this method of programming will cause calculations based on these current programs to be invalid, since dates will be interpreted incorrectly by the computer. For example, unless the computer program is corrected, the date "2001" will be interpreted by the computer as "1901", which will result in serious errors in calculations which are dependent upon dates, such as mortgage calculations and, in particular, those in the financial industry. This is commonly referred to as the "Year 2000" or "millennia" problem. NeoMedia uses its expertise to advise clients as to the extent of their Year 2000 problem for their particular computer system and software, and to suggest methods for its correction. NeoMedia has determined to primarily focus its efforts in this area in the markets in which it performs migration and modernization services, and in particular to users of Wang and HP 3000 systems. This will allow NeoMedia to specialize on a specific market, and will also afford it additional opportunity to sell its migration and modernization services. Thus, by assisting in the Year 2000 problem, NeoMedia is cross-marketing its services. In addition to these services, NeoMedia plans to engage in the design and development of proprietary applications to enhance ported systems when the migration is complete. These proprietary systems will include the support of Virtual Private Networks which emulate local area network access via the Internet using secure encryption methods to route data traffic. The result will be a Virtual Private Web which will allow computers within companies to be networked via the Internet, with the assurance of security so that there would not be any unauthorized use. In each of these areas of service, NeoMedia provides consulting services which include strategic consulting, analysis and evaluation of user applications, systems analysis, design, implementation, integration and support services and client training and configuration, installation and maintenance of equipment. The services performed by the Systems Transition Solutions Unit represented 80.6% of NeoMedia's total sales for the year ended December 31, 1996. For the years ended December 31, 1996 and 1995, revenues from NeoMedia's migration services represented 7.9% and 10.9%, respectively, of NeoMedia's total revenue. As a systems integrator, NeoMedia supplies and installs, as a re-marketer for a number of companies, a variety of computer and related products. For the years ended December 31, 1996 and 1995, revenues from this activity represented 72.7% and 66.0%, respectively, of NeoMedia's total revenue. BUSINESS RELATIONSHIPS. As part of the services provided in connection with the Systems Transition Solutions Unit, NeoMedia acts as a re-marketer of equipment in connection with open systems development and migrations. NeoMedia has maintained relationships with a number of major companies under which NeoMedia re-markets the equipment and software products of those companies. These relationships include those identified with respect to the Document Systems Solutions Unit. PROPRIETARY MIGRATION SOFTWARE TOOLS AND PRODUCTS. NeoMedia has acquired and developed a line of proprietary products and software tools utilized in its migrations services solutions. 9 CUSTOMERS Although NeoMedia provides services and products to a spectrum of customers, ranging from closely-held companies to Fortune 100 and 500 companies, for the years ended December 31, 1996 and 1995, one customer, Ameritech Services, Inc. ("Ameritech"), accounted for 39.6% and 49.0%, respectively, of NeoMedia's revenue. NeoMedia expects sales to Ameritech as a percentage of total sales to continue to decline. Furthermore, NeoMedia does not have a written agreement with Ameritech and, therefore, there are no contractual provisions to prevent Ameritech from terminating its relationship with NeoMedia at any time. Accordingly, the loss of this customer, or a significant reduction by it in buying the products and services offered by NeoMedia, absent diversification, would materially and adversely affect NeoMedia's revenues and results of operations. In addition, the equipment and software which is re-marketed to this customer is supplied by a single supplier. Accordingly, the loss of this supplier would materially adversely affect NeoMedia. For these reasons, NeoMedia is seeking, and continues to seek, to diversify its sources of revenue. SALES AND MARKETING NeoMedia markets its products, as well as those for which it acts as a re-marketer, and its services primarily through its direct sales force, which was composed of 20 personnel as of December 31, 1996. NeoMedia currently maintains sales locations in four states. The sales organization is responsible for achieving quarterly and annual sales quotas, and, to a significant extent, is compensated based upon the profitability of their efforts. NeoMedia also relies upon its strategic alliances with industry leaders to help market its products and services, provide lead referrals and establish informal co-marketing arrangements. Although NeoMedia in the past has engaged in limited telemarketing activities, it may in the future expand such marketing activities. Representatives of NeoMedia also attend seminar and trade shows, both as speakers and participants, to help market its products and services. NeoMedia currently has arrangements with independent distributors to promote their products and services outside of the United States. NeoMedia currently has representation in England, the Netherlands, Canada, Central America, South America and Singapore, although its revenue from sales outside the United States is insignificant. RESEARCH AND DEVELOPMENT The computer industry is characterized by rapid technological change, frequent new product and service introductions, evolving industry standards and changes in customer demands. The introduction of products and services embodying new technologies and the emergence of new industry standards can, in a relatively short period of time, render existing products and services obsolete and unmarketable. NeoMedia, therefore, believes that its success depends upon its ability continuously to develop new products and services, as well as enhancements to its existing products, and to introduce them promptly into the market. Research and development is especially critical to NeoMedia's intention to develop new software products and services related to high capacity symbologies. NeoMedia employed nine persons in the area of product development as of December 31, 1996. During the years ended December 31, 1996 and 1995, NeoMedia incurred total research and development costs of $628,000 and $714,000, respectively, of which $293,000 and $278,000, respectively, were capitalized as software development costs and $335,000 and $436,000, respectively, were expensed as research and development costs. Although, NeoMedia currently is seeking patents for certain of its proprietary technology related to Intelligent Documents, NeoMedia presently has no patents with respect to its proprietary technology and products. No assurances can be given that such patent protection will be granted, and if granted, that it will be adequate to protect NeoMedia's rights. In addition, NeoMedia relies upon copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions, all of which afford only limited protection, to protect its proprietary technology and products. Although NeoMedia takes steps to protect its trade secrets, such as requiring employees with access to NeoMedia's proprietary information to execute confidentiality and non-disclosure agreements, it may be possible for unauthorized parties to copy or reverse engineer all or part of any one of NeoMedia's proprietary technology and products. Furthermore, just as there can be no assurance that a misappropriation of NeoMedia's proprietary 10 technology and products will not occur, there can be no assurance that copyright, trademark and trade secret laws will be available in all circumstances to protect NeoMedia's rights. In addition, although the laws of the United States may protect NeoMedia's proprietary rights in its technology and products, the laws of foreign countries where NeoMedia's products may be used may not protect its proprietary rights at all or to the same extent as the laws of the United States. NeoMedia believes that its proprietary technology and products do not infringe upon the rights of any third parties; however, there can be no assurance that a third party will not in the future claim infringement by NeoMedia. Similarly, infringement claims could be asserted against products and technologies which NeoMedia licenses from third parties. NeoMedia has never received notification that any of its products, products it licenses or the technology of such products infringe upon the proprietary rights of third parties. NeoMedia may provide some of its products to end users using non-exclusive, non-transferable licenses which provide that the licensee may use the software solely for internal operations on designated computers at specific sites or by a specified number of users. NeoMedia generally does not make source codes available for NeoMedia's products. Due to the difficulty of doing so, NeoMedia has never policed, nor has it ever attempted to police, the unauthorized use of its products. Even though piracy of NeoMedia's proprietary rights could materially adversely affect it, NeoMedia believes that the threat of piracy, or the unavailability of protection under applicable laws, is less significant to its competitive and fiscal well being than its ability to respond to the rapid change in technology which characterizes the computer industry. COMPETITION The markets in which NeoMedia competes are highly competitive, and NeoMedia believes that such competition is likely to intensify. Many of NeoMedia's competitors have substantially greater financial resources, larger research and development and sales staffs and greater name recognition than NeoMedia and, therefore, can respond more quickly and efficiently to changing technology and user needs. As usually occurs when competition increases, there is corresponding downward pressure on prices and profit margins, either of which could materially and adversely affect NeoMedia. NeoMedia believes that a potential source of competition is from its present customers who could choose to develop and produce products and render services in-house similar to those provided by NeoMedia. Since NeoMedia offers a variety of products and services, no generalities can be made as to its competitors, all of which differ depending upon the product or service offered. The largest competition, in terms of number of competitors, is for customers desiring systems integration, including the re-marketing of another party's products, and document solutions. These competitors range from the local, small privately held company to the large national and international organizations, including the large consulting firms, such as Andersen Consulting. A large number of companies act as re-marketers of another party's products, and therefore, the competition in this area is intense. In some instances, NeoMedia, in acting as a re-marketer, may compete with the original manufacturer. There are a number of companies that compete with NeoMedia for customers wishing to migrate from a legacy to an open systems environment. In addition, there are different competitors, depending upon the platform from which the migration is being done. Generally, as with competitors for NeoMedia's open systems services and products, the competitors for transition services business range from small to large companies. NeoMedia believes, however, that not a significant number of its competitors for the transition services business use automated tools to facilitate the migration. This, NeoMedia believes, gives it a competitive advantage in this area. Since the development of high capacity symbologies are in their relative infancy, at the current time there is very little competition. However, it can be expected that as this area develops, competitors will appear and 11 competition will be significantly increased. No assurances can be given that NeoMedia will be able to compete successfully in this area should this occur. New or improved products and services can be expected from NeoMedia's competitors in the future. Market participants must compete on many fronts, including development time, engineering expertise, product quality, performance and reliability, price, name recognition, customer support and access to distribution channels. NeoMedia believes that it has been able to compete to date primarily through product quality, technical excellence, customer service and its ability to achieve desired results. NeoMedia's ability to compete in the future will depend upon many factors, including the ability to attract new customers and to diversify its customer base and products and services so as not to be dependent upon any one or several customers or product or service, to attract and retain qualified management, sales and technical personnel, to develop new products and services and to respond quickly and efficiently to new technology. There is no assurance that NeoMedia will be able to compete successfully or develop competitive products and services in the future. LIABILITY INSURANCE NeoMedia has never had any liability claim asserted against it. However, NeoMedia could be subject to liability claims in connection with the use of the products and services that it sells. There can be no assurance that NeoMedia would have sufficient resources to satisfy any liability resulting from these claims or would be able to have its customers indemnify or insure NeoMedia against such claims. Although NeoMedia maintains insurance against such claims, there can be no assurance that such coverage will be adequate in terms and scope to protect NeoMedia against material adverse effects in the event of a successful claim. GOVERNMENT REGULATION NeoMedia has no knowledge of any government regulation to which it is subject or which would materially adversely affect its business operations. ENVIRONMENTAL PROTECTION COMPLIANCE NeoMedia has no knowledge of any federal, state or local environmental compliance regulations which affect its business activities. NeoMedia has not expended any capital to comply with any environmental protection statutes and does not anticipate that such expenditures will be necessary in the future. EMPLOYEES As of December 31, 1996, NeoMedia employed 54 full-time and 5 part-time employees, located in ten states, which included 14 full-time employees and 1 part-time employee in systems integration, 9 full-time employees in product development, 16 full-time employees and 4 part-time employees in sales, 4 full-time employees in marketing and 11 full-time employees in executive and administrative positions. None of NeoMedia's employees are represented by a labor union or bound by a collective bargaining agreement. NeoMedia believes that its employee relations are good. SAFE HARBOR PROVISION OF THE PRIVATE SECURITIES LITIGATION ACT OF 1995 The statements contained in Item 1 (Business) and Item 6 (Management's Discussion and Analysis of Financial Condition and Results of Operations) that are not historical facts may be forward-looking statements that are subject to a variety of risks and uncertainties more fully described in NeoMedia's filings with the Securities and Exchange Commission including, without limitation, those described under "Risk Factors" in NeoMedia's Prospectus dated November 25, 1996. NeoMedia cautions readers that these risks and uncertainties could cause NeoMedia's actual results in 1997 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, NeoMedia. These risks and uncertainties include, without limitation, NeoMedia's limited operating 12 history on which expectations regarding its future performance can be based, general economic and business conditions affecting the industries of NeoMedia's customers in existing and new geographical markets, competition from, among others, national and regional software developers and software/hardware sellers that have greater financial, technical and marketing resources and distribution capabilities than NeoMedia, the availability of sufficient capital, NeoMedia's ability to identify the right product mix, NeoMedia's ability to successfully acquire and integrate the operations of additional businesses and NeoMedia's ability to operate effectively in geographical areas in which it has no prior experience. ITEM 2. DESCRIPTION OF PROPERTIES NeoMedia's principal executive, marketing and support facility is located at 2201 Second Street, Suite 600, Fort Myers, Florida 33901. NeoMedia occupies approximately 10,615 square feet under terms of a written lease from an unaffiliated party expiring on January 31, 2000. NeoMedia's principal sales facility is located at 280 West Shuman Boulevard, Suite 100, Naperville, Illinois 60563. NeoMedia occupies approximately 9,324 square feet under the terms of a written lease from an unaffiliated party expiring on December 31, 2000. NeoMedia subleases approximately 5,035 square feet of the sales facility under the terms of a written sublease to an unaffiliated party expiring on December 31, 2000. NeoMedia also leases, from an unaffiliated party, approximately 890 square feet of office space, pursuant to a written lease terminating August 31, 1997, at 112 South Tryon Street, Suite 1440, Charlotte, North Carolina 28284. Pursuant to the agreement by which NeoMedia purchased the migration tools from International Digital Scientific, Inc., NeoMedia occupied until January 31, 1997 approximately 4,900 square feet of office space at 28460 Stanford Avenue, Suite 100, Valencia, California 91355. In addition, NeoMedia leases, from an unaffiliated party, approximately 880 square feet of office space, pursuant to a written lease terminating January 31, 1997, at 12 Calle 1-25 Zona 10, Edificio Geminis, Torre Norte Officina 1006, Guatemala City, Guatemala 01010. NeoMedia also leases from Charles W. Fritz (NeoMedia's President) and his wife, pursuant to a verbal, month-to-month lease, space at 6054 Timberwood Circle, #240, Fort Myers, Florida 33908, which it currently uses as temporary housing for employees relocating to Fort Myers. Although this lease is between affiliated parties, NeoMedia believes that it is on terms no less favorable to it than could be obtained from unaffiliated parties. NeoMedia believes that its existing office space is adequate to meet its current and short-term requirements. ITEM 3. LEGAL PROCEEDINGS NeoMedia is not a party to any material legal proceedings, nor to NeoMedia's knowledge is any material legal proceedings threatened against it. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of NeoMedia security holders during the fourth quarter of the year ended December 31, 1996. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) MARKET INFORMATION. NeoMedia's common stock and Warrants began trading on NASDAQ SmallCap Market on November 25, 1996, the date of its initial public offering. Prior to such time there was no established public trading market for NeoMedia's common stock or Warrants. Set forth below is the range of high and low sales 13 prices for the common stock and Warrants for the periods indicated as reported by NASDAQ. The quotations do not include retail markups, markdowns or commissions and may not represent actual transactions. TYPE OF SECURITY PERIOD ENDED HIGH LOW - - ---------------- ------------ ---- --- Common Stock December 31, 1996(1) $7.50 $5.13 March 14, 1997(2) $6.31 $5.28 Warrants December 31, 1996(1) $1.50 $0.50 March 14, 1997(2) $1.75 $1.06 - - --------------------------------- (1) Includes only the period November 25, 1996 through December 31, 1996. (2) Includes only the period January 1, 1997 through March 14, 1997. (b) HOLDERS. As of February 28, 1997, there were 63 holders of record of NeoMedia's common stock and 42 holders of record of its warrants. NeoMedia believes that it has a greater number of shareholders because management believes that a substantial number of NeoMedia's common stock and Warrants are held of record in street name by broker-dealers for their customers. (c) DIVIDENDS. As of March 14, 1997, NeoMedia has not paid any dividends on its common stock and does not expect to pay a cash dividend in the foreseeable future, but intends to devote all funds to the operation of its businesses. As of March 14, 1997, NeoMedia has a letter of credit with First National Bank of Chicago, Chicago, Illinois, the terms of which require First National Bank of Chicago's written permission prior to the declaration of cash dividends. Currently, NeoMedia is in discussions with a number of financial institutions to obtain additional lines of credit. If any such additional lines are obtained, their terms may also contain provisions restricting NeoMedia's ability to pay dividends. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Dev-Tech Associates, Inc., NeoMedia's predecessor, was organized in December, 1989, and through the year ended December 31, 1996, a substantial part of NeoMedia's revenue was derived from software resales and equipment resales. NeoMedia couples its proprietary software products with independent vendor products it resells, enabling it to provide a complete "turn-key" service for its customers. Currently, NeoMedia's revenue consists of software license fees, resales of software developed by independent vendors ("software resales"), resales of computer equipment manufactured by independent vendors ("equipment resales"), and fees for services, including consulting, education and postcontract software support. In addition, NeoMedia recently formed its Intelligent Document Solutions Unit to develop enabling technology and applications for printed materials containing high-capacity symbologies, which NeoMedia believes to be an expanding area in the emerging world of electronic commerce. NeoMedia's strategy is to increase sales of its proprietary software transition tools and applications as a percentage of total sales. License fees for the year ended December 31, 1996 increased 180.8% from the year ended December 31, 1995, and, as a percentage of total sales, increased to 4.4% of total sales during the year ended December 31, 1996 from 2.2% during the year ended December 31, 1995, while total sales increased to $17.5 million during 1996 as compared to $12.8 million during 1995, or an increase of 36.8%. NeoMedia has built and intends to continue to build an infrastructure that assumes this strategy will succeed. Therefore, the failure to achieve this strategy could have a material adverse effect on NeoMedia's business, financial condition and results of operations. A substantial portion of NeoMedia's operating expense is related to personnel, facilities and amortization. Such operating expenses cannot be adjusted quickly and are therefore fixed in the short term. NeoMedia's expense levels 14 for these items are based, in significant part, on NeoMedia's expectations of future sales. If actual sales levels are below management's expectations, results of operations are likely to be adversely affected by a similar amount because a relatively small amount of NeoMedia's expense varies with its sales in the short term. In general, NeoMedia's sales are difficult to forecast as the market for client/server equipment and software is rapidly evolving and NeoMedia's sales cycle, from the initial proposal to the customer through the purchase of product and related services varies substantially from customer to customer and from product to product. Also, NeoMedia's operating results may fluctuate significantly from period to period as a result of a variety of factors, including changes in the composition of NeoMedia's revenue, the timing of new product introductions and NeoMedia's expenditures on research and development and promotional programs, as well as the general state of the national and global economies. Demand for the products sold by NeoMedia may increase or decrease as a result of a number of factors, such as client preferences and product announcements by competitors. In the past, NeoMedia has realized a substantial portion of its sales in the last quarter of the year. It is not uncommon for equipment resellers and software companies to experience strong fourth quarters followed by weak first quarters. Such seasonality arises from many factors, such as the timing of product introductions and business cycles of NeoMedia's customers, and could be material to NeoMedia's interim results. Such cycles vary from customer to customer, and the overall impact on NeoMedia's results of operations cannot be predicted. There can be no assurances that NeoMedia will not display this pattern in future years. In addition, its business and results of operations could be affected by the overall seasonality of the industry. NeoMedia's quarterly operating results have been subject to variation and will continue to be subject to variation, depending upon factors, such as the mix of business among NeoMedia's services and products, the cost of material, labor and technology, particularly in connection with the delivery of business services, the costs associated with initiating new contracts or opening new offices, the economic condition of NeoMedia's target markets, and the cost of acquiring and integrating new businesses. RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1995 GENERAL. Loss before income taxes for the year ended December 31, 1996 was $2.9 million as compared to $1.3 million during the year ended December 31, 1995. During the first quarter of 1996, NeoMedia decided to invest in the infra-structure needed to manage current and expected future growth. The 1996 loss resulted primarily from increased general, administration, sales and marketing expenses associated with NeoMedia investing in expanding its infra-structure by hiring management, sales and other personnel to develop, market and sell new products. Using a portion of the proceeds from the IPO, NeoMedia intends to continue to expand its development, sales and marketing positions to increase revenue in each of its three business units: Document Systems Solutions Unit, Systems Transition Solutions Unit and Intelligent Document Solutions Unit. To a lesser extent, the increased loss was due to an increase in net interest expense, including expense associated with NeoMedia's private placement during the third quarter of 1996 of its 10% uncollateralized subordinated convertible promissory notes, due September 30, 1997. LICENSE FEES. NeoMedia's license fees are derived from licensing NeoMedia's internally developed and purchased software tools. During 1994, NeoMedia purchased the intellectual property rights to certain software tools which support migrations from proprietary computer environments to multiple varieties of UNIX systems. Additionally, NeoMedia developed its own proprietary software products for high speed printing and migration services. License fees for the year ended December 31, 1996 were $775,000 compared to $276,000 for the year ended December 31, 1995, an increase of $499,000 or 180.8%. This increase resulted primarily from $88,000 of initial sales of newly developed software and the $411,000 increase in sales of existing software transition tools. Cost of sales for license fees consisted primarily of fees paid to an independent software developer. Cost of sales as a percentage of related sales increased to 40.8% during 1996 from 30.1% during 1995 primarily due to the increased sales where fees were paid to an independent software developer. 15 SOFTWARE RESALES. NeoMedia's software resales are derived from NeoMedia's strategic alliances with independent manufacturers of client/server computer equipment and independent developers of software applications and tools. Software resales increased by $1.0 million, or 87.2%, from $1.2 million for the year ended December 31, 1995 to $2.2 million for the year ended December 31, 1996. Reselling of UNIX client server administrative software began during 1996 and contributed $631,000 of sales for 1996. NeoMedia also began selling newly introduced micro- mainframe computers, which contributed $245,000 of sales for 1996. Cost of sales as a percentage of related sales increased to 63.0% during 1996 from 39.7% during 1995. This increase resulted primarily from the cost of the newly introduced products being 68.6% on average of related sales, while the cost of the existing software products resold being 59.4% on average of related sales. In addition, cost of sales for 1996 were affected by certain inventory received in 1994 at approximately $135,000 less than its estimated fair market value of $260,000 in exchange for an agreement with the vendor to pay the vendor royalties based on future sales. The inventory received was recorded at NeoMedia's estimated obligation under this royalty agreement. This inventory was depleted during 1995 resulting in an increase in the cost of sales during 1996. EQUIPMENT RESALES. NeoMedia's equipment resales are also derived from NeoMedia's strategic alliances with independent manufacturers of client/server computer equipment, including IBM Corporation and Sun Microsystems Computer Company. These alliances provide marketing support and sales leads in the client/server marketplace. Equipment resales increased by $3.9 million, or 45.7%, to $12.4 million for the year ended December 31, 1996, as compared to $8.5 million for the year ended December 31, 1995 primarily as the result of an expanded customer base. For the year ended December 31, 1996, increased equipment resales related to IBM RS/6000 workstations totaled $2.2 million principally as a result of changes in a vendor's sales incentive programs. Also, additional sales of Sun Microsystems workstations and servers were $1.7 million, while sales of mid-range printers decreased $176,000. Cost of sales as a percentage of related sales increased to 85.7% during 1996 from 83.3% during 1995 primarily due to a $500,000 one-time shipment of desktop printers to a major customer at cost. SERVICE FEES. NeoMedia's service fees consisting of sales from consulting, education and postcontract support services decreased by $721,000, or 25.8%, to $2.1 million for the year ended December 31, 1996, as compared to $2.8 million for the year ended December 31, 1995. A customer specific development project was completed during 1995, which contributed service fees of $133,000 during 1995. Moreover, NeoMedia's focus changed during 1995 to providing services using NeoMedia's proprietary software tools and licensing software rather than through service fees. Cost of services as a percentage of related sales increase to 91.9% during 1996 from 86.4% during 1995 primarily due to an increase in compensation expenses. AMORTIZATION OF SOFTWARE. Amortization of software for the year ended December 31, 1996, as compared to the year ended December 31, 1995, increased $84,000 as a result of the amortization of software costs capitalized during 1996; however, as a percentage of total net sales decreased to 3.7% during 1996 from 4.5% during 1995 due to the increase in net sales. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased $1.4 million, or 152.3%, to $2.3 million for the year ended December 31, 1996, from $907,000 in the year ended December 31, 1995. This increase was due mainly to an increase in the provision for bad debts, rent expenses, professional fees and compensation as NeoMedia builds an administration infra-structure to manage current and expected future growth. SALES AND MARKETING. A portion of the compensation to the sales and marketing staff constitutes salary and is fixed in nature, while the rest of this compensation is directly related to sales volume. Sales and marketing expenses have increased $500,000, or 27.4%, to $2.3 million for the year ended December 31, 1996 from $1.8 million for the year ended December 31, 1995, as a result of the increase in net sales. NeoMedia anticipates that sales and marketing costs will increase as NeoMedia grows. RESEARCH AND DEVELOPMENT. During the year ended December 31, 1996, NeoMedia charged to expense 1.9% of total net sales in research and development expenses as compared to 3.4% during the year ended December 31, 16 1995. This percentage decrease was due to an increase in total net sales. NeoMedia currently intends to continue to make significant investments in research and development. INTEREST EXPENSE, NET. Interest expense consists primarily of interest paid to creditors as part of financed purchases, capitalized leases, the bridge loan received by NeoMedia in August, 1996 in a private placement and NeoMedia's asset-based collateralized line of credit. Interest expense increased by $260,000, or 92.9%, to $540,000 for the year ended December 31, 1996 from $280,000 for the year ended December 31, 1995, due to an increase in debt outstanding during 1996 over 1995. PROVISION (BENEFIT) FOR INCOME TAXES. During 1996, NeoMedia established in its provision for income taxes a valuation allowance for all of the net deferred income tax assets. As of December 31, 1996, NeoMedia had a $1.6 million net operating loss carryforward which does not include the net operating losses of DTM prior to the Migration Merger. Until the Migration Merger, DTM was treated as an S Corporation for federal and state income tax purposes. Accordingly, federal income taxes on any earnings of DTM were payable by DTM's shareholder rather than by NeoMedia. With the Migration Merger, the S Corporation status of Migration was terminated and Migration became subject to statutory corporate income taxes. Consequently, the benefit for income taxes differs from the amount computed by applying the statutory federal rate of 34% primarily because of the net losses incurred by Migration. LIQUIDITY AND CAPITAL RESOURCES Since inception, NeoMedia has financed its operation through shareholder loans and borrowings from a commercial bank and under a line of credit. In December, 1995 and in January, 1996, in several series of transactions between affiliates, funds were loaned and borrowed pursuant to promissory notes bearing interest at the rate of 8% per annum. See "Item 12 -- Certain Relationships and Related Transactions." In December, 1996 and February, 1997, NeoMedia repaid in full all of these related party loans. Also, in December, 1995 and in January, 1996, NeoMedia borrowed $250,000 each month from a commercial bank bearing interest at the bank's prime rate plus 0.5%. During 1995, NeoMedia had available a line of credit with a commercial bank that permitted borrowings up to the lesser of $2.0 million or 80% of eligible accounts receivable, as defined in the financing agreement. The line of credit had an interest rate equal to the bank's prime rate plus 1.0%. The line of credit was collateralized by accounts receivable and inventories, and required NeoMedia to maintain certain financial ratios. NeoMedia used this facility for funding its operations during 1995 and through the closing of the IPO shortly after which NeoMedia repaid in full the line of credit with its commercial bank. In November, 1996, NeoMedia completed its IPO receiving net proceeds of $5.7 million. As of December 31, 1996, NeoMedia's working capital was $5.0 million which represented a $5.9 million increase from December 31, 1995. In January, 1997, NeoMedia closed the IPO's over-allotment and received net proceeds of $1.3 million. In February, 1997, NeoMedia began discussions with a number of financial institutions for a line of credit to replace the bank line repaid in November, 1996, and enhance the line of credit with a commercial finance company. Net cash used in operating activities for the years ended December 31, 1996 and 1995, was $1.9 million and $937,000, respectively. During 1996, trade accounts receivable increased $1.9 million, while accounts payable and accrued expenses increased $1.8 million. During 1995, collections on trade receivables provided NeoMedia with cash of $1.7 million which was used primarily to reduce trade payables which decreased $2.2 million. NeoMedia's net cash flow used in investing activities for the years ended December 31, 1996 and 1995, was $433,000 and $444,000, respectively. Net cash provided by financing activities for the years ended December 31, 1996 and 1995, was $6.5 million and $1.3 million, respectively. During 1996, NeoMedia completed the IPO 17 receiving net cash proceeds of $5.7 million, closed the private placement of bridge financing receiving net cash proceeds of $2.7 million and repaid notes totaling $1.9 million. To date, inflation has not had a material effect on NeoMedia's financial results. There can be no assurance, however, that inflation may not adversely affect NeoMedia's financial results in the future. NeoMedia utilizes various computer software packages as tools in running its daily operations. Management does not believe that NeoMedia will encounter any material problems with this software as a result of the change of the millennium on January 1, 2000. RECENTLY ISSUED ACCOUNTING STANDARDS In February, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"), which becomes effective for NeoMedia for the year ended December 31, 1997. FAS 128 replaces the presentation of primary earnings per share with a presentation of basic earnings per share which excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted earnings per share is computed similarly to fully diluted earnings per share pursuant to Accounting Principles Board Opinion No. 15, "Earnings Per Share." FAS 128 also requires dual presentation of basic and diluted earnings per share on the face of the income statement for all entities with complex capital structure and requires a reconciliation of the numerator and denominator of the basic earnings per share computation to the numerator and denominator of the diluted earnings per share computation. NeoMedia has not yet determined the impact of implementing FAS 128. ITEM 7. FINANCIAL STATEMENTS The Financial Statements to this Form 10-KSB are attached commencing on page F-1. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES In 1995, NeoMedia voluntarily changed its independent accountants from McGladrey & Pullen, LLP to Coopers & Lybrand L.L.P. This change was approved by NeoMedia's Board of Directors. The financial statements for each of the two years in the two-year period ending December 31, 1996, were audited by Coopers & Lybrand L.L.P. NeoMedia did not have any disagreements on accounting and financial disclosures with its accountants in the years ending December 31, 1996 or 1995. 18 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT DIRECTORS AND EXECUTIVE OFFICERS As of December 31, 1996 and March 14, 1997, NeoMedia's directors and executive officers were: NAME AGE POSITION HELD Charles W. Fritz 40 President, Chief Executive Officer, Director and Chairman of the Board William E. Fritz 66 Secretary and Director Charles T. Jensen 53 Chief Financial Officer, Vice-President and Treasurer and Director Robert T. Durst, Jr. 44 Chief Technical Officer, Vice-President of Technologies and Business Development and Director Dan Trampel 44 Senior Vice-President -- Sales A. Hayes Barclay 66 Director James J. Keil 69 Director Paul Reece 60 Director CHARLES W. FRITZ is a founder of NeoMedia and has served as its President and a Director since its inception, and as Chief Executive Officer and the Chairman of the Board of Directors since August 6, 1996. Prior to founding NeoMedia, Mr. Fritz was an Account Executive with IBM Corporation from 1986 to 1988, Director of Marketing and Strategic Alliances for the Information Consulting Group from 1988-1989, and a Consultant for McKinsey & Company. Mr. Fritz holds an M.B.A. from Rollins College and a B.A. in finance from the University of Florida. Mr. Fritz is the son of William E. Fritz, a Director of NeoMedia and its Secretary. WILLIAM E. FRITZ is a founder of NeoMedia and has served as Secretary and a Director since its inception. He also served as Treasurer of NeoMedia from its inception until May 1, 1996. Mr. Fritz, who has over thirty-two years in establishing and operating privately owned companies, currently is, and for at least the past ten years has been, an officer and either the sole stockholder or a majority stockholder, of Gen-Tech, Inc., Dev-Mark, Inc. and EDSCO, three railroad freight car equipment manufacturing companies. Mr. Fritz also has ownership interests and executive positions in several other companies. Mr. Fritz holds a B.S.M.E. and a Bachelor of Naval Science degree from the University of Wisconsin. Mr. Fritz is the father of Charles W. Fritz, NeoMedia's President, Chief Executive Officer and Chairman of the Board. CHARLES T. JENSEN has been Chief Financial Officer, Treasurer and Vice President of NeoMedia since May 1, 1996. He has been a Director since August 6, 1996. Prior to joining NeoMedia in November, 1995, Mr. Jensen, who has over 27 years of audit, finance and business experience, including audit experience with Price Waterhouse & Co., was Chief Financial Officer of Jack M. Berry, Inc., a Florida corporation which grows and processes citrus products from December, 1994 to October, 1995, and at Viking Range Corporation, a Mississippi corporation, a 19 manufacturer of gas ranges from November, 1993 to December, 1994. From December, 1992 to February, 1994, Mr. Jensen was Treasurer of Lin Jensen, Inc., a Virginia corporation specializing in ladies clothing and accessories. Prior to that, from January, 1982 to March, 1993, Mr. Jensen was Controller and Vice-President of Finance of The Pinkerton Tobacco Co., a tobacco manufacturer. Mr. Jensen holds a B.B.A. in Accounting from Western Michigan University and is a Certified Public Accountant. ROBERT T. DURST, JR. has been Chief Technical Officer and Vice President of Technologies and Business Development since April 1, 1996. He has been a Director since August 6, 1996. Prior to joining NeoMedia, Mr. Durst held management positions with Symbol Technologies, Inc., Bohemia, New York, from February, 1992 to March, 1995 where, among other things, he worked extensively on two dimensional bar code technology. From March, 1986 to February, 1992, Mr. Durst was employed as a Technical Director by Pitney Bowes, Inc., Stamford, Connecticut. Mr. Durst holds a M.A. in Cognitive Psychology from the University of Illinois and a B.A. from Allegheny College. DAN TRAMPEL has been Senior Vice-President of Sales since July 3, 1996. Mr. Trampel has approximately twenty years of experience in sales, marketing, sales management and general management. Prior to joining the Company, from September, 1993 to May, 1994, Mr. Trampel was Vice-President of Sales for the Great Lakes region for Hitachi Data Systems, a California based company which markets mainframe computers and peripherals to Fortune 500 companies. From July, 1991 to August, 1993, Mr. Trampel was Vice-President of Sales, Marketing and Customer Support for Data-Link Systems, Incorporated, an Indiana based company which acts as a data servicer and software development concern to large banks and mortgage servicers. From February, 1989 to January, 1991, Mr. Trampel was Vice-President of Sales for the Central Region for Network Equipment Technologies, Incorporated, a California based company which provides high-speed hardware and software to Fortune 500 companies desiring to install and operate their own private data networks. From July, 1974 to February, 1989, Mr. Trampel worked for IBM Corporation where he worked in its Data Processing Division and National Accounts Division until 1985, when he became the Branch Manager of its Midtown Branch in Chicago, Illinois. Mr. Trampel holds a B.A. in Economics and Public Administration from Drake University. A. HAYES BARCLAY has been a Director of NeoMedia since August 6, 1996. Mr. Barclay has practiced law for approximately 33 years and since 1985, has been an officer, owner and employee of the law firm of Barclay & Damisch, Ltd. and its predecessor, with offices in Chicago, Wheaton, and Arlington Heights, Illinois. Mr. Barclay holds a B.A. degree from Wheaton College, a B.S. from the University of Illinois and a J.D. from the Illinois Institute of Technology - Chicago Kent College of Law. JAMES J. KEIL has been a Director of NeoMedia since August 6, 1996. He is founder and president of Keil & Keil Associates, a business and marketing consulting firm located in Washington, D.C., specializing in marketing, sales and document technology projects. Prior to forming Keil & Keil Associates in 1990, Mr. Keil worked for approximately thirty-eight years at IBM Corporation and Xerox Corporation in various marketing and sales positions. From 1989-1995, Mr. Keil was on the Board of Directors of Elixir Technologies Corporation (a non-public corporation), and from 1990-1992 was the Chairman of its Board of Directors. From 1992-1996, Mr. Keil served on the board of directors of Document Sciences Corporation. Mr. Keil holds a B.S. degree from the University of Dayton. PAUL REECE has been a Director of NeoMedia since August 6, 1996. From 1987 until 1994, when he retired from Pitney Bowes, Inc., Stamford, Connecticut, Mr. Reece served at various times as its Vice-President of Operations and Technology Division, Vice-President of Technical Systems and Advanced Products and Vice-President of Corporate Engineering and Technology. Prior to joining Pitney Bowes, Inc., Mr. Reece worked for nineteen years at General Electric Company in various technical, marketing and engineering positions. Mr. Reece holds a B.S., M.S. and Ph.D. in electronics and engineering from the University of Manchester, England. 20 Directors are elected on an annual basis. Each director of NeoMedia holds office until the next annual meeting of the shareholders or until that director's successor has been elected and qualified. At present, NeoMedia's by-laws provide for not less than one director nor more than ten. Currently, there are seven directors. NeoMedia's by-laws permit the Board of Directors to fill any vacancy and such director may serve until the next annual meeting of shareholders or until his successor is elected and qualified. Officers of NeoMedia are elected by the Board of Directors on an annual basis and serve until the next annual meeting of the Board of Directors and until their successors have been duly elected and qualified. NeoMedia has agreed, for a period of four years from November 25, 1996, if so requested by the Joseph Charles & Associates, Inc. ("Joseph Charles") the representative of the several underwriters of NeoMedia's IPO, to nominate a designee of Joseph Charles as a director of NeoMedia. DIRECTOR COMPENSATION Directors are reimbursed for expenses actually incurred in connection with attending meetings of the Board of Directors. Non-employee directors received options to purchase 3,000 shares of NeoMedia's common stock at $5.90 per share as of November 25, 1996 and will receive additional options to purchase 1,000 shares of NeoMedia's common stock as of the date of each annual meeting at which such person is re-elected or continues to serve as director. See "Executive Compensation - Stock Option Plan". NeoMedia anticipates that the Board of Directors will meet at least six times a year. COMMITTEES OF THE BOARD OF DIRECTORS NeoMedia's Board of Directors has an Audit Committee, Compensation Committee and a Stock Option Committee. The Board of Directors does not have a Nominating Committee, and the functions of such committee are performed by the Board of Directors. AUDIT COMMITTEE. NeoMedia's Board of Directors acts as the Audit Committee, which is responsible for nominating NeoMedia's independent accountants for approval by the Board of Directors, reviewing the scope, results and costs of the audit with NeoMedia's independent accountants, and reviewing the financial statements, audit practices and internal controls of NeoMedia. COMPENSATION COMMITTEE. The Compensation Committee is responsible for recommending compensation and benefits for the executive officers of NeoMedia to the Board of Directors and for administering NeoMedia's Incentive Plan for Management. Charles W. Fritz and Charles T. Jensen served as the members of NeoMedia's Compensation Committee. On February 20, 1997, James J. Keil and Paul Reece were elected as additional members of NeoMedia's Compensation Committee. STOCK OPTION COMMITTEE. The Stock Option Committee, which is comprised of non-employee directors, is responsible for administering the Company's Stock Option Plan. Effective November 25, 1996, A. Hayes Barclay and James J. Keil became the members of NeoMedia's Stock Option Committee. CERTAIN SIGNIFICANT EMPLOYEES KEVIN E. LEININGER has been in charge of managing NeoMedia's systems transition solutions business from May, 1996 until March, 1997, when he became director of NeoMedia's business development. From 1991 to 1996, he managed NeoMedia's open systems development services, which currently are part of NeoMedia's systems transition solutions services. From 1987 to 1991, prior to joining NeoMedia, Mr. Leininger held a Group Leadership Position with Fermi National Accelerator Laboratories. To date, Mr. Leininger has authored or co-authored six books on UNIX and the Internet, three of which have been McGraw Hill Book of the Month selections. Mr. Leininger holds 21 a M.B.A. from the University of Chicago and a B.S. in Physics and Math from Iowa State University. Mr. Leininger is 32. RICK D. HOLLINGSWORTH has been Vice President of Technical Operations since August 19, 1996. Mr. Hollingsworth has twenty years of experience in software development. Prior to joining NeoMedia, from December 1994 to August 1996, Mr. Hollingsworth served as a consultant for a number of organizations in Southwest Florida. From June 1992 to November 1994, he was with Allen Systems Group as Chief Technical Officer. Prior to serving in this position, he served as Executive Vice President for product development. From May 1986 to June 1992, he served as Executive Vice President of Master Control Systems where he coordinated the development and marketing of new products. Mr. Hollingsworth holds a Bachelor of Business Administration from Baylor University. Mr. Hollingsworth is 44. SECTION 16(A) COMPLIANCE With respect to compliance with Section 16(a) of the Securities Exchange Act of 1934, James J. Keil, a director of NeoMedia, filed in March, 1997, a Form 4, Statement of Changes in Beneficial Ownership, for purchases of NeoMedia's common stock made in December, 1996 and February, 1997. ITEM 10.EXECUTIVE COMPENSATION The following table sets forth certain information with respect to the compensation paid to (i) NeoMedia's Chief Executive Officer and (ii) each of NeoMedia's other executive officers who received aggregate cash compensation in excess of $100,000 for services rendered to NeoMedia (collectively, "the Named Executive Officers") during the years ended December 31, 1996, 1995 and 1994:
SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION(1) -------------------------------------------------------------- SECURITIES UNDERLYING WARRANTS/ ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) OPTIONS COMPENSATION - - --------------------------- ------- -------- -------- ------- ------------ Charles W. Fritz .............. 1996 $146,666 $ 36,667 260,000(3) $5,486(4) President .............. 1995 110,000 -0- .............. 1994 145,000 230,000 Charles T. Jensen ............. 1996 95,000 50,782 90,386(5) $3,780(4) Chief Financial Officer..... 1995(6) 10,833 -0- Robert T. Durst, Jr. .......... 1996 104,994 22,967 153,657(5) $4,704(4) Chief Technical Officer .... - - ------------------------ (1) In accordance with the rules of the Securities and Exchange Commission ("Commission"), other compensation in the form of perquisites and other personal benefits has been omitted in those instances where the aggregate amount of such perquisites and other personal benefits constituted less than the lesser of $50,000 or 10% of the total of annual salary and bonuses for the Named Executive Officer for such year. (2) The 1996 bonuses were paid in February, 1997, except $30,000 of the bonus to Mr. Jensen which was paid in August, 1996. The 1994 bonus was paid in December, 1994. (3) Represents a warrant, exercisable for a period of four years commencing November 25, 1997, to purchase up to 260,000 shares of common stock at an exercise price of $8.85. (4) Includes life insurance premiums and the corresponding income tax effects of these transactions.
22 (5) Represents options granted under NeoMedia's Stock Option Plan. (6) Amounts cover the period from date of employment by NeoMedia in November, 1995 until December 31, 1995. EMPLOYMENT AGREEMENTS NeoMedia has entered into five year employment agreements ending April 30, 2001, with each of Charles W. Fritz, its President and Chief Executive Officer and Charles T. Jensen, its Chief Financial Officer, Vice President and Treasurer, and with Robert T. Durst, Jr., its Chief Technical Officer and Vice-President of Technologies and Business Development, ending March 31, 2001. The employment agreements for Messrs. Fritz, Durst and Jensen provide for an annual salary of $170,000, $140,000 and $110,000, respectively, subject to annual review by the Board of Directors which may increase but not decrease, such salary, and participation in all benefits and plans available to executive employees of NeoMedia. Each employment agreement terminates upon the employee's death or retirement, and may be terminated by NeoMedia upon the employee's total disability, as defined in the agreement, or for cause which is defined, among other things, as the willful failure to perform duties, embezzlement or conviction of a felony. In addition, Messrs. Fritz, Durst and Jensen participate in a special insurance disability plan and receive life insurance benefits not generally offered to other employees and are entitled to certain severance benefits. These severance benefits vary depending upon the reason for termination and whether there has been a change in control of NeoMedia. If termination occurs by NeoMedia (except for cause or total disability) or by the employee for good reason, as defined in the employment agreement, the agreement provides that NeoMedia will pay to the terminated employee (i) his salary through the date of termination, (ii) any deferred and unpaid amounts due under NeoMedia's Incentive Plan for Management, (iii) any accrued deferred compensation, (iv) an amount equal to two times the sum of his annual base salary plus his highest incentive compensation for the last two years, (v) unpaid incentive compensation including a pro rata amount of contingent incentive compensation for uncompleted periods, (vi) in lieu of any stock options granted whether under NeoMedia's Stock Option Plan or otherwise (which are canceled upon the following payment) a cash amount equal to the aggregate spread between the exercise prices of all options held at such time by such terminated employee and the higher of the highest bid price of the common stock during the twelve months immediately preceding the date of termination, or the highest price per share of common stock actually paid in connection with any change in control (as defined in the employment agreement) of NeoMedia provided that such payments do not violate the provisions of any option or the Stock Option Plan or other plan then in effect, (vii) an amount equal to any taxes payable on these payments, (viii) all relocation expenses if he moves his principal residence more than 50 miles within one year from the date of termination, and (ix) all legal fees and expenses incurred as a result of the termination. In addition, unless termination is for cause, NeoMedia must continue to fund through the terminated employee's normal retirement age any key man insurance that is in effect on the date of termination, or make a lump sum payment necessary to continue to pay such premiums and, for a period of two years following termination, maintain in effect for the benefit of the terminated employee all employee benefit plans, programs or arrangements in effect immediately prior to the date of termination. If the terminated employee's continued participation under such plan and programs is not allowable, NeoMedia is obligated to provide him with similar benefits. Each employment agreement provides that services may be performed for companies, other entities and individuals whether or not affiliated with NeoMedia provided that the performance of such services does not prevent the employee from attending to the affairs of NeoMedia and such companies are not in competition with NeoMedia. The employment agreements of Messrs. Fritz and Durst contain provisions prohibiting their competing with NeoMedia both during and, depending upon the reason for such termination, for one year following the termination of their employment. INCENTIVE PLAN FOR MANAGEMENT Effective as of January 1, 1996, NeoMedia adopted an Annual Incentive Plan for Management ("Incentive Plan"), which provides for annual cash bonuses to eligible employees based upon the attainment of certain corporate and individual performance goals during the year. The Incentive Plan is designed to provide additional incentive to NeoMedia's management to achieve these growth and profitability goals. Participation in the Incentive Plan is limited to those employees holding positions assigned to incentive eligible salary grades and whose participation is authorized 23 by NeoMedia's Compensation Committee which administers the Incentive Plan, including determination of employees eligible for participation or exclusion. The Board of Directors can amend, modify or terminate the Incentive Plan for the next plan year at any time prior to the commencement of such next plan year on January 1. To be eligible for consideration for inclusion in the Incentive Plan, an employee must be on NeoMedia's payroll for the last three months of the year involved. Death, total and permanent disability or retirement are exceptions to such minimum employment, and awards in such cases are granted on a pro-rata basis. In addition, where employment is terminated due to job elimination, a pro rata award may be considered. Employees who voluntarily terminate their employment, or who are terminated by NeoMedia for unacceptable performance, prior to the end of the year are not eligible to participate in the Incentive Plan. All awards are subject to any governmental regulations in effect at the time of payment. Performance goals are determined for both NeoMedia's and the employee's performance during the year, and if performance goals are attained, eligible employees are entitled to an award based upon a specified percentage of their base salary. STOCK OPTION PLAN Effective as of February 1, 1996 (and amended and restated effective July 18, 1996 and further amended through November 18, 1996), NeoMedia adopted its 1996 Stock Option Plan ("Stock Option Plan"), the purpose of which is to retain the services of selected employees and attract new employees, consultants and directors by providing them with the opportunity to acquire a proprietary interest in NeoMedia and thus share in its growth and success. The Stock Option Plan provides for the granting of non-qualified stock options and "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and provides for the issuance of a maximum of 1,500,000 shares of common stock. Incentive stock options may be granted only to employees of NeoMedia or its subsidiaries. Stock options, other than incentive stock options, may be granted to any employee, officer, director or consultant. An employee may receive more than one grant of a stock option, including simultaneous grants of different forms of stock options. Options to purchase up to 3,000 shares of common stock are granted to non-employee directors on the date that such person first becomes a member of the Board of Directors. Non-employees currently serving as directors received such options to purchase 3,000 shares as of November 25, 1996. In addition, beginning with NeoMedia's first annual stockholder's meeting options to purchase up to an additional 1,000 shares of common stock will automatically be granted to each non-employee director as of the date of each annual meeting at which such person is re-elected or continues to serve as a director. The Stock Option Plan is currently administered by the Stock Option Committee of the Board of Directors The Stock Option Committee is currently composed of A. Hayes Barclay and James J. Keil and may not include an officer or employee of NeoMedia. No member of the Committee is eligible to receive stock options under the Stock Option Plan while serving on the Committee other than the automatic grant of options to non-employee directors. Subject to the provisions of the Stock Option Plan, the Committee has exclusive authority to interpret and administer the Stock Option Plan, to select the persons to whom stock options are granted, to determine the number of shares to be covered by each stock option and whether the option granted is an incentive stock option or a non-qualified stock option, to determine whether the shares covered by the option are restricted as to transferability and to determine the terms and conditions upon which each stock option may be exercisable. No stock options under the Stock Option Plan can be granted after January 31, 1999, and the maximum term of an option is ten years from the date of its grant. Upon the occurrence of certain transactions, including a sale, transfer or other disposition resulting in Charles W. Fritz, William E. Fritz and their affiliates owning less than a specified percentage of the voting stock of NeoMedia or the execution of a definitive agreement for the sale of all or substantially all of NeoMedia's assets or its consolidation or merger where NeoMedia is not the surviving entity, each then outstanding option immediately becomes exercisable. Under certain circumstances, the shares of common stock issuable upon exercise of the options may be increased or decreased. 24 The exercise price of each option is determined by the Committee and must be either the fair market value of each share subject to the option on the date the option is granted, or at such other price as the Committee determines, but not less than 100% of the fair market value on the date of the grant. In lieu of tendering a cash payment to satisfy the option price, the optionee may, in the Committee's discretion, satisfy all or a portion of such option price by delivering shares of NeoMedia's common stock. Such shares of common stock are valued at their fair market value at the time of exercise. Options under the Stock Option Plan are non-transferable other than by will, the laws of descent or distribution or pursuant to a qualified domestic relations order. Options may be exercised only during the lifetime of the optionee and, except as may otherwise be provided, only by such individual. The Committee, in its discretion, may provide that an option is exercisable in installments and at specified times, and, at any time after the granting of an option, may accelerate the installment exercise dates. Each grant of an option is confirmed by an agreement ("Stock Option Agreement") between NeoMedia and the optionee, which provides, among other things, that shares received upon exercise of the option cannot be sold, transferred or otherwise disposed of for at least six months from the date of the Stock Option Agreement, none of the outstanding options can be exercised by the optionee thereof unless such optionee has been in the continuous employ of NeoMedia to the date of exercise, subject to termination of employment, death and disability and gives NeoMedia the right, under certain circumstances, to suspend an optionee's right to exercise an option. For options granted prior to July 18, 1996, depending upon the circumstances of an optionee's termination of employment, such optionee's stock options may be exercisable following such termination for up to three months, which is extended to twelve months from the date of death if the optionee dies during such three month period. If the termination is due to death, the option is exercisable for twelve months following the date of death. If the optionee's employment with NeoMedia is terminated without the consent of NeoMedia (other than due to the optionee's death) or for cause, as determined by the Committee, then such optionee's right to exercise the then-outstanding stock options terminates immediately. Options granted subsequent to July 18, 1996, terminate on the earlier of an optionee's termination of employment for any reason or the expiration of the term of the option, although the Committee, in its sole discretion, may allow the option to be exercised for any period following such termination but no longer than the expiration of the term. If at any time after termination an optionee engages in "detrimental activity", as defined in the Stock Option Plan, the Committee, in its discretion, may cause the optionee's right to exercise the option to be forfeited. Options then exercisable held by a non-employee director when such person ceases being a director must be exercised within twelve months following the date such person is no longer serving as a director, unless such termination of service as a director is due to such person's death, permanent disability or retirement pursuant to a Company policy, in which case, such options are exercisable during their remaining terms. The employment agreements of Messrs. Fritz, Durst and Jensen each provide that upon termination of employment by NeoMedia, other than for cause, death or retirement, or by the employee for "Good Reason" as defined in the employment agreement, any time following this offering, any options granted to the terminated employee are canceled and, in lieu thereof, such terminated employee is to receive a cash amount equal to the aggregate spread between the exercise prices of all options held at such time by such terminated employee and the higher of the highest bid price of the common stock during the twelve months immediately preceding the date of termination, or the highest price per share of common stock actually paid in connection with any change in control of NeoMedia (as defined), provided that such payments do not violate the provisions of any option or the Stock Option Plan or other plan then in effect. As of March 14, 1997, options to purchase an aggregate of 760,804 shares of common stock, at an exercise price of $.84, were granted and are outstanding under NeoMedia's Stock Option Plan, including options to Charles T. Jensen, its Chief Financial Officer, and to Robert T. Durst, Jr., its Vice-President of Technologies and Business Development, to purchase 90,386 and 153,657 shares of common stock, respectively. In addition, options to purchase an aggregate of 216,907 shares of common stock in a range of $5.50 to $6.19 per share have also been granted to employees, directors and consultants and are outstanding. 25 Effective February 1, 1996 (and amended and restated effective July 18, 1996), DTM adopted a 1996 stock option plan providing for the issuance of a maximum of 400,000 shares of DTM common stock and identical in all other material respects to NeoMedia's Stock Option Plan. As a result of the Migration Merger, the DTM stock option plan is no longer in effect, no further options under the DTM stock option plan will be issued and holders of options to purchase shares of DTM common stock will, in lieu thereof, receive shares of NeoMedia's Common stock upon exercise of their options. As of the March 14, 1997, options to purchase 326,296 and 4,520 shares of common stock under the DTM stock option plan, at an exercise price of $.84 and $5.90 per share, respectively, have been granted and are outstanding. Following the Migration Merger, the aggregate number of shares of common stock issuable under NeoMedia's Stock Option Plan was not increased by the number of shares of stock issuable under the DTM stock option plan but remains at a maximum of 1,500,000 shares, including options granted under the DTM stock option plan. As of March 14, 1997, of the 1,500,000 options issuable under NeoMedia's Stock Option Plan, there are currently options granted to purchase an aggregate of 1,308,527 shares of common stock (including 330,816 options granted under the DTM stock option plan), and 183,021 options reserved for future issuance under the Stock Option Plan, and NeoMedia is obligated to grant 8,000 options in March 1997, as a result of the hiring of new employees. In consideration of loans made by him to it, NeoMedia has also granted to Charles W. Fritz a warrant to purchase up to 260,000 shares of common stock at an exercise price of $8.85. This warrant is exercisable for four years commencing November 25, 1997, and contains anti-dilution provisions. NeoMedia has agreed with Joseph Charles that except with respect to options granted as of November 25, 1996 and the grant of options under the Stock Option Plan, it will not issue any options until after November 25, 1997. In addition, grantees of options to purchase common stock who are eligible to resell the common stock issuable upon exercising the option under Rule 701 of the Securities Act have agreed (i) not to sell such common stock until after November 25, 1997 and (ii) following such period, to sell in accordance with the volume limitations of Rule 144(e)(1) of the Securities Act which limits the number of shares that may be sold by such person during any three month period to no more than the greater of (a) one percent of NeoMedia's then outstanding shares of common stock or (b) the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of notice of sale with the Commission, or if no notice is required to be filed, the date of receipt by a broker to sell or the date of execution of the sale. The following presents certain information on stock options and warrants for the Named Executive Officers for the year ended December 31, 1996:
OPTION/WARRANT GRANTS IN 1996 NUMBER OF % OF TOTAL SECURITIES OPTIONS / UNDERLYING WARRANTS OPTIONS / GRANTED TO WARRANTS EMPLOYEES EXERCISE EXPIRATION NAME GRANTED IN 1996 PRICE DATE - - ---- ---------- ---------- -------- ---------- Charles W. Fritz..................... 260,000 100.0% $8.85 11/25/01 Charles T. Jensen.................... 90,386 6.4% $ .84 02/01/06 Robert T. Durst, Jr.................. 153,657 10.8% $ .84 04/01/06
401(K) PLAN NeoMedia maintains a 401(k) Profit Sharing Plan and Trust (the "401(k) Plan"). All employees of NeoMedia who are 21 years of age and who have completed three months of service are eligible to participate in the 401(k) Plan. The 401(k) Plan provides that each participant may make elective contributions of up to 20% of such participant's pre-tax salary (up to a statutorily prescribed annual limit, which is $9,500 for 1996) to the 401(k) Plan, although the 26 percentage elected by certain highly compensated participants may be required to be lower. All amounts contributed to the 401(k) Plan by employee participants and earnings on these contributions are fully vested at all times. The 401(k) Plan also provides for matching and discretionary contributions by NeoMedia. To date, NeoMedia has not made any such contributions. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding beneficial ownership of NeoMedia's common stock as of March 14, 1997, (i) by each person or entity known by NeoMedia to own beneficially more than five percent of NeoMedia's Common Stock, (ii) by each of NeoMedia's directors, (iii) by each executive officer of NeoMedia named in the Summary Compensation Table and (iv) by all executive officers and directors of NeoMedia as a group. SHARES PERCENTAGE BENEFICIALLY BENEFICIALLY NAME AND ADDRESS OF OWNER OWNED(1) OWNED(1) - - ------------------------- ------------ ------------ Charles W. Fritz (2)(3) ............... 1,446,169 26.9% William E. Fritz(2)(4) ................ 1,000 * Fritz Family Limited Partnership (2)(4) .................... 1,511,742 28.2% Chandler T. Fritz 1994 Trust(2)(5)(6) ................... 58,489 1.1% Charles W. Fritz 1994 Trust(2)(5)(7) ................... 58,489 1.1% Debra F. Schiafone 1994 Trust(2)(5)(8) ................... 58,489 1.1% Charles T. Jensen(9) .................. 90,386 1.7% Robert T. Durst, Jr.(9) ............... 153,657 2.8% A. Hayes Barclay(10) .................. 1,000 * c/o Barclay & Damisch Ltd 115 West Wesley Street Wheaton, Illinois 60187 James J. Keil ......................... 10,000 * c/o Keil & Keil Associates 733 15th Street, N.W. Washington, D.C. 20005 Paul Reece(11) ........................ 2,000 * 380 Gulf of Mexico Drive Long Boat Key, Florida 34228 All executive officers and directors as a group (8 persons)...... 3,391,421 60.4% 27 - - --------------------------------- * Less than one percent. (1) Beneficial ownership is determined in accordance with rules of the Commission, and includes generally voting power and/or investment power with respect to securities. Shares of common stock subject to options currently exercisable or exercisable within sixty days of March 14, 1997 are deemed outstanding for computing the beneficial ownership percentage of the person holding such options but are not deemed outstanding for computing the beneficial ownership percentage of any other person. Options granted to Messrs. Trampel, Barclay, Keil and Reece and warrants (the "Principal Stockholder's Warrants") granted to Charles Fritz are not currently exercisable or exercisable within sixty days from March 14, 1997. Accordingly, the number of shares of common stock issuable upon the exercise of any option or warrant owned by such person or entity are not included in this table. Except as indicated by footnote, to the knowledge of NeoMedia, the persons named in the table above have the sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. (2) c/o NeoMedia Technologies, Inc. 2201 Second Street, Suite 600 Fort Myers, Florida 33901 (3) Mr. Fritz may be deemed to be a parent and promoter of NeoMedia, as those terms are defined in the Securities Act. Shares beneficially owned do not include the Principal Stockholder's Warrants to purchase 260,000 shares of common stock at $8.85 per share after November 25, 1997. (4) William E. Fritz, Secretary of NeoMedia, and his wife, Edna Fritz, are the general partners of this Limited Partnership, and therefore each are deemed to be the beneficial owner of the 1,511,742 shares held in the Fritz Family Partnership. As Trustee of each of the Chandler T. Fritz 1994 Trust, Charles W. Fritz 1994 Trust and Debra F. Schiafone 1994 Trust, William E. Fritz is deemed to be the beneficial owner of the shares of the Company held in each trust. Accordingly, Mr. William E. Fritz is deemed to be the beneficial owner of an aggregate of 1,688,209 shares (175,467 of which as a result of being trustee of the Chandler T. Fritz 1994 Trust, Charles W. Fritz 1994 Trust and Debra F. Schiafone 1994 Trust, 1,511,742 shares as a result of being co-general partner of the Fritz Family Partnership and 1,000 shares owned in his own name). Mr. William E. Fritz may be deemed to be a parent and promoter of NeoMedia, as those terms are defined in the Securities Act. (5) William E. Fritz is the Trustee of this Trust and therefore is deemed to be the beneficial owner of such shares. (6) Chandler T. Fritz, son of William E. Fritz, is primary beneficiary of this trust. (7) Charles W. Fritz, son of William E. Fritz and President and Chief Executive Officer of NeoMedia, is primary beneficiary of this trust. (8) Debra F. Schiafone, daughter of William E. Fritz, is primary beneficiary of this trust. (9) Represents options granted under the 1996 Stock Option Plan which can be exercised, but cannot be sold until after November 25, 1997 in accordance with an agreement made with Joseph Charles. (10) Does not include 1,000 shares of common stock owned by Mr. Barclay's adult child living at Mr. Barclay's home, beneficial ownership of which is disclaimed. (11) Does not include 2,000 Warrants owned by Mr. Reece. 28 ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In 1994, NeoMedia paid to William E. Fritz the aggregate amount of $390,000 for a series of loans, in the aggregate amount of $803,000, made by him to NeoMedia in 1993 and 1994. The net result of such transactions was that as of December 31, 1994, NeoMedia was indebted to Mr. Fritz in the aggregate amount of $413,000, which is represented by a promissory note, payable within thirty days of demand, bearing interest at the rate of nine percent payable on the last day of each calendar month. As described below, in the series of transactions occurring in December, 1995, and January, 1996, this loan was repaid in full, with $230,000 and $183,000 of this loan being repaid in December, 1995 and January, 1996, respectively. At various times, Dev-Mark, Inc. ("Dev-Mark"), an Illinois corporation, solely owned by William E. Fritz and Gen-Tech, Inc. ("Gen-Tech"), an Illinois corporation, owned by William E. Fritz (or a limited partnership of which Mr. Fritz is a general partner) and three minority stockholders, each of which is a separate trust, with William E. Fritz, as trustee, and one of his three children (including Charles W. Fritz) as the primary beneficiary of one of the trusts, loaned money to NeoMedia and DTM. Until as of March 13, 1996, Dev-Mark and Gen-Tech were shareholders of NeoMedia, at which time the respective stock ownership in NeoMedia of such corporations was distributed to their respective stockholders. In 1994, Dev-Mark, in several transactions loaned to NeoMedia the aggregate principal amount of $255,000, $180,000 of which was repaid within approximately one week. The remaining $75,000 is represented by a promissory note, payable within thirty days of demand, bearing interest at the rate of nine percent payable on the last day of each calendar month. As set forth below, in the series of transactions occurring in December, 1995, and January, 1996, this loan was paid in full in January, 1996. In November, 1994, NeoMedia borrowed from Charles W. Fritz the principal sum of $45,000, which was repaid in less than one week. In 1994, Charles W. Fritz loaned DTM the principal sum of $10,000, represented by a promissory note, payable within thirty days of demand, bearing interest at the rate of nine percent payable on the last day of each calendar month. This loan was paid in full in February, 1997. In December, 1994, William E. Fritz loaned DTM the principal sum of $90,000, represented by a promissory note, payable within thirty days of demand, bearing interest at the rate of nine percent, payable on the last day of each calendar month. As described below, in the series of transactions occurring in December, 1995, and January, 1996, $70,000 and $20,000 of this loan were repaid in December, 1995, and January, 1996, respectively. In August, 1995, Gen-Tech loaned DTM the principal sum of $150,000, represented by a promissory note, payable within thirty days of demand, bearing interest at nine percent payable on the last day of each calendar month. As described below in the series of transactions occurring in December, 1995, and January, 1996, this loan was paid in full in December, 1995. In December, 1994 and throughout 1995, NeoMedia loaned to DTM the aggregate principal amount of approximately $600,000, represented by a $500,000 promissory note, payable within five days of demand, bearing interest at the prime rate of interest announced from time to time by NBD Bank, plus one percent, payable on the last day of each calendar month. This loan was paid in full in the series of transactions described below occurring in December, 1995, and January, 1996, with $230,000 being repaid in December, 1995, and $370,000 being repaid in January, 1996. DECEMBER, 1995 AND JANUARY, 1996 TRANSACTIONS In December, 1995 and January, 1996, in a series of transactions between affiliates, funds were loaned and borrowed between Charles W. Fritz, William E. Fritz, Gen-Tech, Dev-Mark, DTM and NeoMedia. 29 In the transactions occurring in December, 1995: (1) Charles W. Fritz loaned $450,000 to DTM, which used such funds to pay existing indebtedness of $230,000, $150,000 and $70,000 to NeoMedia, Gen-Tech and William E. Fritz, respectively, and (2) NeoMedia paid $230,000 to William E. Fritz in partial payment of existing indebtedness. In the transactions occurring in January, 1996: (1) Charles W. Fritz loaned $750,000 to DTM, which used such funds to pay existing indebtedness of $20,000 and $370,000 to William E. Fritz and NeoMedia, respectively, (2) DTM loaned $360,000 to NeoMedia, (3) NeoMedia paid $183,000 and $75,000 to William E. Fritz and Dev-Mark, respectively, for existing indebtedness, and (4) NeoMedia loaned William E. Fritz $472,000. The result of such transactions occurring in December, 1995, and January, 1996, with respect to NeoMedia was that (1) NeoMedia and DTM paid in its entirety any indebtedness owed by them to William E. Fritz, (2) NeoMedia loaned to William E. Fritz the principal sum of $472,000, represented by a note payable within 30 days of demand, bearing interest at eight percent per annum, (3) NeoMedia paid in its entirety any indebtedness owed by it to Dev-Mark, (4) Charles W. Fritz loaned to DTM the aggregate principal sum of $1,200,000, represented by notes payable within thirty days of demand, bearing interest at eight percent per annum, (5) DTM paid to William E. Fritz, NeoMedia and Gen-Tech, in their entirety, any indebtedness existing prior to or incurred as a result of such transactions, (6) DTM loaned to NeoMedia the principal sum of $360,000, which is represented by a note payable within 30 days of demand, bearing interest at eight percent per annum. The $472,000 loan receivable from William E. Fritz was repaid in full in February, 1997. Following these series of transactions occurring in December, 1995 and January, 1996, Migration was indebted to Charles W. Fritz in the aggregate principal amount of $1,210,000, which was comprised of the $1,200,000 resulting from these transactions and a $10,000 loan in 1994 described above. This $1,210,000 principal amount remained unpaid until October 1996, at which time Mr. Fritz contributed $738,000 of such indebtedness to additional paid-in capital of NeoMedia, thus reducing such aggregate principal indebtedness to him from Migration to $472,000. This loan was repaid in full in February, 1997. In March 1996, Dev-Mark loaned to NeoMedia the principal sum of $135,000, represented by a promissory note, payable within thirty days of demand, bearing interest at the rate of eight percent payable on the last day of each calendar month. This loan was repaid in full in December, 1996. In March, 1996, Charles W. Fritz loaned to NeoMedia the principal sum of $35,958.19, represented by a promissory note, payable within thirty days of demand, bearing interest at the rate of eight percent payable on the last day of each calendar month. $6,000 of the principal amount of this loan was repaid in several days from the date of the loan. The remaining principal amount of $29,958.19 was paid in August, 1996. In June, 1996, Charles W. Fritz loaned to NeoMedia the principal sum of $200,000, represented by a promissory note, payable within thirty days of demand, bearing interest at the rate of eight percent payable on the last day of each calendar month. This loan was repaid in full in December, 1996. In June, 1996, in consideration of loans made by Charles W. Fritz to it, NeoMedia granted to him a warrant (the "Principal Stockholder's Warrant") to purchase up to 260,000 shares of common stock at an exercise price $8.85. This warrant is exercisable for a period of four years commencing on November 25, 1997 and contains anti-dilution provisions. In connection with the extension of credit facilities by NBD Bank to NeoMedia in 1994, and in connection with the renewal of such credit facility (1) Gen-Tech (with respect to the first renewal in 1995 of the facility) and Dev- Mark (with respect to the initial facility) guaranteed NeoMedia's obligations to the Bank; (2) William E. Fritz pledged to the lender, as collateral for the loan, all shares of Gen-Tech stock owned by him until the second renewal in August, 1996, when such stock was released; (3) NeoMedia assigned to the Bank all of its rights in the demand promissory note for $500,000 from DTM to NeoMedia, and the security agreement between NeoMedia and DTM until the second renewal in August, 1996, when NeoMedia and DTM became co-borrowers; and (4) William E. Fritz 30 (and Dev-Mark and Gen-Tech with respect to the first renewal of the facility) subordinated rights to the Bank. In February, 1997, William E. Fritz, Dev-Mark and Gen-Tech were released from the guarantees on the NBD credit facility, including the letter of credit. In July, 1995, NeoMedia purchased from the estate of a deceased stockholder, 36 shares (506,161 shares on a post-exchange, post reverse stock split basis) of NeoMedia's common stock for $450,000. The purchase price, which was arrived at through negotiations between management and the estate of the deceased stockholder, is evidenced by a non-interest bearing promissory note payable in 36 equal installments of $12,500 each. Such shares were all of the shares of common stock owned by such deceased stockholder and represented 18% of the then issued and outstanding shares of common stock of NeoMedia. During the years ended December 31, 1996 and 1995, NeoMedia performed administrative services for Gen- Tech in the amount of $6,838 and $3,500, respectively, and for Dev-Mark in the amount of $11,363 and $27,364, respectively. During the years ended December 31, 1996 and 1995, NeoMedia performed administrative services for Storage 2000, Inc., an affiliated company, in the amount of $9,048 and $8,400, respectively, and for The Loop Group, Inc., an affiliated company, in the amount of $-0- and $3,000, respectively. In addition, for the years ended December 31, 1996 and 1995, NeoMedia has received rental payments from Storage 2000, Inc. in the amount of $10,992 and $2,748, respectively. From July 15, 1995 to February 15, 1996, Charles W. Fritz and his wife, pursuant to a verbal lease, leased space owned by them at 6054 Timberwood Circle, #240, Fort Myers, Florida 33908, to NeoMedia for use as an office at a monthly rental of $350. During this period, the condominium was also used by several employees as their personal living quarters, who paid Mr. Fritz monthly rental of $500. Since February 15, 1996, the space has been leased exclusively to NeoMedia at a monthly rental of $950. Charles W. Fritz, Gen-Tech and Dev-Mark have each guaranteed NeoMedia's obligations to IBM Credit Corporation ("ICC") under credit and financing accommodations granted by ICC to NeoMedia. In addition, each guarantor subordinated to ICC any liabilities and obligations owed to them by NeoMedia. If any guarantor breaches the guaranty, ICC has the right, among other things, to require immediate payment of all indebtedness of NeoMedia. In February, 1997, Gen-Tech and Dev-Mark were released from the guarantees to ICC. In November, 1996, NeoMedia entered into a lease with a William E. Fritz whereby Mr. Fritz leased to NeoMedia an exhibition booth which cost $85,435. The lease is for 36 months with monthly payments of $2,858. ITEM 13.EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following exhibits required by Item 601 of Regulation S-B to be filed herewith are hereby incorporated by reference to NeoMedia's Registration Statement and Exhibits thereto (SEC registration number 333-5534): 3.1 Articles of Incorporation of Dev-Tech Associates, Inc. and amendment thereto (Incorporated by reference to Exhibit 3.1 to NeoMedia's Registration Statement No. 333-5534 (the"Registration Statement")). 3.2 By-laws of Dev-Tech Associates, Inc. (Incorporated by reference to Exhibit 3.2 to NeoMedia's Registration Statement). 3.3 Restated Certificate of Incorporation of DevSys, Inc. (Incorporated by reference to Exhibit 3.3 to NeoMedia's Registration Statement). 3.4 By-laws of DevSys, Inc. (Incorporated by reference to Exhibit 3.4 to NeoMedia's Registration Statement). 3.5 Articles of Merger and Agreement and Plan of Merger of DevSys, Inc and Dev-Tech Associates, Inc. (Incorporated by reference to Exhibit 3.5 to NeoMedia's Registration Statement). 31 3.6 Certificate of Merger of Dev-Tech Associates, Inc. into DevSys, Inc. (Incorporated by reference to Exhibit 3.6 to NeoMedia's Registration Statement). 3.7 Articles of Incorporation of Dev-Tech Migration, Inc. and amendment thereto (Incorporated by reference to Exhibit 3.7 to NeoMedia's Registration Statement). 3.8 By-laws of Dev-Tech Migration, Inc. (Incorporated by reference to Exhibit 3.8 to NeoMedia's Registration Statement). 3.9 Restated Certificate of Incorporation of DevSys Migration, Inc. (Incorporated by reference to Exhibit 3.9 to NeoMedia's Registration Statement). 3.10 Form of By-laws of DevSys Migration, Inc. (Incorporated by reference to Exhibit 3.10 to NeoMedia's Registration Statement). 3.11 Form of Agreement and Plan of Merger of Dev-Tech Migration, Inc. into DevSys Migration, Inc. (Incorporated by reference to Exhibit 3.11 to NeoMedia's Registration Statement). 3.12 Form of Certificate of Merger of Dev-Tech Migration, Inc. into DevSys Migration, Inc. (Incorporated by reference to Exhibit 3.12 to NeoMedia's Registration Statement). 3.13 Certificate of Amendment to Certificate of Incorporation of DevSys, Inc. changing its name to NeoMedia Technologies, Inc. (Incorporated by reference to Exhibit 3.13 to NeoMedia's Registration Statement). 3.14 Form of Certificate of Amendment to Certificate of Incorporation of NeoMedia Technologies, Inc. authorizing a reverse stock split (Incorporated by reference to Exhibit 3.14 to NeoMedia's Registration Statement). 4.1 Form of Certificate for Common Stock of DevSys, Inc. (Incorporated by reference to Exhibit 4.1 to NeoMedia's Registration Statement). 4.2 Form of Joseph Charles' Warrant Agreement (Incorporated by reference to Exhibit 4.2 to NeoMedia's Registration Statement). 4.3 Form of Private Placement Financing Converted Securities Registration Rights Agreement (Incorporated by reference to Exhibit 4.4 to NeoMedia's Registration Statement). 4.4 Form of 10% Unsecured Subordinated Convertible Promissory Note (Incorporated by reference to Exhibit 4.5 to NeoMedia's Registration Statement). 4.5 Form of Principal Stockholder's Warrant (Incorporated by reference to Exhibit 4.6 to NeoMedia's Registration Statement). 4.6 Form of Placement Agent's Warrant Registration Rights Agreement (Incorporated by reference to Exhibit 4.7 to NeoMedia's Registration Statement). 4.7 Form of Placement Agent's Warrant for the Purchase of Shares of Common Stock and Warrants (Incorporated by reference to Exhibit 4.8 to NeoMedia's Registration Statement). 4.8 Form of Warrant Agreement and Warrant (Incorporated by reference to Exhibit 4.9 to NeoMedia's Registration Statement). 10.1 Form of "Lock Up" Agreement to be entered into by NeoMedia and its officers, directors and shareholders (Incorporated by reference to Exhibit 10.1 to NeoMedia's Registration Statement). 10.2 Form of Nonsolicitation and Confidentiality Agreement (Incorporated by reference to Exhibit 10.2 to NeoMedia's Registration Statement). 10.3 Employment Agreement dated May 1, 1996 between Dev-Tech Associates, Inc. and Charles W. Fritz (Incorporated by reference to Exhibit 10.3 to NeoMedia's Registration Statement). 10.4 Employment Agreement dated April 1, 1996 between Dev-Tech Associates, Inc. and Robert T. Durst, Jr. (Incorporated by reference to Exhibit 10.4 to NeoMedia's Registration Statement). 10.5 Employment Agreement dated May 1, 1996 between Dev-Tech Associates, Inc. and Charles T. Jensen (Incorporated by reference to Exhibit 10.5 to NeoMedia's Registration Statement). 10.6 Lease Agreement dated September 1, 1994, for premises located at 112 South Tryon Street, Charlotte, North Carolina (Incorporated by reference to Exhibit 10.6 to NeoMedia's Registration Statement). 10.7 Lease dated August 29, 1995 for premises located at 280 Shuman Boulevard, Naperville, Illinois (Incorporated by reference to Exhibit 10.8 to NeoMedia's Registration Statement). 10.8 Promissory Note, dated as of December 31, 1994, in the principal amount of $413,000, from Dev-Tech Associates, Inc. payable to William E. Fritz (Incorporated by reference to Exhibit 10.9 to NeoMedia's Registration Statement). 32 10.9 Promissory Note, dated as of December 31, 1994, in the principal amount of $75,000, from Dev-Tech Associates, Inc., payable to Dev-Mark, Inc. (Incorporated by reference to Exhibit 10.10 to NeoMedia's Registration Statement). 10.10 Promissory Note, dated as of December 31, 1994, in the principal amount of $10,000, from Dev-Tech Migration, Inc. to Charles W. Fritz (Incorporated by reference to Exhibit 10.11 to NeoMedia's Registration Statement). 10.11 Promissory Note, dated as of December 31, 1994, in the principal amount of $90,000, from Dev-Tech Migration, Inc. to William E. Fritz (Incorporated by reference to Exhibit 10.12 to NeoMedia's Registration Statement). 10.12 Promissory Note, dated August 15, 1995, in the principal amount of $150,000, from Dev-Tech Migration, Inc. to Gen-Tech, Inc. (Incorporated by reference to Exhibit 10.13 to NeoMedia's Registration Statement). 10.13 Demand Promissory Note, dated December 9, 1994, in the principal amount up to $500,000, from Dev- Tech Migration, Inc. to Dev-Tech Associates, Inc. (Incorporated by reference to Exhibit 10.14 to NeoMedia's Registration Statement). 10.14 Promissory Note, dated December 28, 1995, in the principal amount of $450,000, from Dev-Tech Migration, Inc. to Charles W. Fritz (Incorporated by reference to Exhibit 10.15 to NeoMedia's Registration Statement). 10.15 Promissory Note, dated January 2, 1996, in the principal amount of $360,000, from Dev-Tech Associates, Inc. to Dev-Tech Migration, Inc. (Incorporated by reference to Exhibit 10.16 to NeoMedia's Registration Statement). 10.16 Promissory Note, dated January 2, 1996, in the principal amount of $472,000, from William E. Fritz to Dev-Tech Associates, Inc. (Incorporated by reference to Exhibit 10.17 to NeoMedia's Registration Statement). 10.17 Promissory Note, dated January 2, 1996, in the principal amount of $750,000, from Dev-Tech Migration, Inc. to Charles W. Fritz. (Incorporated by reference to Exhibit 10.18 to NeoMedia's Registration Statement). 10.18 Promissory Note, dated December 31, 1994, in the principal amount of $46,748, from Dev-Tech Migration, Inc. to Brandon Edenfield. (Incorporated by reference to Exhibit 10.19 to NeoMedia's Registration Statement). 10.19 Promissory Note, dated June 19, 1995, in the principal amount of $20,000, from Dev-Tech Migration, Inc. to Brandon Edenfield. (Incorporated by reference to Exhibit 10.20 to NeoMedia's Registration Statement). 10.20 Security Agreement, dated December 9, 1994, between Dev-Tech Associates, Inc. and Dev-Tech Migration, Inc. (Incorporated by reference to Exhibit 10.34 to NeoMedia's Registration Statement). 10.21 Agreement for Wholesale Financing (Security Agreement), dated October 20, 1992, to IBM Credit Corporation from Dev-Tech Associates, Inc. (Incorporated by reference to Exhibit 10.35 to NeoMedia's Registration Statement). 10.22 Guaranty from Gen-Tech, Inc. to IBM Credit Corporation (Incorporated by reference to Exhibit 10.36 to NeoMedia's Registration Statement). 10.23 Guaranty from Dev-Mark, Inc. to IBM Credit Corporation (Incorporated by reference to Exhibit 10.37 to NeoMedia's Registration Statement). 10.24 Amendment to Agreement for Wholesale Financing and to Addendum to Agreement for Wholesale Financing -- Large Sale Financing Option, dated August 16, 1994, from Dev-Tech Associates, Inc. to IBM Credit Corporation (Incorporated by reference to Exhibit 10.38 to NeoMedia's Registration Statement). 10.25 Assignment Agreement, dated September 15, 1994, from Dev-Tech Associates, Inc. to IBM Credit Corporation (Incorporated by reference to Exhibit 10.39 to NeoMedia's Registration Statement). 10.26 Guaranty (By Individual) dated October 20, 1992, to IBM Credit Corporation from Charles W. Fritz, as Guarantor (Incorporated by reference to Exhibit 10.40 to NeoMedia's Registration Statement). 10.27 Collateralized Guaranty, dated August 16, 1994, to IBM Credit Corporation from Gen-Tech, Inc. (Incorporated by reference to Exhibit 10.41 to NeoMedia's Registration Statement). 33 10.28 Collateralized Guaranty, dated August 16, 1994, to IBM Credit Corporation from Dev-Mark, Inc. (Incorporated by reference to Exhibit 10.42 to NeoMedia's Registration Statement). 10.29 Dev-Tech Associates, Inc. Annual Incentive Plan for Management (Incorporated by reference to Exhibit 10.43 to NeoMedia's Registration Statement). 10.30 Dev-Tech Associates, Inc. 1996 Stock Option Plan (Incorporated by reference to Exhibit 10.44 to NeoMedia's Registration Statement). 10.31 First Amendment and Restatement of Dev-Tech Associates, Inc. 1996 Stock Option Plan (Incorporated by reference to Exhibit 10.45 to NeoMedia's Registration Statement). 10.32 Form of Stock Option Agreement - Dev-Tech Associates, Inc. (Incorporated by reference to Exhibit 10.46 to NeoMedia's Registration Statement). 10.33 Dev-Tech Migration, Inc. 1996 Stock Option Plan (Incorporated by reference to Exhibit 10.47 to NeoMedia's Registration Statement). 10.34 First Amendment and Restatement of Dev-Tech Migration, Inc. 1996 Stock Option Plan (Incorporated by reference to Exhibit 10.48 to NeoMedia's Registration Statement). 10.35 Form of Stock Option Agreement - Dev-Tech Migration, Inc. (Incorporated by reference to Exhibit 10.49 to NeoMedia's Registration Statement). 10.36 Dev-Tech Associates, Inc. 401(k) Plan and amendments thereto (Incorporated by reference to Exhibit 10.50 to NeoMedia's Registration Statement). 10.37 Engagement Letter, dated March 13, 1995, with Compass Capital, Inc. and Amendments thereto (Incorporated by reference to Exhibit 10.51 to NeoMedia's Registration Statement). 10.38 Mutual General Release and Stock Purchase Agreement with the Estate of Thomas Ruberry (Incorporated by reference to Exhibit 10.52 to NeoMedia's Registration Statement). 10.39 Form of "Lock-Up" Agreement with Bridge Financing Selling Stockholders and Form of Addendum to Subscription Agreement (Incorporated by reference to Exhibit 10.53 to NeoMedia's Registration Statement). 10.40 Forms of Agreements Not to Sell (Incorporated by reference to Exhibit 10.58 to NeoMedia's Registration Statement). 10.41 Letter of Intent dated October 11, 1996 between NeoMedia Technologies, Inc. and E-Stamp Corporation (Incorporated by reference to Exhibit 10.59 to NeoMedia's Registration Statement). 10.42 First Amendment and Restatement of NeoMedia Technologies, Inc. 1996 Stock Option Plan (As Established Effective February 1, 1996, and as amended through November 18, 1996) (Incorporated by reference to Exhibit 10.60 to NeoMedia's Registration Statement). The following exhibits are filed herewith: 10.43 Agreement of Lease Between First Union National Bank of Florida and NeoMedia Technologies, Inc. Dated November 27, 1996 10.44 Sublease Agreement Between NeoMedia Technologies, Inc. and Lancaster Annuity Services Company Dated November 8, 1996 10.45 Agreement for Sale of Assets Between Basic Developments, Inc., a Panama Company, and Meja Sistemas C. A., a Guatemala Company, and NeoMedia Technologies, Inc. Dated February 12, 1997 10.46 Master Lease Between William E. Fritz and NeoMedia Technologies, Inc. Dated November 6, 1996 10.47 Agreement for Wholesale Financing (Security Agreement) Between IBM Credit Corporation and NeoMedia Technologies, Inc. Dated February 20, 1997 10.48 Collateralized Guaranty Between IBM Credit Corporation and NeoMedia Migration, Inc. Dated February 20, 1997 10.49 Termination of Collateralized Guaranty Between IBM Credit Corporation, Gen-Tech, Inc. and Dev-Mark, Inc. Dated February 5, 1997 21 Subsidiaries 27 Financial Data Schedule - - -------------------------------------------- (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended December 31, 1996. 34 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Fort Myers, State of Florida, on the 25th day of March, 1997. NEOMEDIA TECHNOLOGIES, INC. --------------------------- Registrant By: /s/ CHARLES W. FRITZ ------------------------------------- Charles W. Fritz, President, Chief Executive Officer and Chairman of the Board In accordance with the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 25, 1997. SIGNATURES TITLE /s/ CHARLES W. FRITZ President, Chief Executive Officer, - - ---------------------------- Chairman of the Board and Director Charles W. Fritz /s/ WILLIAM E. FRITZ Secretary and Director - - ---------------------------- William E. Fritz /s/ CHARLES T. JENSEN Chief Financial Officer, - - ---------------------------- Treasurer and Director Charles T. Jensen /s/ ROBERT T. DURST, JR. Director - - ---------------------------- Robert T. Durst, Jr. /s/ A. HAYES BARCLAY Director - - ---------------------------- A. Hayes Barclay /s/ JAMES J. KEIL Director - - ---------------------------- James J. Keil /s/ PAUL REECE Director - - ---------------------------- Paul Reece 35 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and the Board of Directors of NeoMedia Technologies, Inc. We have audited the accompanying consolidated balance sheets of NeoMedia Technologies, Inc. and subsidiaries ("NeoMedia") as of December 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the NeoMedia's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of NeoMedia as of December 31, 1996 and 1995, and the consolidated results of operations and cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ COOPERS & LYBRAND L.L.P. - - ---------------------------- Coopers & Lybrand L.L.P. Chicago, Illinois March 14, 1997 F - 1 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, ------------------- ASSETS 1996 1995 ------- -------- (In thousands) Current assets: Cash and cash equivalents ...................... $ 4,159 $ 11 Trade accounts receivable, net of allowance for doubtful accounts of $216 and $311 .......... 4,983 3,473 Amounts due from related parties ............... 496 58 Inventories .................................... 105 129 Costs and estimated earnings in excess of billings on uncompleted contracts ........... 40 127 Deferred income taxes .......................... -- 193 Deposits ....................................... 19 203 Prepaid expenses and other ..................... 529 340 ------- -------- Total current assets ........................ 10,331 4,534 ------- -------- Property and equipment, net of accumulated depreciation ................................ 278 269 Capitalized software costs, net of accumulated amortization ................................ 657 1,030 ------- -------- Total assets ................................... $11,266 $ 5,833 ======= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ............................... $ 3,800 $ 2,041 Accrued expenses ............................... 1,043 670 Bank financing ................................. -- 1,625 Notes payable to related parties ............... -- 352 Current portion of long-term debt .............. 262 245 Other .......................................... 245 518 ------- -------- Total current liabilities ................... 5,350 5,451 ------- -------- Long-term debt, net of current portion ............ 1,589 1,830 ------- -------- Total liabilities ........................... 6,939 7,281 ------- -------- Shareholders' equity (deficit): Common stock, $.01 par value, 15,000,000 shares authorized, 5,114,316 and 3,639,539 shares outstanding ................................. 51 36 Additional paid-in capital ..................... 8,801 (34) Accumulated deficit ............................ (4,525) (1,059) ------- -------- Subtotal .................................... 4,327 (1,057) Less treasury stock, at cost ................... -- (391) ------- -------- Total shareholders' equity (deficit) ........ 4,327 (1,448) ------- -------- Total liabilities and shareholders' equity ..... $11,266 $ 5,833 ======= ======== The accompanying notes are an integral part of these consolidated financial statements. F - 2 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- (dollars in thousands, except per share data) NET SALES: License fees .................................... $ 775 $ 276 Software product resales ........................ 2,231 1,192 Technology equipment resales .................... 12,438 8,538 Service fees .................................... 2,074 2,795 ---------- ---------- Total net sales .............................. 17,518 12,801 ---------- ---------- COST OF SALES: License fees .................................... 316 83 Software product resales ........................ 1,406 473 Technology equipment resales .................... 10,665 7,112 Service fees .................................... 1,906 2,414 Amortization of capitalized software costs ...... 655 571 ---------- ---------- Total cost of sales .......................... 14,948 10,653 ---------- ---------- GROSS PROFIT ....................................... 2,570 2,148 General and administrative expenses ................ 2,288 907 Sales and marketing expenses ....................... 2,326 1,826 Research and development costs ..................... 335 436 ---------- ---------- Loss from operations ............................... (2,379) (1,021) Interest expense, net .............................. 540 280 ---------- ---------- LOSS BEFORE INCOME TAXES ........................... (2,919) (1,301) Provision (Benefit) for income taxes ............... 156 (170) ---------- ---------- NET LOSS ........................................... $ (3,075) $ (1,131) ========== ========== PER SHARE DATA: Net loss per share .............................. $ (0.72) $ (0.26) ========== ========== Weighted average common and common equivalent shares outstanding ............... 4,266,753 4,362,420 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. F - 3
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 ----------- ---------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss .......................................................... $(3,075) $(1,131) Adjustments to reconcile net loss to net cash used in operating activities: Provision for doubtful accounts ................................ 431 311 Depreciation and amortization .................................. 797 679 Gain on sale of property and equipment ......................... -- 4 Deferred income taxes provision (benefit) ...................... 193 (139) Changes in operating assets and liabilities: Trade accounts receivable ................................... (1,941) 1,704 Other current assets ........................................ (161) (353) Accounts payable and accrued expenses ....................... 1,759 (2,155) Other current liabilities ................................... 100 143 ------- ------- Net cash used in operating activities ....................... (1,897) (937) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capitalization of software development costs and purchased software (293) (278) Proceeds from sales of property and equipment ..................... -- 19 Acquisition of property and equipment ............................. (140) (185) ------- ------- Net cash used in investing activities ....................... (433) (444) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of units ............................... 5,701 -- Advance to shareholders ........................................... (472) -- Borrowings under notes payable and long-term debt ................. 3,225 3,554 Repayments on notes payable and long-term debt .................... (2,283) (2,311) Borrowings from shareholders and related parties .................. 1,123 140 Repayments to shareholders and related parties .................... (816) (42) ------- ------- Net cash provided by financing activities ................... 6,478 1,341 ------- ------- NET INCREASE (DECREASE) IN CASH ................................... 4,148 (40) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ...................... 11 51 ------- ------- CASH AND CASH EQUIVALENTS, END OF YEAR ............................ $ 4,159 $ 11 ======= ======= SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid .................................................. $ 566 $ 134 Income taxes paid .............................................. 65 58 Non-cash investing and financing activities: Conversion of bridge loan to common stock ................... 2,411 -- Capital contribution from related party ..................... 738 -- Retirement (Acquisition) of treasury stock for a note payable ................................... 391 (391)
The accompanying notes are an integral part of these consolidated financial statements. F - 4
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) ADDITIONAL RETAINED NUMBER COMMON PAID-IN- EARNINGS TREASURY OF STOCK CAPITAL (DEFICIT) STOCK SHARES ------ ---------- --------- -------- --------- (Dollars in thousands) Balance, December 31, 1994 ............ $36 $ (34) $ 72 $-- 3,639,539 Acquisition of treasury stock, at cost. -- -- -- (391) -- Net loss .............................. -- -- (1,131) -- -- --- ------ ------- ----- --------- Balance, December 31, 1995 ............ 36 (34) (1,059) (391) 3,639,539 Retirement of treasury stock, at cost.. (5) 5 (391) 391 (506,161) Capital contribution from related party -- 738 -- -- -- Proceeds from issuance of 1,700,000 units, net of $1,756 of issuance costs ..................... 17 5,684 -- -- 1,700,000 Conversion of bridge loan to common stock ....................... 3 2,408 -- -- 280,938 Net loss .............................. -- -- (3,075) -- -- --- ------ ------- ----- --------- Balance, December 31, 1996 ............ $51 $8,801 $(4,525) $-- 5,114,316 === ====== ======= ===== =========
The accompanying notes are an integral part of these consolidated financial statements. F - 5 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS BASIS OF PRESENTATION NeoMedia Technologies, Inc. ("Technologies") was incorporated under the laws of the state of Delaware in July 1996 to acquire by merger Dev-Tech Associates, Inc. ("Dev-Tech"), an Illinois corporation, which was incorporated in December 1989. On August 5, 1996, Technologies acquired all of the shares of Dev-Tech in exchange for the issuance of shares of Technologies' common stock to the shareholders of Dev-Tech. Dev-Tech Migration, Inc. ("DTM") was incorporated in June 1994 in Illinois. On November 20, 1996, DTM was merged into NeoMedia Migration, Inc. ("Migration"), a Delaware corporation and a wholly owned subsidiary of Technologies, in exchange for the issuance of 827,525 shares of Technologies' common stock to the shareholder of DTM (the "Migration Merger"). Technologies and Migration (collectively, "NeoMedia" or the "Company"), since Migration's inception, have shared certain management and were controlled by common shareholders. These transactions have been accounted for in a manner similar to the pooling of interests method of accounting using historical book values rather than fair market value as all entities involved were under common control. Distribuidora Vallarta, S.P.A. is a wholly-owned subsidiary of Migration and was incorporated in Guatemala in August, 1996, to employ computer software developers and system integrators. As these transactions were completed as of December 31, 1996, the financial statements of NeoMedia have been presented on a consolidated basis for all periods presented. The financial position and results of NeoMedia as of and for the periods prior to these mergers have been combined in a manner consistent with NeoMedia's consolidation principles as of December 31, 1996. All significant intercompany accounts and transactions have been eliminated in preparation of the consolidated financial statements. The historical number of shares of common stock have been restated to give effect to a stock split in March, 1996, whereby each holder of common stock received 15,555.60975 shares of common stock for each share of common stock then owned and to a reverse stock split on November 1, 1996, whereby each holder of common stock received .90386 shares of common stock for each one share then owned. The reverse stock split applied to all outstanding stock options as of November 1, 1996. In July, 1995, Dev-Tech purchased 36 shares of its common stock in exchange for a non-interest bearing uncollateralized note payable for $450,000. The note payable is due in 36 monthly installments of $12,500 commencing August, 1995. As of December 31, 1995, the acquired shares were recorded in treasury stock in the consolidated balance sheet at cost of $391,000 which equals the carrying value of the note discounted at Dev-Tech's incremental borrowing rate of 10%. The discount is being accreted to interest expense over the term of the note. In May, 1996, Dev-Tech filed an amendment to its Articles of Incorporation to retire these 36 shares (506,161 shares on a post-exchange and reverse stock split basis) of common stock. The effect of this exchange and reverse stock split has been incorporated into the consolidated financial statements and notes of NeoMedia for all periods presented as follows: SHARES ISSUED ---------------------- SUBSEQUENT PRIOR TO TO EXCHANGE EXCHANGE AND SPLIT AND SPLIT --------- ---------- Dev-Tech: Shares outstanding ....................... 164 2,305,853 Shares in treasury ....................... 36 506,161 Migration .................................... 1,000 827,525 --------- Total shares issued as of December 31, 1995... 3,639,539 ========= F - 6 NATURE OF BUSINESS OPERATIONS NeoMedia operates in one business segment which is comprised of three principal applications markets: (i) Intelligent Document Solutions, (ii) Document Systems Solutions and (iii) Systems Transition Solutions. The INTELLIGENT DOCUMENT SOLUTIONS UNIT was established to assist clients in linking printed material to electronic media. NeoMedia has developed its own technology, and has rights to use the technology of others, to generate printed documents which can be automatically "read" by machines, such as computers equipped with scanners and appropriate software. These "machine readable" documents incorporate printed codes which contain thousands of bytes of information, including computer programs rendering them functionally equivalent to a computer floppy disk with a limited capacity to hold information. These codes are referred to in the industry as "high capacity symbologies" and "multi-dimensional" or "two-dimensional" bar codes. NeoMedia refers to documents that incorporate high capacity symbologies as "Intelligent Documents," and currently provides software and services to support the application of this technology. The DOCUMENTS SYSTEMS SOLUTIONS UNIT was established to assist clients in definition, design, implementation and management of their document system environments. These services include strategic consulting to define and optimize enterprise wide documents strategies, as well as systems integration and development to implement effective document generation, archive and management systems. NeoMedia specializes in the technical areas of electronic forms management, document production systems and intelligent document solutions incorporating multi-dimensional bar code technologies. The document system process provided by NeoMedia also includes electronic media alternatives such as Internet and Intranet channels. The SYSTEMS TRANSITION SOLUTIONS UNIT was established to enable clients to migrate applications on closed, proprietary ("legacy") systems to more cost effective and extendable open systems platforms. NeoMedia has acquired and developed a line of proprietary products and tools utilized in its migration services. NeoMedia also provides strategic consulting, systems development, systems engineering and support services in connection with its systems transition solutions. As part of the services provided in connection with system transition solutions service engagements, NeoMedia acts as a reseller of purchased hardware in connection with open systems development and migrations. NeoMedia maintains relationships with a number of major companies under which NeoMedia sells third party purchased hardware and software products of those companies. NeoMedia has established several strategic alliances with third party software and hardware vendors, leading consulting firms and major system integrators. These alliances are integral to NeoMedia's business operations. NeoMedia principally markets and distributes its products through distributors in the United States (although it has distributors in Europe, Asia, the Middle East, Indonesia and Latin America), and currently has U. S. district offices located in Illinois, California, Minnesota, and Florida. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. F - 7 REVENUE RECOGNITION License fees represent revenue from the licensing of NeoMedia's proprietary software tools and applications products. NeoMedia licenses its development tools and application products pursuant to non-exclusive and non-transferable license agreements. Software product and technology equipment sales represent revenue from the resale of purchased third party hardware and software products. Service fees represent revenue from consulting, education, and post contract software support services. NeoMedia recognizes revenue in accordance with the American Institute of Certified Public Accountants Statement of Position 91-1, "Software Revenue Recognition." Software license fees are recognized upon shipment to the customer to the extent that collection is probable and the remaining obligations of NeoMedia are insignificant. When all components necessary to run hardware have been shipped and only insignificant post-delivery obligations remain, revenue and costs are recognized at the time of shipment, based upon the sales price and the cost of specific items shipped. Historically, product returns and allowances have been insignificant. Service revenues include maintenance fees for providing system updates for software products, user documentation and technical support, and sales of NeoMedia's proprietary software which is not bundled with hardware or software of third parties. Hardware maintenance is generally billed to the customers in advance on a monthly, quarterly or annual basis and recognized as revenue ratably over the term of the maintenance contract. Other service revenues, including training and consulting, are recognized as the services are performed. Revenues related to custom programming and other services provided under fixed fee contract arrangements are recognized based on the percentage of completion method, measured by the percentage of direct labor and subcontractor costs incurred to date in relation to total estimated direct labor and subcontractor costs for each contract. Unrecognized amounts are recorded as deferred revenue. Contract costs include all direct material, labor and subcontractor costs related to contract performance. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determinable. Changes in job performance, job conditions and estimated profitability, including amounts arising from contract penalty provisions, and final contract settlements may result in revisions to costs and revenue and are recognized in the period in which such revisions are determinable. Costs and estimated earnings in excess of billings on uncompleted contracts, represents revenue recognized in excess of amounts billed. INVENTORIES Inventories are stated at the lower of cost or market and are comprised principally of purchased computer technology resale products including equipment and software products. Cost is determined using the first-in, first-out method. PROPERTY AND EQUIPMENT Property and equipment are carried at cost less allowances for accumulated depreciation. Repairs and maintenance are charged to expense as incurred. Depreciation is generally computed using the straight line method over the estimated useful lives of the related assets. The estimated useful lives range from three to five years for equipment and up to seven years for furniture and fixtures. Upon retirement or sale, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statement of operations. CAPITALIZED SOFTWARE COSTS Software development costs are accounted for in accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." Costs associated with the planning and designing phase of software development, including coding and testing activities F - 8 necessary to establish technological feasibility, are classified as product development and expensed as incurred. Once technological feasibility has been determined, additional costs incurred in development, including coding, testing, quality assurance and documentation writing, are capitalized. Amortization of purchased and developed software is provided on a product-by-product basis over the estimated economic life of the software, generally not exceeding three years, using the straight-line method. Amortization commences when a product is available for general release to customers. Unamortized capitalized costs determined to be in excess of the net realizable value of a product are expensed at the date of such determination. INCOME TAXES In accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"), income taxes are accounted for using the assets and liabilities approach. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be recognized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of enactment. DTM, with the consent of its shareholder, elected to be treated as a small business corporation (S corporation under the Internal Revenue Code) for income tax purposes. Accordingly, until the Migration Merger, DTM's taxable income and related tax credits were reportable by the shareholder on the individual's income tax returns. The pro forma benefit for income taxes, net loss and per share information for the years ended December 31, 1996 and 1995 of the combined operations of Dev-Tech and DTM calculated using the statutory tax rates in effect during the applicable periods, as if DTM were taxable as a C Corporation, are identical to the historic information presented in NeoMedia's consolidated financial statements. Such pro forma calculations assume the adoption of FAS 109 by DTM as of June 1994 (date of incorporation of DTM). No income tax benefit would have been recognized from the net operating losses of DTM as a 100% valuation allowance would have been recorded against a deferred tax asset as a result of the uncertainty of DTM's ability to generate future taxable income. COMPUTATION OF LOSS PER SHARE The computation of net loss per share is based on the weighted average number of common and common equivalent shares outstanding during the period. Common stock equivalents consist of outstanding stock options, which pursuant to Staff Accounting Bulletin No. 83 of the Securities and Exchange Commission, are included in the weighted average shares as if they were outstanding for the entire period to the extent granted within the twelve months preceding the contemplated public offering date, using the treasury stock method until such time as shares are issued. For the years ended December 31, 1996 and 1995, the computation of the weighted average number of common shares and common share equivalents outstanding was as follows: 1996 1995 --------- --------- Common stock ................................. 3,328,758 3,420,434 Effect of stock options ..................... 937,995 941,986 --------- --------- Total ........................................ 4,266,753 4,362,420 ========= ========= F - 9 For the years ended December 31, 1996 and 1995, information regarding loss per share computed on a historical basis under the provisions of Accounting Principles Board Opinion No. 15, "Earnings per Share," was as follows: 1996 1995 ---------- ---------- Net loss per share .......................... $ (0.92) $ (0.33) ========== ========== Weighted average common shares outstanding... 3,328,758 3,420,434 =========== ========== In February, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"), which becomes effective for NeoMedia for the year ended December 31, 1997. FAS 128 replaces the presentation of primary earnings per share with a presentation of basic earnings per share which excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted earnings per share is computed similarly to fully diluted earnings per share pursuant to Accounting Principles Board Opinion No. 15, "Earnings Per Share." FAS 128 also requires dual presentation of basic and diluted earnings per share on the face of the income statement for all entities with complex capital structure and requires a reconciliation of the numerator and denominator of the basic earnings per share computation to the numerator and denominator of the diluted earnings per share computation. NeoMedia has not yet determined the impact of implementing FAS 128. FINANCIAL INSTRUMENTS The fair value of NeoMedia's debt, current and long-term, is estimated to approximate the carrying value of these liabilities based upon borrowing rates currently available to NeoMedia for borrowings with similar terms. CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject NeoMedia to concentrations of credit risk consist primarily of trade accounts receivable with customers. Credit risk is generally minimized as a result of the large number and diverse nature of NeoMedia's customers which are located throughout the United States. NeoMedia extends credit to its customers as determined on an individual basis and has included an allowance for doubtful accounts of $216,000 and $311,000 in its December 31, 1996 and 1995 consolidated balance sheets, respectively. NeoMedia had net sales to one major customer in the telecommunications industry of $6,932,000 and $6,257,000 during the years ended December 31, 1996 and 1995, respectively, resulting in trade accounts receivable of $2,507,000 and $1,690,000 as of December 31, 1996 and 1995, respectively. Revenue generated from the remarketing of computer equipment has accounted for a significant percentage of NeoMedia's revenue. Such sales accounted for approximately 71% and 67% of NeoMedia's revenue for the years ended December 31, 1996 and 1995, respectively. ACCOUNTING FOR STOCK OPTIONS Effective January 1, 1996, NeoMedia adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123") which requires certain disclosures about stock-based employee compensation arrangements, regardless of the method used to account for them, and defines a fair value based method of accounting for an employee stock option or similar equity instrument and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, FAS 123 also allows an entity to continue to measure compensation cost for stock-based compensation plans using the intrinsic value method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Entities electing to continue using the accounting method in APB 25 must make pro forma disclosures of net income and earnings per share as if the fair value method of accounting had been adopted. Under the fair value method, compensation cost is measured at the grant date based on the value of the award and is recognized over the F - 10 service period, which is usually the vesting period. Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at grant date or other measurement date over the amount an employee must pay to acquire the stock. Because NeoMedia elected to continue using the accounting method in APB 25, no compensation expense was recognized in the consolidated statement of operations for the year ended December 31, 1996 for stock-based employee compensation. Assuming a risk-free interest rate of 5.05% with the options granted at $.84 and 6.00% with the remaining options, an expected life of three years, an expected volatility of 25.00% and no expected dividends, the effect of using the fair value method of accounting on net loss for the year ended December 31, 1996 would have increased net loss to $3,399,000, or $(.80) per share. CASH AND CASH EQUIVALENTS For the purposes of the balance sheet and statement of cash flows, all highly liquid investments with original maturities of three months or less are considered cash equivalents. 3. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS NeoMedia periodically enters into long-term software development and consultation agreements with certain customers. As of December 31, 1996 and 1995, certain contracts were not completed and information regarding these uncompleted contracts was as follows: 1996 1995 ----- ----- (In thousands) Total amount of contracts in progress .................... $ 119 $ 687 ===== ===== Costs incurred to date on uncompleted contracts .......... $ 65 $ 260 Estimated earnings on uncompleted contracts .............. 54 181 ----- ----- Subtotal .............................................. 119 441 Less customer billings to date ........................... 79 314 ----- ----- Costs and estimated earnings in excess of billings on uncompleted contracts ..................... $ 40 $ 127 ===== ===== 4. PROPERTY AND EQUIPMENT As of December 31, 1996 and 1995, property and equipment consisted of the following: 1996 1995 ----- ----- (In thousands) Furniture and fixtures ................................... $ 135 $ 130 Equipment ................................................ 642 507 ----- ----- Total ................................................. 777 637 Less accumulated depreciation ............................ (499) (368) ----- ----- Total property and equipment, net of accumulated depreciation ........................................... $ 278 $ 269 ===== ===== F - 11 5. CAPITALIZED SOFTWARE COSTS As of December 31, 1996 and 1995, capitalized software costs consisted of the following: 1996 1995 ------- ------- (In thousands) Purchased software ................................... $ 1,495 $ 1,567 Internally developed software ........................ 459 210 ------- ------- Total ............................................. 1,954 1,777 Less accumulated amortization ........................ (1,297) (747) ------- ------- Total capitalized software costs, net of accumulated amortization ............................ $ 657 $ 1,030 ======= ======= During the years ended December 31, 1996 and 1995, NeoMedia recognized amortization expense applicable to purchased software of $531,000 and $500,000, respectively, and amortization expense applicable to internally developed software of $124,000 and $71,000, respectively. In October 1994, DTM purchased via seller financing certain computer software from International Digital Scientific, Inc. ("IDSI"). The aggregate purchase price was $2,000,000 and was funded by an uncollateralized seller payable, without interest, in an amount equal to the greater of : (i) 5% of the collected gross revenues of Migration for the preceding month; or (ii) the minimum installment payment as defined. The minimum installment payment is the amount necessary to provide an average monthly payment for the most recent twelve month period of $16,000 per month. The present value of $2,000,000 discounted at 9% (DTM's incremental borrowing rate) for 125 months was approximately $1,295,000, the capitalized cost of the assets acquired. The discount is being accreted to interest expense over the term of the note. The software acquired is being amortized over its estimated useful life of three years. The balance of the note payable, net of unamortized discount, as December 31, 1996 and 1995 was $1,115,000 and $1,203,000, respectively. On February 12, 1997, NeoMedia entered into an agreement to purchase certain computer software from Basic Developments, Inc. for an aggregate purchase price of $220,000, of which $120,000 was paid at closing and $100,000 is due on February 12, 1998. 6. FINANCING AGREEMENTS Technologies entered into an agreement with a commercial finance company that provides short-term financing for certain computer hardware and software purchases. Under the agreement, there are generally no financing charges for amounts paid within 30 or 45 days, depending on the vendor used to source the product. Borrowings are collateralized by accounts receivable generated from the sales of merchandise to NeoMedia's customers and are personally guaranteed by certain shareholders of NeoMedia. As of December 31, 1996 and 1995, amounts due under this financing agreement included in accounts payable were $2,275,000 and $1,281,000, respectively. As of December 31, 1995, Technologies had bank notes payable of $1,625,000. The bank notes payable were under a $2,000,000 revolving line of credit facility that accrued interest at the bank's prime rate plus 0.5%, or 9.5% as of December 31, 1995. During August 1996, Technologies replaced this facility with a $2,000,000 promissory note bearing interest at the bank's prime rate plus 1.0%, which was repaid in full on November 30, 1996. The note was collateralized by substantially all of NeoMedia's assets and guaranteed by a certain shareholder and certain affiliated companies. F - 12 As of December 31, 1996, the bank had issued a $750,000 letter of credit to the benefit of the above-mentioned commercial finance company. This letter of credit was guaranteed by a certain shareholder of NeoMedia. In February, 1997, NeoMedia pledged a $750,000 certificate of deposit with the bank to collateralize the letter of credit and the shareholder was released from the guarantee. 7. NOTES PAYABLE TO RELATED PARTIES During 1996 and 1995, NeoMedia borrowed and made repayments on various notes with certain shareholders and affiliates. As of December 31, 1995, notes payable to related parties consisted of a $277,000 unsecured and subordinated demand note to a shareholder and a $75,000 unsecured demand note to an affiliate. Both of these notes bore interest at 9% and were repaid in full during 1996. Additionally, as of December 31, 1995, NeoMedia had a $450,000 long-term note payable to a related party. In January, 1996, NeoMedia borrowed $750,000 (which bore interest at 8% per annum and was payable on demand) from a principal shareholder, increasing the total notes payable (including a third $10,000 loan from 1994) to this shareholder to $1,210,000. In October 1996, this shareholder contributed $738,000 of this note to additional paid-in capital leaving a balance as of December 31, 1996 of $472,000. In February, 1997, NeoMedia repaid the note in full. 8. LONG-TERM DEBT As of December 31, 1996 and 1995, long-term debt consisted of the following: 1996 1995 ------ ------ (In thousands) Note payable to IDSI, non-interest bearing, due with minimum monthly installments of $16,000 through December 2005 ................................. $1,584 $1,776 Note payable to former shareholder, non-interest bearing, due with minimum monthly installments of $12,500 through July 1998 .......................... 237 387 Note payable to shareholder, 8%, due December 2000 ....... 472 450 Capital leases ........................................... 44 82 ------ ------ Subtotal .............................................. 2,337 2,695 Less: unamortized discount .............................. (486) (620) ------ ------ Total long-term debt .................................. 1,851 2,075 Less: current portion ................................... (262) (245) ------ ------ Long-term debt, net of current portion ................... $1,589 $1,830 ====== ====== The long-term debt payments for each of the next five fiscal years ending December 31 were as follows: AMOUNT IN THOUSANDS --------- 1997 ................................................... $ 366 1998 ................................................... 299 1999 ................................................... 192 2000 ................................................... 192 2001 ................................................... 664 Thereafter .............................................. 624 ----- Total ................................................... $2,337 ====== F - 13 9. INCOME TAXES For the years ended December 31, 1996 and 1995, the components of the benefit for income taxes were as follows: 1996 1995 ----- ------- (In thousands) Current .............................................. $(37) $ (31) Deferred ............................................. 193 (139) ---- ------ Provision (Benefit) for income taxes................. $156 $(170) ==== ===== The significant components of the deferred tax provision in 1996 were as follows: Amounts in thousands ---------- Deferred tax benefit, exclusive of the components listed below............................. $ (826) Tax effect of change in the status of Migration........... (391) Increase in valuation allowance........................... 1,410 ------ Total............................................... $ 193 ====== As of December 31, 1996 and 1995, the types of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts which gave rise to deferred taxes, and their tax effects were as follows:
1996 1995 --------------------- -------------------- TEMPORARY TAX TEMPORARY TAX DIFFERENCE EFFECT DIFFERENCE EFFECT ---------- ------ ---------- ------ (In thousands) Accrued employee benefits ................. $ 245 $ 98 $ 68 $ 27 Bad debts ................................. 216 86 311 124 Accrued interest payable .................. 265 106 -- -- Deferred revenue .......................... 234 93 -- -- Capitalized software development costs .... 815 326 -- -- Net operating loss carryforwards .......... 1,644 658 -- -- Other ..................................... (11) (4) (14) (5) Alternative minimum tax credit carryforward 47 47 ------- ---- Total deferred tax assets ................. 1,410 193 Valuation allowance ....................... (1,410) -- ------- ---- Net deferred income tax asset ............. $ -- $193 ======= ====
F - 14 For the years ended December 31, 1996 and 1995, the benefit for income taxes differed from the amount computed by applying the statutory federal rate of 34% as follows:
1996 1995 ---------------- ---------------- AMOUNT % AMOUNT % ------ ----- ------ ----- (Dollars in thousands) Benefit at federal statutory rate ............ $(992) (34)% $(442) (34)% Migration S-corporation loss allocated directly to shareholder ................. 321 11 294 23 State income taxes, net of federal tax effects -- -- (23) (2) Permanent differences ........................ 11 -- 8 1 Change in valuation allowance ................ 826 28 -- -- Other ........................................ (10) (--) (7) (1) ----- --- ----- --- Provision (Benefit) for income taxes ......... $ 156 5% $(170) (13)% ===== === ===== ===
As of December 31, 1996, NeoMedia had net operating loss carryforwards remaining for federal tax purposes of approximately $1,644,000, which may be used to offset future taxable income or will expire, if unused, in 2011. Should certain substantial changes (as defined by the federal income tax code), occur in NeoMedia's ownership, an annual limitation would be imposed on the amount of loss which could be utilized in any one year. Because realization of NeoMedia's net operating losses carried forward is uncertain, a valuation allowance has been established against the related deferred tax assets. 10. TRANSACTIONS WITH RELATED PARTIES NeoMedia made advances to various related parties including companies affiliated through common ownership. These advances arose from expenses paid by NeoMedia on behalf of the affiliated companies and allocations of certain administrative costs for services provided by NeoMedia. Total administrative costs allocated to affiliated companies were $27,000 and $42,000 for the years ended December 31, 1996 and 1995, respectively. As of December 31, 1996 and 1995, the amounts outstanding totalled $24,000 and $48,000, respectively, and were classified as amounts due from related parties in the accompanying consolidated balance sheets. During the years ended December 31, 1996 and 1995, NeoMedia and certain employees leased office and residential facilities from related parties for rental payments totalling $11,000 and $5,000, respectively. On January 2, 1996, NeoMedia provided to one of its principal shareholders an advance of $472,000 payable within 30 days of demand by NeoMedia. This loan bore interest at 8% payable on a monthly basis. This loan was repaid in full in February, 1997. In March, 1996, NeoMedia borrowed $135,000 from a related entity and $36,000 from a principal shareholder, payable within thirty days of demand, bearing interest at 8% per annum. In June, 1996, NeoMedia borrowed $200,000 from a principal shareholder, payable within thirty days of demand, bearing interest at 8% per annum. The net proceeds from these financing transactions were used for general corporate operating purposes. These loans were repaid in full during 1996. In connection with the June, 1996 note, NeoMedia granted a warrant to the shareholder to purchase up to 260,000 shares of NeoMedia's common stock at an exercise price of $8.85. This warrant is exercisable for four years commencing from November 25, 1997. Assuming a risk-free interest rate of 6.25%, an expected life of three years, an expected volatility of 25.0% and no expected dividends, the effect of using the fair value method of accounting on net loss for the year ended December 31, 1996 would have increased net loss to $3,114,000, or $(.73) per share. F - 15 11. LEASES NeoMedia leases certain office equipment, principally telecommunication equipment, under leases which are capital in nature. As of December 31, 1996 and 1995, NeoMedia had net assets of $53,000 and $89,000, respectively, under these capital leases. NeoMedia leases its office facilities and certain office and computer equipment under various operating leases. These leases provide for minimum rents and generally include options to renew for additional periods. For the years ended December 31, 1996 and 1995, NeoMedia's rent expense was $353,000 and $325,000, respectively. Beginning December 1, 1996, NeoMedia subleased a portion of its office facilities until the lease expires. The aggregate amount of expected lease payments and receipts under operating leases for each of the next five years ending December 31 was as follows: PAYMENTS RECEIPTS -------- --------- (In thousands) 1997 ............................. $ 415 $137 1998 ............................. 449 173 1999 ............................. 404 179 2000 ............................. 229 183 2001 ............................. 3 -- Thereafter ....................... 2 -- ------ ---- Total ............................ $1,502 $672 ====== ==== In November, 1996, NeoMedia entered into a lease with a principal shareholder whereby the shareholder leased to NeoMedia an exhibition booth which cost $85,435. The lease is for 36 months with monthly payments of $2,858. 12. DEFINED CONTRIBUTION SAVINGS PLAN NeoMedia maintains a defined contribution 401(k) savings plan covering substantially all eligible employees meeting certain minimum age and months of service requirements, as defined. Participants may make elective contributions up to established limits. All amounts contributed by participants and earnings on these contributions are fully vested at all times. The plan provides for matching and discretionary contributions by NeoMedia, although no such contributions to the plan have been made to date. 13. EMPLOYEE STOCK OPTION PLAN Effective February 1, 1996, NeoMedia adopted the 1996 Stock Option Plan making available for grant to employees of NeoMedia options to purchase up to 1,500,000 shares of NeoMedia's common stock. The Stock Option Committee of the Board of Directors has the authority to determine to whom options will be granted, the number of options, the related term, and exercise price. The option exercise price shall be equal to or in excess of the fair market value per share of NeoMedia's common stock on the date of grant. Options granted during 1996 were granted at an exercise price equal to fair market value on the date of grant. No options shall be granted subsequent to January 31, 1999 under the Plan. Options granted can not be exercised during the year following the date of grant and must be exercised within ten years from the date of grant. Additionally, in conjunction with the initial public offering, each employee agreed not to sell any stock obtained by exercising their stock options until after November 25, 1997. No stock options were exercisable as of December 31, 1996. F - 16 NeoMedia's stock options as of December 31, 1996 and changes during the year ended December 31, 1996 were as follows: WEIGHTED AVERAGE NUMBER EXERCISE OF PRICE SHARES -------- --------- Granted ............................................. $1.72 1,555,603 Reverse stock split .................................. 1.57 (135,850) Exercise ............................................. -- -- Forfeited ............................................ 1.34 (81,581) ----- --------- Outstanding as of December 31, 1996................... $1.76 1,338,172 ===== ========= Available for grant as of December 31, 1996........... 161,828 ========= Weighted average fair value at grant date............. $ .43 ===== As of December 31, 1996, NeoMedia's stock options outstanding were as follows: WEIGHTED AVERAGE WEIGHTED REMAINING AVERAGE NUMBER CONTRACTUAL EXERCISE RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE ------------------------ ----------- ----------- -------- $.84 1,087,552 9.1 years $ .84 $5.50 to $5.90 250,620 9.8 years $5.74 14. PUBLIC OFFERING OF COMMON STOCK AND WARRANTS On November 25, 1996, NeoMedia completed an initial public offering ("IPO") of 1,235,000 shares of common stock at $5.90 per share and 1,700,000 redeemable warrants, at $.10 per warrant, to purchase shares of common stock, and an offering by certain selling security holders of an additional 465,000 shares of NeoMedia's common stock. The selling security holders also were issued 745,938 warrants upon conversion of the convertible notes from NeoMedia. In addition, on January 16, 1997, NeoMedia completed the sale of an over-allotment of 255,000 shares of common stock and 255,000 redeemable warrants. The redeemable warrants may be called by NeoMedia at $.05 per warrant at any time after November 25, 1997, provided that the closing average bid price of the common stock equals or exceeds $8.85 per share for twenty consecutive trading days ending within thirty days prior to the date notice of redemption is given. In connection with the offering, NeoMedia agreed to sell to the underwriters, for nominal consideration, warrants to purchase up to 170,000 shares of common stock and 170,000 warrants (collectively, the "Underwriters Warrants"). The Underwriters Warrants are initially exercisable at a price of $8.85 per share of common stock and warrant for a period of four years after November 25, 1997, and are restricted from sale, transfer and assignment until November 25, 1997. F - 17 15. BRIDGE FINANCING During July and August 1996, NeoMedia issued, in a private placement, convertible promissory notes due in September 1997. Each unit consisted of a $50,000 10% promissory note convertible into 13,750 shares and 13,750 warrants of NeoMedia's common stock upon consummation of the IPO valued at an average of $3.64 per share. NeoMedia received $2,697,000 in cash proceeds from this private placement, net of $278,000 in expenses. These expenses were amortized to interest expense over the life of the notes. NeoMedia retired $262,500 of these notes on November 23, 1996. Of the remaining 745,938 shares available for conversion, 465,000 were sold by the note holders in connection with the IPO. F - 18 EXHIBIT INDEX ------------- SEQUENTIAL EXHIBIT PAGE NUMBER NUMBER DOCUMENT 56 10.43 Agreement of Lease Between First Union National Bank of Florida and NeoMedia Technologies, Inc. Dated November 27, 1996 86 10.44 Sublease Agreement Between NeoMedia Technologies, Inc. and Lancaster Annuity Services Company Dated November 8, 1996 117 10.45 Agreement for Sale of Assets Between Basic Developments Inc., a Panama Company, and Meja Sistemas C. A., a Guatemala Company, and NeoMedia Technologies, Inc. Dated February 12, 1997 145 10.46 Master Lease Between William E. Fritz and NeoMedia Technologies, Inc. Dated November 6, 1996 156 10.47 Agreement for Wholesale Financing (Security Agreement) Between IBM Credit Corporation and NeoMedia Technologies, Inc. Dated February 20, 1997 163 10.48 Collateralized Guaranty Between IBM Credit Corporation and NeoMedia Migration, Inc. Dated February 20, 1997 170 10.49 Termination of Collateralized Guaranty Between IBM Credit Corporation, Gen-Tech, Inc. and Dev-Mark, Inc. Dated February 5, 1997 172 21 Subsidiaries 174 27.1 Article 5 Financial Data Schedule for December 31, 1996 EX-10.43 2 NeoMedia Technologies, Inc. Exhibit 10.43 Agreement of Lease Between First Union National Bank of Florida and NeoMedia Technologies, Inc. Dated November 27, 1996 FIRST UNION AGREEMENT OF LEASE Between FIRST UNION NATIONAL BANK OF FLORIDA (Landlord) and NEOMEDIA TECHNOLOGIES, INC. (Tenant) Date: NOVEMBER 27, 1996 AGREEMENT OF LEASE TABLE OF CONTENTS (This Table of Contents is not a part of this Agreement of Lease and is for convenience of reference only.) ARTICLE DESCRIPTION PAGE - - ------- ----------- ---- Article 1.01 Premises 1 Article 2.01 Term 1 Article 3.01 Base Rent 1 Article 4.01 Additional Rent 2 Article 4.02 Statements of Amounts Due and Payment 3 of Additional Rent Article 4.03 Operating Expense Adjustment 4 Article 4.04 Personal Property Taxes 4 Article 4.05 Renewal 4 Article 4.06 Right of First Refusal 4 Article 5.01 Security Deposit 5 Article 6.01 Use of Premises 5 Article 7.01 Upkeep of Premises 5 Article 7.02 Hazardous Substances 6 Article 8.01 Assignment and Subletting 6 Article 9.01 Fire Insurance 6 Article 10.01 Alterations and Improvements 7 Article 11.01 Tenant's Agreement 7 Article 12.01 Unusual Equipment 7 Article 13.01 Tenant Equipment 8 Article 14.01 Access 8 Article 15.01 Illegal Use 8 Article 16.01 Rules and Regulations 8 Article 17.01 Damage 8 Article 18.01 Personal Property 8 Article 19.01 Liability & Tenant's Insurance 8 Article 20.01 Services 9 Article 21.01 Bankruptcy 9 Article 22.01 Default 10 Article 23.01 Damage by Fire or Casualty 11 Article 24.01 Condemnation 11 Article 25.01 Tenant Holdover 12 Article 26.01 Possession 12 Article 27.01 Tenant Plans 12 Article 28.01 Offset Statement 12 Article 29.01 Attornment 13 Article 30.01 Failure to Execute Instruments 13 Article 31.01 Counterclaim 13 Article 32.01 Waiver of Jury Trial 13 Article 33.01 Waiver of Rights of Redemption 13 Article 34.01 Taxes on Leasehold 13 Article 35.01 Liens 13 Article 36.01 Pronouns 14 Article 37.01 Notices 14 Article 38.01 Relocation 15 Article 39.01 Tenant Improvements 15 Article 40.01 Parking 15 Article 41.01 Governing Law 16 Article 42.01 Benefit and Burden 16 Article 43.01 Accord and Satisfaction 16 Article 44.01 Captions and Section Numbers 16 Article 45.01 Partial Invalidity 16 Article 46.01 Exhibits 16 Article 47.01 Quiet Enjoyment 17 Article 48.01 Entire Agreement 17 Article 49.01 Time of Essence 17 Article 50.01 Effective Date 17 Article 51 01 Radon Gas 17 Article 52.01 Brokers 17 Article 53.01 Special Clauses 17 Exhibit "A" Floor Plan 19 Exhibit "A-1" Right of First Refusal Space 20 Exhibit "B" Building Rules and Regulations 21 Exhibit "C" Guaranty (Intentionally omitted) Exhibit "D" Tenant Acceptance Letter 23 Exhibit "E" Building Standard Materials and Specifications 24 L E A S E --------- THIS AGREEMENT made this 27TH day of NOVEMBER, 1996, by and between NEOMEDIA TECHNOLOGIES, INC., (hereinafter called "Tenant") and FIRST UNION NATIONAL BANK OF FLORIDA, (hereinafter called "Landlord"). WITNESSETH: That the Landlord for and in consideration of the covenants and agreements hereinafter set forth and the rent hereinafter specifically reserved, does hereby lease, unto said Tenant, the space described as follows: 1.01 PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord certain offices known as DOWNTOWN FT. MYERS and located at 2201 2ND AVENUE, FT. MYERS, FLORIDA (the "BUILDING"), which offices consist of approximately 10,615 rentable square feet of office space (9,311 useable square feet), (the "PREMISES") situated on the 6TH Floor, Suite 600 of the Building, as shown on EXHIBIT "A" incorporated herein by reference. The Premises shall be measured by Landlord's architect prior to Lease commencement and in accordance with BOMA standards (American National Standard 2651.1, approved July 31, 1980) and the actual rentable square feet of the Premises determined by multiplying the actual useable square feet of the Premises by a multiple of 1.14. The Lease and all applicable provisions therein shall be amended to reflect the actual rentable area of the Premises. Any future space added to the Premises, if any, shall be measured as described herein prior to adding such space. 2.01 TERM. The term shall be for THIRTY EIGHT (38) months (or until such term shall sooner cease and expire as hereinafter provided) commencing upon the first day after the first to occur of (i) the date which the Tenant occupies the Premises, or (ii) FIFTEEN (15) days after full execution of this Lease (the "COMMENCEMENT DATE"). 3.01 BASE RENT. As Base Rent for the use and occupancy of the Premises, and subject to the provisions contained in SECTION 53.01, Tenant shall pay to the Landlord for the term set forth herein the sum of FOUR HUNDRED THIRTY THREE THOUSAND SEVEN HUNDRED THIRTEEN AND 70/100 Dollars ($433,713.70), without deduction, set-off or demand, payable in advance and in monthly installments as outlined in PARAGRAPH 53.01-1. The first installment of Base Rent shall be due and payable on the first day of the third (3rd) month following the Commencement Date, it being understood and agreed that the Base Rent for the first two (2) months of the Lease Term shall be abated (the "ABATEMENT PERIOD") and the remaining installments payable in advance on the first day of each and every month without demand during the said term to FAISON ASSOCIATES, or at such other place as the Landlord may hereafter designate in writing. Rent checks are to be made payable to FIRST UNION NATIONAL BANK OF FLORIDA, or such other person, firm or corporation as the Landlord may hereafter designate in writing. If the term commences on a day other than the first day of the month, the first payment shall be prorated on a thirty-day per calendar month basis for the period from the period from the lease Commencement Date to the first day of the first full month during the term. All installments of rent are due on the 1st of each month and considered late after the 5th of that month. IF THE MONTHLY RENTAL PAYMENTS ARE NOT MADE BY THE FIFTH OF THE MONTH, LANDLORD MAY CHARGE TENANT A FIVE PERCENT (5%) LATE PAYMENT CHARGE. In addition to the Base Rent and Additional Rent as described in SECTION 4, Base Rent and Additional Rent collectively -1- hereafter referred to as "RENT", Tenant shall and hereby agrees to pay to Landlord each month a sum equal to any sales tax, tax on Rentals, and any other charges, taxes and/or impositions now in existence or hereafter imposed based upon the privilege of renting the space leased hereunder or upon the amount of rental collected therefor. Nothing herein shall, however, be taken to require Tenant to pay any part of any Federal and State taxes on income imposed upon Landlord. 4.01 ADDITIONAL RENT. In addition to the Base Rent as described in PARAGRAPH 3.01, Tenant shall pay to Landlord as "ADDITIONAL RENT" "Tenant's proportionate share" of any increases in "OPERATING EXPENSES" and "TAXES", as hereinafter defined, above the "EXPENSE BASE". As used herein the term: (a) "TENANT'S PROPORTIONATE SHARE" shall mean the percentage which the rentable square feet in the Premises then leased by the Tenant in the Building bears to the total rentable square feet contained in the Building. For purposes of this Lease, Tenant's proportionate share shall be 16.5%. Notwithstanding anything to the contrary contained herein this SECTION 4.01 (A), in the event (i) after the Premises are measured pursuant to SECTION 1.01 the actual rentable square feet of the Premises is other than as stated in SECTION 1.01, or (ii) the Tenant expands the Premises within the Building at any time during the Term or any Renewal Term thereof, or (iii) the rentable area of the Premises changes for any other reason, then in such event(s), the Tenant's proportionate share shall be adjusted and the Lease amended to reflect the new Tenant's proportionate share, it being intended that the Tenant's proportionate share always reflects the relationship of the leased Premises to the total rentable square feet contained in the Building. (b) "OPERATING EXPENSES" shall mean all expenses, costs and disbursements, of every kind and nature which Landlord shall pay or become obligated to pay because of or in connection with the maintenance, refurbishing, redecorating or operation of the Building, Land and any future improvements constructed thereon (hereinafter referred to as the "PROJECT") computed on the accrual basis, but shall not include the cost of individual tenant improvements, leasing commissions or legal fees associated with leasing or disputes with tenants of the Project. By way of explanation and clarification, but not by way of limitation, these Operating Expenses will include the following: (i) Wages and salaries of all employees to the extent they are engaged in operation and maintenance of the Project, employer's social security taxes unemployment taxes or insurance, and any other taxes which may be levied on such wages and salaries, the cost of disability and hospitalization insurance; pension or retirement benefits, and any other fringe benefits for such employees. (ii) All supplies, materials, equipment and vehicles used in operation and/or maintenance of the Project. (iii) Cost of all utilities, including water, sewer, electricity, gas and fuel oil used in the Project and not charged directly to another tenant. (iv) Cost of management, rent for space used for the management office, cost of ground leases, association fees, janitorial services, accounting and legal services (not in connection with tenant disputes or such other matters arising out of Landlord's alleged negligence or wrongful acts), trash and garbage removal, pest -2- control servicing, maintenance, repair, and replacement of all systems and equipment including, but not limited to, elevators, plumbing, heating, air conditioning, ventilating, lighting, electrical, security and fire alarms, fire pumps, fire extinguisher and hose cabinets, mail chutes, rent for space used as a mail room, guard service, painting, window cleaning, landscaping and gardening. (v) Amortization (including reasonable finance charges) of the cost of capital improvements or investment items which are for the sole purpose of, (i) reducing (or minimizing increases of) Operating Costs or, (ii) improving the security of the Project or, (iii) are or may be required by Governmental agencies, including but not limited, to replacement of air conditioning equipment due to freon and chlorofluoracarbons, improvements due to Americans with Disabilities Act of 1990 ("ADA"), EPA Green Lights and other such mandated programs which may occur rom time to time, provided however, in the event the Building is required to have fire sprinkler systems installed, then in such event the cost of such installation shall be borne by the Landlord and may not be amortized and included in Operating Expenses as otherwise provided herein. All such costs shall be amortized on a straight-line basis reasonable life of the capital investment item(s), determined in accordance with generally accepted accounting principles and in no event to extend beyond the reasonable life of the Project. (c) "TAXES" shall mean all impositions, taxes, assessments (special or otherwise), water and sewer charges and rents, and other governmental liens or charges of any and every kind, nature and sort whatsoever, ordinary and extraordinary, foreseen and unforeseen, and substitute therefor, including all taxes whatsoever (except only those taxes of the following categories: any inheritance, estate, transfer or gift taxes imposed upon Landlord or any income taxes specifically payable by Landlord as a separate tax paying entity without regard to Landlord's income source as arising from or out of the Project attributable in any manner to the Project, receivable therefrom or any part thereof, or any use thereof, or any facility located therein or thereon or used in conjunction therewith or any charge or other payment required to be paid to any governmental authority, whether or not any of the foregoing shall be designated "real estate tax", "sales tax", "rental tax", "excise tax", "business tax", or designated in any other manner. (d) "EXPENSE BASE" shall mean that amount of the Base Rent which is attributable to Operating Expenses and Taxes incurred by the Landlord for the operation, maintenance and service of the Project. The Expense Base is stated as an amount per rentable square foot. For the purposes of this Lease, the Tenant's Expense Base is $5.63 per rentable square foot of Leased area. (e) Notwithstanding anything else to the contrary contained herein this PARAGRAPH 4.01, for the purposes of calculating the Tenant's share of increases in Operating Expenses, there shall be a limit on the amount of which "Controllable 0perating Expenses" may increase from year to year during the Lease Term. "CONTROLLABLE OPERATING EXPENSES" are hereinafter defined as all Operating Expenses EXCEPT Taxes, Insurance, Utilities, and amortization of capital improvements or investment items as defined in PARAGRAPH 4.01 (B)(V). Said increase shall be limited to not more than six (6%) percent in the aggregate of all such Controllable Operating Expenses, provided however that such in intended to be -3- cumulative over the Lease Term. 4.02 STATEMENTS OF AMOUNTS DUE AND PAYMENT OF ADDITIONAL RENT. Landlord agrees to maintain accounting books and records reflecting Operating Expenses of the Building in accordance with generally accepted accounting principles. Landlord shall notify Tenant within sixty (60) days prior to the end of the first calendar year of the Lease Term, and each calendar year thereafter during the Term, or any Renewal Term hereof, of the amount which Landlord estimates (as evidenced by budgets prepared by or on behalf of Landlord) will be the amount of Tenant's proportionate share of any increase in Operating Expenses and Taxes over the Expense Base for the next calendar year of the Term, or any Renewal Term hereof. Beginning on the 1st day of January of each year thereafter during the Term, Tenant shall pay such sum as Additional Rent in advance to Landlord in equal monthly installments, during the balance of said calendar year, on the first day of each remaining month in said calendar year. Within one hundred twenty (120) days following the end of each calendar year during the Term or any Renewal Term hereof, Landlord shall submit to Tenant a statement showing the actual amount of increases in Operating Expenses and Taxes for the past calendar year compared to the Expense Base, the additional amount thereof actually paid during that year by Tenant and the amount of the resulting balance due thereon, or overpayment thereof, as the case may be. Additionally within thirty (30) days after receipt by Tenant of said statement, Tenant shall have the right to inspect Landlord's books and records, at Landlord's office, during normal business hours, after four (4) business days prior written notice, showing the Operating Expenses and Taxes for the Project for the calendar year covered by said statement. Said statement shall become final and conclusive unless Landlord receives written objections with respect thereto within said thirty (30) day period. Any balance shown to be due pursuant to said statement shall be paid by Tenant to Landlord within thirty (30) days following Tenant's receipt thereof. Any overpayment shall be immediately credited against Tenant's obligation to pay expected Additional Rent in connection with anticipated increases in Operating Expenses and Taxes, or if by reason of any termination of the Lease no such future obligation exists, refunded to Tenant. Anything herein to the contrary notwithstanding, Tenant shall not delay or withhold payment of any balance shown to be due pursuant to the statement rendered by Landlord to Tenant, pursuant to the terms hereof, because of any objection that Tenant may raise with respect thereto and Landlord shall immediately credit any overpayment found to be owing to Tenant against Tenant's proportionate share of increases in operating Expenses and Taxes for the then current calendar year (and future calendar years, if necessary) upon the resolution of said objection or, if at the time of the resolution of said objection of the Lease Term has expired, immediately refund to Tenant any overpayment found to be owing to Tenant. The provisions of this PARAGRAPH 4.02 shall survive the expiration or termination of this Lease. 4.03 OPERATING EXPENSE ADJUSTMENT. In determining the Tenant's proportionate share of increases in Operating Expenses and Taxes for the purpose of this Section 4, if less than 95% of the Building shall have been occupied by tenants and fully used by them, at any time during the year, Operating Expenses and Taxes shall be adjusted to an amount equal to the Operating Expense and Tax that would normally be expected to be incurred, had such occupancy been 95% and had full utilization been made during the entire period. 4.04 PERSONAL PROPERTY TAXES. Tenant agrees to pay, before delinquency, any and all taxes levied or assessed and which become payable during the term upon Tenant's equipment, furniture, fixtures and other personal property located in the Premises. 4.05 RENEWAL. Tenant shall have the right to renew this Lease for TWO (2) additional SIX (6) MONTH term(s). Should Tenant wish to renew, the Tenant shall provide Landlord with one hundred eighty (180) days written notice prior to termination of this Lease term. Base Rent for each renewal term shall be in accordance with the provisions of PARAGRAPH 53.01-2. -4- 4.06 RIGHT OF FIRST REFUSAL. Throughout the initial Term of this Lease, the Tenant shall have the right of first refusal (the "RFR") to lease additional space, when and if such space is made available to lease by the Landlord to third parties, on the fourth floor of the Building as shown on EXHIBIT A-1 (the "RFR SPACE"). If the Landlord receives a bonafide offer from a third party to lease the RFR Space, on terms and conditions acceptable to the Landlord, then in such event, Landlord shall present Tenant with the terms and conditions by which Landlord is prepared to lease the RFR Space to said third party. The Tenant shall, within five (5) days after receipt of the aforesaid terms and conditions from Landlord, notify the Landlord in writing of the Tenant's desire to lease the RFR Space. In the event the Tenant elects to lease the RFR Space, then in such event the Tenant shall do so under such terms and conditions presented to Tenant and this Lease shall be so amended as to incorporate the RFR Space and terms and conditions pertaining to same. Notwithstanding the foregoing, in the event the lease term for the RFR Space exceeds the remaining unexpired initial term of this Lease, then in such event and as a condition to Tenant's RFR provided herein this PARAGRAPH 4.06, the Lease term of this Lease shall be extended to a period coterminous with the term of the RFR Space. In the event Tenant fails to notify Landlord of its intentions within the five (5) day period as herein provided or declines to lease the RFR Space, then in either event, Tenant's rights under this RFR shall expire and be of no further force or effect and Landlord shall be permitted to lease the RFR Space to third parties without any obligation to the Tenant. 5.01 SECURITY DEPOSIT. Tenant shall pay the Landlord upon execution of this Lease, the sum of ELEVEN THOUSAND NINE HUNDRED FORTY ONE and 88/100 Dollars ($11,941.88) as security for the faithful performance and observance by Tenant of the terms, provisions and conditions of this Lease; it is agreed that, in the event Tenant defaults in respect of any of the terms, provisions and conditions of this Lease, including, but not limited to, the payment of Rent, Landlord may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any Rent or any other sum as to which Tenant is in default or for any sum which Landlord may expend or may be required to expend by reason of Tenant's default in respect of any of the terms, covenants and conditions of this Lease, including, but not limited to, any damages or deficiency in the re-letting of the Premises, whether such damage or deficiency accrued before or after summary proceedings or other re-entry by Landlord. Tenant shall remain liable for any amount that such sum shall be insufficient to pay. In the event Landlord applies any portion of the deposit to remedy such default or to repair damages to the Premises caused by the Tenant, Tenant shall pay to Landlord, within fifteen (15) days, after written demand for such payment by Landlord, all monies necessary to restore the deposit up to the original amount. In the event that Tenant shall fully and faithfully comply with all of the terms, provisions, covenants and conditions of this Lease, the security shall be returned to Tenant after the date fixed at the end of this Lease and after delivery of entire possession of the Premises to Landlord. In the event of a sale of the Project, of which the premises form a part, Landlord shall have the right to transfer the security to the vendee, and Landlord shall thereupon be released by Tenant from all liability for the return of such security and Tenant agrees to look to the new Landlord solely for the return of said security. It is agreed that the provisions hereof shall apply to every transfer or assignment made of the security to a new Landlord. Tenant further covenants that it will not assign or encumber the monies deposited herein as, security and that neither Landlord nor its assigns shall be bound by any such assignment or encumbrance. Landlord shall not be required to keep the security in a segregated account and the security may be commingled with other funds of Landlord, and in no event shall Tenant be entitled to any interest on the security. 6.01 USE OF PREMISES. The Tenant shall at all times use and occupy the Premises for COMPUTER SALES, SERVICE, SOFTWARE CONSULTING, RESEARCH, TRAINING AND RELATED GENERAL OFFICE USE and for no other purpose whatsoever. -5- 7.01 UPKEEP OF PREMISES. The Tenant agrees that it will keep the Premises and the fixtures therein in good order and condition and will, at the expiration or other termination of the term hereof, surrender and deliver up the same in like good order and condition as the same now is or shall be at the commencement of the term hereof, ordinary wear and tear, and damage by the elements, fire, and other unavoidable casualty excepted, unless caused by negligence of Tenant or their agents or employees. All damage caused by Tenant's negligence, or that of his agents, servants, employees or visitors, shall be repaired promptly by Tenant at his sole cost and expense. In the event that the Tenant fails to comply with the foregoing provisions the Landlord shall have the option to enter the Premises and make all necessary repairs at Tenant's cost and expense, the same to be considered as Additional Rent and added to and be payable with the next monthly installments of Rent. 7.02 HAZARDOUS SUBSTANCES. The term "HAZARDOUS SUBSTANCES", as used in this Lease, shall include, without limitation, flammable, explosives, radioactive materials, asbestos, polychlorinated biphenyls (PCBs), chemicals known to cause cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes, toxic substances or related materials, petroleum and petroleum products, and substances declared to be hazardous or toxic under any law or regulation now or hereafter enacted or promulgated by any governmental authority (the "Authorities"). Tenant shall not cause or permit to occur; (i) Any violation of any federal, state, or local law, ordinance, or regulation now or hereafter enacted, (the "ENVIRONMENTAL LAWS") related to environmental conditions on, under, or about the Premises, or arising from Tenant's use or occupancy of the Premises, including, but not limited to, soil and ground water conditions; or (ii) The use, generation, release, manufacture, refining, production, processing, storage, or disposal of any Hazardous Substance on, under, or about the Premises or the Project, or the transportation to or from the Premises, or the Project, of any Hazardous Substance. Tenant shall indemnify, defend, and hold harmless Owner, and their respective officers, directors, heirs, beneficiaries, shareholders, partners, agents, assignees and employees from all fines, suits, procedures, claims, and actions of every kind, and all costs associated therewith (including attorneys' and consultants' fees) arising out of or in any way connected with any deposit, spill, discharge, or other release of Hazardous Substances that occurs during the term of this Lease, at or from the Premises, or the Project, or which arises at any time from Tenant's use or occupancy of the Premises, or the Project, or from Tenant's failure to provide all information, make all submissions, and take all steps required by all Authorities under the Environmental Laws. Tenant's obligations and liabilities under this PARAGRAPH 7.02 shall survive the expiration of this Lease. 8.01 ASSIGNMENT AND SUBLETTING. The Tenant covenants and agrees not to encumber or assign this Lease or sublet all or any part of the Premises without the prior written consent of Landlord. If Landlord consents to an assignment or subletting, the assignee or sublessee shall first be obligated to assume, in writing, all of the obligations of Tenant under this Lease and Tenant shall, for the full term of this Lease, continue to be jointly and severally liable with such assignee or sublessee for the payment of the Rent and the performance of all obligations required by Tenant under this Lease. In no event shall Tenant assign or sublet the Premises for any terms, conditions and covenants other than those contained herein. In no event shall this Lease be assigned or be assignable by operation of law or by voluntary or involuntary bankruptcy proceedings or otherwise, and in no event shall this Lease or any rights or privileges hereunder be an asset of Tenant under any bankruptcy, insolvency or reorganization proceedings. In no event shall the Landlord's allowance of an assignment or sublease be deemed to permit a subsequent assignment of sublease. The Assignee must meet the financial ability necessary to take Tenant's place, with such financial ability to be determined in Landlord's sole discretion. The Tenant shall pay Landlord all costs and expenses associated with incurring, maintaining and servicing any assignment or sublease. 9.01 FIRE INSURANCE. Landlord shall, at its expense, keep the building of which the -6- Premises forms a part (but not the leasehold improvements, personal property or trade fixtures located in the Premises), insured against loss by fire or casualty with extended coverage in an amount determined by the Landlord, and said policy shall include a standard waiver of subrogation clause against Tenant. The Tenant will not do or permit anything to be done in the Premises or the Project of which they form a part or bring or keep anything therein which shall in any way increase the rate of fire or other insurance in said building, or on the property kept therein, or obstruct, or interfere with the rights of other tenants, or in any way injure or annoy them, or those having business with them, or conflict with them, or conflict with the fire laws or regulations, or with any insurance policy upon said building or any part thereof, or with any statutes, rules or regulations enacted or established by the appropriate governmental authority. In the event the cost of premiums on said fire and extended insurance increases due to the hazardous nature of the use and occupancy by Tenant of the Premises, then the entire increase in insurance cost shall be paid by Tenant as additional rent in a lump sum and on receipt of invoice from Landlord. 10.01 ALTERATIONS AND IMPROVEMENTS. Tenant shall not cut, drill into, disfigure, deface or injure any part of the Premises; nor obstruct or permit any obstruction, alteration, addition, improvement, decoration or installation in the Premises without first obtaining the written permission of the Landlord. All alterations, additions, improvements, decoration or installations, including, but not limited to, partitions, railings, electrical and telephone outlets, air conditioning ducts or equipment (except movable furniture and fixtures put in at the expense of Tenant and removable without defacing or injuring the building or the Premises) shall become the property of the Landlord at the termination of the Term. Landlord, however, reserves the option to require Tenant, upon demand in writing, to remove all fixtures and additions, improvements, decorations or installations (including those not removable without defacing or injuring the leased Premises) and to restore the Premises to the same condition as when originally leased to Tenant, reasonable wear and tear excepted. Tenant agrees to restore the Premises immediately upon the receipt of the said demand in writing at his own cost and expense and agrees in case of his failure to do so, Landlord may do so and collect the cost thereof from Tenant as hereinafter provided. In order to promote an aesthetically attractive, uniform appearance of said building from the exterior, the Landlord shall furnish a standard building blind to be used on all exterior windows (regardless of interior treatment) of the Premises. Tenant shall not place anything or allow anything to be placed near the glass of any door, partition, wall or window which may be unsightly from outside the Premises. Landlord grants Tenant limited authorization to install low voltage wiring for communication and automation purposes. Any other wiring would require Landlord's approval. The Tenant Improvements approved by Landlord and outlined in PARAGRAPH 39.01 are excluded from this clause. 11.01 TENANT'S AGREEMENT. Tenant further agrees that no sign, advertisement or notice shall be inscribed, painted or affixed on any part of the outside or inside of the Premises or any part of the Project, except on the directories and doors of offices, and then only in such size, color and style as the Landlord shall approve. Landlord shall have the right to prescribe the weight, and method of installation and position of safes, or other heavy fixtures, or equipment and Tenant will not install in the Premises any fixtures, equipment or machinery that will place a load upon any floor exceeding the floor load per square foot area which such floor was designed to carry. All damage done to the building by taking in or removing any other article of Tenant's furniture or equipment, or due to its being in the Premises, shall be Tenant. No freight furniture or other bulky matter of any description will be received into the building or carried in the elevators, except as approved by the Landlord, which shall not be unreasonably withheld or delayed. All moving of furniture, material and equipment shall be under the direct control and supervision of the Landlord, who shall however, not be responsible for any damage to or charges for moving same. Tenant agrees promptly to remove from the public area adjacent to said building any of Tenant's -7- merchandise there delivered or deposited. Any damages shall be considered as Additional Rent and payable with the next monthly installment of Rent. 12.01 UNUSUAL EQUIPMENT. The Tenant will not install or maintain any electrically operated equipment or other machinery except standard office machines without first obtaining the written consent of the Landlord, who may condition such consent upon the payment by the Tenant of Additional Rent as compensation for excess consumption of water and/or electricity occasioned by the operation of said equipment or machinery. The Tenant shall not place weight bearing items upon any floor or portion of any floor of the Premises exceeding whichever of the following is the lesser: (i) the floor load per square foot area which such floor was designed to carry, or (ii) the floor load per square foot area prescribed by law or applicable regulations. The Landlord reserves the right to prescribe the weight and position of all safes, heavy files and equipment which must be placed so as to distribute the weight. Business machines and mechanical equipment permitted to be placed in, or upon the Premises shall be placed and maintained by Tenant at its expense in settings sufficient in the Landlord's judgment to absorb and prevent vibration, noise and annoyance. 13.01 TENANT EQUIPMENT. Maintenance and repair of equipment such as kitchen fixtures, light fixture, separate air conditioning equipment, or any other types of special equipment, whether installed by Tenant or by Landlord on behalf of Tenant, shall be the sole responsibility of Tenant and Landlord shall have no obligation in connection therewith. 14.01 ACCESS. Tenant further agrees that it will allow the Landlord, its agent or employees, to enter the Premises at all reasonable times by prior appointment or upon due notice during normal business hours, or in the event of an emergency, at any time, without prior notice, to examine, inspect or to protect the same or prevent damage or injury to the same, or to make such alterations and repairs to the Premises as the Landlord may deem necessary; or to exhibit the same to prospective tenants during the last three (3) months of the term of this Lease. 15.01 ILLEGAL USE. The Tenant will not use or permit the Premises or any part of the Project thereof to be used for any disorderly, unlawful or extra hazardous purpose nor for any other purpose then herein before specified; and will not manufacture any commodity therein, without the prior written consent of the Landlord. 16.01 RULES AND REGULATIONS. The Tenant covenants that the rules and regulations attached hereto as EXHIBIT "B", and such other and further rules and regulations as the Landlord may make and which in the Landlord's judgement are needful for the general well-being, safety, care and cleanliness of the Premises and the building of which they are a part together with their appurtenances, shall be faithfully kept, observed and performed by the Tenant, and by its agents, servants, employees and guests and failure to comply with the Rules and Regulations shall be considered a default in accordance with PARAGRAPH 22.01. 17.01 DAMAGE. All injury to the Premises or the Project of which they are a part, caused by moving the property of Tenant into or out of the said Building and all breakage done by Tenant, or the agents, servants, employees and visitors of Tenant, shall be repaired by the Tenant, at the expense of the Tenant. In the event that the Tenant shall fail to do so, then the Landlord shall have the right to make such necessary repairs, alterations and replacements structural, non-structural or otherwise) and any charge or cost so incurred by the Landlord shall be paid by the Tenant with the right on the part of the Landlord to elect, in its discretion, to regard the same as Additional Rent, in which event such cost or charge shall become Additional Rent payable with the installment of Rent next becoming due or thereafter falling due under the terms of this Lease. This provision shall be construed as an additional remedy granted to the Landlord and not in limitation of any other rights and remedies which the -8- Landlord has or may have in said circumstances. 18.01 PERSONAL PROPERTY. All personal property of the Tenant in the Premises or in the Building of which the Premises is a part shall be at the sole risk of the Tenant. The Landlord shall not be liable for any accident to or damage to property of Tenant resulting from the use or operation of elevators or of the heating, cooling, electrical or plumbing apparatus. Landlord shall not, in any event, be liable for damages to property resulting from water, steam or other causes. Tenant hereby expressly releases and agrees to hold Landlord harmless from any liability incurred or claimed by reason of damage to Tenant's property. Landlord shall not be liable in damages, nor shall this Lease be affected, for conditions arising or resulting, and which may affect the building of which the Premises is a part, due to construction on contiguous premises, with the exception of any negligence attributable to Landlord. 19.01 LIABILITY & TENANT'S INSURANCE. The Landlord assumes no liability or responsibility whatsoever with respect to the conduct and operation of the business to be conducted in the Premises. The Landlord shall not be liable for any accident to or injury to any person or persons or property in or about the Premises or the Project which are caused by the conduct and operation of said business or by virtue of equipment or property of the Tenant in said Premises. The Tenant agrees to hold the Landlord harmless against all such claims. (a) Tenant shall, at Tenant's sole expense, obtain and keep in force during the Term and any extension or renewal hereof: (i) fire and extended coverage insurance with vandalism and malicious mischief endorsements and a sprinkler leakage endorsement (where applicable), on all of its personal property, including removable trade fixtures, located in the Premises, and on all leasehold improvements and any future additions and improvements made by Tenant; and (ii) comprehensive general liability insurance, including contractual liability coverage, insuring Landlord (as an additional insured) and Tenant against any liability arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. (b) Said insurance shall be with insurance companies approved by Landlord. Such companies shall be responsible insurance carriers authorized to issue the relevant insurance, authorized to do business in Florida and at least A-rated in the most current edition of BEST'S INSURANCE REPORTS and shall have minimum limits of FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000.00) for any loss of or damage to property from any one accident, and ONE MILLION AND NO/100 DOLLARS ($1,000,000.00) for death of or injury to any one person from any one accident. The limits of said insurance shall not, however, limit the liability of the Tenant hereunder. The policies cannot contain provisions which deny coverage because the loss is due to the fault of Landlord or Tenant. If Tenant shall fail to procure and maintain said insurance, Landlord may, but shall not be required to, procure and maintain same, but at the expense of Tenant. Tenant shall deliver to Landlord, prior to occupancy of the Premises, copies of policies of liability insurance required herein, or certificates evidencing the existence and amounts of such insurance, with loss payable clauses satisfactory to Landlord. No policy shall be cancelable or subject to reduction of coverage except after thirty (30) days prior written notice to Landlord. Notwithstanding anything herein to the contrary, Landlord shall have the right to review the Tenant's insurance no more frequently than once every year and to require Tenant to alter its insurance coverage to cover the effects of inflation and to include or eliminate certain provisions in the Tenant's insurance policy which reflect the then-current industry standards for this type of insurance coverage. 20.01 SERVICES. The Landlord shall use all reasonable efforts to furnish electricity, water, lavatory supplies, fluorescent tube replacements, and automatically operated elevator service during normal business hours, and normal and usual cleaning services and supplies. Landlord further agrees to furnish heat from a central heating plant and air conditioning by -9- means of a central air conditioning system during the appropriate seasons of the year, between the hours of 7:00 a.m. and 6:0O p.m. on MONDAY THROUGH FRIDAY AND SATURDAYS between the hours of 8:00 am and 1:30 p.m. (exclusive of holidays), provided, however, that the Landlord shall not be liable for failure to furnish, or for suspension or delays in furnishing, any of such services caused by breakdown, maintenance or repair work or strike, riot, civil commotion, or any cause or reason whatever beyond the reasonable control of the Landlord. After operating hours Building reverts to energy saving HVAC temperatures. Landlord shall also furnish heating, ventilating and air conditioning at such other times as are not provided for herein, provided Tenant gives written request to Landlord before noon of the business day preceding extra usage. Tenant shall bear the cost of such additional service at rates determined by Landlord, which may change from time to time. The current rate for HVAC is $20.00 per hour. 21.01 BANKRUPTCY. If the Tenant shall make an assignment of its assets for the benefit of creditors, of if the Tenant shall file a voluntary petition in bankruptcy, or if an involuntary petition in bankruptcy or for receivership is instituted against the Tenant land the same be not dismissed within thirty (30) days of the filing thereof, or if the Tenant be adjudged bankrupt, then and in any of said events this Lease shall immediately cease and terminate at the option of the Landlord with the same force and effect as though the date of said event as the day herein fixed for expiration of the term of this Lease. 22.01 DEFAULT. If Tenant defaults in the prompt payment of Rent and such default shall continue for seven (7) business days after the same shall be due and payable; or in the performance or observance of any other provision of this Lease, including the Rules and Regulations, and such other default shall continue for fifteen (15) days after written notice thereof shall have been given to Tenant; or if the leasehold interest of Tenant be levied upon under execution or attached by process of law; or if Tenant vacates or abandons the Premises; then and in any such event Landlord, if it so elects forthwith, or at any time thereafter while such default continues, either may terminate Tenant's right to possession without terminating this Lease, or may terminate this Lease. 22.02 Upon termination of this Lease, whether by lapse of time or otherwise, or upon any termination of the Tenant's right to possession without termination of the Lease, the Tenant shall surrender possession and vacate the Premises immediately and deliver possession thereof to the Landlord. 22.03 Tenant shall be deemed to have vacated or abandoned the Premises if Rent is not currently paid or if Tenant is absent from the Premises for a period of fifteen (15) days. If the Tenant vacates or abandons the Premises or otherwise entitles the Landlord so to elect, and if the Landlord elects to terminate the Tenant's right to possession only, without terminating the Lease, the Landlord may, at the Landlord's option, enter into the Premises, remove the Tenant's signs and other evidences of tenancy, and take and hold possession thereof without such entry and possession terminating the Lease or releasing the Tenant, in whole or in part, from the Tenant's obligation to pay the Rent hereunder for the full term. Upon and after entry into possession without termination of the Lease, the Landlord may relet the Premises or any part thereof for the account of the Tenant to any person, firm or corporation other than the Tenant for such Rent, for such time, and upon such terms and the Landlord in the Landlord's sole discretion shall determine so long as said terms are commercially reasonable. In any such case, the Landlord may make repairs in or to the Premises, and redecorate the same to the extent deemed by the Landlord necessary or desirable, and the Tenant shall, upon demand, pay the cost thereof together with the Landlord's expenses of the reletting. If the consideration collected by the Landlord upon such reletting for the Tenant's account is not sufficient to pay the full amount of the unpaid Rent reserved in this Lease, together with the costs of repairs, alterations, additions, redecorating, and the Landlord's expenses, the Tenant shall pay to the -10- Landlord the amount of each deficiency upon demand. Tenant agrees that the Landlord shall not be liable for any damages resulting to the Tenant or the Tenant's property caused, directly or indirectly, by the Landlord's actions in the course of reletting or retaking possession of the premises, whether caused by the negligence of the Landlord or otherwise. 22.04 Landlord is hereby granted a security interest in the personal property of the Tenant which is located in the Premises to secure the full and faithful performance of this Lease, and the Landlord may perfect and enforce this security interest in the manner prescribed by law, provided however, Landlord shall subordinate Landlord's security interest to any third-party financing Tenant obtains on Tenant's personal property and, if requested by Tenant, Landlord agrees to execute such reasonable subordination agreement requested by Tenant's lender confirming such subordination. 22.05 If any voluntary or involuntary petition or similar pleading under any section or sections of any bankruptcy act shall be filed by or against Tenant, or any voluntary or involuntary proceedings in any court shall be instituted to declare Tenant insolvent or unable to pay Tenant's debts, or if Tenant makes an assignment for the benefit of its creditors, or a trustee or receiver is appointed for Tenant or for the major part of Tenant's property, then and in such event Landlord may, if Landlord so elects, with or without notice of such election and with or without entry or other action by Landlord, forthwith terminate this Lease and notwithstanding any other provisions of this Lease, Landlord shall forthwith upon such termination be entitled to recover damages in an amount equal to the then present value of the remaining Rents as specified in SECTION 3 AND 4 of this Lease for the residue of the stated term hereof, less the fair rental income value of the Premises expected to be received by Landlord for the residue of the stated term. 22.06 Tenant shall pay all Landlord's costs, charges and expenses, including the fees of counsel, agents and others retained by Landlord, incurred in enforcing Tenant's obligation hereunder or incurred by Landlord in any litigation, negotiation, bankruptcy or insolvency proceeding, transaction or appeal, including those in which Tenant causes Landlord, without Landlord's fault, to become involved or concerned. Tenant shall be entitled to fees, costs and expenses in the event it prevails in an action regarding this Lease. If Tenant violates any of the terms and provisions of this Lease, or defaults in any of its obligations hereunder, other than the payment of Rent or other sums payable hereunder, such violation may be restrained or such obligation enforced by injunction. 22.07 Tenant agrees that it will promptly pay said Rent at the times above stated; that, if any part of the Rent remains due and unpaid for seven (7) business days after the same shall become due and payable, Landlord shall have the option of declaring the balance of the entire rental term of this Lease to be immediately due and payable, and Landlord may then proceed to collect all of the unpaid Rent called for by this Lease by distress or otherwise. 22.08 All rights and remedies of Landlord herein enumerated shall be cumulative and none shall exclude any other right or remedy allowed by law. Venue for any legal action instituted under this Lease shall be in LEE COUNTY, FLORIDA. 23.01 DAMAGE BY FIRE OR CASUALTY. In the event of damage or destruction of the Project or Premises by fire or any other casualty, this Lease shall not be terminated, but the Project or the Premises may be promptly and fully repaired and restored as the case may be by the Landlord at its own cost and expense, provided however that the cost of such repairs and restoration shall be limited to the amount of insurance proceeds received by the Landlord for such damage or destruction. Due allowance, however, shall be given for reasonable time required for adjustment and settlement of insurance claims, and for such other delays as may result from government restrictions, and controls on construction, if any, and for strikes, -11- national emergencies and other conditions beyond the control of the Landlord. It is agreed that in any of the aforesaid events, this Lease shall continue in full force and effect, but if the condition is such so as to make the entire Premises untenantable, then the Rent which the Tenant is obligated to pay hereunder shall abate as of the date of the occurrence until the Premises have been fully and completely restored by the Landlord. Any unpaid or prepaid Rent for the month in which said condition occurs shall be pro-rated. If the Premises are partially damaged or destroyed, then during the period that Tenant is deprived of the use of the damaged portion of said Premises, Tenant shall be required to pay Rent covering only that part of the Premises that it is able to occupy, based on that portion of the total Rent which the amount of square foot area remaining that can be occupied bears to the total square foot area of all the Premises covered by this Lease. In the event the Premises are substantially or totally destroyed by fire or other casualty so as to be entirely untenantable and it shall require more than one hundred twenty (120) days for the Landlord to complete restoration of same, then either party hereto, upon ten (10) days written notice to the other party may terminate this Lease, in which case the Rent shall be apportioned and paid to the date of said fire or other casualty. No compensation or claim or diminution of Rent will be allowed or paid, by Landlord, except to the extent of any insurance proceeds which may be paid, by reason of inconvenience, annoyance, or injury to business, arising from the necessity of repairing the Premises or the portion of the building of which they are a part, however the necessity may occur. 24.01 CONDEMNATION. Tenant agrees if the said Premises, or any part thereof, shall be taken or condemned for public or quasi-public use or purpose by any competent authority, Tenant shall have no claim against the Landlord and shall not have any claim or right to any portion of the amount that may be awarded as damages or paid as a result of any such condemnation; and all right of Tenant to damages therefor, if any, are hereby assigned by the Tenant to the Landlord. If all or a substantial part of the Premises shall be so condemned or taken, the term of this Lease shall cease and terminate from the date of such governmental taking or condemnation, and the Tenant shall have no claim against the Landlord for the value of any unexpired term of this Lease. If any part of the building or Project, other than the Premises, shall be so condemned or taken, Landlord may, at its sole option, terminate this Lease upon sixty (60) days written notice to Tenant of such termination. In no event shall the Landlord be liable to the Tenant for any business interruption, diminution in use of for the value of any unexpired term of this Lease. 25.01 TENANT HOLDOVER. Tenant agrees that if Tenant does not surrender to Landlord said Premises at the end of the term of this Lease, or upon any cancellation of the Term of this Lease, without prior written consent of Landlord, such holdover tenancy shall be a tenancy at sufferance, and Tenant shall pay to Landlord all damages that Landlord may suffer on account of Tenant's failure to surrender possession of said Premises, and will indemnify Landlord on account of delay of Landlord in delivering possession of said Premises to another tenant. Unless Tenant's failure to surrender the Premises is consented to in writing by the Landlord, the Rent during any holdover period shall be double the then current Rent as provided by this Lease for the period immediately preceding the expiration of the Term. The acceptance of such Rent shall not be deemed to be consent to such continued occupancy nor shall it be deemed a waiver of any rights of the Landlord as set forth herein, at law or in equity. 26.01 POSSESSION. If Landlord shall be unable to give possession of the Premises on the Commencement Date by reason of the holding over or retention of possession of any Tenant or occupancy, or for any other reason, Landlord shall not be subject to any liability for the failure to give possession on said date. Under such circumstances the Rent reserved and convenanted to be paid herein shall commence on the date which the Tenant is given possession of the Premises by the Landlord. No such failure to give possession on the Commencement Date shall in any other respect affect the validity of this Lease or the obligations of Tenant -12- hereunder, nor shall same be construed in any wise to extend the Term of this Lease. 27.01 TENANT PLANS. The Landlord and Tenant shall agree upon a space plan, for that portion of the Premises as shown on EXHIBIT A as the area of construction, which said space plan shall indicate the general layout of the Premises, selection of building standard materials and other requirements of the Tenant. Landlord shall thereafter prepare and furnish to Tenant, plans for its partitioning, mechanical, electric, telephone and all other requirements (the "WORKING DRAWINGS") and in accordance with Building Standard Materials and Specifications as described in EXHIBIT "E" attached hereto, WITHIN THIRTY (30) DAYS after agreement on the space plan. Within five (5) business days after Landlord's submission of Working Drawings, the Tenant shall approve same in writing. In the event Tenant fails to (i) comply with either of the aforesaid by the date stated or within the time specified, or (ii) in the event Working Drawings specify any non-Building Standard Materials, or (iii) any work to be performed by Tenant's contractors causes delays in completing the Premises for Tenant's occupancy, or (iv) the Tenant in any other way causes any delay in completing the Premises, such delay shall not in any manner affect the Commencement Date of this Lease or the Tenant's liability for the payment of Rent from such Commencement Date. 28.01 OFFSET STATEMENT. At anytime during the Term or any Renewal Term of this Lease and within ten (10) days after Landlord's request, Tenant shall execute in recordable form and deliver a declaration to any person designated by Landlord (a) ratifying this Lease (b) stating the commencement and termination dates of this Lease; and (c) certifying (i) that this Lease is in full force and effect and has not been assigned, modified, supplemented or amended (except by such writing as shall be stated), (ii) that all conditions under this Lease to be performed by Landlord have been satisfied (stating exceptions, if any), (iii) no defenses or offsets against the enforcement of this Lease by Landlord exist (or, if any, stating those claimed), (iv) advance rent, if any, paid by Tenant, (v) the date to which Rent has been paid, (vi) the amount of security deposited with Landlord, and such other information as Landlord reasonably requires. Persons receiving such statements shall be entitled to rely upon them. 29.01 ATTORNMENT. Tenant shall, in the event of a sale or assignment of Landlord's interest in the Premises or the Project or any part thereof, or if the Premises or the Project or any part thereof, comes into the hands of a mortgagee, ground lessor or any other person, attorn to the purchaser or such mortgagee or other person and recognize the same as Landlord hereunder. At Landlord's request, Tenant shall execute, within ten (10) days, any attornment agreement required to be executed, containing such provisions as are required. 30.01 FAILURE TO EXECUTE Instruments. Tenant's failure to execute instruments or certificates provided for in this Lease within ten (10) days after the mailing by Landlord of a written request for their execution shall be a default under this Lease. 31.01 COUNTERCLAIM. If Landlord commences any proceedings for non-payment of Rent, minimum rent, percentage rent or Additional Rent, Tenant will not interpose any counterclaim of any nature or description in such proceedings. This shall not, however, be construed as a waiver of Tenant's right to assert such claims in a separate action brought by Tenant. The covenants to pay Rent and other amounts hereunder are independent covenants, and Tenant shall have no right to hold back, offset, or fail to pay any such amounts for default by Landlord or any other reason whatsoever. 32.01 WAIVER OF JURY TRIAL. The parties hereto shall and they hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matters whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises, -13- and/or claim of injury or damage. 33.01 WAIVER OF RIGHTS OF REDEMPTION. To the extent permitted by law, Tenant waives any and all rights of redemption granted by or under any present or future laws if Tenant is evicted or dispossessed for any cause, or if Landlord obtains possession of the Premises due to Tenant's default hereunder of otherwise. 34.01 TAXES ON LEASEHOLD. Tenant shall be responsible for and shall pay before delinquent all municipal, county, federal, or state taxes coming due during or after the terms of this Lease against any leasehold interest or personal property of any kind owned or placed in, or about the Premises by Tenant. 35.01 LIENS. Tenant will not knowingly permit or suffer any lien attributable to Tenant or its agents or employees to attach to the Premises or the Project and nothing contained herein shall be deemed to imply any agreement of Landlord to subject Landlord's interest or estate to any mechanics' lien or any other lien. If any mechanics' lien is filed against the Premises or the Project as a result of additions, alterations repairs, installations or improvements made or claimed to have been made by Tenant or anyone holding any part of the Premises through or under Tenant, or any other work or act of any of the foregoing, Tenant shall discharge the same within ten (10) days from the filing thereof. If Tenant fails to so discharge by payment, bond or court order any such mechanics' lien, Landlord, at its option, in addition to all other rights or remedies herein provided, may bond said lien or claim (or pay off said lien or claim if it cannot be bonded) for the account of Tenant without inquiring into the validity thereof, and all sums so advanced by Landlord shall be paid by Tenant to Landlord as Additional Rent on demand. 36.01 PRONOUNS. Feminine or neuter pronouns shall be substituted for those of the masculine form, and the plural shall be substituted for the singular number in any place or places herein in which the context may require such substitution or substitutions. The Landlord herein for convenience has been referred to in neuter form. 37.01 NOTICES. All notices required or desired to be given hereunder by either party to the other shall be given by certified or registered mail postage prepaid, return receipt requested. Notice to the respective parties shall be addressed as follows: Landlord: FIRST UNION NATIONAL BANK OF FLORIDA C/O FAISON ASSOCIATES 12800 UNIVERSITY DRIVE, SUITE 420 FT. MYERS, FLORIDA 33907 (941) 437-0555 FAX (941) 437-2760 w/copy to: FIRST UNION NATIONAL BANK OF FLORIDA CORPORATE REAL ESTATE ATTENTION: PROPERTY MANAGER 225 WATER STREET, 4TH FLOOR JACKSONVILLE, FL 31202 (904) 361-3273 FAX (904) 361-3030 Tenant: NEOMEDIA TECHNOLOGIES, INC. 2201 2ND AVENUE, SUITE 600 FT. MYERS, FLORIDA 33901 ATTN.: CHUCK JENSEN Either party may, by written notice, designate a new address to which such notices shall be -14- directed. 38.01 RELOCATION. (Intentionally omitted) 39.01 TENANT IMPROVEMENTS. The Premises are being provided by the Landlord in their current as-is condition together with, but not necessarily limited to, all existing demising and interior partitions, doors, frames and hardware, ceilings, electrical fixtures and distribution wiring, HVAC distribution systems and controls, sprinkler systems, fire alarm systems and controls exit lighting, interior finishes, built-in millwork, and any and all other improvements located therein. The Landlord shall provide the Tenant with all necessary Working Drawings, permits, demolition, general, mechanical, electrical and plumbing construction and interior finishes (the "TENANT IMPROVEMENTS") to construct, modify, alter or otherwise improve and prepare that portion of the Premises shown on EXHIBIT A as the area of construction in accordance with the final Working Drawings as described in PARAGRAPH 27.01, provided however the Landlord's obligation for the cost of said Tenant Improvements shall not exceed SIXTY THREE THOUSAND SIX HUNDRED NINETY AND 00/100 dollars ($63,690.00) (the "TENANT IMPROVEMENT ALLOWANCE"). The cost of the Tenant Improvements shall be determined by the Landlord after mutual agreement by the Landlord and the Tenant of the Working Drawings and prior to the commencement of any work or construction by the Landlord. In the event the cost of the Tenant Improvements exceed the Landlord's obligation as herein described, or in the event the actual cost to construct the Tenant Improvements exceed the Landlord's obligation due to changes requested by the Tenant to the final Working Drawings, then, in such event, the Tenant shall be responsible for the additional cost in excess of the Landlord's obligation and shall reimburse the Landlord for such excess immediately upon completion of the Tenant Improvements. Any excess cost due from the Tenant shall be considered as Additional Rent and shall be due and payable upon the first installment of Rent and subject to all provisions, terms and conditions of Rent and Additional Rent as herein provided. In the event the cost of Tenant Improvements exceeds the Landlord's obligation and the Tenant disputes the Landlord's cost estimate of the Tenant Improvements, or refuses to pay the excess cost, or requires the Landlord to redesign, modify, or otherwise change the final Working Drawings in an effort to reduce cost, or requests the Landlord to obtain additional cost estimates of the Tenant Improvements, the Landlord may do so, however, such redesigning, modifications or changes shall be considered a delay to the Landlord as provided in SECTION 27.01 and the Commencement Date of the Term of this Lease shall not be delayed by such action. Notwithstanding anything to the contrary contained herein this PARAGRAPH 39.01, in the event the cost of the Tenant Improvements exceeds NINETY THOUSAND AND 00/100 DOLLARS ($90,000.00), the Landlord shall increase the Tenant Improvement Allowance up to a maximum increase of TEN THOUSAND AND 00/100 DOLLARS ($10,000.00) and such increase amount shall be amortized over the term of this Lease at an annual rate of 9.5% and the monthly amortized amount shall be added to the monthly Rent amounts stipulated in PARAGRAPH 53.01-1, however in no event shall the Landlord's total contribution towards the cost of Tenant Improvements exceed SEVENTY THREE THOUSAND SIX HUNDRED NINETY AND 00/100 DOLLARS ($73,690.00) 40.01 PARKING. Parking shall be provided on the surface parking lot(s) contiguous to the Building. Tenant shall be entitled to TWENTY-TWO (22) parking spaces on the surface parking lot(s) in common with other tenants of the Project at no charge. Additionally, from and after February 1, 1997, Tenant shall have the option, but not the obligation, to request from Landlord additional parking spaces (the "ADDITIONAL SPACES") be provided for Tenant's use. Tenant's option for the Additional Spaces as herein provided is subject to, (i) Tenant's option for Additional Spaces shall be limited to a maximum of EIGHTEEN (18) spaces, (ii) Tenant may request all, or any part of the Additional Spaces, by providing Landlord with not less than FORTY-FIVE (45) days advance notice of the number of Additional Spaces to be reserved by Tenant and the effective date of such reservation, which such reservation shall -15- commence upon the effective date and continue throughout the remaining term of this Lease, (iii) Tenant shall pay Landlord monthly, in advance, from and after the effective reservation date for Additional Spaces, FIFTEEN AND 00/100 DOLLARS ($15.00) for each Additional Space reserved, plus applicable sales tax. Said payments shall for all purposes of this Lease, be considered Additional Rent and subject to all terms, conditions and covenants herein provided in this Lease, (iv) Until such time as Tenant's reservation of Additional Spaces reaches the maximum herein provided, Tenant shall have the ongoing right throughout the term of this Lease to increase the number of spaces reserved until such maximum is reached by providing Landlord with FORTY-FIVE (45) days advance written notice of such increase and effective date of same. The Tenants use of parking as herein provided through its employees, agents and visitors shall not exceed the restrictions herein provided. Any violation thereof shall, at the option of Landlord, constitute a default under the terms of this Lease. Tenant further covenants and agrees to not assign, sublease or otherwise permit the use of the parking provided herein by anyone other than employees of Tenant, it's officers and directors and any violation thereof shall constitute a default hereunder. The Landlord assumes no liability or responsibility whatsoever with respect to the Tenant's use of parking and Landlord shall not be liable for any theft, accident or injury, to any person, persons or property in or about the parking lot(s) from any cause and Tenant agrees to hold the Landlord, it's officers, directors, employees, assignees and agents harmless from and against all such claims. 41.01 GOVERNING LAW. This Lease shall be construed under the laws of the State of Florida. 42.01 BENEFIT AND BURDEN. Except as otherwise expressly set forth in this Lease, the covenants, conditions, agreements, terms and provisions herein contained shall be binding upon, and shall inure to be benefit of, the parties hereto and their respective personal representatives, successors and assigns. Nor rights, however, shall inure to the benefit of any assignee or sublessee of Tenant unless the assignment or sublease has been approved by Landlord in writing as provided in PARAGRAPH 8 above. 43.01 ACCORD AND SATISFACTION. Landlord is entitled to accept, receive, and cash or deposit any payment made by Tenant for any reason or purpose or in any amount whatsoever, and apply the same at Landlord's option to any obligation of Tenant and the same shall not constitute payment of any amount owed except that to which Landlord has applied the same. No endorsement or statement or any check or letter of Tenant shall be deemed an accord and satisfaction or otherwise recognized for any purpose whatsoever. The acceptance of any such check or payment shall be without prejudice to Landlord's right to recover any and all amounts owed by Tenant hereunder and Landlord's right to pursue any other available remedy. Payment of any amounts by Tenant shall not waive any other cause of action which Tenant may have. 44.01 CAPTIONS AND SECTION NUMBERS. This Lease shall be construed without reference to titles of paragraphs which are inserted only for convenience of reference. 45.01 PARTIAL INVALIDITY. If any provision of this Lease or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such provisions to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby and each provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. 46.01 EXHIBITS. Exhibits made a part of this Lease and incorporated here by reference include the following: A - Floor Plan -16- A-1 - Right of First Refusal Space B - Rules and Regulations C - Guaranty (Intentionally omitted) D - Tenant Acceptance Letter E - Building Standard Materials and Specifications 47.01 QUIET ENJOYMENT. As long as Tenant fully complies with the terms, conditions and covenants of this Lease, Landlord agrees that Tenant shall and may peaceably have, hold and enjoy the Premises without hindrance or molestation by Landlord. 48.01 ENTIRE AGREEMENT. There are no representations, covenants, warranties, promises, agreements, conditions or undertakings, oral or written, between Landlord and Tenant other than herein set forth. Except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this Lease shall be binding upon Landlord or Tenant unless in writing and signed by them. 49.01 TIME OF ESSENCE. It is understood and agreed between the parties hereto that time is of the essence of all the terms, provisions, covenants and conditions of this Lease. 50.01 EFFECTIVE DATE. Submission of this instrument for examination does not constitute an offer, right of first refusal, reservation of or option for the Premises or any other space or premises in, on or about the building or Project. This instrument becomes effective as a Lease upon execution and delivery by both Landlord and Tenant. 51.01 RADON GAS. Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed Federal and State guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit. 52.01 BROKERS. Tenant and Landlord each warrant that it has not dealt with any broker other than FAISON ASSOCIATES AND SHAFFER & ASSOCIATES, INC. in connection with the Premises or the negotiation of this Lease. Only commissions due to FAISON ASSOCIATES AND SHAFFER & ASSOCIATES, INC. shall be paid by the Landlord in connection with this Lease. Tenant and Landlord each agree to indemnify and save harmless the other from and against all loss, costs, damages, claims, proceedings, demands, liabilities or expenses, including without limitation reasonable attorneys' fees and litigation costs, incurred by the other for any claim by any other broker with whom such party has dealt regarding this Lease. 53.01 SPECIAL CLAUSES. 1. RENTALS: MONTHS RATE/RSF MONTHLY TOTAL CUM TOTAL ------ -------- ------- ----- --------- 1-2 $0.00 $0.00 $0.00 $0.00 3-4 $13.50 $4,822.20 $9,644.40 $9,644.40 5-12 $13.50 $11,941.88 $95,535.04 $105,179.44 13-24 $13.90 $12,295.71 $147,548.52 $252,727.96 25-36 $14.30 $12,649.54 $151,794.48 $404,522.44 37-38 $16.50 $44,595.63 $ 29,191.26 $433,713.70 * Plus applicable taxes as may be imposed on rents. -17- RENTAL RATES DO NOT INCLUDE APPLICABLE OPERATING EXPENSE PASS THROUGH EXPENSES OVER THE TERM OF THE LEASE. 2. RENT FOR RENEWAL TERMS: The monthly Base Rent for each Renewal term, as provided in PARAGRAPH 4.05, shall be the same monthly Base Rent as the monthly Base Rent during the thirty-eighth month of the Lease term as shown in PARAGRAPH 53.01-1. IN WITNESS WHEREOF, this Lease is executed as of the date first written above. AS TO THE LANDLORD: WITNESS: FIRST UNION BANK OF FLORIDA /s/ MARETTA L. RADFORD By:/s/ ILLEGIBLE - - ----------------------- ----------------------- /s/ ILLEGIBLE As: SVP - - ----------------------- AS TO THE TENANT: WITNESS: NEOMEDIA TECHNOLOGIES, INC. /s/ DAVID CARLETON HALL By: /s/ CHARLES T. JENSEN - - ----------------------- ---------------------- /s/ STEVEN ACOSTA As: VP, TREASURER, C.F.O. - - ----------------------- ---------------------- Where Tenant is a corporation, this Lease shall be signed by a President or Vice President and Secretary or Assistant Secretary of Tenant. Any other signatories shall require a certified corporate resolution. -18- EXHIBIT "A" FLOOR PLAN Exhibit A presents a diagram of the sixth floor of the First Union building. This diagram notes which space is "as-is premises" totaling 4,286 square feet and which space is "area of construction" totaling 6,329 square feet. -19- EXHIBIT "A-1" RIGHT OF FIRST REFUSAL SPACE Exhibit A-1 presents a diagram of the fourth floor of the First Union building. This diagram notes which space is "right of first refusal space" totaling 5,597 square feet. -20- EXHIBIT "B" BUILDING RULES AND REGULATIONS 1. The sidewalks, entries, passages, court corridors, stairways and elevators shall not be obstructed by any of the Tenants, their employees or agents, or used by them for purposes other than ingress and egress to and from their respective suites. 2. All safes or other heavy articles shall be carried up or into the Premises only at such times and in such manner as shall be prescribed by the Landlord and the Landlord shall in all cases have the right to specify that property weight and position of any such safe or other heavy article. Any damage done to the Building by taking in or removing any safe or from overloading any floor in any way shall be paid by the Tenant. Defacing or injuring in any way any part of the Building by the Tenant, his agents or employees, shall be paid for by the Tenant. 3. Tenant will refer all contractors, contractors' representatives and installation technicians rendering any service on or to the Premises for Tenant to Landlord for Landlord's approval and supervision before performance of any contractual service. This provision shall apply to all work performed in the Building, including installation of telephones, telegraph equipment, electrical devices and attachments and installations of any nature affecting floors, walls, woodwork, trim, windows, ceiling, equipment or any other physical portion of the Building. 4. No sign, advertisement or notice shall be inscribed, appointed or affixed on any part of the inside or outside of the said Building unless of such color, size, and style and in such place upon or in said building as shall first be designated by Landlord; there shall be no obligation or duty on Landlord to allow any sign, advertisement or notice to be inscribed, painted or affixed on any part of the inside or outside of said Building, except as specifically set forth in the Lease of Tenant. Signs on doors will be painted for the Tenant by a sign writer approved by Landlord, the cost of the painting to be paid by the Tenant. A directory in a conspicuous place, with the names of the Tenants, will be provided by the Landlord; any necessary revision in this will be made by Landlord within a reasonable time after notice from the Tenant of the error or change making the revision necessary. No furniture shall be placed in front of the Building or in any lobby or corridor without written consent of Landlord. Landlord shall have the right to remove all other signs and furniture, without notice to Tenant at the expense of Tenant. 5. Tenant shall have the nonexclusive use in common with the Landlord, other tenants, their guests and invitees, of the uncovered automobile parking areas, driveways and footways, subject to reasonable rules and regulations for the user thereof as prescribed from time to time by Landlord. Landlord shall have the right to designate parking areas for the use of the Building tenants and their employees, and the tenants and their employees shall not park in parking areas not so designated. Tenant agrees that upon written notice from Landlord, it will furnish to Landlord, within thirty (30) days from receipt of such notice, the state automobile license numbers assigned to the automobiles of the Tenant and its employees. 6. No Tenant shall do or permit anything to be done in said Premises, or bring to keep anything therein, which will in any way increase the rate of fire insurance on said Building, or on property kept therein, or obstruct or interfere with the rights of other Tenants, or in any way injure or or annoy them, or conflict with the laws relating to fire, or with any regulations of the fire department, or with any insurance policy upon said Building or any part thereof, or conflict with any rules or ordinances of any governing bodies. 7. The janitor of the Building may at all times keep a pass key to suite entry doors, -21- EXHIBIT "B" (CONTINUED) and he and other employees of the Landlord shall at all times be allowed admittance to said leased Premises. 8. No additional locks shall be placed upon any public entry doors without the written consent of the Landlord. All necessary keys shall be furnished by the Landlord, and the same shall be surrendered upon the termination of this Lease, and the Tenant shall then give the Landlord or his agents explanation of the combination of all locks upon the doors of vaults. 9. No windows or other openings that reflect or admit light into the corridors or passageways, or to any other place in said Building, shall be covered or obstructed by any of the Tenants. 10. The water closets and other water fixtures shall not be used for any purpose other than those for which they were constructed, and any damage resulting to them from misuse, or the defacing or injury of any part of the Building, shall be borne by the person who shall occasion it. 11. No person shall disturb the occupants of the Building by the use of any musical instruments, the making of unseemly noises, of any unreasonable use. No dogs or other animals or pets of any kind will be allowed in the Building. 12. No bicycles or similar vehicles will be allowed in the Building. 13. Nothing shall be thrown out the windows of the Building or down the stairways or other passages. 14. Tenant shall not be permitted to use or to keep in the Building any kerosene, camphene, burning fluid or other flammable materials. 15. If any Tenant desires telegraphic, telephonic or other electric connections, Landlord or its agents will direct the electricians as to where and how the wires may be introduced, and without such directions no boring or cutting for wires will be permitted. 16. If Tenant desires shades or awnings, they must be of such shape, color, materials and make as shall be prescribed by Landlord and any outside awning proposed may be prohibited by Landlord. Landlord or its agents shall have the right to enter the Premises to examine the same or to make such repairs, alterations or additions as Landlord shall deem necessary for the safety, preservation or improvement of the Building, and during the three (3) month period prior to termination of the Lease, the Landlord or its agents may show said Premises and may place on the windows or doors thereof, or upon the bulletin board a notice "For Rent". 17. No portion of the Building shall be used for the purpose of lodging rooms or for any immoral or unlawful purposes. 18. All glass, locks and trimmings in or about the doors and windows and all electric fixtures belonging to the Building shall be kept whole, and whenever broken by anyone shall be immediately replaced or repaired and put in order by Tenant under the direction and to the satisfaction of Landlord, and on removal shall be left whole and in good repair. 19. Tenant shall not install or authorize the installation of any vending machines or food preparation devices without Landlord's written approval. -22- EXHIBIT "D" TENANT ACCEPTANCE LETTER This declaration is hereby attached to and made a part of the lease dated _____ ___________ 19___ entered into by and between First Union National Bank of Florida, as Landlord and NeoMedia Technologies, Inc., as Tenant. The undersigned, as Tenant, hereby confirms as of the _____ day of ____________, 19____, the following: 1. Tenant has accepted possession of the Premises on _________19 _____ and is currently occupying the same. 2. The Commencement Date and Expiration Date, as each is defined in the Lease, are as follows: /bullet/ Commencement: _____________________ /bullet/ Expiration Date: _____________________ 3. The obligation to commence the payment of rent commenced or will commence on _____________ 19____. 4. All alterations and improvements to be performed by Landlord have been completed in accordance with the provisions of the Lease. 5. As of the date hereof, Landlord has fulfilled all of its obligations under the Lease. 6. The Lease is in full force and effect and has not been modified, altered, or amended, except pursuant to any instruments described above. 7. There are no offsets or credits against Base Rent or Additional Rent, nor has any Base Rent or Additional Rent been prepaid except a provided pursuant to the terms of the Lease. 8. Tenant has no notice of any prior assignment, hypothecation, or pledge of the Lease or any rents due under the Lease. AS TO LANDLORD: WITNESS: FIRST UNION NATIONAL BANK OF FLORIDA ______________________ BY: ________________________________ ______________________ AS: AS TO TENANT: WITNESS: NEOMEDIA TECHNOLOGIES, INC. ______________________ BY: ________________________________ ______________________ AS: -23- EXHIBIT "E" BUILDING STANDARD MATERIALS AND SPECIFICATIONS I. Building Standard Materials and Specifications The following materials, specifications and guidelines shall be used by the Landlord for the purposes of maintaining uniformity within the Building, providing cost effective materials and finishes and for selection of finish materials by the Tenant. 1. DEMISING PARTITIONS - (party walls) One-hour fire rated partition to deck, taped and spackled ready for paint. 2. INTERIOR WALLS - 2 1/2" metal studs, 24" o.c. with 1/2" drywall both sides, to ceiling, taped and spackled, ready for paint. 3. ENTRY DOORS - Existing doors and hardware or equivalent. 4. INTERIOR DOORS - Existing doors and hardware or equivalent. Guideline of one (1) interior door for each 250 square feet of useable area. 5. CEILING ASSEMBLY - Existing ceiling system to remain or new acoustical panel tile 2'0" x 4'0" with white exposed metal grid. 6. LIGHTING - Existing light FIXTURES to remain and be relocated as required by space plan. When new ceilings and/or light fixtures are required, fixtures to be recessed 2'0" x 4'0" fluorescent lighting per specifications below. Guideline of one (1) fixture per 100 square feet of useable area. a. All fluorescent fixtures shall be energy efficient using Octron F032/41K, F025/41K or F017/41K or Landlord's approved equal. Where U-shaped lamps are used, lamps shall be Octron FBO31/41K or Landlord's approved equal. 7. FLOORING - Building standard twenty-six (26) ounce direct glue down carpeting in one style and one color provided throughout Tenant area plus vinyl base molding trim. Vinyl tile in special purpose areas. 8. WALL SURFACE - Two (2) coats of flat latex water base paint selected from building standard colors. Maximum of two (2) colors per Tenant suite as required for building standard partitions. 9. ELECTRICAL - Electrical distribution as per code and space plan. Existing to be reused where possible. Guideline of one duplex receptacle per each 100 square feet of useable area. 10. TELEPHONE- Per space plan. Guideline of one(l) telephone outlet per 250 square feet of useable area. 11. SIGNAGE - One (1) building standard Tenant identification sign installed on corridor wall next to Tenant entry door, and one (1) building standard Tenant I.D. sign on Master Directory in the main lobby of Building. -24- EXHIBIT "E" (CONTINUED) 12. HEATING, VENTILATING AND AIR CONDITIONING - Existing Building air conditioning system and equipment to be used providing a minimum of one (1) ton of cooling capacity per 250 square feet of useable area. Existing system distribution duct work, grilles and diffusers, vav boxes and controls to be reused, relocated and modified as required for space plan. 13. WINDOW COVERING - Building standard blinds on all exterior windows. 14. SPACE PLANNING - Landlord will provide basic space plan and one major revision if necessary, conforming to the standard work described in section. 15. WORKING DRAWINGS - Will be provided in accordance with the space plan approved by Tenant and Landlord. Drawings and specifications will be completed within prescribed city requirements for construction permits and completion of the premises for Certificate of Occupancy. Additions for changes to plans after approval by Landlord and Tenant will be handled by written orders at a cost of $100 per change plus the cost of the change. 16. DEMOLITION- All demolition, removal, hauling and clean-up necessary to prepare the Premises for the construction of the Tenant Improvements. 17. SPECIAL SYSTEMS/LIFE HEALTH SAFETY - Existing sprinkler systems, fire alarm systems and equipment, exit lighting, fire extinguishers and other special systems to be reused, relocated and/or modified per space plan and code requirements. II. General: 1. In accordance with the provisions of SECTION 27.01 AND 39.01, all work and materials described herein shall be provided by the Landlord, the cost of which shall be paid by the Landlord from the Tenant Allowance described in SECTION 39.01. 2. All Tenant work shall be installed in accordance with the terms of this Lease, all governing codes, laws, regulations and Landlord's design construction, and labor standards. III. Specific Exclusions 1. All furnishings, decorating, and trade fixtures. 2. All storage shelving and other millwork. 3. Computer flooring, special systems and equipment, structural changes to Building, vaults, special enclosures and glass partitions and doors. 4. Security systems and wiring. 5. Special hardware and automatic door openers. 6. Tenant's equipment and office furniture, etc. 7. Special plumbing, HVAC, electrical work required for the installation of Tenant's equipment unless otherwise noted specifically herein. 8. Recessed and/or other special lighting fixtures. -25- EX-10.44 3 NeoMedia Technologies, Inc. Exhibit 10.44 Sublease Agreement Between NeoMedia Technologies, Inc. and Lancaster Annuity Services Company Dated November 8, 1996 SUBLEASE AGREEMENT This Sublease, dated this 8th day of November 1996 is made between NeoMedia Technologies, Inc. (formerly DevTech Associates, Inc.) ("Sublessor") and Lancaster Annuity Services Company and Mr. Terry Spirk (collectively, "Sublessee"). R E C I T A L S: Sublessor is the lessee under a Lease dated August 29, 1995 (the "Master Lease") which is attached hereto as Exhibit "A" wherein MGI Properties, a Massachusetts Trust ("Lessor") leased to Sublessor the real property located in the City of Naperville, County of DuPage, State of Illinois described as 280 Shuman Boulevard, Suite 100 ("Master Premises"). The Master Lease has not been amended by any agreements. Sublessee desires to sublease a part or all of the Master Premises. Sublessor desires to sublease a part or all of the Master Premises to Sublessee. NOW, THEREFORE, on the terms and conditions provided in this Sublease, the parties agree as follows: 1. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby subleases from Sublessor, on the terms and conditions set forth in this Sublease and the Master Lease the following portions of the Master Premises: Beginning December 1, 1996 and ending February 28, 1997, Sublessee shall sublease that portion of the Master Premises which is outlined on Exhibit "B" and is approximately 5,035 square feet; Beginning March 1, 1997 and ending June 30, 1997 Sublessee shall sublease that portion of the Master Premises which is outlined on Exhibit "C" and is approximately 6,187 square feet; Beginning July 1, 1997 and ending December 31, 2000 or the sooner termination of this Sublease, Sublessee shall sublease the entire Master Premises which is outlined on Exhibit "D". The part or all of the Master Premises subleased to Sublessor at any time shall be referred to as the "Premises. " The Premises are subleased to Sublessee in AS IS condition and Sublessor makes no agreement to alter or improve the Premises. 2. TERM. (a) The Term of this Sublease shall commence on December 1, 1996 ("Commencement Date"), or when Lessor consents to this Sublease, whichever shall last occur, and end on December 31, 2000 ("Termination Date"), unless otherwise sooner terminated in accordance with the provisions of this Sublease. In the event the Term commences on a date other than the Commencement Date, Sublessor and Sublessee shall execute a memorandum setting forth the actual date of commencement of the Term. Possession of the Premises ("Possession") shall be delivered to Sublessee on the commencement of the Term. If for any reason Sublessor does not deliver Possession to Sublessee on the commencement of the Term, Sublessor shall not be subject to any liability for such failure, the Termination Date shall not be extended by the delay, and the validity of this Sublease shall not be impaired, but rent shall abate until delivery of Possession. Notwithstanding the foregoing, if Sublessor has not delivered Possession to Sublessee within thirty (30) days after the Commencement Date, then at any time thereafter and before delivery of Possession, Sublessee may give written notice to Sublessor of Sublessee's intent to cancel this Sublease. Said notice shall set forth an effective date for such cancellation which shall be at least ten (10) days after delivery of said notice to Sublessor. If Sublessor delivers Possession to Sublessee on or before such effective date, this Sublease shall remain in full force and effect. If Sublessor fails to deliver Possession to Sublessee on or before such effective date, this Sublease shall be canceled, in which case all consideration previously paid by Sublessee to Sublessor on account of this Sublease shall be returned to Sublessee, this Sublease shall thereafter be of no further force or effect, and Sublessor shall have no further liability to Sublessee on account of such delay or cancellation. If Sublessor permits Sublessee to take Possession prior to the commencement of the Term, such early Possession shall not advance the Termination Date and shall be subject to the provisions of this Sublease, including without limitation the payment of rent. (b) At any time on or after June 30, 1997, Sublessee may elect to terminate this Sublease upon written notice to Sublessor; provided, however, that a condition to Sublessee's right to elect to terminate this Sublease is that the Lessor shall consent to the termination on terms agreeable to Sublessor of the Master Lease simultaneous with the termination of this Sublease. 3. RENT. (a) "Base Rent". Sublessee shall pay to Sublessor as Base Rent, without deduction, set off, notice, or demand, at 6054 Timberwood Circle, #240, Ft. Myers, Florida 33908 or at such other place as Sublessor shall designate from time to time by notice to Sublessee, the Base Rent specified below, in advance on the first day of each month of the Term. -2- TIME PERIOD MONTHLY RENT ----------- ------------ 12/01/96 TO 02/28/97: $ 7,552.50 per month 03/01/97 to 06/30/97: $ 9,280.50 per month 07/01/97 to 11/30/97: $13,986.00 per month 12/01/97 to 11/30/98: $14,404.58 per month 12/01/98 to 11/30/99: $14,840.70 per month 12/01/99 to 12/31/00: $15,283.29 per month Sublessee shall pay to Sublessor upon execution of this Sublease the sum of Seven Thousand Five Hundred Fifty Two and 50/100 Dollars ($7,552.50) as Base Rent for the month of December. (b) "Additional Rent". Sublessee and Sublessor agree that the Sublessee shall not be responsible for the payment to Lessor of the Additional Rent provided in the Master Lease. Sublessor shall pay any Additional Rent required by the Master Lease. 4. UTILITIES. Except as provided herein, Sublessee shall be solely responsible for the payment of all services to the Premises which are provided in the Master Lease to be paid by Sublessor and shall be solely responsible for timely payment for electrical service to the Premises received directly from the utility company. Prior to July 1, 1997, Sublessee and Sublessor shall prorate all billings for services and utilities based on the square footage of the Master Premises occupied by each, except that any party which requests after hour services shall be solely responsible for payment of the cost of such services. 5. INSURANCE. During the entire term of this Sublease, Sublessee, at its sole costs and expense, agrees to purchase and keep in full force and effect during the term hereof, the insurance coverage required by the Master Lease. Casualty and extended coverage policies shall contain a clause pursuant to which the insurance carriers waive all rights of subrogation against the Sublessor and Lessor, and their agents and employees with respect to losses payable under said policies. Sublessor and Lessor shall be named as additional co-insureds on all insurance policies. Evidence of such insurance shall be delivered to Sublessor upon demand and shall provide that coverage may not be changed or canceled without thirty (30) days written notice to Sublessor and Lessor. If Sublessee should fail to secure and maintain such insurance, Sublessor shall have the right to do so and to add the cost thereof to the rent due hereunder. -3- 6. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution of this Sublease the sum of Seven Thousand Five Hundred Fifty-Two and 50/100 Dollars ($7,552.50) as security for Sublessee's faithful performance of Sublessee's obligations hereunder ("Security Deposit"). The amount of the Security Deposit shall be increased to Nine Thousand Two Hundred Eighty and 50/100 Dollars ($9,280.50) on or before March 1, 1997 and shall be further increased to Thirteen Thousand Nine Hundred Eighty Six and 00/100 Dollars ($13,986.00) on or before July 1, 1997. If Sublessee fails to pay rent or other charges when due under this Sublease, or fails to perform any of its other obligations hereunder, Sublessor may use or apply all or any portion of the Security Deposit for the payment of any rent or other amount then due hereunder and unpaid, for the payment of any other sum for which Sublessor may become obligated by reason of Sublessee's default or breach, or for any loss or damage sustained by Sublessor as a result of Sublessee's default or breach. If Sublessor so uses any portion of the Security Deposit, Sublessee shall, with ten (10) days after written demand by Sublessor, restore the Security Deposit to the full amount originally deposited, and Sublessee's failure to do so shall constitute a default under this Sublease. Sublessor shall not be required to keep the Security Deposit separate from its general accounts, and shall have no obligation or liability for payment of interest on the Security Deposit. In the event Sublessor assigns its interest in this Sublease, Sublessor shall deliver to its assignee so much of the Security Deposit as is then held by Sublessor. Within ten (10) days after the Term has expired, or Sublessee has vacated the Premises, or any final adjustment pursuant to Subsection 3(b) hereof has been made, whichever shall last occur, and provided Sublessee is not then in default of any of its obligations hereunder, the Security Deposit, or so much thereof as had not theretofore been applied by Sublessor, shall be returned to Sublessee or to the last assignee, if any, of Sublessee's interest hereunder. 7. USE OF PREMISES. The Premises shall be used and occupied only for general business offices and related purposes and for no other use or purpose. 8. ALTERATIONS. The Sublessee shall not make any alterations, improvements or additions to the Premises without the prior written consent of Sublessor and Lessor. Sublessor hereby consents to Sublessee, at its own expense, (i) installing a double lock on the rear door of the Premises where indicated on Exhibit B and (ii) installing a door to the Premises at the location indicated on Exhibit B. Sublessor shall cooperate with Sublessee in obtaining Lessor's consent to such construction. All construction drawings shall be subject to Sublessor's approval. All construction shall be performed in accordance with the provisions of the Master Lease. -4- 9. WARRANTY BY SUBLESSOR. Sublessor warrants and represents to Sublessee as follows: (a) The Master Lease has not been amended or modified, except as expressly set forth herein; (b) Sublessor is not now, and as of the commencement of the Term hereof will not be, in default or breach of any of the provisions of the Master Lease; (c) Sublessor has no knowledge of any claim by Lessor that Sublessor is in default or breach of any of the provisions of the Master Lease; and SUBLESSOR MAKES NO OTHER REPRESENTATIONS OR WARRANTIES TO SUBLESSEE, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY REPRESENTATIONS OR WARRANTIES AS TO THE CONDITION OR REPAIR OF THE PREMISES. 10. ASSIGNMENT AND SUBLETTING. Sublessee shall not assign this Sublease or further sublet any part of the Premises without the prior written consent of Sublessor and Lessor. Sublessee shall give notice and all documents required under the Master Lease to Sublessor at least forty-five (45) days prior to the intended commencement date of any proposed sublease. Notwithstanding the consent of the Lessor and Sublessor to sublease a part of the Premises, in no event shall any sublease of the Premises exceed thirty-three (33%) of the Premises. 11. FURNITURE. (a) Sublessor agrees to lease the wooden furniture listed on Exhibit "E" attached hereto (the "Wood Furniture") to Sublessee at no additional rent or fee for the term of the Lease. Sublessor makes no representations or warranties with respect to the Wood Furniture, including but not limited to, any representations or warranties as to the condition or repair of the Wood Furniture. Upon the expiration of this Sublease without any breach or default on the part of Sublessee or on termination of this Sublease pursuant to Section 2(b), Sublessee may elect to purchase the Wood Furniture for consideration of $1.00. Upon payment of $1.00 to Sublessor, Sublessor shall transfer all right, title and interest in and to the Wood Furniture to Sublessee in AS IS condition without representation or warranty. At Sublessor's request, Sublessee shall sign a UCC Financing Statement to be filed by Lessor to record its ownership interest in the Wood Furniture. -5- (b) On or before March 1, 1997, Sublessor and Sublessee shall agree upon and Sublessor shall sublease to Sublessee certain metal furniture to be identified by the parties which shall be listed on Exhibit "F" to be attached hereto (the "Metal Furniture") under the terms and conditions of that certain Lease dated June 29, 1995 between Sublessor, as lessee, and The First National Bank of Chicago, as lessor, which is attached hereto as Exhibit "G" (the "Metal Furniture Lease"). Sublessor hereby consents to and Sublessee shall have a license to use the metal furniture located in the Premises from December 1, 1996 through February 28, 1997. In consideration for such license, Sublessee shall pay to Sublessor on or before the first day of each month during which Sublessor shall use the such metal furniture, an amount equal to (i) the monthly rent due under the terms of the Metal Furniture Lease multiplied by (ii) a fraction the numerator of which is the square footage of the Premises during such month and the denominator of which is the square footage of the Master Premises. The provisions of this Section 11(b) shall be null and void if The First National Bank of Chicago agrees to cancel the Metal Furniture Lease and enter into a lease with Sublessee for the Metal Furniture. In that event, Sublessor shall consent to termination of the Metal Furniture Lease and the execution of a lease between The First National Bank of Chicago and Sublessee for the Metal Furniture. Upon execution of the lease, Sublessor shall have no further liability or obligation with respect to the Metal Furniture or the Metal Furniture Lease. 12. DEFAULT. If Sublessee shall at any time be in default in the payment of rent herein reserved and Sublessee shall fail to remedy such default within five (5) days or if Sublessee shall at any time be in default in the performance of any of the other covenants, terms, conditions, or provisions of this Sublease and Sublessee shall fail to remedy such default within fifteen (15) days after written notice thereof from Sublessor or if Sublessee shall make an assignment for the benefit of creditors or if a receiver of any property of Sublessee in or upon the Premises be appointed in any action, suit, or proceeding by or against Sublessee and the decree of order not set aside, vacated, or stayed within sixty (60) days of entry thereof or if the interest of Sublessee in the Premises shall be sold under execution or other legal process or if Sublessee shall file a petition in bankruptcy or a petition shall be filed against Sublessee in bankruptcy and not set aside, vacated or stayed within thirty (30) days after entry, it shall be lawful for Sublessor to enter upon the Premises and again have, repossess, and enjoy Premises as if this Sublease had not been made, and thereupon this Sublease and everything herein contained on the part of the Sublessor to be done and performed shall cease and determine, without prejudice, however, to the right of Sublessor to recover from Sublessee all rent due up to the time of such entry or any other rights of Sublessor. In the case of any default and re-entry by Sublessor, Sublessor may relet the Premises for the remainder of the term of this Sublease thereof for the highest rent obtainable by Sublessor and may recover from Sublessee any deficiency between the amount so obtained less Sublessor's costs and expenses including attorneys' fees in connection with such entry and reletting and the Base Rent and Additional Rent to be paid under this Sublease. Sublessee shall indemnify and hold harmless Sublessor for all damages, liabilities, interest, -6- penalties, costs and expenses, including attorneys' fees and expenses, incurred by Sublessor as a result of any default by Sublessee hereunder. 13. INDEMNIFICATION. Sublessee shall indemnify, defend and hold harmless Sublessor from any and all suits, actions, proceedings, damages, liabilities, costs and expenses as a result of or arising out of Sublessee's occupancy of the Premises. 14. OTHER PROVISIONS OF SUBLEASE. All applicable terms and conditions of the Master Lease are incorporated into and made a part of this Sublease as if Sublessor were the lessor thereunder, Sublessee the lessee thereunder, and the Premises the Master Premises, except that Sublessee shall have no rights under the provisions of Rider No. 1 to the Master Lease. Sublessee assumes and agrees to perform the lessee's obligations under the Master Lease during the Tenn to the extent that such obligations are applicable to the Premises, except that the obligation to pay rent to Lessor under the Master Lease shall be considered performed by Sublessee to the extent and in the amount rent is paid to Sublessor in accordance with Section 3 of the Sublease. Sublessee shall not commit or suffer any act or omission that will violate any of the provisions of the Master Lease. Sublessor shall exercise due diligence in attempting to cause Lessor to perform its obligations under the Master Lease for the benefit of Sublessee. If the Master Lease terminates, this Sublease shall terminate and the parties shall be relieved of any further liability or obligation under this Sublease, provided, however, that if the Master Lease terminates as a result of a default or breach by Sublessor or Sublessee under this Sublease and/or the Master Lease, then the defaulting party shall be liable to the nondefaulting party for all damages suffered as a result of such termination, including, but not limited to, attorneys' fees and expenses. Notwithstanding the foregoing, if the Master Lease gives Sublessor any right to terminate the Master Lease in the event of the partial or total damage, destruction, or condemnation of the Master Premises or the building or project of which the Master Premises are a part, the exercise of such right by Sublessor shall not constitute a default or breach hereunder. 15. ATTORNEYS' FEES. If Sublessor, Sublessee, or Lessor shall commence an action against the other arising out of or in connection with the Sublease, the prevailing party shall be entitled to recover its costs of suit and reasonable attorney's fees. 16. INTEREST. If not paid when due, any installments of Base Rent shall bear interest as provided in the Master Lease from the date such payment is due to the payment date. -7- 17. AGENCY DISCLOSURE. Sublessor and Sublessee each warrant that they have dealt with no other real estate broker in connection with this transaction except: SUBURBAN REAL ESTATE SERVICES, INC., ("Broker") who represents NeoMedia Technologies, Inc. and Commercial Group, R.E. ("Cooperating Broker") who represents Lancaster Annuity Services Company. 18. COMMISSION. Upon execution of this Sublease, and consent thereto by Lessor, Sublessor shall pay Broker a real estate brokerage commission in accordance with Sublessor's contract with Broker for the subleasing of the Premises. Sublessor shall have no responsibility to pay Cooperating Broker any commission whatsoever. 19. NOTICES. All notices and demands which may or are to be required or permitted to be given by either party on the other hereunder shall be in writing. All notices and demands by the Sublessor to Sublessee shall be sent by United States Mail, postage prepaid, addressed to the Sublessee at the address hereinbelow, or to such other place as Sublessee may from time to time designate in a notice to the Sublessor. All notices and demands by the Sublessee to Sublessor shall be sent by United States Mail, postage prepaid, addressed to the Sublessor at the address set forth below, and to such other person or place as the Sublessor may from time to time designate in a notice to the Sublessee. To Sublessor: NeoMedia Technologies, Inc. 6054 Timberwood Circle, #240 Ft. Myers, Florida 33908 To Sublessee: 280 Shuman Boulevard Suite 100 Naperville, IL 60563 20. SEVERABILITY. The invalidity of any provision of this Sublease shall not impair or otherwise adversely affect the validity of any other provision. 21. GOVERNING LAW. This Sublease shall be governed by, and construed in accordance with the laws of the State of Illinois applicable to contracts made and performed in that State. -8- 22. CONSENT BY LESSOR. THIS SUBLEASE SHALL BE OF NO FORCE OR EFFECT UNLESS CONSENTED TO BY LESSOR. Sublessor: Sublessee: NEOMEDIA TECHNOLOGIES, INC., LANCASTER ANNUITY SERVICES formerly DevTech Associates, Inc. COMPANY By /s/ CHARLES W. FRITZ By /s/ TERRY SPIRK ---------------------- ----------------------- Title President Title CEO ---------------------- ----------------------- Date 11/9/96 Date 11/8/96 ---------------------- ----------------------- /s/ TERRY SPIRK ----------------------------- Terry Spirk Date ------------------------ -9- LESSOR'S CONSENT TO SUBLEASE The undersigned ("Lessor"), lessor under the Master Lease, hereby consents to the foregoing Sublease without waiver of any restriction in the Master Lease concerning further assignment or subletting. Lessor certifies that, as of the date of Lessor's execution hereof, Sublessor is not in default or breach of any of the provisions of the Master Lease, and that the Master Lease has not been amended or modified except as expressly set forth in the foregoing Sublease. Date November 26, 1996 ----------------------- Lessor MGI Properties, a Massachusetts Trust By /s/ ILLEGIBLE ----------------------- Title Exec. Vice President ----------------------- -10-
EXHIBIT "A" Page 1 of 3 SOURCE: EXISTING PROJECT COMPARISION REPORT PROCUREMENT: FUTURE PRODUCT SUMMARY QUANTITIES QUANTITIES CATEGORY PRODUCT NUMBER DESCRIPTION EXISTING FUTURE REQ'D EXTRA - - ----------------------------------------------------------------------------------------------------------------------------------- CONNECTORS 801043-P-[7-7]-Q PANEL CONNECTOR, STRAIGHT 43H 43 46 3 0 801069-P-[7-7]-Q PANEL CONNECTOR, STRAIGHT 69H 44 8 0 3 801082-P-[7-7]-Q PANEL CONNECTOR, STRAIGHT 82H 6 6 0 0 801143-P-[7-7]-Q /ILLEGIBLE/4 DEGREE "ELL" CONNECTOR 43H 8 8 0 0 801165-P-[7-7]-Q /ILLEGIBLE/4 DEGREE "ELL" CONNECTOR 69H 5 5 0 0 801182-P-[7-7]-Q /ILLEGIBLE/4 DEGREE "ELL" CONNECTOR 82H 3 2 0 1 801242-P-[7-7]-Q 3-WAY "TEE" CONNECTOR 43H 7 3 0 4 801289-P-[7-7]-Q 3-WAY "TEE" CONNECTOR 69H 1 1 0 0 801282-P-[7-7]-Q 3-WAY "TEE" CONNECTOR 82H 0 1 1 0 801445-P-[7-7]-Q PANEL END COVER 43H 10 14 0 5 801440-P-[7-7]-Q PANEL END COVER 69H 2 2 0 0 801482-P-[7-7]-Q PANEL END COVER 82H 1 0 0 1 801582-Q PANEL MOUNT WALL KIT 32H 1 0 0 1 801602-Q VARIABLE HEIGHT PANEL END COVER, 2 PANELS 5 4 0 1 801603-Q VARIABLE HEIGHT PANEL END COVER, 3 PANELS 1 1 0 0 ELECTRICAL 871601-Q DUPLEX RECEPTACLE CIRCUIT 1 25 24 0 1 871604-Q DUPLEX RECEPTACLE CIRCUIT 4 24 24 0 0 DATA DATA AND COMMUNICATIONS OUTLET 25 24 0 1 PANELS 894324-P-[7-7]-Q ACOUSTICAL PANEL 42H,24W,2D 2 0 0 2 894330-P-[7-7]-Q ACOUSTICAL PANEL 42H,30W,2D 5 4 0 1 894338-P-[7-7]-Q ACOUSTICAL PANEL 42H,36W,2D 29 32 3 0 894342-P-[7-7]-Q ACOUSTICAL PANEL 42H,42W,2D 37 34 0 3 894348-P-[7-7]-Q ACOUSTICAL PANEL 42H,43W,2D 1 0 0 1 896930-P-[7-7]-Q ACOUSTICAL PANEL 69H,30W,2D 2 0 0 2 896936-P-[7-7]-Q ACOUSTICAL PANEL 69H,36W,2D 8 6 0 0 896942-P-[7-7]-Q ACOUSTICAL PANEL 69H,42W,2D 7 5 0 1 858290-P-[7-7]-Q ACOUSTICAL PANEL 82H,30W,2D 1 0 0 1 858236-P-[7-7]-Q ACOUSTICAL PANEL 82H,36W,2D 9 4 1 0 858242-P-[7-7]-Q ACOUSTICAL PANEL 82H,42W,2D 3 4 1 0 894248-P-[7-7]-Q ACOUSTICAL PANEL 82H,46W,2D 3 0 0 3 PEDESTALS 149238-Q PEDESTAL, HANGING, BOX/FILE 19H,22-7/80,15W 26 24 0 1 STORAGE 860130-Q STORAGE CABINET W/DOORS AND LOCK, 30W,14W,14-1/4H,10H 2 0 0 2 860136-Q STORAGE CABINET W/DOORS AND LOCK, 38W,14W,14-1/4H,10H 8 9 0 0 WORK SURFACES 8224OOA-Q-Q WORKSURFACE, RADIAL EDGE, CORNER, 30W,14-1/4D,10H 24 24 0 0 822436A-Q-Q WORKSURFACE, RADIAL EDGE 36W,24D,1-1/2H 26 29 0 0 822460A-Q-Q WORKSURFACE, RADIAL EDGE 60W,24D,1-1/2H 3 2 0 1 822472A-Q-Q WORKSURFACE, RADIAL EDGE 72W,24D,1-1/4H 3 9 0 0 WORKSURF SUPPO 631520-Q SUPPORT LEG 25-1/2H,24D 48 48 0 0 831828-Q FULL END PANEL, LEFT 28-1/2H,24D 15 13 0 2 831928-Q FULL END PANEL, RIGHT 29-1/2H,24D 15 13 0 2 SEATING 8001-AD-84G EXECUTIVE, HIGHBACK, W/ARMS 25-3/4W, 2/ILLEGIBLE/-1/4D,41-1/4H 1 0 0 1 8008-AD-84G GUEST CHAIR, SLED BASE W/ARMS 1 1 0 0 8015-AD-84G EXECUTIVE CHAIR, PNEUMATIC, W/ARMS, 25-3/4W,27-1/2D, 36-1/2H 24 24 0 0 8106G-AD-84G EXECUTIVE CHAIR, GLIDES, W/ARMS, 27-1/2H,253/4D,36-1/2 2 0 0 2 6115-AD-84G EXECUTIVE CHAIR, PNEUMATIC, W/ARMS, 27-1/2W,25-3/4D, 36-1/2H 16 14 0 2 CONNECTORS 2WAY45 2 WAY CONNECTOR 46H 0 6 0 0 2WAY68 2 WAY CONNECTOR 68H 1 0 0 1 3WAY45 3 WAY CONNECTOR 45H 3 1 0 2 4WAY45 4 WAY CONNECTOR 45H 2 2 0 0
PAGE 1 EXHIBIT "A" Page 2 of 3 SOURCE: EXISTING PROJECT COMPARISION REPORT PROCUREMENT: FUTURE PRODUCT SUMMARY
QUANTITIES QUANTITIES CATEGORY PRODUCT NUMBER DESCRIPTION EXISTING FUTURE REQ'D EXTRA - - ----------------------------------------------------------------------------------------------------------------------------------- CONNECTORS END46 END CONNECTOR 2-1/4W,2-1/4D,46H 22 19 0 0 END36 END CONNECTOR 68H 1 0 0 1 ELECTRICAL DUP.EX DUPLEX OUTLET 20 6 0 14 PANELS PAN3044 (WOOD) PANEL, 30W,44H 2 2 0 0 PAN4524 PANEL, 24W,45H,2-1/4D 1 1 0 0 PAN4530 PANEL, 30W,45H,2-1/4D 9 9 0 0 PAN4542 PANEL, 42W,45H,2-1/4D 33 30 0 3 PAN4844 (WOOD) PANEL, 48W,44H 1 1 0 0 PAN8630 PANEL, 30W,66H,2-1/4D 1 0 0 1 PAN8644 (WOOD) PANEL, 66W,44H 1 1 0 0 PAN8648 PANEL, 46W,68H,2-1/4D 1 0 0 1 PEDESTALS BBB (WOOD) PEDESTAL, BOX/BOX/BOX 1 1 0 0 BBBH (WOOD) PEDESTAL, BOX/BOX/BOX MACHINE HEIGHT 1 1 0 0 BBF (WOOD) PEDESTAL, BBF 5 1 0 4 FF PEDESTAL, FF 29 25 0 4 STORAGE TRANS66 (WOOD) TRANSACTION COUNTER 66W, 10-1/4D,1-1/4H 1 4 0 0 WORKSURF WORK3024 WORKSURFACE 30W,24D,1-1/2H 16 12 0 4 WORK4224 WORKSURFACE 42W,24D,1-1/2H 17 13 0 4 WORK4242C WORKSURFACE, CORNER 42W,42D,1-1/2H 16 12 0 4 WORK4824 (WOOD) WORKSURFACE 48W,24D,1-1/2H 1 1 0 0 WORK6630 (WOOD) WORKSURFACE 66W,30D,1-1/2H 1 1 0 0 WORK7224 WORKSURFACE 32W,24D,1-1/2H 1 1 0 0 WORK7730R WORKSURFACE, ROUNDED END 72W,30D,1-1/2H 1 1 0 0 WORKSURF ENDP24 END PANEL 24W,28H,2D 28 24 0 4 SUPPO SUPTCOL SUPORT COLUMN 1 1 0 0 SEATING LOUNGE-BURGUNDY LOUNGE CHAIR 33-1/2W,29D,30H 3 3 0 0 LEATHER SEC-BURGUNDY SECRETARIAL CHAIR 3 0 0 5 TABLES TAB4821 COFFEE TABLE 45W,21D,18H 1 1 0 0
EXHIBIT "A" Page 3 of 3 Cubicle pieces currently stored at Jackson Storage, Naperville: 8 6 foot workspaces 1 5 foot workspaces 3 middle joining pieces 17 panels that have a #623810 listed on the edge 8 ea. 36x60 7 ea. 42x42 2 ea. 48x60 2 5x5 partitions 1 chair 6015/6115 ? 11 2 drawer files for Kimball 1 large box of miscellaneous hardware 4 wood pencil drawers - do not know if these go with the Kimball or Hon Sublease Agreement Exhibit B Exhibit B presents a diagram of the approximate 5,035 square feet to be sublet and the approximate 4,289 square feet to be retained by NeoMedia. Sublease Agreement Exhibit C Exhibit C presents a diagram of the approximate 6,187 square feet to be sublet and the approximate 3,137 square feet to be retained by NeoMedia. Sublease Agreement Exhibit D Exhibit D presents a diagram of the approximate 9,324 square feet to be sublet. Exhibit E Wood Furniture Leased ROOM # QUANTITY DESCRIPTION ------ -------- ----------- 101 3 Red Leather Chairs 101 1 Glass-Top Table 101 1 Receptionists Wood Desk 101 1 Wood Credenza 102 1 Executive Wood Desk 102 1 Executive Swivel Chair 102 2 Executive Chairs 102 1 Wood Credenza 102 1 Wood File Cabinet 103 1 Wood Desk 103 2 Chairs 103 1 Wood Credenza 103 1 Wood File Cabinet 104 1 Wood Desk 104 2 Chairs 104 1 Wood Credenza 104 1 Wood File Cabinet 106 1 Wood File Cabinet 107 1 Wood Credenza 107 1 Wood File Cabinet 110 1 Wood Desk 110 1 Chairs 110 1 Wood Credenza 110 1 Wood File Cabinet 113 3 Metal Shelves 113 1 Wood Desk 123 1 Conference Table EXHIBIT "F" To be agreed by Sublessor and Sublessee. Exhibit "G" MASTER LEASE ------------ This Master Lease Agreement("Master Lease")dated June 29, 1995 between NBD Bank ("Lessor"), of 211 S. Wheaton Avenue, Wheaton, Illinois 60187 and DevTech Associates, Inc. ('Lessee'). Lessee wants from time to time to lease from Lessor personal property to be described in one or more Schedules of leased equipment. Lessor is willing to lease such personal property to Lessee at the rent, for the term and upon the conditions stated. Any present and future Schedules executed by Lessor and Lessee which are identified as being a part of this Master Lease, shall be deemed to incorporate by reference all the terms and conditions of this Master Lease except as provided in any such Schedule. In the event of a conflict between this Master Lease and any Schedule, the provisions of such Schedule shall control. 1. EQUIPMENT LEASED AND TERM. This Master Lease shall cover such personal property as is described in any Schedule executed by or pursuant to the authority of Lessee, accepted by Lessor in writing and identified as a part of this Master Lease (which personal property with all replacement parts, additions, repairs accessions and accessories incorporated in and/or affixed to the personal property is referred to as the "Equipment"). Lessor leases to Lessee and Lessee hires and takes from Lessor, upon and subject to the covenants and conditions of this Master Lease, the Equipment described in any Schedule. The term and rental of the Master Lease with respect to any item of Equipment shall be for the period as set forth in the Schedule (the "Initial Lease Term"). 2. RENT. The aggregate rent payable with respect to each item of Equipment shall be in the amount shown with respect to such item on the Schedule. Lessee shall pay to Lessor the aggregate rental for each item of Equipment for the full period and term for which the Equipment is leased, such rental to be payable at such times and in such amounts for each item of Equipment as shown in the applicable Schedule. 3. PURCHASE AND ACCEPTANCE. Lessee requests Lessor to acquire all scheduled Equipment pursuant to an assignment of Lessee's purchase order(s) for the Equipment. Delivery of each item of Equipment shall be deemed complete upon the acceptance date ("Acceptance Date") stated in the Schedule for each item of Equipment. Lessor shall not be liable for loss or damage or for the delay or failure of any supplier of the Equipment ("Seller") to fill or deliver the order for any item of Equipment. THE LESSEE REPRESENTS THAT LESSEE HAS SELECTED BOTH THE EQUIPMENT LISTED IN ANY SCHEDULE AND THE EQUIPMENT SELLER BEFORE HAVING REQUESTED LESSOR TO ACQUIRE SAME FOR LEASING TO LESSEE. 4. NON-CANCELABLE LEASE. THIS MASTER LEASE IS NON-CANCELABLE. When Lessee signs and delivers a certificate of Acceptance for the Equipment, its obligations to pay all rent for the Initial Lease Term and other amounts when due for the Equipment and otherwise to perform as required under this Master Lease are unconditional, irrevocable and independent. These obligations are not subject to cancellation, termination, modification repudiation, excuse or substitution by Lessee. Lessee is not entitled to any abatement, reduction, offset, defense or counterclaim with respect to these obligations for any reason whatsoever, whether arising out of default or to other claims against Lessor or the manufacturer or supplier of the Equipment, defects in or damage to the Equipment, its loss or destruction or otherwise 5. DISCLAIMER OF WARRANTIES BY LESSOR; RIGHTS OF LESSEE. LESSOR MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING THE CONDITIONS OF THE EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, AND, AS TO LESSOR, LESSEE LEASES THE EQUIPMENT "AS-IS". UNDER NO CIRCUMSTANCES SHALL LESSOR BE RESPONSIBLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH THIS MASTER LEASE AND/OR THE EQUIPMENT. LESSEE MAY COMMUNICATE WITH THE SELLER AND RECEIVE AN ACCURATE AND COMPLETE STATEMENT OF THOSE RIGHTS, PROMISES AND WARRANTIES, INCLUDING ANY DISCLAIMERS AND LIMITATIONS OF THEM OR OF REMEDIES. 6. CLAIMS AGAINST SELLER: SELLER NOT AN AGENT OF LESSOR. If the Equipment is not properly installed, does not operate as represented or warranted by the Seller or is unsatisfactory for any reason, Lessee shall make any claim on account thereof solely against the Seller and shall nevertheless pay Lessor all rent payable under this Master Lease. Lessor agrees to assign to Lessee, solely for the purpose of making and prosecuting any such claim, any rights it may have against the Seller for breach of warranty or representation respecting the Equipment. Notwithstanding any fees that must be paid to Seller or any agent of Seller, Lessee understands and agrees that neither the Seller nor any agent or employee of the Seller is an agent or employee of the Lessor and that neither the Seller nor its agent or employee is authorized to waive or alter any term or condition of this Master Lease. 1 7. TITLE: LOCATION OF THE EQUIPMENT; EQUIPMENT IS PERSONAL PROPERTY; TERMINATION. Title to the Equipment is in the Lessor and under no circumstances shall pass to Lessee. The Equipment shall be kept at Lessee's address indicated in the applicable Schedule and shall not be removed without the [prior written consent of Lessor, provided, however, in no event shall Lessor be required to consent to the removal of any item of Equipment to a location outside of the continental United States. Lessee further covenants and agrees that the Equipment is, and will at all times be and remains, personal property. At each scheduled termination date, or upon Lessee's default, Lessee, at its own expense, shall assemble and deliver the Equipment to Lessor at the location designated by Lessor, in good order and repair, ordinary wear and tear excepted. Lessee shall give Lessor 90 days written notice prior to each scheduled termination date, that it is returning the Equipment. 8. NO ASSIGNMENT BY LESSEE: ASSIGNMENT BY LESSOR. THIS MASTER LEASE SHALL NOT BE ASSIGNED BY LESSEE, NOR SHALL ANY OF THE EQUIPMENT BE SUBLEASED BY LESSEE WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR. Lessor may at any time sell or assign to any bank, or financial institution, or any person, firm, or corporation all or part of its right, title and interest in and to this Master Lease and in and to each item of Equipment and monies to become due to the Lessor, and Lessor may grant security interests in the Equipment, subject to the Lessee's rights as set forth in this Master Lease, and in such events, all the provisions of this Master Lease for the benefit of Lessor shall inure to the benefit of and be exercised by or on behalf of such assignee, but the assignee, shall not be liable for or be required to perform any of Lessor's obligations to Lessee. All rental payments due and to become due under this Master Lease and assigned by Lessor shall be paid directly to assignee, upon written notice of such assignment to Lessee. The right of the assignee to the payment of assigned rentals and performance of all Lessee's obligations and to exercise any other of Lessor's rights rights shall not be subject to any defense, counterclaim or setoff which the Lessee may have or assert against the Lessor. Lessee agrees that it will not assert any such defenses, setoffs, counterclaims and claims against the assignee. 9. CASUALTY AND LIABILITY INSURANCE, RISK OF LOSS, DAMAGE OR DESTRUCTION. Lessee shall keep all Equipment insured against loss by fire, theft and all other hazards (comprehensive coverage) in such amounts as Lessor requires (but not less than the casualty value (the "Casualty Value") for such item indicated in the Casualty Table attached to the applicable Schedule). Such insurance shall be with insurers and in form, amount and coverage satisfactory to Lessor. Lessee appoints Lessor Lessee's attorney in fact top endorse any loss payments or returned premium check and to make any claim under such insurance. Lessee shall also insure the Lesssor and Lessee with respect to liability for personal injuries, damage to or loss of use of property resulting from the ownership, use and operation of the Equipment with insurers satisfactory to Lessor in amounts and against risks customarily insured against by the Lessee for equipment owned by it. All policies shall be endorsed with Lessor as a loss payee and additional insured and shall contain provisions (a) that such insurance shall not be cancelled except upon thirty days written notice to Lessor at the address set forth under its name below and (b) that the interest of Lessor shall not be invalidated by any act of Lessee. The policies of insurance or any endorsement certificates shall be delivered to Lessor within 30 days after any scheduled Acceptance Date. In the event of loss, destruction or theft of, or damage to, any of the Equipment, Lessee will immediately notify Lessor. Upon Lessor's and any assignee's written consent, Lessee may act as a self-insurer in amounts acceptable to Lessor and any assignee. If Lessee defaults in obtaining any insurance to be provided, Lessor may, but is not required to place such insurance. Any premiums paid by Lessor shall be additional rent payable on demand with interest at the highest legal rate from the date of payment. At Lessor's sole option, such amounts together with interest may be added to the lease balance to be paid by Lessee as additional monthly rent. NOTWITHSTANDING THE PROVISIONS OF THIS PARAGRAPH, LESSEE WILL HOLD LESSOR HARMLESS AGAINST ANY SUCH CLAIM OR LIABILITY (INCLUDING ATTORNEY'S FEES, COSTS AND EXPENSES FOR ANY DEFENSE) ARISING OUT OF THE OWNERSHIP, USE OR OPERATION OF THE EQUIPMENT DURING THE PERIOD OF THIS MASTER LEASE AND UNTIL THE EQUIPMENT IS RETURNED TO AND ACCEPTED BY THE LESSOR. Lessee assumes and shall bear all risks of loss of, damage to or destruction of each item of Equipment, whether partial or complete. Except as provided in this Section 9, no such event shall relieve the Lessee of its obligation to pay the full rental payable for such item. If any item of Equipment is damaged (but not beyond economical repair), Lessee must promptly notify Lessor and, within 60 days of such damage, shall repair the item at its own expense and restore it to the same state and condition as required under this Master Lease. Lessee shall then be entitled to receive from Lessor or any assignee, any insurance proceeds received in connection with such damage. If any item of Equipment is destroyed, damaged beyond economical repair, lost or stolen, or taken by governmental action for a stated period extending beyond the Initial Lease Term for such item (an "Event of Loss"), Lessee must promptly notify Lesssor and any assignee and pay to Lessor or the assignee, as the case my be, on the next rent payment date following the Event of Loss the Casualty Value of the item of Equipment. Upon such payment and provided no Event of Default as defined in Section 12 has occurred, Lessee's obligation to pay rent for such item of 2 Equipment will cease and Lessee will be entitled to receive any insurance proceeds or other recovery received by the Lessor or assignee in connection with the Event of Loss. 10. REPAIRS; USE; ALTERATIONS. Lessee, at its own expense, shall keep the Equipment maintained in good repair, condition and working order; shall use the Equipment lawfully and shall not alter the Equipment without the Lessor's prior written consent. All items which become attached to or a part of the Equipment become the property of Lessor. Lessee will at all times during the initial Lease Term of each Schedule maintain in force a maintenance agreement covering each item of Equipment with the manufacturer of the Equipment or such other party as is acceptable to Lessor. Lessor, or Lessor's assignee, shall have the right but not the obligation to inspect the Equipment during Lessee's normal business hours. 11. LIENS AND TAXES. Lessee at its expense shall keep the Equipment free and clear of all levies, liens and encumbrances. Lessee shall declare and pay all charges and taxes (local, state and federal) which may now or hereafter be imposed or levied upon the Master Lease, rental, operation, leasing, sale, ownership, possession or use of the Equipment excluding all taxes based upon income or gross receipts of Lessor. Upon the request of Lessor, Lessee shall provide evidence of such payment. 12. DEFAULT. Any of the following shall constitute an event of default ("Event of Default") by Lessee: (a) Lessee fails to pay when due any scheduled rent or other amount required by this Master Lease; (b) Lessee breaches any covenant of this Master Lease or fails to promptly perform any of its terms or conditions, including but not limited to return of the leased Equipment at the expiration of any scheduled lease term, (c) Lessee makes an assignment for the benefit of creditors: (d) a petition is filed by or against Lessee in bankruptcy or for the appointment of a receiver; (e) dissolution or suspension of Lessee's usual business; (f) Lessee makes a bulk transfer or sale of furniture, furnishing, fixtures, or other equipment or inventory; (g) any representation, warranty, or signature made by Lessee in this Master Lease or related document is incorrect, fraudulent or breached; (h) Lessee defaults under the terms of any agreement or instrument relating to any lease or debt for borrowed money such that the Lessor accelerates the rent or the creditor declares the debt due before its maturity; or (i) Lessee or any guarantor gives Lessor reasonable cause to be insecure about Lessee's or guarantors willingness or ability to perform the obligations under this Master Lease. Lessee covenants and agrees to give Lessor prompt notice upon the occurrence of an event of default, and the Lessee's failure to give such notice shall constitute a further event of default. 13. LESSOR'S REMEDIES UPON DEFAULT BY LESSEE. Upon the occurrence of an event of default, Lessor without further notice may (i) recover from Lessee the Casualty Value of the Equipment together with any unpaid rent and (ii) regardless of whether such amounts are paid, take possession of any item or items or Equipment with or without process of law and at Lessor's option sell or lease at public auction or by private sale or otherwise dispose of such item or items of Equipment free and clear of any rights of Lessee an without any duty to account to Lessee except as expressly provided in this Section 13. If Lessee shall have paid the Casualty Value and unpaid rent referred to above and all other amounts owing under this Master Lease and any items of Equipment have been taken from Lessee, the proceeds of any reletting or sale (less all costs and expenses including attorneys' fees) shall be paid to reimburse the Lessee for the Casualty Value up to the amount previously paid. Any surplus remaining after such payment will be retained by the Lessor. In addition, Lessor may exercise any other right or remedy available to Lessor at law or in equity including rights of setoff. Regardless of any sale or lease of the Equipment or any payment of the Casualty Value, Lessee will remain liable to Lessor for all damages as provided by law and for all costs and expenses incurred by Lessor including court costs and attorneys' fees. No remedy under this Master Lease is intended to be exclusive, but each remedy shall be cumulative and in addition to any other remedy available at law or in equity. 14. RENEWAL. If the Equipment is not delivered to Lessor at any scheduled termination date in accordance with paragraph 7, then the Initial Lease Term shall renew on a month to month basis upon the same terms and conditions, subject to the right of Lessor or Lessee to terminate the renewed term on 30 days written notice, in which event, the Equipment shall immediately be returned to Lessor. 15. LATE CHARGES. Without limiting Lessor's remedies above, if Lessee shall fail to pay any amount of rental or other payment for a period of ten days after its due date, Lessee agrees to pay Lessor a late charge of 5% of each such payment or installment with a minimum late charge being $10.00. This late charge shall be reassessed in each subsequent month that the rental or other payment remains unpaid. 16. FINANCING STATEMENTS. The Lessor is authorized to file a financing statement in accordance with the Uniform Commercial Code signed by Lessee or by Lessor, as Lessee's attorney in fact. 3 17. JURISDICTION; VENUE; SEVERABILITY. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS. LESSEE CONSENTS TO THE JURISDICTION OF THE COURTS OF ILLINOIS. No provision which may be construed as unenforceable shall in any way invalidate any other provision, all of which shall remain in full force and effect. 18. WARRANTIES BY LESSEE. Lessee warrants and represents the; (a) the Equipment is being leased for business purposes; (b) all signatures are genuine; (c) the person signing the Master Lease is authorized to do so; (d) if more than one Lessee is named, the liability of each is agreed to be joint and several; (e) the execution and performance of this Master Lease, each Schedule and related documents and the performance of the obligations they impose, do not violate any law and do not conflict with any agreement by which Lessee is bound, and that no consent or approval of any governmental authority or any third party is required in connection with the execution or delivery of this Master Lease, any Schedule or related documents, and that this Master Lease, each Schedule and related documents are valid and binding agreements, enforceable in accordance with their terms and; (f) there are no actions, suits or proceedings pending, or to the knowledge of the Lessee threatened, before any court, administrative agency, arbitrator or governmental body which will, if determined adversely to the Lessee, materially adversely affect its ability to perform its obligations under this Master Lease or any related agreement to which it is a party. If Lessee is other than a natural person, it further represents that (a) it is duly organized, existing and in good standing pursuant to the laws under which it is organized; and (b) the execution and delivery of this Master Lease and the performance of the obligations it imposes are within its power and have been duly authorized by all necessay action of its governing body and do not contravene the terms of its articles of incorporation or organization, its bylaws, or any partnership, operating or other agreement governing its affairs. 19. IDEMNITY BY LESSEE. Lessee agrees to indemnify and hold Lessor or any assignee harmless from any and all claims, actions, proceeding, expenses, damages and liabilities, including attorneys' fees, arising out of or in any manner pertaining to the Equipment or this Master Lease including, without limitation, the ownership, selection, possession, purchase, delivery, installation, leasing, operation, use, control, maintenance and return of the Equipment and the recovery of claims under insurance policies. Lessee acknowledges that the Equipment to be leased by Lessor to Lessee pursuant to this Agreement is owned by Lessor ("Owner"). It is the intent of Owner/Lessor and Lessee that this Lease constitute a true lease for Federal income tax purposes so that, for the purpose of determining its liability for Federal income taxes, Owner shall be entitled to the tax benefits as are provided by the Internal Revenue Code of 1986, as from time to time amended, (the "Code") to an owner of personal property. In addition, notwithstanding any other provision of this Master Lease, if as to any Equipment the modified accelerated cost recovery system or depreciation deductions allowed under the Internal Revenue Code of 1986, as amended, shall be lost, disallowed, eliminated, reduced, recaptured or otherwise unavailable to Lessor for any reason, then Lessee shall pay to Lessor as additional rent within 30 days after such a loss an amount which shall be equal to the sum of (i) the additional federal, state, local and foreign income or any other taxes payable as a result of such loss, disallowance, elimination, reduction. recapture or unavailability of accelerated cost recovery or depreciation deductions plus (ii) the amount of any interest, penalties or additions to tax payable by the Lessor as a result of such additional tax. The indemnities given and liabilities assumed by the Lessee pursuant to this Section 19 shall continue in full force and effect notwithstanding the expiration or other termination of this Master Lease. 20. NOTICES. Notice from one party to another relating to this Master Lease shall be deemed effective if made in writing (including telecommunications) and delivered to the recipient's address, telex number or telecopier number set forth under its name below by any of the following means: (a) hand delivery, (b) registered or certified mail, postage prepaid, with return receipt requested, (c) first class or express mail, postage prepaid, (d) overnight courier service or (e) telecopy, telex or other facsimile transmission with request for assurance of receipt in a manner typical with respect to communication of that type. Notice made in accordance with this section shall be deemed delivered upon receipt if delivered by hand or wire transmission, 3 business days after mailing if mailed by first class, registered or certified mail or one business day after mailing or deposit with in overnight courier service. 21. LABELS AFFIXED TO EQUIPMENT. Lessor shall have the right, but not the obligation, to affix or attach ownership identification labels to the Equipment. Lessee agrees to not remove any such labels. 22. LESSOR'S EXPENSE. Lessee shall pay Lessor all costs and expenses, including reasonable attorneys' fees and the fees of any collection agencies, incurred by Lessor in enforcing any of the terms, conditions, or provisions hereof or in protecting lessor's rights herein. These costs and expenses shall include, without limitation, any costs or expenses incurred by the Lessor in any bankruptcy, reorganization, insolvency or other similar proceeding. 4 23. PERFORMANCE BY LESSOR. If the Lessee fails to duly and promptly perform any of its obligations under the Master Lease, Lessor may, at its option, perform such act or make such payment which the Lessor deems necessary. All sums so paid or incurred by Lessor including attorneys' fees shall be immediately due and payable by Lessee, without demand, and shall bear interest at the lesser of one and one-half percent (1-1/2%) per month or the highest rate permissible by law. The performance of any act or payment by Lessor shall not constitute a waiver or release of any obligation or default on the part of Lessee. 24. ENTIRE AGREEMENT. This Master Lease and subsequent Schedules constitute the entire agreement of the parties in connection with the Equipment. Neither party relies on any other statement, understandings, representations or assurances, the same, if any having been merged into this agreement. This agreement cannot be modified except by a writing signed by each party. This agreement inures to the benefit of the heirs, executors, administrators, successors and assigns of the parties. 25. WAIVER. No delay on the part of Lessor in the exercise of any right or remedy shall operate as a waiver. No single or partial exercise by Lessor of any right or remedy shall preclude any other future exercise of it or the exercise of any other right or remedy. No waiver or indulgence by Lessor of any default shall be effective unless in writing and signed by Lessor, nor shall a waiver on one occasion be construed as a bar to or waiver of that right on any future occasion. 26. FINANCIAL REPORTS. Upon request by Lessor, Lessee will promptly furnish to Lessor for the most recent quarterly period, a balance sheet statement of profit, loss and surplus from the beginning of that fiscal year to the end of that period certified as correct by an authorized agent of the Lessee and such other financial information, books and records the Lessor may deem necessary. 27. WAVER OF JURY TRIAL. Lessor and Lessee, after consulting or having had the opportunity to consult with counsel, knowingly, voluntarily and intentionally waive any right either of them may have to a trial by jury in any litigation based upon or arising out of this Master Lease or any related instrument or agreement, or any course of conduct, dealing, statements (whether oral or written), or actions of either of them. Neither Lessor nor Lessee shall seek to consolidate, by counterclaim or otherwise, any such action in which it jury trial has been waived with any other action in which a jury trial cannot be or has not been waived. These provisions shall not be deemed to have been modified in any respect or relinquished by either Lessor or Lessee except by a written instrument executed by both of them. THIS MASTER LEASE AGREEMENT SHALL THE UNDERSIGNED (AND IF MORE NOT BE BINDING ON LESSOR UNTIL IT THAN ONE, JOINTLY AND SEVERALLY) HAS BEEN EXECUTED BY AGREE TO ALL OF THE TERMS AND AN OFFICER OR LESSOR. CONDITIONS ABOVE WHICH ARE PART OF THIS MASTER LEASE AGREEMENT Accepted by NBD BANK DevTech Associates, Inc. By /s/ WILLIAM D. GUNAME By /s/ BRYON D. KARGER ---------------------- ---------------------- Title AVP Title Finance Manager ---------------------- ---------------------- Date 7/3/95 By ---------------------- ---------------------- Title ---------------------- Date 6/30/95 ---------------------- Address For Notices: Address For Notices: 39555 Orchard Hill Place Drive 1280 Iroquois Drive Suite 340 Suite 300 Novi, Michigan 49375 Naperville, Illinois 60563 Fax No.: (810) 349-3893 Fax No.: (708) 355-2944 5 SCHEDULE 3 This Schedule date June 29, 1995 incorporates the Master Lease dated June 29, 1995 between NBD BANK as Lessor, and DEVTECH ASSOCIATES, INC. as Lessee. LESSEE: DEVTECH ASSOCIATES, INC. Lessor: NBD BANK 280 Shuman Boulevard 211 S. Wheaton Avenue Suite 100 Wheaton, IL 60187 Naperville, Il 60563 Tax I.D. No. 36-3680347 Location of Equipment: same as above MODEL/ QUANTITY FEATURE DESCRIPTION SERIAL NUMBER - - -------- ------- ----------- ------------- See Exhibit A Rent Payment Due Date: The 29th day of each month in advance. Initial Lease Term: The Lease Term for each leased item commences on the Acceptance Date and continues for 36 months. RENT: $1,693.92. (If at First Rent Payment Due Date is after the Acceptance Date, the first Rent payment shall be the total of (i) the first installment of rent as specified above, plus (ii) an amount equal to 1/30th of that Rent, multiplied by the number of days from and including the Acceptance Date for a leased item but excluding the First Rent Payment Due Date.) Rent is computed by multiplying the Equipment cost x .03189. In the event the Equipment cost varies from $53.117.50. Rent will be adjusted accordingly. MASTER LEASE: This Schedule is issued pursuant to the Master Lease identified on Page 1. All of the terms and conditions of the Master Lease are incorporated herein and made a part hereof as if such terms and conditions were set forth in this Schedule. By the execution and delivery of this Schedule, the parties reaffirm all of the terms and conditions of the Master Lease except as modified. NBD BANK DEVTECH ASSOCIATES, INC. By: /s/ WILLIAM D. GUMANE By: /s/ BRYON D. KARGER ----------------------- ---------------------- Name: William D. Gumane Name: Bryon D. Karger ----------------------- ---------------------- Title: AVP Title: Finance Manager ----------------------- ---------------------- Date: 12/29/95 Date: 12/22/95 ----------------------- ---------------------- THIS SCHEDULE HAS 2 COUNTERPARTS. THIS IS COUNTERPART NO. 2. A SECURITY INTEREST MAY BE CREATED ONLY IN COUNTERPART NO. 1. SCHEDULE 3 CERTIFICATE OF ACCEPTANCE This Schedule dated 12/29/95 incorporates the Master Lease dated June 29, 1995 between NBD BANK, as Lessor, and DEVTECH ASSOCIATES, INC. as Lessee 1. EQUIPMENT Lessee certifies that the equipment described in this Schedule, has been delivered to the location indicated below, inspected by Lessee, found to be in good order and are accepted on the Acceptance Date as set forth below: LOCATION OF EQUIPMENT: DEVTECH ASSOCIATES, INC. 280 Shuman Boulevard Suite 100 Naperville, IL 60563 2. Acceptance Date: 12/22,1995. DEVTECH ASSOCIATES, INC. By: /s/ BRYAN D. KARGER --------------- Name: Bryan D. Karger Title: Finance Manager Date: 12/22/95 THIS SCHEDULE HAS 2 COUNTERPARTS. THIS IS COUNTERPART NO. 2. A SECURITY INTEREST MAY BE CREATED ONLY IN COUNTERPART NO. 1. SCHEDULE 3 CASUALTY VALUE TABLE This Schedule dated 12/29/95 incorporates the Master Lease Dated June 29, 1995 between NBD BANK, as Lessor, and DEVTECH ASSOCIATES, INC. as Lessee The Casualty Value of a leased item of Equipment is equal to the original cost multiplied by the Casualty Value Percentage opposite the monthly rental period in which the Event of Loss occurs. MONTHLY RENTAL CASUALTY VALUE MONTHLY RENTAL CASUALTY VALUE PERIOD PERCENTAGE PERIOD PERCENTAGE - - -------------- -------------- -------------- -------------- 1 and Prior 100.9 19 53.2 2 96.8 20 50.5 3 94.4 21 47.7 4 92.0 22 44.9 5 89.5 23 42.0 6 87.1 24 39.2 7 84.6 25 36.3 8 82.1 26 33.4 9 79.6 27 30.5 10 77.0 28 27.6 11 74.5 29 24.6 12 71.9 30 21.6 13 69.3 31 18.6 14 66.7 32 15.6 15 64.0 33 12.5 16 61.3 34 9.4 17 58.7 35 6.3 18 55.9 36 3.2 SCHEDULE 3 PURCHASE OPTION RIDER This Schedule dated 12/29/95 incorporates the Master Lease Dated June 29, 1995 between NBD BANK, as Lessor, and DEVTECH ASSOCIATES, INC. as Lessee LESSEE'S OPTIONS UPON EXPIRATION OF THE LEASE TERM: Provided the Lease has not been earlier terminated and Lessee is not in default, Lessee shall elect, by written notice delivered to Lessor not less than one hundred twenty (120) days prior to expiration of the Lease Term, to purchase all, but not less than all, of the Equipment then subject to the Lease (Check applicable option): [ ] A. At a purchase price equal to the Fair Market Value (as defined below) of said Equipment upon expiration of the Lease Term. [ ] B. At a purchase price equal to the then Fair Market Value (as defined below) which purchase price shall not be less than _____% of the original equipment cost nor more than ____% of the original equipment cost. [X] C. At a purchase price of $1.00. [ ] D. At a purchase price equal to ____% of the cost of the Equipment. The Fair Market Value of the Equipment shall be determined on the basis of, and shall be equal in amount to the value which would obtain, assuming the Equipment had not been installed and was in good repair, condition and working order, ordinary wear and tear resulting from proper use expected, in an arm's length transaction between an informed and willing buyer under no compulsion to buy and an informed and willing seller under no compulsion to sell and, in such determination, cost of removal from the location of removal from the location of current use shall not be a deduction from such value. If Lessor and Lessee do not agree on the Fair Market Value within ten (10) days after receipt by Lessor of notice that Lessee is exercising its option to purchase the Equipment, such Fair Market Value shall be determined by an independent source considered reliable and knowledgeable as to values for such Equipment by Lessor in its reasonable judgment. The expenses and fees shall be borne by Lessee. If Lessee elects to purchase the Equipment, the purchase price shall be payable on or within 10 days of the expiration of the Initial Lease Term. Upon payment of the purchase price, Lessor shall, upon request of Lessee, execute and deliver to Lessee, or to Lessee's assignee or nominee, a Bill of Sale without representations or warranties, express or implied, except that such Equipment is free and clear of all claims, liens, security interests and other encumbrances by or in favor of a person claiming by, through or under Lessor for such Equipment, other than liens and claims which Lessee assumed or is obligated to discharge under the terms of the Lease. Lessee agrees to pay or cause to be paid all sales and/or use taxes payable in connection with such sales, and any unpaid property taxes theretofore assessed or levied against said Equipment. Purchase of the Equipment is on an AS IS, WHERE IS, WITH ALL FAULTS BASIS. Accepted this 29th day of December, 1995. NBD BANK DEVTECH ASSOCIATES, INC. By: /s/ ILLEGIBLE By: /s/ BRYAN D. KARGER ------------------ ------------------- Its: AVP Its: Finance Manager ------------------ ------------------- SCHEDULE 3 PURCHASE AGREEMENT ASSIGNMENT RIDER This Schedule dated 12/29/95 incorporates the Master Lease Dated June 29, 1995 between NBD BANK, as Lessor, and DEVTECH ASSOCIATES, INC. as Lessee DEVTECH ASSOCIATES, INC. (the "Assignor") has entered into Purchase Agreement Number(s) __________ dated _____________, ("Purchase Agreement(s)") with DATASCAN TECHNOLOGIES (the "Supplier"), relating to the items of equipment described in this Schedule or Exhibit A (the "Equipment"), the Assignor has agreed to sell its rights, title and interest in and to the Equipment to the Lessor and the Lessor shall purchase the Equipment and lease the same to the Assignor, pursuant to the Master Lease. NOW, THEREFORE, in consideration of the mutual promises below, and the execution and delivery of the Master Lease and this Schedule, the parties agree as follows: 1. The Assignor sells, assigns, transfers and sets over to the Lessor, its successors and assigns, all of its right, title and interest in and to the Equipment and in and to the Purchase Agreement(s), including, without limitation, (a) the right to purchase the Equipment pursuant to the Purchase Agreement(s), the right to take title to the Equipment or any portion thereof, and the right, but not the obligation, to be named the purchaser in each bill of sale to be delivered by the Supplier(s) for the Equipment or any portion thereof, (b) the right to assort all claims for damages arising as a result of any default by the Supplier(s) under the Purchase Agreement(s), including without limitation all warranty and indemnity provisions contained in the Purchase Agreement(s), and (c) any and all rights of the Assignor to compel performance of the terms of the Purchase Agreement(s). 2. It is agreed that, notwithstanding this assignment: (a) the Assignor shall at all times remain liable to the Supplier(s) under the Purchase Agreement(s) to perform all of the duties and obligations of the buyer to the same extent as if this assignment had not been executed; (b) exercise by the Lessor of any of the rights assigned shall not release the Assignor from any of its duties or obligations to the Supplier(s) under the Purchase Agreement(s) except to the extent that such exercise by the Lessor shall constitute performance of such duties and obligations; and (c) the Lessor shall not have any obligation or liability to perform any of the obligations or duties of the Assignor under the Purchase Agreement(s), to make any payment (other than to pay the purchase price for the Equipment to the extent and upon the terms and conditions set forth in the Master Lease), to make any inquiry as to the sufficiency of any payment, to present or file any claim or to take any other action to collect or enforce any claim for any payment assigned. 3. The Assignor represents and warrants that the Purchase Agreement(s) is (are) in full force and effect and is (are) enforceable in accordance with its (their) terms; that the Assignor is not in default, and that the Assignor has not assigned or pledged, and covenants that it will not assign or pledge, so long as this assignment shall remain in effect, the whole or any part of the rights assigned to anyone other than the Lessor. The Assignor shall not amend, modify, terminate or waive, nor consent to any amendment, modification, termination or waiver of any of the provisions of the Purchase Agreement(s). 4. The Assignor agrees to indemnify and hold the Lessor, and its assigns, directors, officers and agents, harmless from and against any and all losses, claims, liabilities and expenses (including legal expenses and court costs) which arise out of or relate to this Assignment, the Purchase Agreement(s) or the manufacture, purchase, acceptance, rejection, ownership and delivery and sale of the Equipment (including claims for patent, trademark, or copyright infringement). 5. In the event that lessor, at the request of Assignor, makes payment to the Supplier(s) under said purchase order(s) prior to the Acceptance Date of this Schedule, Assignor shall pay on the first day of each month to the Acceptance Date rent to Lessor at the rate of (1) 9.75% per annum or (2) a rate of interest equal to the Prime Rate (as defined below) at such time plus______ percentage points from the date of each prepayment until the Acceptance Date. The Prime Rate shall be the rate announced from time to time by NBD Bank as its prime rate, which rate may not necessarily be the lowest rate charged by NBD Bank to any of its customers. In the event that a Certificate of Acceptance has not been executed and delivered by the Assignor with respect to any loan of Equipment on or before OCTOBER 15, 1995, unless the Lessor has otherwise agreed in writing: (a) this Assignment shall terminate provided, however, that the Assignor's obligation to indemnify and hold the Lessor harmless shall servive any such termination and (b) the Assignor shall reimburse the Lessor for any and all payments made by the Lessor to the Supplier(s) on account of such item of Equipment, together with interest at the above rate from the date of each such payment. SCHEDULE 3 PURCHASE AGREEMENT ASSIGNMENT RIDER This Schedule dated 12/29/95 incorporates the Master Lease dated June 29, 1995 between NBD BANK as Lessor, and DEVTECH ASSOCIATES, INC. as Leasee Page 2 LESSOR ASSIGNOR NBD BANK DEVTECH ASSOCIATES, INC. By: /s/ ILLEGIBLE By: /s/ BRYAN D. KARGER ----------------- ------------------- Its: AVP Its: Finance Manager ----------------- ------------------- Date: 9/21/95 Date: 9/20/95 --------------- ------------------- BILL OF SALE Seller, DataScan Technologies, a Florida general partnership, having it's principal place of business at 184 Shuman Boulevard, Suite 350, in Naperville, Illinois ("DataScan"), in consideration of the payment of Forty Thousand and No/100 Dollars ($40,000) does hereby sell, assign, transfer and set over to DevTech Associates, Inc., an Illinois corporation, having it's principal place of business at 1280 Iroquois Drive, Suite 300, in Naperville, Illinois ("DevTech") all of the furniture and related personal property set forth on Exhibit A attached to and made a part of this Bill of Sale (the "Furniture"). Any and all applicable taxes attributable to the purchase of the Furniture shall be paid by and shall remain the sole and complete responsibility of DevTech. DataScan hereby represents and warrants to DevTech that: DataScan is the absolute and outright owner of the Furniture; the Furniture is free and clear of all liens, charges, mortgages, pledges, claims and encumbrances; DataScan has the full right, power and authority to sell the Furniture and to make this Bill of Sale' and DataScan will indemnify and hold DevTech harmless from and against any and all claims of any kind or nature which are inconsistent with these representations and warranties. In witness whereof, DataScan has caused this bill of sale to be signed and sealed in its name by its duly authorized representative this 21st day of September, 1995. DataScan Technologies, a Florida general partnership By: /s/ ILLEGIBLE ------------------------- Its: President/General Partner ------------------------- EX-10.45 4 NeoMedia Technologies, Inc. Exhibit 10.45 Agreement for Sale of Assets Between Basic Developments, Inc., a Panama Company, and Meja Sistemas C. A., a Guatemala Company, and NeoMedia Technologies, Inc. Dated February 12, 1997 AGREEMENT FOR THE SALE OF ASSETS THIS AGREEMENT is executed as of February 12, 1997, by and among BASIC DEVELOPMENTS, INC., a Panama company and Meja Sistemas C.A., a Guatemala company (collectively the "Company") and NEOMEDIA MIGRATION, INC., a Delaware corporation ("Purchaser"). CIRCUMSTANCES A. The Company develops, licenses and distributes computer software for the migration of software known as the migration tools (the "Software Tools"). B. Purchaser desires to acquire all of the assets of the business from the Company which relates to the Software Tools. THEREFORE, in consideration of the mutual agreements, covenants and provisions contained herein, Purchaser and the Company hereby mutually agree to the terms and conditions which follow. ARTICLE I SALE OF ASSETS 1.1 ASSETS. Subject to the terms and conditions of this Agreement, Purchaser hereby agrees to purchase from the Company, and the Company hereby agrees to sell, assign, transfer, convey and deliver to Purchaser, all right, title and interest in and to the Software Tools and all assets used or useful in connection with the Software Tools, free and clear of all liens, claims, security interests and encumbrances whatsoever of third parties, including, but not limited to, the following: (a) all of the Company's intangible rights and properties which are used in or related to the Software Tools, including, but not limited to, all trademarks and service marks, trademark and service mark registrations and trademark and service mark applications, trade names, assumed names, service names, copyrights, copyright registrations, patents and patent applications, patent, copyright and trademark licenses, franchises and all other licenses and trade secrets (collectively "Intellectual Property"), including, but not limited to the Intellectual Property set forth in Schedule 1.1(a); (b) computer programs and software, including but not limited to software routines, tools, source code, build procedures, and scripts, and related documentation, inventions, discoveries and improvements, shop rights and know-how owned or used by the Company as part of the Software Tools and all licenses or agreement with respect to Intellectual Property, computer programs or software which are part of the Software Tools, including, but not limited to the software set forth on Schedule 1.1(b); (c) all of good will, sales leads, prospects lists, mailing lists, advertising and promotional material of the Company used in connection with the sale, licensing or other distribution or maintenance of the Software Tools, and administrative and accounting information with respect to Assumed Contracts, as defined in Section 1.2 and books and records with respect to any of the Software Tools; and (d) all of the Equipment set forth in Schedule 1.1(d). The assets to be conveyed hereunder are referred to collectively as the "Assets." 1.2 ASSUMED CONTRACTS. The Company shall assign and Purchaser shall assume all right, title and interest in and to and all obligations under those certain contracts and agreements (the "Assumed Contracts") listed on Schedule 1.2, including, but not limited to the work in process in connection with the Software Tools (the "Work in Process"). Purchaser shall assume 2 all Work in Process of the Company as of the Closing Date. Purchaser does not assume or undertake any obligations or liabilities of the Company except as listed on Schedule 1.2. 1.3 SALE AND EFFECTIVE Date. The sale of the Assets and the other transactions referred to in this Agreement are collectively referred to as the Sale. The Effective Date of the Sale shall be as of January 1, 1997, regardless of the date of this Agreement. ARTICLE II CLOSING 2.1 CLOSING PROCEDURES. Simultaneously with the execution of this Agreement, the parties shall close the Sale (the "Closing"). To close the Sale, the parties will execute, deliver and exchange the bills of sale, assignment and assumption agreements, certificates and other documents necessary in the reasonable opinion of counsel for each party to transfer the Assets from the Company to Purchaser (the "Closing Documents"). The date of the Closing is referred to herein as the "Closing Date". As soon as possible, but in any event prior to the first anniversary of the Closing Date, the Company shall register the Software Tools and Intellectual Property in Panama or Guatemala or both countries, as required, and transfer such registrations and the Assets, in accordance with the laws of Panama, Guatemala or both countries, as required, to the Purchaser, to the satisfaction of Purchaser and its counsel. 3 ARTICLE III PURCHASE PRICE 3.1 PURCHASE PRICE. Purchaser shall pay to the Company, as consideration for the purchase of the Assets, the purchase prices as provided below (collectively the "Purchase Price"). The parties have agreed that the Purchase Price for the Equipment payable to the Company is SEVENTEEN THOUSAND AND N0/100 U.S. DOLLARS ($17,000.00). The Purchase Price for the remaining Assets shall be TWO HUNDRED TWENTY THOUSAND AND N0/100 U.S. DOLLARS ($220,000.00) 3.1.1 The Company acknowledges that the Purchaser has paid to the Company the amount of SEVENTEEN THOUSAND AND NO/1OO U.S. DOLLARS as the Purchase Price for the Equipment. 3.1.2 The Purchase Price for the remaining Assets shall be paid as follows: 3.1.2.1 One Hundred Twenty Thousand and No/100 U.S. Dollars ($120,000) at the date on which this Agreement and all Closing Documents have been signed and delivered by all necessary parties (the "Closing Payment"); and 3.1.2.2 One Hundred Thousand and No/100 U.S. Dollars on the first anniversary of the date of the Closing Payment; provided however that this payment shall be conditioned upon and shall not be due and payable until the Software Tools and Intellectual Property is registered and the registrations transferred to Purchaser, to the satisfaction of Purchaser and its counsel. The Purchase Price shall include all taxes due on the sale of the Assets, including, but not limited to VAT taxes. 4 ARTICLE IV COVENANTS, REPRESENTATIONS AND WARRANTIES OF COMPANY As of the Closing Date the Company shall make the following covenants, representations and warranties to Purchaser: 4.1 LEGAL STATUS. Basic Developments, Inc. is a corporation duly organized, validly existing and in good standing under the laws of Panama and qualified or registered to do business in Guatemala. Meja Sistemas \C.A. is a company duly organized, validly existing and in good standing under the laws of Guatemala. The Company has the corporate power to own and lease its property and to carry on its business as and where such property is now owned or leased or such business is conducted. Meja Sistemas C.A. is the only subsidiary of Basic Developments, Inc. and Meja Sistemas C.A. has no subsidiaries nor will any be in existence on the Closing Date. Basic Developments, Inc. is the sole stockholder of Meja Sistemas C.A. and Jorge Figueroa is the sole stockholder of Basic Developments, Inc. 4.2 AUTHORIZATION, ETC. The Company has full corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The Board of Directors and shareholders of the Company have taken all actions required by law, the Company's charter documents, its By-Laws or otherwise to authorize the execution and delivery of this Agreement and the consummation of the Sale. This Agreement has been duly and validly executed and delivered by the Company and constitutes a valid and binding agreement of the Company. 4.3 NO VIOLATION OF STATUTE OR CONTRACT. Except as set forth on Schedule 4.3, neither the execution and delivery of this Agreement, nor the Sale will (i) conflict with or result in a 5 breach or violation of any of the terms, conditions or provisions of, or constitute a default under, (A) the Articles of Incorporation or By-Laws of the Company, or (B) any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to the Software Tools, or any of its properties, assets, licenses or permits, or (ii) violate, conflict with, result in a breach of any provisions of, constitute a default under, result in the termination of, required consent under, accelerate the performance required by, or result in the creation of any lien, security interest, charge or other encumbrance upon any of the Assets under any of the terms, conditions or provisions of any license, lease, agreement or other instrument or obligation to which the Company is a party, or by which the Assets, Assumed Contracts or Work in Process may be bound or affected. 4.4 DEPOSITS. Schedule 4.4 sets forth a description of the deposits made by the Company or which the Company is holding as of the Closing Date which will be assigned to Purchaser, together with a description of the nature of such deposits. 4.5 TITLE TO ASSETS. The Company has good and marketable title to all of the Assets, including, but not limited to the Intellectual Property and Software Tools owned by the Company, free and clear of restrictions on or conditions to transfer or assignment, and free and clear of mortgages, liens, pledges, charges, encumbrances, equities, claims, easements, rights of way, covenants, conditions, or restrictions, except as disclosed in this Agreement and the Schedules. Upon execution and delivery of the Closing Documents, the Company will effectively transfer good and marketable title to all of the Assets to Purchaser. 6 4.6 INTELLECTUAL PROPERTY. 4.6.1 DESCRIPTION. Schedule 4.6 sets forth a complete description of all trademarks and service marks, trademark and service mark registrations and trademark and service mark applications, trade names, assumed names, service names, copyrights, copyright registrations, patents and patent applications, patent, copyright and trademark licenses, franchises and all other licenses, trade secrets, computer programs and software, source code, build procedures, algorithms, and related documentation, inventions, discoveries and improvements, shop rights and know-how owned or used by the Company in the conduct of its business (collectively "Intellectual Property" which includes the "Software Tools"). Except as noted on Schedule 4.6, the Company owns, or is licensed or otherwise has the exclusive right to use, all Intellectual Property used in or necessary for the conduct of its business as currently conducted. 4.6.2 NO INFRINGEMENT BY THE COMPANY. Except as set forth in Schedule 4.6, no claim has been asserted by any person with respect to the ownership, use, transfer, license or other disposition of any Intellectual Property or challenging or questioning the validity or effectiveness of any license or agreement with respect thereto, and the Company does not know of any valid basis for any such claim; and to the best of the Company's knowledge after reasonable inquiry, the use of Intellectual Property by the Company, the development, use, license or distribution of any software program or process, tool, aid or routines by the Company does not and after the Closing Date is not reasonably expected to, infringe on the rights of any person, if used, distributed, licensed or sold in the same manner as used by the Company prior to the Closing Date. 7 4.6.3 NO INFRINGEMENT BY OTHER PARTIES. No third party is known or believed by the Company to be infringing on any Intellectual Property. 4.6.4 PROCEDURES FOR COPYRIGHT PROTECTION. Schedule 4.6 sets forth the form and placement of the proprietary legends and copyright notices displayed in or on the Software Tools. To the best of the Company's knowledge, in no instance has the eligibility of the Software Tools for protection under applicable copyright law been forfeited to the public domain by omission of any required notice or any other action. 4.6.5 PROCEDURES FOR TRADE SECRET PROTECTION. The Company has instituted and followed certain safeguards to protect its trade secrets. Insofar as the Company knows, there has been no material violation of such safeguards by any person or entity. The source code and system documentation relating to the Software Tools: 4.6.5.1 have at all times been maintained in confidence and 4.6.5.2 have been disclosed by the Company only to employees and consultants having "a need to know" the contents thereof in connection with the performance of their duties to the Company. 4.6.6 PERSONNEL AGREEMENTS. All personnel, including employees, agents, consultants, and contractors, who have contributed to or participated in the conception and development of the Software Tools, related technical documentation (the "Technical Documentation"), or Intellectual Property on behalf of the Company either 4.6.6.1 have been party to a "work-for-hire" arrangement or agreement with the Company, in accordance with applicable federal and state law, 8 that has accorded the Company full, effective, exclusive, and original ownership of all tangible and intangible property thereby arising, or 4.6.6.2 have executed appropriate instruments of assignment in favor of the Company as assignee that have conveyed to the Company full, effective, and exclusive ownership of all tangible and intangible property thereby arising. 4.6.7 ADEQUACY OF TECHNICAL DOCUMENTATION. The Technical Documentation for the Software Tools includes the source code, system documentation, statements of principles of operation, and schematics for all Software Tools, as well as any pertinent commentary or explanation that may be necessary to render such materials understandable and usable by a trained computer programmer. The Technical Documentation also includes any program (including compilers), "workbenches," tools, and higher level (or "proprietary") language necessary for the development, maintenance, and implementation of the Software Tools. 4.6.8 THIRD-PARTY COMPONENTS IN SOFTWARE PRODUCTS. Schedule 4.6 sets forth and identifies any Software Tools, Technical Documentation or other Intellectual Property which is licensed by Company ("Licensed Material"). The Company has validly and effectively obtained the right and license to use, copy, modify, and distribute any Licensed Material. 4.6.9 THIRD-PARTY INTERESTS OR MARKETING RIGHTS IN SOFTWARE. The Company has not granted, transferred, or assigned any right or interest in the Software Tools, the Technical Documentation or the Intellectual Property to any person or entity, except 9 pursuant to the agreements listed in Schedule 1.2. Except as set forth in Schedule 1.2, all such agreements constitute only end-user agreements, each of which grants the end-user thereunder solely the nonexclusive right and license to use one or more identified Software Tools and related user documentation, for internal purposes only, on a single central processing unit (CPU), on a single network or under the terms of a site license. There are no contracts, agreements, licenses, and other commitments and arrangements in effect with respect to the marketing, distribution, licensing, or promotion of the Software Tools, the Technical Documentation or the Intellectual Property by any independent salesperson, distributor, sublicensor, or other remarketer or sales organization. 4.7 MATERIAL CONTRACTS. The Assumed Contracts include any contracts, commitments, agreement, licenses or arrangements necessary for the distribution of the Software Tools and the operation of the Company's business in connection with the Software Tools. Purchaser shall have no obligation or liability under or assume any responsibility, by operation of law or otherwise, for any agreement other than the Assumed Contracts. 4.8 CLAIMS AND LITIGATION. There is no litigation, proceeding, demand, action or claim either pending or, to the best knowledge of the Company, threatened now or at any time in the last five (5) years against the Company before any court or governmental or other regulatory or administrative agency or commission, with respect to the Software Tools or the ownership of or right to use, copy, develop, modify or distribute the Software Tools. 4.9 FULL DISCLOSURE. No representation, warranty or covenant in this Agreement, nor any statements, financial statements, certificates, schedules or exhibits furnished to Purchaser 10 pursuant hereto, or in connection with the Sale, contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein in the light of the circumstances under which they were or are to be made, not misleading. The Company does not have any information which leads it to believe that there is any impending material adverse change in the business of the Company. ARTICLE V COVENANTS, REPRESENTATIONS AND WARRANTIES OF PURCHASER As of the Closing Date, Purchaser shall make the following covenants, representations and warranties to the Company: 5.1 LEGAL STATUS. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Purchaser has the corporate power to own and lease its property and to carry on its business as and where such property is now owned or leased or such business is conducted on the Closing Date hereof. 5.2 AUTHORIZATION, ETC. Purchaser has full corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The Board of Directors of Purchaser has taken all actions required by law, its Articles of Incorporation, its By-Laws or otherwise to be taken by it to authorize the execution and delivery of this Agreement and the consummation of the Sale and, no other corporate proceedings on the part of Purchaser are necessary to authorize this Agreement and the Sale. This Agreement has been duly and validly executed and delivered by Purchaser and constitutes a valid and binding agreement of each of Purchaser. 11 ARTICLE VI CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE The obligation of Purchaser to consummate the Sale is subject to the satisfaction, or waiver in writing by Purchaser, on or prior to the Closing Date, of each of the following conditions: 6.1 CORPORATE ACTION. All corporate and other actions necessary to authorize this Agreement and to consummate the Sale shall have been duly taken on or prior to the Closing Date. 6.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company shall be true and correct in all material respects on and as of the Closing Date with the same effect as though all such representations and warranties had been made as of such date. 6.3 PERFORMANCE OF OBLIGATIONS. Each and all of the covenants and agreements of the Company to be performed or complied with pursuant to this Agreement shall have been duly performed and complied with in all material respects. All Closing Documents in proper form for the transfer of the Assets have been executed and delivered by the Company to Purchaser. 6.4 BULK SALE. The Company shall have complied with all applicable provisions of any bulk sale or comparable laws or regulations of Panama or Guatemala and any laws in connection with taxes. 12 ARTICLE VII CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATION TO CLOSE The obligations of the Company to consummate this Agreement as provided hereunder are subject to the satisfaction, or waiver in writing by the Company, on or prior to the Closing Date, of each of the following conditions: 7.1 CORPORATE ACTION. All corporate and other actions necessary to authorize the consummation of the Sale by Purchaser shall have been duly taken prior to the Closing Date. 7.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Purchaser set forth in this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same effect as though all such representations and warranties had been made as of such date. 7.3 PERFORMANCE OF OBLIGATIONS. Each and all of the covenants and agreements of Purchaser to be performed or complied with pursuant to this Agreement shall have been duly performed and complied with in all material respects or duly waived by the Company. ARTICLE VIII OPERATION OF THE COMPANY During the period from May 1, 1996 to the Closing Date, except as otherwise disclosed to Purchaser in writing, the Company represents and warrants that it has carried on its business in, and only in, the usual, regular and ordinary course in substantially the same manner as previously conducted and, to the extent consistent with such business, has used all reasonable 13 efforts to preserve intact its present business organization, keep available the services of its present officers and employees, and preserve its relationships with customers, suppliers and others having business dealings with it to the end that its goodwill and ongoing business shall be unimpaired in all material respects at the Closing Date. The Company has not sold, assigned, transferred, licensed or otherwise disposed of any Intellectual Property. ARTICLE IX POST-CLOSING COVENANTS OF THE COMPANY 9.1 NONCOMPETITION AGREEMENT. For a period of three years from the Closing Date, neither the Company nor its shareholders shall own directly or indirectly any interest in, or shall be a director, officer or employee of, any corporation, partnership, firm, association or business organization (other than any entity the equity securities of which are listed on a national securities exchange or quoted in the National Association of Securities Dealers Automated Quotation System where less than 1% of the voting power of any such entity is owned by any of such persons directly or indirectly) which develops, distributes or licenses computer software or other computer products or is a competitor, potential competitor, supplier or customer of the business of the Company with respect to Software Tools. ARTICLE X SURVIVAL OF REPRESENTATIONS AND WARRANTIES All representations and warranties made by the parties hereto as to any fact or condition existing on or before the Closing Date of this Agreement, in any Schedule hereto, or in any 14 certificate delivered pursuant hereto, shall survive the closing of the Sale and remain in fall force and effect for the period of twenty-four (24) months following the Closing Date. ARTICLE XI INDEMNIFICATION 11.1 THE COMPANY INDEMNIFICATION. The Company and all shareholders of the Company will indemnify and hold Purchaser and the shareholders of Purchaser harmless from and against all Losses, as hereinafter defined, arising out of or resulting from the following: 11.1.1 Any misrepresentation or breach of any warranty or covenant or the failure of any representation or warranty of the Company contained herein, in any Schedule hereto or in any statement, certificate or other document delivered pursuant hereto; 11.1.2 Any material lialbilities or obligations of any kind or nature whatsoever, whether accrued, absolute, contingent, or otherwise, known or unknown, arising out of or in connection with the conduct of the Company's business or the ownership, use, license, distribution or modification of the Software Tools or the ownership or use of any of the Assets prior to the Closing Date or arising with respect to any actions or failure to act of the Company prior to the Closing Date. For purposes of this Article XI, Losses shall mean all damages, losses, liabilities, costs, expenses, assessments, taxes, penalties, fines, claims, demands, actions, suits and proceedings, including, but not limited to, any losses or costs related to the violation of any law, and including, in each such instance, the reasonable attorneys', accountants' and other professionals' 15 fees, costs and expenses of investigation and defense, and disbursements incurred therewith, after offset by any related insurance proceeds or other recovery, and with offset for any reduction of taxes realized on account of such Losses. 11.2 PURCHASER INDEMNIFICATION. Purchaser will indemnify and hold the Company harmless from and against all Losses arising out of or resulting from any misrepresentation or breach of any warranty or covenant or the failure of any representation or warranty of Purchaser contained herein, in any Schedule hereto or in any statement, certificate or other document delivered pursuant hereto after offset by any related insurance proceeds or other recovery, and with offset for any reduction of taxes realized on account of such Losses. 11.3 NOTICE OF CLAIM. Promptly after service of notice of any written claim or process on a party hereto by any third person in any matter in respect of which indemnity may be sought from the other party hereto, the party so served shall promptly notify the indemnifying party of the receipt thereof. The indemnifying party shall have the right to participate in, or assume, at its own expense, the defense of any such claim or process of settlement thereof. After notice from the indemnifying party of its election so to assume the defense thereof, the indemnified party shall not be liable to such indemnifying party for any legal or other expense in connection with such defense. As long as the indemnifying party is defending such claims diligently, the indemnified party shall not settle, compromise or pay any claim without the consent of the indemnifying party. Such defense shall be conducted expeditiously (but with due regard for obtaining the most favorable outcome reasonably likely under the circumstances, taking into account costs and expenditures) and the party to be indemnified shall be advised of all significant developments. If the indemnifying party shall fail to assume the defense of the indemnified 16 party within a reasonable time (not to exceed 15 days after notice of a claim) or to diligently conduct such defense thereafter, then the indemnified party shall have the right to assume the defense, and compromise or settle the claim, at the risk and expense of the indemnifying party. 11.4 OFFSETS. To the extent that the Company or shareholders of the Company are liable to Purchaser for any Losses, Purchaser shall have the right to set-off such amounts against the Purchase Price or any other amount owing to the Company. ARTICLE XII MODIFICATION OR AMENDMENT 12.1 MODIFICATION. This Agreement may be amended, modified and supplemented only by written agreement of the parties hereto. ARTICLE XIII CONFIDENTIALITY Each party will treat as confidential any information concerning the other party or this Sale that has been or is disclosed, together with all notes, memoranda, analyses or other writings prepared using or referring to any confidential information (the "Confidential Material"). To the extent practical, Confidential Material shall be marked "Proprietary" or "Confidential". However, each party acknowledges that it may obtain confidential information in oral discussions, from inspections or otherwise that can not be marked as "Proprietary" or "Confidential." The failure to mark any information as "Proprietary" or "Confidential" shall not mean that the information is not Confidential Material. Confidential Material will not include information which (i) is generally available to the public; (ii) was known by a party on a 17 nonconfidential basis at the time of disclosure; or (iv) was independently developed by a party before receiving the Confidential Material and such party has evidence of the development of the information. After the Closing Date, Confidential Information will not include any information concerning the Company delivered by the Company to the Purchaser. ARTICLE XIV MISCELLANEOUS 14.1 Any notice, request, consent, waiver or other communication required or permitted to be given hereunder shall be effective only if in writing and shall be deemed sufficiently given only if delivered in person or sent by telegram, cable or by certified or registered mail, postage prepaid, return receipt requested, addressed as follows: If to the Company Meja Sistemas C.A. Basic Developments, Inc. 12 Calle 1-25 zona 10 Edificio Geminis 10 Torre Norte Oficina 1401 Guatemala, C.A. 01010 If to Purchaser: NeoMedia Migration, Inc. 2201 Second Street, Suite 600 Fort Myers, Florida 33901 Attention: Kevin Leininger Copy to: Kathleen A. Finefrock Schwartz & Freeman 19th Floor 401 North Michigan Avenue Chicago, Illinois 60611 18 or to such other person or address as either such party may have specified in a notice duly given. Such notice or communication shall be deemed to have been given as of the date so delivered, telegraphed, cabled, telefaxed or mailed. 14.2 Each of the parties hereto shall pay all costs incurred by it incident to the preparation, execution and delivery of this Agreement and the performance of its obligations hereunder, whether or not the Sale shall be consummated. 14.3 This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and permitted assigns. This Agreement may not be assigned by any party without the prior written consent of all of the other parties. 14.4 This Agreement (including the Exhibits and Schedules) and constitute the entire agreement and understanding of the parties relating to the subject matter hereof and supersede all prior and contemporaneous agreements and understandings, representations and warranties, whether oral or written, relating to the subject matter hereof. 14.5 No delay or failure on the part of any party in exercising any rights hereunder, and no partial or single exercise thereof, will constitute a waiver of such rights or of any other rights hereunder. 14.6 This Agreement shall be construed and interpreted in accordance with the laws of the State of Florida, United States of America. 14.7 The unenforceability or invalidity of any Article or Section or provision of this Agreement shall not affect the enforceability or validity of the balance of this Agreement. 19 14.8 The headings of the Articles and Sections contained in this Agreement are for reference purposes only and shall not in any way affect the meaning, interpretation, enforceability or validity of this Agreement. 14.9 This Agreement may be executed in any number of counterparts, each of which so executed will be deemed to be an original, but all of which together will constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. PURCHASER: COMPANY: NEOMEDIA MIGRATION, INC. BASIC DEVELOPMENTS, INC. a Delaware corporation a Panama company, By: /s/ CHARLES W. FRITZ By: /s/ JORGE FIGUEROA ---------------------- ----------------------- SOLE SHAREHOLDER OF Meja Sistemas C.A. BASIC DEVELOPMENTS, INC.: a Guatemala company /s/ JORGE FIGUEROA By: /s/ JORGE FIGUEROA - - ------------------------- ----------------------- Jorge Figueroa 20 SCHEDULE 1.l(a) AND (b) ASSETS INTELLECTUAL PROPERTY AND SOFTWARE TOOLS The following constitutes the Assets described in Sections 1. 1 (a) and (b): OWNED SOFTWARE: Name: ABsolut for Informix Description: Application Builder Solution for Informix 6.0 Name: ABsolut for Oracle Description: Application Builder Solution for Oracle 7.0 & Forms 3.0 Name: Forms conversion for Oracle Forms 4.5 Description: Automatic Form converter from Forms 3.0 to Forms 4.5 Name: PACEport for Informix Description: PACE application for Reverse Engineering PACE Meta Data into ABsolut (ABsolut for Informix format) Name: PACEport for Oracle Description: PACE application for Reverse Engineering PACE Meta Data into ABsolut (ABsolut for Oracle format) Name: DB Analyze Description: Cobol tool that does inventory of PACE Databases Name: RAND DB Description: Comprehensive PACE application that performs consistency check and detailed inventory information. Does additional pre-conversion work. LICENSED SOFTWARE: NONE TRADEMARKS AND TRADE NAMES: PACEport ABsolut ABSone Porter DBANALYZE RAND DB All names used in connection with the PACE and ABsolut software packages SCHEDULE 1.l(d) ASSETS EQUIPMENT The following constitutes the Assets described in Section 1.1(d): PC 80486DX2, 4 Mb. RAM, Monitor VGA Color, 1 HD 326 Mb., Trackball mouse. Floppies 5.25", 3.5". PC 80486DX2, 16 Mb. RAM, Monitor LEO SVGA Color SN M340102369, 1 HD 503 Mb., 1 HD 162 Mb. Keyboard SN 950501800299, Mouse SN 0085091. PC 80486DX2, 12 Mb. RAM, 1 HD 503 Mb., Monitor LEO SVGA Color, Keyboard, Mouse, Floppy 3.5". PC 486DX, 4 Mb. RAM, Monitor LEO VGA SN ODIA801314, Keyboard SN C950312319, 1 HD 137 Mb. Floppy 3.5". WANG-PC 80286, 2 Mb. RAM, 1 HD 69 Mb., 1 HD 40 Mb., Monitor WANG VGA color SN 78542S, Keyboard WANG SN C3959, Floppy 5.25". TWC-PC 80386, 2 Mb. RAM, 1 HB 161 Mb., Monitor WANG VGA B/W SN V69916, Keyboard WANG SN C3841, Floppy 3.5". IBM RS-6000 SN MS70122627495 48 MB Main Memory 2 x 800 MB Drives 1 x 1.3 Gig Drive WANG QIC Tape Unit 150 Mg. SN 30379Z WYSE Terminal SN 0lFl9C00730 WYSE Terminal SN 0lCl005314 WANG User Printer LDP8III SN Y52930 WANG VS 6 SN 82097E 4Mb Main Memory 2 x 145 MB hard drives 1 x 314 MB Hard drive 1 WANG HD Disk Unit SN TU0009 WANG Terminal SN 07274E WANG Terminal SN 04177E WANG Terminal SN 37419A WANG QIC Tape UNIT 60 Mb. SN ZB9430 WANG Printer Enteia 180, SN 17351 Schedule 1.2 Assumed Contracts NONE Schedule 4.3 Conflicts and Required Consents NONE Schedule 4.4 Deposits NONE Schedule 4.6 Intellectual Property and Software Tools SOFTWARE: Name: ABsolut for Informix Description: Application Builder Solution for Informix 6.0 Name: ABsolut for Oracle Description: Application Builder Solution for Oracle 7.0 & Forms 3.0 Name: Forms conversion for Oracle Forms 4.5 Description: Automatic Form converter from Forms 3.0 to Forms 4.5 Name: PACEport for Informix Description: PACE application for Reverse Engineering PACE Meta Data into ABsolut (ABsolut for Informix format) Name: PACEport for Oracle Description: PACE application for Reverse Engineering PACE Meta Data into ABsolut (ABsolut for Oracle format) Name: DB Analyze Description: Cobol tool that does inventory of PACE Databases Name: RAND DB Description: Comprehensive PACE application that performs consistency check and detailed inventory information. Does additional pre-conversion work. KNOW-HOW 1. Knowledge regarding internal PACE Meta Data. Such knowledge includes the internal structures that PACE uses, both for PACE Data Dictionary and PACE Application Builder. 2. Knowledge regarding Oracle & Informix specific limitations and abilities. Research & Development work required for the code generation and replicating WANG specific functionality. 3. Knowledge regarding internal structures of ORACLE Forms 4.5 "fmt" files required for converting and adjusting converted 3.0 forms into forms version 4.5 Schedule 4.6 Intellectual Property and Software Tools Continued TRADEMARKS AND TRADE NAMES: PACEport ABsolut ABSone Porter DBANALYZE RAND DB All names used in connection with the PACE and ABsolut software packages EX-10.46 5 NeoMedia Technologies, Inc. Exhibit 10.46 Master Lease Between William E. Fritz and NeoMedia Technologies, Inc. Dated November 6, 1996 MASTER LEASE ------------ This Master Lease Agreement ("Master Lease") dated November 6, 1996 is between William E. Fritz ("Lessor") and NeoMedia Technologies, Inc. ("Lessee"), a Delaware corporation. Lessee wants from time to time to lease from Lessor personal property to be described in one or more Schedules of leased equipment. Lessor is willing to lease such personal property to Lessee at the rent, for the term and upon the conditions stated. Any present and future Schedules executed by Lessor and Lessee which are identified as being a part of this Master Lease, shall be deemed to incorporate by reference all the terms and conditions of this Master Lease except as provided in any such Schedule. In the event of a conflict between this Master Lease and any Schedule, the provisions of such Schedule shall control. 1. EQUIPMENT LEASED AND TERM. This Master Lease shall cover such personal property as is described in any Schedule executed by or pursuant to the authority of Lessee, accepted by Lessor in writing and identified as a part of this Master Lease (which personal property with all replacement parts, additions, repairs, accessions and accessories incorporated in and/or affixed to the personal property is referred to as the "Equipment"). Lessor leases to Lessee and Lessee hires and takes from Lessor, upon and subject to the covenants and conditions of this Master Lease, the Equipment described in any Schedule. The term and rental of the Master Lease with respect to any item of Equipment shall be for the period as set forth in the Schedule (the "Initial Lease Term"). 2. RENT. The aggegate rent payable with respect to each item of Equipment shall be in the amount shown with respect to such item on the Schedule. Lessee shall pay to Lessor the aggregate rental for each item of Equipment for the full period and term for which the Equipment is leased, such rental to be payable at such times and in such amounts for each item of Equipment as shown in the applicable Schedule. 3. PURCHASE AND ACCEPTANCE. Lessee requests Lessor to acquire all scheduled Equipment pursuant to an assignment of Lessee's purchase order(s) for the Equipment. Delivery of each item of Equipment shall be deemed complete upon the acceptance date ("Acceptance Date") stated in the Schedule for each item of Equipment. LESSOR SHALL NOT BE LIABLE FOR LOSS OR DAMAGE OR FOR THE DELAY OR FAILURE OF ANY SUPPLIER OF THE EQUIPMENT ("SELLER") TO FILL OR DELIVER THE ORDER FOR ANY ITEM OF EQUIPMENT. THE LESSEE REPRESENTS THAT LESSEE HAS SELECTED BOTH THE EQUIPMENT LISTED IN ANY SCHEDULE AND THE EQUIPMENT SELLER BEFORE HAVING REQUESTED LESSOR TO ACQUIRE SAME FOR LEASING TO LESSEE. 4. NON-CANCELABLE LEASE. THIS MASTER LEASE IS NON-CANCELABLE. When Lessee signs and delivers a Certificate of Acceptance for the Equipment, its obligations to pay all rent for the Initial Lease Term and other amounts when due for the Equipment and otherwise to perform as required under this Master Lease are unconditional, 1 irrevocable and independent. These obligations are not subject to cancellation, termination, modification, repudiation, excuse or substitution by Lessee. Lessee is not entitled to any abatement, reduction, offset, defense or counterclaim with respect to these obligations for any reason whatsoever, whether arising out of default or other claims against Lessor or the manufacturer or supplier of the Fquipment, defects in or damage to the Equipment, its loss or destruction or otherwise. 5. DISCLAIMER OF WARRANTIES BY LESSOR; RIGHTS OF LESSEE. LESSOR MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, AND, AS TO LESSOR, LESSEE LEASES THE EQUIPMENT "AS-IS". UNDER NO CIRCUMSTANCES SHALL LESSOR BE RESPONSIBLE; FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH THIS MASTER LEASE AND/OR THE EQUIPMENT. LESSEE MAY COMMUNICATE WITH THE SELLER AND RECEIVE AN ACCURATE AND COMPLETE STATEMENT OF THOSE RIGTHS, PROMISES AND WARRANTIES, INCLUDING ANY DISCLAIMERS AND LIMITATIONS OF THEM OR OF REMEDIES. 6. CLAIMS AGAINST SELLER: SELLER NOT AN AGENT OF LESSOR. If the Equipment is not properly installed, does not operate as represented or warranted by the Seller or is unsatisfactory for any reason, Lessee shall make any claim on account thereof solely against the Seller and shall nevertheless pay Lessor all rent payable under this Master Lease. Lessor agrees to assign to Lessee, solely for the purpose of making and prosecuting any such claim, any rights it may have against the Seller for breach of warranty or representation respecting the Equipment. Notwithstanding any fees that must be paid to Seller or any agent of Seller, Lessee understands and agrees that neither the Seller nor any agent or employee of the Seller is an agent or employee of the Lessor and that neither the Seller nor its agent or employee is authorized to waive or alter any term or condition of this Master Lease. 7. TITLE; LOCATION OF THE EQUIPMENT: EQUIPMENT IS PERSONAL PROPERTY; TERMINATION. Title to the Equipment is in the Lessor and under no circumstances shall pass to Lessee. The Equipment shall be kept at Lessee's address indicated in the applicable Schedule and may be removed without the prior written consent of Lessor. LESSEE FURTHER COVENANTS AND AGREES THAT THE EQUIPMENT IS, AND WILL AT ALL TIMES BE AND REMAIN, PERSONAL PROPERTY. At each scheduled termination date, or upon Lessee's default, Lessee, at its own expense, shall assemble and deliver the Equipment to Lessor at the location designated by Lessor, in good order and repair, ordinary wear and tear excepted. Lessee shall give Lessor 90 days written notice prior to each scheduled termination date, that it is returning the Equipment. 8. NO ASSIGNMENT BY LESSEE: ASSIGNMENT BY LESSOR. THIS MASTER LEASE SHALL NOT BE ASSIGNED BY LESSEE, NOR SHALL ANY OF THE EQUIPMENT BE SUBLEASED BY LESSEE WITHOUT THE PRIOR 2 WRITTEN CONSENT OF LESSOR. Lessor may at any time sell or assign to any bank, or financial institution, or any person, firm, or corporation all or part of its right, title and interest in and to this Master Lease and in and to each item of Equipment and monies to become due to the Lessor, and Lessor may grant security interests in the Equipment, subject to the Lessee's rights as set forth in this Master Lease, and in such events, all the provisions of this Master Lease for the benefit of Lessor shall inure to the benefit of and be exercised by or on behalf of such assignee, but the assignee, shall not be liable for or be required to perform any of Lessor's obligations to Lessee. All rental payments due and to become due under this Master Lease and assigned by Lessor shall be paid directly to assignee, upon written notice of such assignment to Lessee. The right of the assignee to the payment of assigned rentals and performance of all Lessee's obligations and to exercise any other of Lessor's rights shall not be subject to any defense, counterclaim or setoff which the Lessee may have or assert against the Lessor. Lessee agrees that it will not assert any such defenses, setoffs, counterclaims and claims against the assignee. 9. CASUALTY AND LIABILITY INSURANCE, RISK OF LOSS, DAMAGE OR DESTRUCTION. Lessee shall keep all Equipment insured against loss by fire, theft and all other hazards (comprehensive coverage) in such amounts as Lessor requires (but not less than the casualty value (the "Casualty Value") for such item indicated in the Casualty Value Table attached to the applicable Schedule). Lessee appoints Lessor Lessee's attorney in fact to endorse any loss payment or returned premium check and to make any claim under such insurance shall not be canceled except upon thirty days written notice respect to liability for personal injuries, damage to or loss of use of property resulting from the ownership, use and operation of the Equipment with insurers satisfactory to Lessor in amounts and against risks customarily insured against by the Lessee for equipment owned by it. All policies shall be endorsed with Lessor as a loss payee and additional insured and shall contain provisions (a) that such insurance is to Lessor at the address set forth under its name below and (b) that the interest of Lessor shall not be invalidated by any act of Lessee. The policies of insurance or any endorsement certificates shall be delivered to Lessor within 30 days after any scheduled Acceptance Date. In the event of loss, destruction or theft of, or damage to, any of the Equipment, Lessee will immediately notify Lessor. Upon Lessor's and any assignee's written consent, Lessee may act as a self-insurer in amounts acceptable to Lessor and any assignee. If Lessee defaults in obtaining any insurance to be provided, Lessor may, but is not required to, place such insurance. Any premiums paid by Lessor shall be additional rent payable on demand with interest at the highest legal rate from the date of payment. At Lessor's sole option, such amounts together with interest may be added to the lease balance to be paid by Lessee as additional monthly rent. NOTWITHSTANDING THE PROVISIONS OF THIS PARAGRAPH, LESSEE WILL HOLD LESSOR HARMLESS AGAINST ANY SUCH CLAIM OR LIABILITY (INCLUDING ATTORNEY'S FEES, COSTS AND EXPENSES FOR ANY DEFENSE) ARISING OUT OF THE OWNERSHIP, USE OR OPERATION OF THE EQUMMIENT 3 DURING THE PERIOD OF THIS MASTER LEASE AND UNTIL THE EQUIPMENT IS RETURNED TO AND ACCEPTED BY THE LESSOR. Lessee assumes and shall bear all risks of loss of, damage to or destruction of each item of Equipment, whether partial or complete. Except as provided in this Section 9, no such event shall relieve the Lessee of its obligation to pay the full rental payable for such item. If any item of Equipment is damaged (but not beyond economical repair), Lessee must promptly notify Lessor and, within 60 days of such damage, shall repair the item at its own expense and restore it to the same state and condition as required under the Master Lease. Lessee shall then be entitled to receive from Lessor or any assignee, any insurance proceeds received in connection with such damage. If any item of Equipment is destroyed, damaged beyond economical repair, lost or stolen, or taken by governmental action for a stated period extending beyond the Initial Lease Term for such item (an "Event of Loss"), Lessee must promptly notify Lessor and any assignee and pay to Lessor or the assignee, as the case may be, on the next rent payment date following the Event of Loss the Casualty Value of the item of Equipment. Upon such payment and provided no Event of Default as defined in Section 12 has occurred, Lessee's obligation to pay rent for such item of Equipment will cease and Lessee will be entitled to receive any insurance proceeds or other recovery received by the Lessor or assignee in connection with the Event of Loss. 10. REPAIRS: USE: ALTERATION. Lessee, at its own expense, shall keep the Equipment maintained in good repair condition and working order; shall use the Equipment lawfully and shall not alter the Equipment without the Lessor's prior written consent. All items which become attached to or a part of the Equipment become the property of Lessor. Lessee will at all times during the Initial Lease Term of each Schedule maintain in force a maintenance agreement covering each item of Equipment with the manufacturer of the Equipment or such other party as is acceptable to Lessor. Lessor, or Lessor's assignee, shall keep the Equipment free and clear of all levies, liens and Lessee's normal business hours. 11. LIENS AND TAXES. Lessee as its expense shall keep encumbrances. Lessee shall declare and pay all charges and taxes (local, state and federal) which may now or hereafter be imposed or levied upon the Master Lease, rental, operation, leasing, sale, ownership, possession or use of the Equipment excluding all taxes based upon income or gross receipts of Lessor. Upon the request of Lessor, Lessee shall provide evidence of such payment. 12. DEFAULT. Any of the following shall constitute an event of default ("Event of Default") by Lessee: (a) Lessee fails to pay when due any scheduled rent or other amount required by this Master Lease; (b) Lessee breaches any covenant of this Master Lease or fails to promptly perform any of its terms or conditions, including but not limited to 4 return of the leased Equipment at the expiration of any scheduled lease term; (c) Lessee makes an assignment for the benefit of creditors; (d) a petition is filed by or against Lessee in bankruptcy or for the appointment of a receiver; (e) dissolution or suspension of Lessee's usual business; (f) Lessee makes a bulk transfer or sale of furniture furnishings, fixtures, or other equipment or inventory; (g) any representation, warranty, or signature made by Lessee in this Master Lease or related document is incorrect, fraudulent or breached; (h) Lessee defaults under the terms of any agreement or instrument relating to any lease or debt for borrowed money such that the Lessor accelerates the rent or the creditor declares the debt due before its maturity; or (i) Lessee or any guarantor gives Lessor reasonable cause to be insecure about Lessee's or guarantor's willingness or ability to perform the obligations under this Master Lease. Lessee covenants and agrees to give Lessor prompt notice upon the occurrence of an event of default, and the Lessee's failure to give such notice shall constitute a further event of default. 13. LESSOR'S REMEDIES UPON DEFAULT BY LESSEE. Upon the occurrence of an event of default, Lessor without further notice may (i) recover from Lessee the Casualty Value of the Equipment together with any unpaid rent and (ii) regardless of whether such amounts are paid, take possession of any item or items or Equipment with or without process of law and at Lessor's option sell or lease at public auction or by private sale or otherwise dispose of such item or items of Equipment free and clear of any rights of Lessee and without any duty to account to Lessee except as expressly provided in this Section 13. If Lessee shall have paid the Casualty Value and unpaid rent referred to above and all other amounts owing under this Master Lease and any items of Equipment have been taken from Lessee, the proceeds of any reletting or sale (less all costs and expenses including attorney's fees) shall be paid to reimburse the Lessee for the Casualty Value up to the amount previously paid. Any surplus remaining after such payment will be retained by the Lessor. In addition, Lessor may exercise any other right or remedy available to Lessor at law or in equity including rights of setoff. Regardless of any sale or lease of the Equipment or any payment of the Casualty Value, Lessee will remain liable to Lessor for all damages as provided by law and for all costs and expenses incurred by Lessor including court costs and attorney's fees. No remedy under this Master Lease is intended to be exclusive, but each remedy shall be cumulative and in addition to any other remedy available at law or in equity. 14. RENEWAL. If the Equipment is not delivered to Lessor at any scheduled termination date in accordance with paragraph 7, then the Initial Lease Term shall renew on a month to month basis upon the same terms and conditions, subject to the right of Lessor or Lessee to terminate the renewed term on 30 days written notice, in which event, the Equipment shall immediately be returned to Lessor. 5 15. LATE CHARGES. Without limiting Lessor's remedies above, if Lessee shall fail to pay any amount of rental or other payment for a period of ten days after its due date, Lessee agrees to pay Lessor a late charge of 5% of each such payment or installment with a minimum late charge being $10.00. This late charge shall be reassessed in each subsequent month that the rental or other payment remains unpaid. 16. FINANCING STATEMENTS. THE LESSOR IS AUTHORIZED TO FILE A FINANCING STATEMENT IN ACCORDANCE WITH THE UNIFORM COMMERCIAL CODE SIGNED BY LESSEE OR BY LESSOR, AS LESSEE'S ATTORNEY IN FACT. 17. JURISDICTION: VENUE: SEVERABILITY. THIS AGREEMENT. STATE OF FLORIDA. LESSEE CONSENTS TO THE JURISDICTION OF THE COURTS OF FLORIDA. No provision which may be construed as unenforceable shall in any way invalidate any other provision, all of which shall remain in full force and effect. 18. WARRANTIES BY LESSEE. Lessee warrants and represents that: (a) the Equipment is being leased for business purposes; (b) all signatures are genuine; (c) the person signing the Master Lease is authorized to do so; (d) if more than one Lessee is named, the liability of each is agreed to be joint and several; (e) the execution and performance of this Master Lease, each Schedule and related documents and the performance of the obligations they impose, do not violate any law and do not conflict with any agreement by which Lessee is bound, and that no consent or approval of any governmental authority or any third party is required in connection with the execution or delivery of this Master Lease, any Schedule or related documents, and that this Master Lease, each Schedule and related documents are valid and binding agreements, enforceable in accordance with their terms; and (f) there are no actions, suits or proceedings pending, or to the knowledge of the Lessee threatened, before any court, administrative agency, arbitrator or governmental body which will, if determined adversely to the Lessee, materially adversely affect its ability to perform its obligations under this Master Lease or any related agreement to which it is a party. If Lessee is other than a natural person, it further represents that (a) it is duly organized, existing and in good standing pursuant to the laws under which it is organized; and (b) the execution and delivery of this Master Lease and the performance of the obligations it imposes are within its powers and have been duly authorized by all necessary action of its governing body and do not contravene the terms of its articles of incorporation or organization, it bylaws, or any partnership, operating or other agreement governing its affairs. 19. INDEMNITY BY LESSEE. Lessee agrees to indemnify and hold lessor or any assignee harmless from any and all claims, actions, proceedings, expenses, damages and liabilities, including attorney's fees, arising out of or in any manner pertaining to the Equipment or this Master Lease including, without limitation the ownership, selection, possession, purchase, delivery, installation, leasing, operation, use control, maintenance and return of the Equipment and the recovery of claims under insumnce policies. 6 Lessee acknowledges that the Equipment to be leased by Lessor to Lessee pursuant to this Agreement is owned by Lessor ("Owner"). It is the intent of Owner/Lessor and Lessee that this Lease constitute a true lease for Federal income tax purposes so that, for the purpose of determining its liability for Federal income taxes, Owner shall be entitled to the tax benefits as are lowed under the Internal Revenue Code of 1986, as amended, shall ("Code") to an owner of personal property. In addition, notwithstanding any other provision of this Master Lease, if as to any Equipment the modified accelerated cost recovery system or depreciation deductions allowed under the Internal Revenue Code of 1986, as amended, shall be lost, disallowed, eliminated, reduced, recaptured or otherwise unavailable to Lessor for any reason, then Lessee shall pay to Lessor an additional rent within 30 days after such a loss an amount which shall be equal to the sum of (i) the additional federal, state, local and foreign income or any other taxes payable as a result of such loss, disallowance, elimination, reduction, recapture or unavailability of accelerated cost recovery or depreciation deductions plus (ii) the amount of any interest, penalties or additions to tax payable by the Lessor as a result of such additional tax. The indemnities given and liabilities assumed by the Lessee pursuant to this Section 19 shall continue in full force and effect notwithstanding the expiration or other termination of this Master Lease. 20. NOTICES. Notice from one party to another relating to this Master Lease shall be deemed effective if made in writing (including telecommunications) and delivered to the recipient's address, telex number or telecopier number set forth under its name below by any of the following means: (a) band delivery, (b) registered or certified mail postage prepaid, with return receipt requested, (c) first class or express mail, postage prepaid, (d) overnight courier service or (e) telecopy, telex or other facsimile transmission with request for assurance of receipt in a manner typical with respect to communication of that type. Notice made in accordance with this section shall be deemed delivered upon receipt if delivered by hand or wire transmission, 3 business days after mailing if mailed by first class, registered or certified mail or one business day after mailing or deposit with an overnight courier service. 21. LABELS AFFIXED TO EQUIPMENT. Lessor shall have the right, but not the obligation, to affix or attach ownership identification labels to the Equipment. Lessee agrees to not remove any such labels. 22. LESSOR'S EXPENSE. Lessee shall pay Lessor all costs and expenses, including reasonable attorney's fees and the fees of any collection agencies, incurred by Lessor in enforcing any of the terms, conditions, or provisions hereof or in protecting Lessor's rights herein. These costs and expenses shall include, without limitation, any costs or expenses incurred by the Lessor in any bankruptcy, reorganization, insolvency or other similar proceeding. 7 23. PERFORMANCE BY LESSOR. If the Lessee fails to duly and promptly perform any of its obligations under this Master Lease, Lessor may, at its option, perform such act or make such payment which the Lessor deems necessary. All sums so paid or incurred by Lessor including attorney's fees shall be immediately due and payable by Lessee, without demand, and shall bear interest at the lesser of one and one-half percent (1-1/2%) per month or the highest rate permissible by law. The performance of any act or payment by Lessor shall not constitute a waiver or release of any obligation or default on the part of Lessee. 24. ENTIRE AGREEMENT. This Master Lease and subsequent Schedules constitute the entire agreement of the parties in connection with the Equipment. Neither party relies on any other statements, understandings, representations or assurances, the same, if any having been merged into this agreement. This agreement cannot be modified except by a writing signed by each party. This agreement inures to the benefit of the heirs, administrators, successors and assigns of the parties. 25. WAIVER. No delay on the part of Lessor in the exercise of any right or remedy shall operate as a waiver. No single or partial exercise by Lessor of any right or remedy shall preclude any other future exercise of it or the exercise of any other right or remedy. No waiver or indulgence by Lessor of any default shall be effective unless in writing and signed by Lessor, nor shall a waiver on one occasion be construed as a bar to or waiver of that right on any future occasion. 26. FINANCIAL REPORTS. Upon request by Lessor, Lessee will promptly furnish to Lessor for the most recent quarterly period, a balance sheet and a statement of profit, loss and surplus from the beginning of that fiscal year to the end of that period certified as correct by an authorized agent of the Lessee and such other financial information, books and records the Lessor may deem necessary. 27. WAIVER OF JULY TRIAL. Lessor and Lessee, after consulting or having had the opportunity to consult with counsel, knowingly, voluntarily and intentionally waive any right either of them may have to a trial by jury in any litigation based upon or arising out of this Master Lease or any related instrument or agreement, or any course of conduct, dealing, statements (whether oral or written), or actions of either of them. Neither Lessor nor Lessee shall seek to consolidate, by counterclaim or otherwise, any such action in which a jury trial has been waived with any other action in which a jury trial cannot be or has not been waived. These provisions shall not be deemed to have been modified in any respect or relinquished by either Lessor or Lessee except by a written instrument executed by both of them. 8 THIS MASTER LEASE THE LESSEE AGREEMENT SHALL AGREES TO ALL OF THE NOT BE BINDING ON LESSOR TERMS AND CONDITIONS UNTIL IT HAS BEEN ACCEPTED ABOVE WHICH ARE PART AND EXECUTED BY LESSOR OF THIS MASTER LEASE AGREEMENT Acceptcd by: By /s/ WILLIAM E. FRITZ By /s/ CHARLES W. FRITZ -------------------- -------------------- Title Title PRESIDENT ------------------ ------------------ Date 11-6-96 Date 11-6-96 ------------------ ------------------ Address For Notices: Address For Notices: William E. Fritz NeoMedia Technologies, Inc. 411 Le Provence Circle 280 W. Shuman Blvd., Suite 100 Naperville IL 60540 Naperville, IL 60563 9 SCHEDULE A ---------- Date: November 6, 1996 Exhibition Booth Cost: $85,434.50 Months: 36 Monthly Payment: $2,858.09 Florida Sales Tax: $171.49 Total Monthly Payment: $3,029.58 First Payment Due December 1, 1996 Lessee may purchase form the Lessor the Exhibition Booth at any time at fair market value. EX-10.47 6 NeoMedia Technologies, Inc. Exhibit 10.47 Agreement for Wholesale Financing (Security Agreement) Between IBM Credit Corporation and NeoMedia Technologies, Inc. Dated February 20, 1997 IBM CREDIT CORPORATION Stamford, CT 06904 AGREEMENT FOR WHOLESALE FINANCING (SECURITY AGREEMENT) TO: IBM CREDIT CORPORATION DATE: 2/20, 1997 In the course of our business, we acquire inventory and want you to finance our purchase of such inventory under the following terms and conditions: 1. You may in your sole discretion from time to time decide the amount of credit you extend to us, notwithstanding any prior course of conduct between us. You may combine all of your advances to make one debt owed by us. 2. You may in your sole discretion decide the amount of funds, if any, you will advance on any inventory we may seek to acquire. We agree that any decision to advance funds on any inventory will not be binding on you until such time as the funds are actually advanced. 3. All financing provided by you to us will be used exclusively for the acquisition of inventory for which you have approved us to receive financing pursuant to the terms of this Agreement (the "Approved Inventory"). From time to time, you will identify such trademarks and tradenames to us in writing. When you advance funds, you may send us a Statement of Transaction or other statement if you choose. If you do, we will have acknowledged the debt to be an account stated and we will have agreed to the terms of the financing programs identified on such statement, unless we notify you in writing of any question or objection within seven (7) days after it is mailed to us. 4. To secure payment of all of our current and future debts to you whether under this Agreement, any guaranty that we now or hereafter execute, or any other agreement between us, whether direct or contingent, we grant you a security interest in all of our inventory, equipment, fixtures, accounts, contract rights, chattel paper, instruments, reserves, documents of title, deposit accounts and general intangibles, whether now owned or hereafter acquired, and all attachments, accessories, accessions, substitutions and/or replacements thereto and all proceeds thereof. All of the above assets are defined pursuant to the provisions of Article 9 of the Uniform Commercial Code and are hereinafter collectively referred to as the "Goods". This security interest is also granted to secure our debts to all of your affiliates. We will hold all of the Goods financed by you, and the proceeds thereof, in trust for you and we will immediately account for and remit directly to you all such proceeds when payment is required under the terms of our financing program with you. You may directly collect any amount owed to us with respect to the Goods and credit us with all sums received by you. Your title, lien or security interest will not be impaired by any payments we make to the seller or anyone else or by our failure or refusal to account to you for proceeds. 5.Our principal place of business Is located at: __________________________ 2201 Second St., Ste. 600 Ft. Myers FL 33901 ________________________________________________________________________________ (Number and Street) (City, County, State, Zip Code) and we represent that our business is conducted as a [ ] SOLE PROPRIETORSHIP, [ ] PARTNERSHIP, [XX] CORPORATION (check applicable term). We will notify you immediately of any change in our identity, name, form of ownership or management, and of any change in our principal place of business, or any additions or discontinuances of other business locations. The Goods will be kept at our principal place of business. We will immediately notify you if any of the Goods are kept at any other address. We and our predecessors have done business during the last six (6) months only under the following names: ________________________________________________________________________________ This paragraph is for informational purposes only, and is not in any manner intended to limit the extent of your security interest in the Goods. Page 1 of 6 6. We promise that the Goods are and will remain free from all claims and liens superior to yours unless otherwise agreed to by you, and that we will defend the Goods against all other claims and demands. We will not rent, lease, lend, demonstrate, pledge, transfer or secrete any of the Goods or use any of the Goods for any purpose other than exhibition and sale to buyers in the ordinary course of business, without your prior written consent. We will execute all documents you may request to confirm or perfect your security interest in the Goods. We warrant and represent that we are not in default in the payment of any principal, interest or other charges relating to any indebtedness owed to any third party, and no event has occurred under the terms of any agreement, document, promissory note or other instrument, which with or without the passage of time and/or the giving of notice constitutes or would constitute an event of default thereunder. We will promptly provide our year-end financial statement to you after our fiscal year ends and, it requested by you, we will also promptly provide our financial statement to you after each calendar quarter. Each financial statement that we submit to you, is and will be correct and will accurately represent our financial condition. We further acknowledge your reliance on the truthfulness and accuracy of each financial statement that we submit to you in your extension of various financial accommodations to us. 7. We will pay all taxes, license fees, assessments and charges on the Goods when due. We will immediately notify you of any loss, theft, or destruction of or damage to any of the Goods. We will be responsible for any loss, theft or destruction of Goods. We will keep the Goods insured for their full insurable value against loss or damage under an "all risk" insurance policy. We will obtain insurance under such terms and in amounts as you may specify, from time to time, with companies acceptable to you, with a loss-payee or mortgagee clause payable to you to the extent of any loss to the Goods and containing a waiver of all defenses against us that is acceptable to you. We agree to provide you with written evidence of the required insurance coverage and loss-payee or mortgagee clause. We assign to you all amounts owed to us under any insurance policy, and we direct any insurance company to make payment directly to you to be applied to the unpaid debt owed you. We further grant you an irrevocable power of attorney to endorse any checks or drafts and sign and file all of the necessary papers, forms and documents to initiate and settle any insurance claims with respect to the Goods. If we fail to pay any of the above-referenced costs, charges, or insurance premiums, or if we fail to insure the Goods, you may pay such costs, charges and insurance premiums, and the amounts paid will be considered an additional debt owed by us to you. 8. You have the right to enter upon our premises from time to time, as you in your sole discretion may determine for your sole benefit, and all without any advance notice to us, to: examine the Goods; appraise them as security; verify their condition and non-use; verify that all Goods have been properly accounted for; verify that we have complied with all terms and provisions of this Agreement; and assess, examine, and make copies of our books and records. Any collection by you of any amounts we owe under our financing programs with you at or during your examination of the Goods does not relieve us of our continuing obligation to pay our indebtedness owed to you in accordance with the terms of such financing programs. 9. We agree to immediately pay you the full amount of the principal balance owed you on each item of inventory financed by you at the time such inventory is sold, lost, stolen, destroyed, or damaged, whichever occurs first, unless you have agreed in writing to provide financing to us on other terms. We also agree to provide you, upon your request, an inventory report which describes all the Approved Inventory in our possession (excluding any inventory financed by you under the Demonstration and Training Equipment Financing Option and the Rental Equipment Financing Option). Regardless of the terms of any scheduled payment financing program with you, if you determine, after conducting an inspection of all of our inventory, that the current outstanding indebtedness owed by us to you exceeds the aggregate wholesale invoice price of the Approved Inventory in our possession, we agree to immediately pay to you an amount equal to the difference between such outstanding indebtedness and the aggregate wholesale invoice price of such inventory. We will make all payments to you at your appropriate branch office. Any checks or other instruments delivered to you to be applied against our outstanding obligations will constitute conditional payment until the funds represented by such instruments are actually received by you. You may apply payments to reduce finance charges first and then principal, irrespective of our instructions. Further, you may apply principal payments to the oldest (earliest) invoice for the inventory financed by you, but, in any case, all principal payments will first be applied to such inventory which is sold, lost, stolen, destroyed, damaged, or otherwise disposed of. If we sign any instrument for the amount of credit extended, it will be evidence of our obligation to pay and will not be payment. Any discount, rebate, bonus, or credit for the inventory granted to us by any third party will not, in any way, reduce the debt we owe you, until you have received payment in cash. Page 2 of 6 l0. During each year or part of a year in which you have extended credit to us, we will pay you finance charges an the total amount of credit extended to us in the amount agreed to between us from time to time. The period, during which any third party provides a finance charge subsidy for us, will be included in the calculation of the annual percentage rate of the finance charges. Such finance charges may be applied by you to cover any amounts expanded for your: appraisal and examination at the Goods; maintenance of facilities for payment; assistance in support of our retail sales; your commitments to manufacturers or distributors to finance shipments of Goods to us; recording and filing fees; expenses incurred in obtaining additional collateral or security; and any costs and expenses incurred by you arising out of the financing you extend to us. We also agree to pay you additional charges which will include: late payment fees; flat charges; charges for receiving NSF checks from us; renewal charges; and any other charges applicable to our financing program with you. Unless we hereafter otherwise agree in writing, the finance charge and additional charges agreed upon will be your applicable finance charge and additional charges for the class of Goods involved, prevailing from time to time at your principal place of business. You will send us, at monthly or other intervals, a statement of all charges due on our account with you. We will have acknowledged the charges due, as indicated on the statement, to be an account stated, unless we object in writing to you within seven (7) days after it is mailed to us. This statement may be adjusted by you at any time to conform to applicable law and this Agreement. If any manufacturer or distributor fails to provide a finance charge subsidy for us, as agreed, we will be responsible for and pay to you all finance charges billed to our account. 11. Any of the following events will constitute a default by us under this Agreement: we breach any of the terms, warranties or representations contained in this Agreement or in any other agreements between us or between us and any of your affiliates; any guarantor of our indebtedness to you under this Agreement or any other agreements breaches any of the terms, warranties or representations contained in any guaranty or other agreements between any guarantor and you; any representation, statement, report or certificate made or delivered by us or any of our representatives, employees or agents or by any guarantor to you is not true and correct; we fail to pay any of the liabilities or indebtedness owed to you or any of your affiliates when due and payable under this Agreement or under any other agreements between us or between us and any of your affiliates; you determine that you are insecure with respect to any of the Goods or the payment of our debt owed to you; we abandon the Goods or any part thereof; we or any guarantor become in default in the payment of any indebtedness owed to any third party; a judgement issues on any money demand against us or any guarantor; an attachment, sale or seizure is issued against us or any of the Goods; any part of the Goods are seized or taken in execution; the death of the undersigned if the business is operated as a sole proprietorship or partnership, or the death of any guarantor; we cease or suspend our business; we or any guarantor make a general assignment for the benefit of creditors; we or any guarantor become insolvent or voluntarily or involuntarily become subject to the Federal Bankruptcy Code, state insolvency laws or any act for the benefit of creditors; any receiver is appointed for any of our or any guarantor's assets, or any guaranty pertaining to our indebtedness to you is terminated for any reason whatsoever; we lose any franchise, permission, license or right to sell or deal in any Goods which you finance; we or any guarantor misrepresent our respective financial condition or organizational structure; or you determine, in your sole discretion, that the Goods, any other collateral given to you to secure our indebtedness to you, or our or any guarantor's net worth has decreased in value, and we have been unable, within the time period prescribed by you, to either provide you with additional collateral in a form and substance satisfactory to you or reduce our total indebtedness by an amount sufficient to satisfy you. In the event of a default: (a) You may, at any time at your election, without notice or demand to us do any one or more of the following: declare all or any part of the indebtedness we owe you immediately due and payable, together with all court costs and all costs and expenses of your repossession and collection activity, including, but not limited to, all attorney's fees; exercise any or all rights of a secured party under applicable law; and/or cease making any further financial accommodations or extending any additional credit to us. All of your rights and remedies are cumulative. (b) We will segregate, hold and keep the goods in trust, in good order and repair, only for your benefit, and we will not exhibit, transfer, sell, further encumber, otherwise dispose of or use for any other purpose whatsoever any of the goods. (c) Upon your oral or written demand, we will immediately deliver the Goods to you, in good order and repair, at a place specified by you, together with all related documents; or you may, in your sole discretion and without notice or demand to us, take immediate possession of the Goods, together with all related documents. Page 3 of 6 (d) We waive and release: any claims and causes of action which we may now or ever have against you as a direct or indirect result of any possession, repossession, collection or sale by you of any of the Goods and the benefit of all valuation, appraisal and exemption laws. If you seek to take possession of any of the Goods by court process, we irrevocably waive any notice, bonds, surety and security relating thereto required by any statute, court rule or otherwise. (e) We appoint you or any person you may delegate as our duly authorized Attorney-In-Fact to do, in your sole discretion, any of the following: endorse our name on any notes, checks, drafts or other forms of exchange received as payment on any Goods for deposit in your account; sell, assign, transfer, negotiate, demand, collect, receive, settle, extend or renew any amounts due on any of the Goods; and exercise rights we have in the Goods. If we bring any action or assert any claim against you which arises out of this Agreement, any other agreement or any of our business dealings, in which we do not prevail, we agree to pay you all costs and expenses of your defense of such action or claim including, but not limited to, all attorney's fees. If you fail to exercise any of your rights or remedies under this Agreement, such failure will in no way or manner waive any of your rights or remedies as to any past, current or future default. 12. We agree that it you conduct a private sale of any Goods by soliciting bids from ten (10) or more other dealers or distributors in the type of Goods repossessed by or returned to you hereunder, any sale by you of such property in bulk or in parcels within 120 days of (a) your taking physical possession and control of such Goods or (b) when you are otherwise authorized to sell such Goods, whichever occurs last, to the bidder submitting the highest cash bid therefor, will be deemed to be a commercially reasonable means of disposing of the same. We agree that commercially reasonable notice of any public or private sale will be deemed given to us if you send us a notice of sale at least seven (7) days prior to the date of any public sale or the time after which a private sale will be made. If you dispose of any such Goods other than as herein contemplated, the commercial reasonableness of such sale will be determined in accordance with the provisions of the Uniform Commercial Code as adopted by the state whose laws govern this Agreement. We agree that you do not warrant the Goods. We will pay you in full even if the Goods are defective or fail to conform to any warranties extended by any third party. Our obligations to you will not be affected by any dispute we may have with any third party. We will not assert against you any claim or defense we may have against any third party. We will indemnify and hold you harmless against any claims or defenses asserted by any buyer of the Goods by reason of: the condition at any Goods; any representations made about the Goods, or for any and all other reasons whatsoever. 13. We grant to you a power of attorney authorizing any of your representatives to: execute or endorse on our behalf any documents, financing statements and instruments evidencing our obligations to you; supply any omitted information and correct errors in any documents or other instruments executed by or for us; do any and every act which we are obligated to perform under this Agreement; and do any other things necessary to preserve and protect the Goods and your rights and security interest in the Goods. We further authorize you to provide to any third party any credit, financial or other information on us that is in your possession. 14. Time is of the essence in this Agreement. This Agreement will be effective from the date of its acceptance at your branch office. We acknowledge receipt of a true copy and waive notice of your acceptance of it. If you commit to advance funds under this Agreement, you will have accepted it. This Agreement will remain in force until one of us gives notice to the other that it is terminated. If we terminate this Agreement, you may declare all or any part of the indebtedness we owe you due and payable immediately. If this Agreement is terminated, we will not be relieved from any obligation to you arising out of your advances or commitments made before the effective date of termination. Your rights under this Agreement and your security interest in present and future Goods will remain valid and enforceable until all our debts to you are paid in full. We agree that we cannot assign this Agreement without your prior written consent. This Agreement will protect and bind your and our respective heirs, representatives, successors and assigns. It can be varied only by a document signed by your and our authorized representatives. If any provision of this Agreement or its application is invalid or unenforceable, the remainder of this Agreement will not be impaired or affected and will remain binding and enforceable. It we are a corporation, this Agreement is executed with the authority of our Board of Directors, and with shareholder approval, if required by the law. All notices you send to us will be sufficiently given if mailed or delivered to us at our address shown in paragraph 5. Page 4 of 6 15. The laws of the State of Illinois will govern this Agreement. We agree that venue for any lawsuit will be in the State or Federal Court within the county, parish, or district where your branch office, who provides the financial accommodations, is located. We hereby waive any right to change the venue of any action brought against us by you. 16. If we have previously executed any security agreements relating to the Goods with you, we agree that this Agreement is intended only to amend and supplement such written agreements, and will not be deemed to be a novation or termination of such written agreements. In the event the terms of this Agreement conflict with the terms of any prior security agreement that we previously executed with you, the terms of this Agreement will control in determining the agreement between us. 17. We waive all exemptions and homestead laws to the maximum extent permitted by law. We waive any statutory right to notice or hearing prior to your attachment, repossession or seizure of the Goods. We further waive any and all rights of set-off we may have against you. We agree that any proceeding in which we, or you or any of your affiliates, or our assigns are parties, as to all matters and things arising directly or indirectly out of this Agreement, or the relations among the parties listed in this paragraph will be tried in a court of competent jurisdiction by a judge without a jury. We hereby waive any right to a jury trial in any such proceeding. ATTEST: /s/ WILLIAM E. FRITZ Neomedia Technologies, Inc. - - ----------------------------- ----------------------------- Secretary Customer Print Name: William E. Fritz By: /s/ CHARLES T. JENSEN ------------------ ------------------------- Print Name: Charles T. Jensen ----------------- (CORPORATE SEAL) Title: CFO & VP --------------------- Page 5 of 6 SECRETARY'S CERTIFICATION OF RESOLUTION I certify that I am the Secretary and the official custodian of certain records, including the certificate of incorporation, charter, by-laws and minutes of the meeting of the Board of Directors of the corporation named below, and that the following is a true, accurate and compared extract from the minutes of the Board of Directors of the corporation adopted at a special meeting thereof held on due notice, at which meeting there was present a quorum authorized to transact the business described below, and that the proceedings of the meeting were in accordance with the cerificate of incorporation, charter and by-laws of the corporation, and that they have not been revoked, annulled or amended in any manner whatsoever. Upon motion duly made and seconded, the following resolution was unanimously adopted after full discussion; "RESOLVED, That the several officers, directors and agents of this corporation, or any one or more of them, are hereby authorized and empowered on behalf of this corporation: to obtain financing from IBM Credit Corporation ("IBM Credit") in such amounts and on such terms as such officers, directors or agents deem proper; to enter into security and other agreements with IBM Credit relating to the terms upon which financing may be obtained and security to be furnished by this corporation therefor; from time to time to supplement or amend any such agreements; and from time to time to pledge, assign, guaranty, mortgage, grant security interest in and, otherwise transfer to IBM Credit as collateral security for any obligations of this corporation to IBM Credit and its affiliated companies, whenever and however arising, any assets of this corporation, whether now owned or hereafter acquired; hereby ratifying, approving and confirming all that any of said officers, directors or agents have done or may do in the premises." IN WITNESS WHEREOF, I have executed and affixed the seal of the corporation on the date stated below. Dated: 2/20, 1997 /s/ William E. Fritz --------------------------- Secretary Neomedia Technologies, Inc. --------------------------- Corporate Name Page 6 of 6 EX-10.48 7 NeoMedia Technologies, Inc. Exhibit 10.48 Collateralized Guaranty Between IBM Credit Corporation and NeoMedia Migration, Inc. Dated February 20, 1997 IBM CREDIT CORPORATION Stamford, CT 06904 COLLATERALIZED GUARANTY TO: IBM CREDIT CORPORATION DATE: 2/20, 1997 ------------ 2707 W. BUTTERFIELD ROAD - - ---------------------------- OAK BROOK, IL 65021 - - ---------------------------- - - ---------------------------- Gentlemen: In consideration of credit and financing accommodations granted or to be granted by you to NEOMEDIA TECHNOLOGIES, INC. ("Dealer"), which is in the best interest of the undersigned, and for other good and valuable consideration received, the undersigned jointly and severally guaranties to you, from property held separately, jointly or in community, the prompt and unconditional performance and payment by Dealer of any and all obligations, liabilities, contracts, mortgages, notes, trust receipts, secured transactions, inventory financing and security agreements, and commercial paper on which Dealer is in any manner obligated, heretofore, now, or hereafter owned, contracted or acquired by you ("Liabilities"), whether the Liabilities are individual, joint, several, primary, secondary, direct, contingent or otherwise. The undersigned also agrees to indemnify you and hold you harmless against any losses you may sustain and expenses you may incur, suffer or be liable for as a result of or in any way arising out of, following, or consequential to any transactions with or for the benefit of Dealer. If Dealer fails to pay or perform any Liabilities to you when due, all Liabilities to you shall then be deemed to have become immediately due and payable, and the undersigned shall then pay upon demand the full amount of all sums owed to you by Dealer, together with all expenses, including reasonable attorney's fees, which shall be deemed to be not less than fifteen percent of the debt or the amount legally permitted if placed with an attorney for collection. The liability of the undersigned is direct and unconditional and shall not be affected by any extension, renewal or other change in the terms of payment of any security agreement or any other agreement between you and Dealer, or any change in the manner, place or terms of payment or performance thereof, or the release, settlement or compromise of or with any party liable for the payment or performance thereof, the release or non-perfection of any security thereunder, any change in Dealer's financial condition, or the interruption of business relations between you and Dealer. This Guaranty shall continue for so long as any sums owing to you by Dealer remain outstanding and unpaid, unless terminated in the manner provided below. The undersigned acknowledges that its obligations hereunder are in addition to and independent of any agreement or transaction between you and Dealer or any other person creating or reserving any lien, encumbrance or security interest in any property of Dealer or any other person as security for any obligation of Dealer. You need not exhaust your rights or recourse against Dealer or any other person or any security you may have at any time before being entitled to payment from the undersigned. To secure payment of all of the undersigned's current and future debts and obligations to you, whether under this Guaranty or any other agreement between us, whether direct or contingent, the undersigned does assign, pledge and give to you a security interest in all of the undersigned's invervtory, raw materials, goods in process, finished goods, machines, machinery, furniture, furnishings, fixtures, vehicles, equipment, accounts receivable, book debts, notes, chattel paper, acceptances, rebates, incentive payments, drafts, contracts, contract rights, choses in action, and general intangibles, whether now owned or hereafter acquired, and all attachments, accessions and additions thereto, substitutions, replacements, accessories, and equipment therefor, and all proceeds therefrom (all of the above property is referred to as "the Collateral"). This security interest is also granted to secure the undersigned's debts to all of your affiliates. You shall have the right, but not the obligation, from time to time, as you in your sole discretion may determine, and all without any advance notice to the undersigned, to: (a) examine the Collateral; (b) appraise it as security; (c) verity its condition and non-use; (d) verify that all Collateral has been properly accounted for and this Agreement compiled with, and (e) assess, examine, check and make copies of any and all of our books, records and files. Page 1 of 6 If the undersigned does not comply with any of the terms of this Agreement, or we fail to fulfill any obligation to you or any of your affiliates under any other agreement between us or between us and any of your affiliates, or the undersigned becomes insolvent or ceases to do business as a going concern, or a bankruptcy, insolvency proceeding, arrangement or reorganization is filed by or against the undersigned, or any of the undersigned's property is attached or seized, or a receiver is appointed for the undersigned, or the undersigned commits any act which impairs the prospect of full performance or satisfaction of the undersigned's obligations to you, or the undersigned shall lose any franchise, permission, license or right to conduct its business, or the undersigned misrepresents its financial condition or organizational structure, or whenever you deem the debt or Collateral to be insecure: a) You may call all or any part of the amount the undersigned or Dealer owes you or your affiliates due and payable immediately, if permitted by applicable law, together with court costs and all costs and expenses of your repossession and collection activity, Including, but not limited to attorney's fees of fifteen percent of the total indebtedness or the amount legally permitted (whichever is greater). b) The undersigned will hold and keep the Collateral in trust, in good order and repair, for your benefit and shall not exhibit or sell them. c) Upon your demand, the undersigned will immediately deliver the Collateral to you, in good order and repair, at a place reasonably convenient to you, together with all related documents; or you may, in your sole discretion and without demand, take immediate possession of the Collateral, together with all related documents. d) The undersigned waives and releases: (i) any and all claims and causes of action which the undersigned may now or ever have against you as a result of any possession, repossession, collection or sale by you of any of the Collateral, notwithstanding the effect of such possession, repossession, collection or sale upon the undersigned's business; (ii) all rights of redemption from any such sale; and (iii) the benefit of all valuation, appraisal and exemption laws. If you seek to take possession of any of the Collateral by replevin or other court process, the undersigned irrevocably waives any notice, bonds, surety and security relating thereto required by any statute, court rule or otherwise as an incident to such possession and any demand for possession of the Collateral prior to the commencement of any suit or action to recover possession thereof. e) The undersigned appoints you or any person you may delegate as its duly authorized Attorney-in-Fact (without notifying us) to do, in your sole discretion, any of the following: (i) sell, assign, transfer, negotiate or pledge any and all accounts, chattel paper, or contract rights; (ii) endorse the undersigned's name on any and all notes, checks, drafts, or other forms of exchange received as payment on any accounts, chattel paper and contract rights, for deposit in your account; (iii) grant any extension, rebate or renewal on any and all accounts, chattel paper or contract rights, or enter into any settlement thereof; (iv) demand, collect and receive any and all amounts due on accounts, chattel paper and contract rights; and (v) exercise any and all rights we have in the Collateral. f) In the event the undersigned brings any action or assess any claim against you which arises out of this Agreement, any other agreement or any of our business dealings, in which the undersigned does not prevail, the undersigned agrees to pay you all court costs and all costs and expenses of your defense of such action of claim including, but not limited to, attorney's fees of fifteen percent of the total indebtedness or the amount legally permitted (whichever is greater). You may also declare a default under this Agreement and exercise any and all rights and remedies available herein, if, in your sole discretion, you determine that the Collateral has decreased in value, and we have been unable to either: (a) provide you with additional collateral in a form and substance satisfactory to you; or (b) reduce the total Indebtedness of Dealer by an amount sufficient to you. You have and will always possess all the rights and remedies of a secured party under law, and your rights and remedies are and will always be cumulative. The undersigned acknowledges and agrees that the Collateral is the subject of widely distributed standard price quotations and is customarily sold in a recognized market. We agree that a private sale by you of any of the Collateral to a dealer in those types of Collateral is a commercially reasonable sale. Further, we agree that your delivery of any of the Collateral to a distributor or manufacturer, with a request that it repurchase Collateral, as provided in any repurchase agreement with you, is a commercially reasonable disposition or sale. Page 2 of 6 The undersigned promises that (a) the Collateral is and shall remain free from all claims and liens except yours; (b) the undersigned shall defend the Collateral against all other Claims and demands; and (c) the undersigned will notify you before it signs, or authorizes the signing of any financing statement regardless of its coverage. Where permitted by law, you may perfect your security interest in the Collateral by filing a financing statement signed only by you. The undersigned will execute any and all documents you may request to confirm or perfect your title or security interest in the Collateral. Our principal place of business is located at: 2201 SECOND ST., STE. 600 FT. MYERS FL 33901 - - ------------------------------------------------------------------ (Number and Street) (City, County, State, Zip Code) and we represent that our business is conducted as a [ ] SOLE PROPRIETORSHIP, [ ] PARTNERSHIP, [ ] JOINT VENTURE, [X] CORPORATION, [ ] COOPERATIVE (check applicable term). The undersigned agrees to notify you immediately of any change in identity, name, form of ownership or management, and of any change in its principal place of business, or any additions or discontinuances of other business locations. The Collateral shall be kept at the undersigned's principal place of business and at the following addresses: - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- until all sums owed you are paid in full. The undersigned will immediately notity you if the Collateral is kept at any other address. This paragraph is for your informational purposes only, and is not in any way or manner intended to limit the extent of your security interest in the Collateral. The undersigned and its predecessors have done and do business only under the following names; - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- The undersigned will pay all taxes, license fees, assessments and charges on the Collateral when due. The undersigned will be responsible for any loss of Collateral for any reason whatsoever. The undersigned will keep the Collateral insured for its full insurable value against loss or damage by fire, wind, theft and for combined additional coverage, including vandalism and malicious mischief, and for other risks as you may require. The undersigned will obtain insurance under such terms and in amounts as you may specify, from time to time, in companies acceptable to you, with a loss-payee or mortgagee clause payable to you to the extent of any loss to the Collateral and containing a waiver of all defenses against the undersigned that is acceptable to you. The undersigned further agrees to provide you with written evidence of the required insurance coverage and loss-payee or mortgagee clause. The undersigned assigns to you all sums not in excess of the unpaid debt owed you, and directs any insurance company to make payment directly to you to be applied to the unpaid debt owed you. The undersigned further grants you an irrevocable power of attorney to endorse any draft and sign and file all of the necessary papers, forms and documents to initiate and settle any and all claims with respect to the Collateral. If the undersigned fails to pay any of the above-referenced costs, charges or any insurance premiums, or if it fails to insure the Collateral, you may pay such costs, charges or any insurance premiums, and the amounts paid shall be considered an additional debt owed by the undersigned to you. The undersigned will promptly notify you of any loss, theft or destruction of or damage to any of the Collateral. The undersigned will not rent, lease, lend, demonstrate, pledge, create a security interest in, transfer or secrete any of the Collateral, or use the Collateral for any purpose other than exhibition, without your prior written consent. This Guaranty is assignable, shall be construed liberally in your favor, and shall inure to the benefit of and bind your and our respective successors, personal representatives and assigns, and also benefit any of your existing or future affiliates that may extend credit to Dealer. Page 3 of 6 If Dealer hereafter is incorporated, acquired by a corporation, dissolved, or otherwise undergoes any change in its management, ownership, identity, or organizational structure, this Guaranty shall continue to extend to any Liabilities of the Dealer or such resulting corporation, dissolved corporation, or new or changed legal entity, or identity to you. The undersigned waives: notice of the acceptance of this Guaranty, and of presentment, demand and protest; notices of nonpayment, nonperformance, any right of contribution from other guarantors, and dishonor; notices of amount of indebtedness of Dealer outstanding at any time; notices of the number and amount of advances made by you to Dealer in reliance on this Guaranty; notices of any legal proceedings against Dealer; notice and hearing as to any prejudgment remedies; and any other demands and notices required by law. The undersigned further waives all rights of set-off and all counterclaims against you or Dealer. The undersigned also waives any and all rights in and notices or demands relating to any collateral now or hereafter securing any of the Liabilities, including, but not limited to, all rights, notices or demands relating, whether directly or indirectly, to the sale or other disposition of any or all of such collateral or the manner of such sale or other disposition. All waivers by the undersigned herein shall survive any termination or revocation of this Guaranty. The undersigned authorizes you to sell at public or private sale or otherwise realize upon the collateral now or hereafter securing any of the Liabilities, in such manner and upon such terms and conditions as you deem best, all without advertisement or notice to Dealer, the undersigned, or any third parties. The undersigned further authorizes you to deal with the proceeds of such collateral as provided in your agreement with Dealer, without prejudice to your claim for any deficiency and free from any right or redemption on the part of Dealer, the undersigned or any third parties, which right or redemption is hereby waived together with every formality prescribed by custom or by law in relation to any such sale or other realization. The undersigned further agrees that all of its right, title and interest in, to and under any loans, notes, debts, and all other liabilities and obligations whatsoever owed by Dealer to the undersigned, whether heretofore or hereafter created or incurred and for whatever amount, and all security therefor, shall be now and hereafter at all times fully subordinated to all Liabilities. The undersigned will not ask, demand or sue for, or take or receive payment of, all or any part of such loans, notes, debts or any other liabilities or obligations whatsoever or any security therefor, until and unless all of the Liabilites are paid, performed and fully satisfied. The undersigned has made an independent investigation of the financial condition of Dealer and gives this Guaranty based on that investigation and not upon any representations made by you. The undersigned acknowledges that it has access to current and future Dealer financial information which will enable the undersigned to continuously remain informed of Dealer's financial condition. The undersigned also consents to and agrees that the obligations under this Guaranty shall not be affected by your subsequent increases or decreases in the credit line that you may grant to Dealer; substitutions, exchanges or releases of all or any part of the collateral now or hereafter securing any of the Liabilliles; sales or other dispositions of any or all of the collateral now or hereafter securing any of the Liabilities without demands, advertisement or notice of the time or place of the sales or other dispositions; realizing on the collateral to the extent you, in your sole discretion, deem proper; or purchases of all or any part of the collateral for your own account. This Guaranty and any and all obligations, liabilities, terms and provisions herein shall survive any and all bankruptcy or insolvency proceedings, actions and/or claims brought by or against Dealer, whether such proceedings, actions and/or claims are federal and/or state. This Guaranty is submitted by the undersigned to you (for your acceptance or rejection thereof) at your above specified office, as an offer by the undersigned to guaranty the credit and financial accommodations provided by you to Dealer. If accepted, this Guaranty shall be deemed to have been made at your above-specified office. This Guaranty and all obligations pursuant thereto, shall be governed and controlled as to interpretation, enforcement, validity, construction, effect and, in all other respects by the laws of the state at your above-specified office. The undersigned, to induce you to accept this Guaranty, agrees that all actions or proceedings arising directly or indirectly in connection with, out of, related to or from this Guaranty may be litigated, at your sole discretion and election, in courts within the state of your above-specified office. The undersigned consents and submits to the jurisdiction of any local, state or federal court located within that state. The undersigned waives any right to transfer or change the venue of any litigation brought against the undersigned by you in accordance with this paragraph. Page 4 of 6 Any delay by you, or your successors, affiliates or assigns in exercising any or all rights granted you under this Guaranty shall not operate as a waiver of those rights. Furthermore, any failure by you, your successors, affiliates or assigns, to exercise any or all rights granted you under this Guaranty shall not operate as a waiver of your right to exercise any or all of them later. This document contains the full agreement of the parties concerning the guaranty of Dealer's Liabilities and can be varied only by a document signed by all of the parties hereto. The undersigned may terminate this Guaranty by notice to you in writing, the termination to be effective sixty (60) days after receipt and acknowledgment thereof by you, but the termination shall in no manner terminate the undersigned's guaranty of Liabilities arising prior to the effective date of termination. If executed by more than one party "undersigned" shall be deemed to refer to all thereof and the obligations of all thereof hereunder shall be joint and several. We agree that any action, suit or proceeding, relating directly or indirectly to this Guaranty, or the relationship between you and us, will be tried in a court of competent jurisdiction by a judge without a jury. Thus, we hereby waive any right to a jury trial in any such action, suit or proceeding. NEOMEDIA MIGRATION, INC. ----------------------------------- Name of Corporate Guarantor WITNESS /s/ DAVID C. HALL By: /s/ CHARLES T JENSEN - - ----------------------------------- --------------------------------- Print Name: /s/ DAVID CARLETON HALL Print Name: /s/ CHARLES T JENSEN ------------------------ -------------------------- Address: 2201 SECOND ST. Title: CFO & VP -------------------------- ---------------------------- FT. MYERS, FL 33901 Guarantor's Address: 2201 SECOND ST - - ----------------------------------- -------------- FT MYERS, FL 33901 - - ----------------------------------- ----------------------------------- ----------------------------------- SEAL ATTEST: /s/ WILLIAM E. FRITZ ----------------------------------- Secretary Print Name: /s/ WILLIAM E. FRITZ STATE OF ILLINOIS ) ----------------------- ------------------------ )SS COUNTY OF COOK ) ------------------------ On this 20TH day of FEBRUARY, 1997 the above individuals personally appeared before me, and who, being duly sworn, each stated that the foregoing Guarantor was executed in each of their representative capacities as represented above for the Guarantor. /s/ BEVERLY SOPCAK ----------------------------------- Notary Public My Commission Expires: 2/22/98 ----------- Page 5 of 6 SECRETARY'S CERTIFICATE I hereby certify that I am the secretary of the following named corporation and that execution of the above Guaranty was ratified, approved and confirmed by the Shareholders at a meeting, if necessary, and pursuant to a resolution of the Board of Directors of the corporation at a meeting of the Board of Directors duly called, and which is currently in effect, which resolution was duly presented, seconded and adopted and reads as follows: "BE IT RESOLVED that any officer of this corporation is hereby authorized to execute a guaranty of the obligations of NEOMEDIA TECHNOLOGIES, INC. ("Dealer") to IBM Credit Corporation on behalf of the corporation, which instrument may contain such terms as any officer may see fit including, but not limited to a grant of a security interest in all assets of this corporation to secure this corporation's liabilities and obligations to IBM Credit Corporaton; a waiver of notice of the acceptance of this guaranty; presentment; demand; protest; notices of nonpayment, nonperformance, dishonor, the amount of indebtedness of Dealer outstanding at any time, any legal proceedings against Dealer, and any other demands and notices required by law; any right of contribution from other guarantors; and all set-offs and counterclaims." IN WITNESS WHEREOF and as Secretary of the named corporation I have hereunto set my hand and affixed the corporate seal on this 20TH day of FEBRUARY, 1997. /s/ WILLIAM E. FRITZ ----------------------------------- Secretary NEOMEDIA MIGRATION, INC. ----------------------------------- Corporate Guarantor CORPORATE SEAL Page 6 of 6 EX-10.49 8 NeoMedia Technologies, Inc. Exhibit 10.49 Termination of Collateralized Guaranty Between IBM Credit Corporation, Gen-Tech, Inc. and Dev-Mark, Inc. Dated February 5, 1997 IBM - - ----------------------------------------------------------------------------- IBM Credit Corporation 2707 Butterfield Road Oak Brook, IL 60521 800-753-7053 February 5, 1997 CERTIFIED MAIL/RETURN RECEIPT REQUESTED Mr. Charles W. Fritz NeoMedia Technologies, Inc 2201 Second Street, Suite 600 Fort Myers, FL 33901 RE: Termination of Collateralized Guaranty Dear Mr. Fritz: IBM CREDIT CORPORATION ("IBM Credit") hereby acknowledges receipt of your request to terminate the Collateralized Guaranty from Gen-Tech, Inc., and Dev-Mark, Inc., of the obligations of NeoMedia Technologies, Inc. (Dealer) executed by you on August 16, 1994. Please be advised that according to the terms of the Guaranty, the termination will be effective sixty (60) days after receipt and acknowledgment by IBM Credit. The termination does not affect your guaranty of liabilities (as defined in the Guaranty) prior to the effective date of termination. The effective date of termination shall be April 5, 1997. You will be obligated to pay all Liabilities incurred prior to this date. Please do not hesitate to contact the undersigned if you have any questions. Sincerely, /s/ SAGE K. RANDRUP - - ------------------- Sage K. Randrup Credit Manager SKR/klm Enclosure EX-21 9 NeoMedia Technologies, Inc. Exhibit 21 Subsidiaries EXHIBIT 21 NeoMedia Technologies, Inc. Subsidiaries NeoMedia Technologies, Inc., which is incorporated in the State of Delaware, has one wholly-owned subsidiary, NeoMedia Migration, Inc., which is incorporated in the State of Delaware and which has one wholly-owned subsidiary, Distribuidora Vallarta, S. P. A., which is incorporated in Guatemala. EX-27 10
5 12-MOS DEC-31-1996 DEC-31-1996 4,159 0 4,983 216 105 10,331 2,731 1,796 11,266 5,350 0 0 0 8,852 (4,525) 11,266 17,518 17,518 14,948 14,948 4,518 431 540 (2,919) 156 (3,075) 0 0 0 (3,075) (.72) (.72)
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