U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21743
NEOMEDIA TECHNOLOGIES, INC.
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(Exact Name of Small Business Issuer as Specified 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
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 [ ]
As of July 31, 1997, there were outstanding 5,381,701 shares of the
issuer's Common Stock and 3,130,938 warrants.
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PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER
ASSETS 1997 31, 1996
--------- --------
(In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................. $ 2,403 $ 4,159
Trade accounts receivable, net of allowance for doubtful
accounts of $124 and $216 ............................. 6,425 4,983
Amounts due from related parties .......................... 7 496
Inventories ............................................... 67 105
Prepaid expenses and other ................................ 608 588
-------- --------
Total current assets .................................. 9,510 10,331
-------- --------
Property and equipment, net of accumulated depreciation ........ 548 278
Capitalized software costs, net of accumulated amortization .... 1,045 657
-------- --------
Total assets .............................................. $ 11,103 $ 11,266
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................... $ 5,251 $ 3,800
Accrued expenses .......................................... 1,142 1,043
Current portion of long-term debt ......................... 264 262
Other ..................................................... 315 245
-------- --------
Total current liabilities ............................. 6,972 5,350
-------- --------
Long-term debt, net of current portion ......................... 981 1,589
-------- --------
Total liabilities ..................................... 7,953 6,939
-------- --------
Shareholders' equity:
Common stock, $.01 par value, 15,000,000 shares authorized,
5,378,085 and 5,114,316 shares outstanding ............ 54 51
Additional paid-in capital ................................ 10,120 8,801
Accumulated deficit ....................................... (7,024) (4,525)
-------- --------
Total shareholders' equity ............................ 3,150 4,327
-------- --------
Total liabilities and shareholders' equity ................ $ 11,103 $ 11,266
======== ========
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The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
1
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NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS
ENDED JUNE 30,
--------------------------
1997 1996
----------- -----------
(Dollars in thousands,
except per share data)
NET SALES:
License fees ............................... $ 335 $ 460
Software product resales ................... 1,834 2,059
Technology equipment resales ............... 8,624 5,110
Service fees ............................... 1,032 1,250
----------- -----------
Total net sales ........................ 11,825 8,879
----------- -----------
COST OF SALES:
License fees ............................... 139 140
Software product resales ................... 1,608 1,384
Technology equipment resales ............... 7,496 4,416
Service fees ............................... 915 927
Amortization of capitalized software costs . 307 281
----------- -----------
Total cost of sales .................... 10,465 7,148
----------- -----------
GROSS PROFIT .................................... 1,360 1,731
General and administrative expenses ............. 1,583 802
Sales and marketing expenses .................... 1,859 973
Research and development costs .................. 410 123
----------- -----------
Loss from operations ............................ (2,492) (167)
Interest expense, net ........................... 52 216
----------- -----------
LOSS BEFORE INCOME TAXES ........................ (2,544) (383)
Benefit for income taxes ........................ (45) (80)
----------- -----------
NET LOSS ........................................ $ (2,499) $ (303)
=========== ===========
PER SHARE DATA:
Net loss per share ......................... $ (0.40) $ (.07)
=========== ===========
Weighted average number of common and common
equivalent shares outstanding ......... 6,209,597 4,071,373
=========== ===========
The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
2
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NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS
ENDED JUNE 30,
--------------------------
1997 1996
----------- -----------
(Dollars in thousands,
except per share data)
NET SALES:
License fees ............................... $ 117 $ 301
Software product resales ................... 1,770 769
Technology equipment resales ............... 4,929 2,210
Service fees ............................... 454 503
----------- -----------
Total net sales ........................ 7,270 3,783
----------- -----------
COST OF SALES:
License fees ............................... 77 92
Software product resales ................... 1,559 537
Technology equipment resales ............... 4,282 1,863
Service fees ............................... 522 463
Amortization of capitalized software costs . 163 142
----------- -----------
Total cost of sales .................... 6,603 3,097
----------- -----------
GROSS PROFIT .................................... 667 686
General and administrative expenses ............. 827 418
Sales and marketing expenses .................... 1,058 504
Research and development costs .................. 233 59
----------- -----------
Loss from operations ............................ (1,451) (295)
Interest expense, net ........................... 41 112
----------- -----------
LOSS BEFORE INCOME TAXES ........................ (1,492) (407)
Benefit for income taxes ........................ -- (63)
----------- -----------
NET LOSS ........................................ $ (1,492) $ (344)
=========== ============
PER SHARE DATA:
Net loss per share ......................... $ (0.24) $ (.08)
=========== ===========
Weighted average number of common and common
equivalent shares outstanding ......... 6,229,229 4,071,373
=========== ===========
The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
3
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NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS
ENDED JUNE 30,
------------------
1997 1996
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(In thousands)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................................ $(2,499) $ (303)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for doubtful accounts .................................................... 60 --
Depreciation and amortization ...................................................... 368 167
Changes in operating assets and liabilities:
Trade accounts receivable ...................................................... (1,502) (795)
Other current assets ........................................................... 35 34
Accounts payable and accrued expenses .......................................... 1,550 884
Other current liabilities ...................................................... 70 (138)
------- -------
Net cash used in operating activities .......................................... (1,918) (151)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalization of software development costs and purchased software ..................... (713) (26)
Acquisition of property and equipment ................................................... (313) (27)
------- -------
Net cash used in investing activities .......................................... (1,026) (53)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of units ..................................................... 1,315 --
Exercise of stock options ............................................................... 7 --
Repayment of advance to shareholder ..................................................... 472 --
Proceeds from advance to shareholder .................................................... -- (472)
Borrowings under notes payable and long-term debt ....................................... -- 250
Repayments on notes payable and long-term debt .......................................... (134) (92)
Borrowings from shareholders and related parties ........................................ -- 1,123
Repayments to shareholders and related parties .......................................... (472) (283)
------- -------
Net cash provided by financing activities ...................................... 1,188 526
------- -------
NET INCREASE (DECREASE) IN CASH ......................................................... (1,756) 322
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .......................................... 4,159 11
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................................ $ 2,403 $ 333
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid......................................................................$ 90 $ 149
Income taxes paid .................................................................. -- 65
</TABLE>
The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
4
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NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ADDITIONAL ACCUMU- NUMBER
COMMON PAID-IN- LATED OF
STOCK CAPITAL DEFICIT SHARES
--------- --------- --------- ---------
(Dollars in thousands)
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Balance, December 31, 1996 ............. $ 51 $ 8,801 $ (4,525) 5,114,316
Exercise of stock options .............. -- 7 -- 8,769
Proceeds from issuance of 255,000 units,
net of $215 of issuance costs ..... 3 1,312 -- 255,000
Net loss ............................... -- -- (2,499) --
--------- --------- --------- ---------
Balance, June 30, 1997 ................. $ 54 $ 10,120 $ (7,024) 5,378,085
========= ========= ========= =========
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The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
5
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NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED 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 (the "Migration Merger"). Technologies and Migration,
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. ("DVSPA") is a wholly-owned subsidiary
of Migration and was incorporated in Guatemala in August, 1996, to employ
computer software developers and system integrators. Technologies, Migration and
DVSPA are collectively referred to as "NeoMedia" or the "Company." 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 accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and do not include
all of the information and footnotes required by generally accepted accounting
principles for complete consolidated financial statements. In the opinion of
management, the consolidated financial statements reflect all adjustments which
are of a normal recurring nature and which are necessary to present fairly the
consolidated financial position of NeoMedia as of June 30, 1997 and December 31,
1996, and the results of operations for the six and three months ended June 30,
1997 and 1996, and cash flows for the six months ended June 30, 1997 and 1996.
The results of operations for the six and three months ended June 30, 1997 are
not necessarily indicative of the results which may be expected for the entire
fiscal year.
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.
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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. In addition, in June, 1997, NeoMedia added a new set of
Year 2000 Millennium solutions tools for the IBM DOS/VSE environment that
automatically finds and converts two-digit date fields in both data and source
code.
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. offices located in Illinois, California, Minnesota, and
Florida.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPUTATION OF EARNINGS PER SHARE
The computation of earnings 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 six and three months ended June 30, 1997 and
1996, the computation of the weighted average number of common shares and common
share equivalents outstanding was as follows:
1997 1996
--------------------- ---------------------
SIX THREE SIX THREE
MONTHS MONTHS MONTHS MONTHS
--------- --------- --------- ---------
Common stock ........... 5,351,814 5,375,842 3,133,378 3,133,378
Effect of stock options 857,783 853,387 937,995 937,995
--------- --------- --------- ---------
Total .................. 6,209,597 6,229,229 4,071,373 4,071,373
========= ========= ========= =========
For the six and three months ended June 30, 1997 and 1996, information
regarding earnings per share computed on a historical basis under the provisions
of Accounting Principles Board Opinion No. 15, "Earnings per Share," was as
follows:
1997 1996
--------------------- ---------------------
SIX THREE SIX THREE
MONTHS MONTHS MONTHS MONTHS
--------- --------- --------- ---------
Net loss per share ...... $ (0.47) $ (0.28) $ (0.10) $ (0.11)
========== ========= ========= =========
Weighted average common
shares outstanding .... 5,351,814 5,375,842 3,133,378 3,133,378
========== ========= ========= =========
7
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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. For the six and three
months ended June 30, 1997, basic and diluted earnings per share would have been
$(.47) and $(.28), respectively.
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 $124,000 and $216,000 in
its June 30, 1997 and December 31, 1996 consolidated balance sheets,
respectively. NeoMedia had net sales to one major customer in the
telecommunications industry of $3,982,000 and $2,016,000 during the six months
ended June 30, 1997 and 1996, respectively, resulting in trade accounts
receivable of $1,869,000 and $2,507,000 as of June 30, 1997 and December 31,
1996, respectively. Revenue generated from the remarketing of computer equipment
has accounted for a significant percentage of NeoMedia's revenue. Such sales
accounted for 72.9% and 57.5% of NeoMedia's revenue for the six months ended
June 30, 1997 and 1996, respectively.
3. 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 June 30, 1997 and December 31, 1996,
amounts due under this financing agreement included in accounts payable were
$3,181,000 and $2,275,000, respectively.
4. BENEFIT FOR INCOME TAXES
The benefits for income taxes recorded during the six and three months
ended June 30, 1997 and 1996 represented the recovery of income taxes paid in
prior years from the carryback of operating losses.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AS COMPARED TO THE
SIX MONTHS ENDED JUNE 30, 1996
GENERAL. Total net sales for the six months ended June 30, 1997 were $11.8
million, which represented a $2.9 million or 33%, increase from $8.9 million for
the six months ended June 30, 1996. This increase primarily resulted from a $3.5
million increase in equipment resales. Cost of sales for the six months ended
June 30, 1997 were $10.5
8
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million, which represented a $3.3 million increase from $7.2 million for the
six months ended June 30, 1996. This increase primarily resulted from a $3.1
million increase in the cost of equipment resales.
During the first quarter of 1996, NeoMedia decided to invest in the
infra-structure needed to manage current and expected future growth. The total
of general, administrative, sales, marketing, research and development expenses
increased $2.0 million to $3.9 million for the six months ended June 30, 1997
from $1.9 million during the six months ended June 30, 1996. This increase
primarily resulted from NeoMedia investing in the expansion of 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 Initial
Public Offering ("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.
The result of these activities was a net loss for the six months ended June
30, 1997 of $2.5 million as compared to a net loss of $303,000 during the six
months ended June 30, 1996.
LICENSE FEES. License fees for the six months ended June 30, 1997 were
$335,000 compared to $460,000 for the six months ended June 30, 1996, a decrease
of $125,000 or 27.1%. This decrease resulted primarily from the decrease in
sales of existing software transition tools during the second quarter of 1997.
Cost of sales for license fees consisted primarily of fees paid to an
independent software developer for one of the existing software transition
tools. Cost of sales as a percentage of related sales was 41.4% during 1997
compared to 30.3% during 1996. This increase in the cost of sales as a
percentage of related sales was primarily due to the increased sales, as a
percentage of total sales, in the software transition tool where fees are paid
to an independent software developer.
SOFTWARE RESALES. Software resales decreased by $225,000, or 11.0%, from
$2.1 million for the six months ended June 30,1996 to $1.8 million for the six
months ended June 30, 1997. This decrease primarily resulted from the
discontinuation at the end of 1996 of PRS software sales which contributed
$746,000 to sales for the six months ended June 30, 1996 and the $200,000
decrease in resales of UNIX client server administrative software, partially
offset with the $778,000 increase in resales of software for micro-mainframe
computers. Cost of sales as a percentage of related sales was 87.7% during 1997
compared to 67.2% during 1996. This increase in the cost of sales as a
percentage of related sales was primarily due to the discontinuation of PRS
software sales with its lower cost as a percentage of sales and the increase in
resales of software for micro-mainframe with its higher cost as a percentage of
sales.
EQUIPMENT RESALES. Equipment resales increased by $3.5 million, or 68.8%,
to $8.6 million for the six months ended June 30, 1997, as compared to $5.1
million for the six months ended June 30, 1996. This increase primarily resulted
from equipment resales related to Sun Microsystems workstations and servers
which increased $3.4 million (primarily due to increased resales to NeoMedia's
largest customer -- see Note 2 of Unaudited Notes to Consolidated Financial
Statements - Concentrations of Credit Risk) and IBM Corporation equipment which
increased $591,000 (primarily due to IBM enhancing its line of 390
micro-mainframe computers to include the S390). These increases were partially
offset with a $500,000 one-time shipment of desktop printers to a major customer
in 1996. Cost of sales as a percentage of related sales was 86.9% during 1997,
compared to 86.4% during 1996.
SERVICE FEES. NeoMedia's service fees decreased by $218,000, or 17.5% to
$1.0 million for the six months ended June 30, 1997, compared to $1.2 million
for the six months ended June 30, 1996. This decrease was primarily due to the
$472,000 decrease in services supplied in conjunction with the sales of existing
software transition tools, partially offset with $261,000 increase in consulting
fees for assisting companies to integrate printers. Cost of service fees as a
percentage of related sales increased to 88.7% during 1997 from 74.1% during
1996 primarily due to reduction in the utilization of NeoMedia's system
integrators.
AMORTIZATION OF SOFTWARE. Amortization of software for the six months ended
June 30, 1997, as compared to the six months ended June 30, 1996, increased
$26,000 as a result of the amortization of software costs capitalized
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during 1997 and 1996, and as a percentage of total net sales, decreased to 2.6%
during 1997 from 3.2% during 1996 due to the increase in net sales.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$781,000, or 97.5%, to $1.6 million for the six months ended June 30, 1997, from
$802,000 for the six months ended June 30, 1996. This increase was due mainly to
NeoMedia building its administrative infra-structure, including compensation and
related expenses and legal and professional fees, 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 and the rest of this
compensation is directly related to sales volume. Sales and marketing expenses
increased $886,,000, or 90.8%, to $1.9 million for the six months ended June 30,
1997 from $973,000 for the six months ended June 30, 1996, as a result primarily
of hiring managers to direct current and expected future growth. NeoMedia
anticipates that sales and marketing costs will increase as NeoMedia grows.
RESEARCH AND DEVELOPMENT. During the six months ended June 30, 1997,
NeoMedia charged to expense 3.5% of total net sales in research and development
expenses as compared to 1.4% during the six months ended June 30, 1996. This
percentage increase was due to an increase in the number of software developers
employed by NeoMedia to expand its products lines. 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 and NeoMedia's
asset-based collateralized line of credit. Interest expense decreased by
$164,000, or 75.9%, to $52,000 for the six months ended June 30, 1997 from
$216,000 for the six months ended June 30, 1996, due to the repayment of debt in
the fourth quarter of 1996 and interest income earned on the proceeds from the
IPO.
BENEFIT FOR INCOME TAXES. The benefits for income taxes recorded during the
six months ended June 30, 1997 and 1996 represented the recovery of income taxes
paid in prior years from the carryback of operating losses.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AS COMPARED TO
THE THREE MONTHS ENDED JUNE 30, 1996.
GENERAL. Total net sales for the three months ended June 30, 1997 were $7.3
million, which represented a $3.5 million, or 92%, increase from $3.8 million
for the three months ended June 30, 1996. This increase primarily resulted from
a $2.7 million increase in equipment resales and a $1.0 million increase in
software resales. Cost of sales for the three months ended June 30, 1997 were
$6.6 million, which represented a $3.5 million increase from $3.1 million for
the three months ended June 30, 1996. This increase primarily resulted from a
$2.4 million increase in the cost of equipment resales and a $1.0 million
increase in the cost of software resales.
During the first quarter of 1996, NeoMedia decided to invest in the
infra-structure needed to manage current and expected future growth. The total
of general, administrative, sales, marketing, research and development expenses
increased $1.1 million to $2.1 million for the three months ended June 30, 1997
from $981,000 for the three months ended June 30, 1996. This increase primarily
resulted from NeoMedia's investing in the expansion of its infra-structure by
hiring management, sales and other personnel to develop, market and sell new
products.
The result of these activities was a net loss for the three months ended
June 30, 1997 of $1.5 million as compared to a net loss of $344,000 during the
three months ended June 30, 1996.
LICENSE FEES. License fees for the three months ended June 30, 1997 were
$117,000 compared to $301,000 for the three months ended June 30, 1996, a
decrease of $184,000 or 61.1%. This decrease resulted primarily from the
decrease in sales of existing software transition tools. Cost of sales for
license fees consisted primarily of fees paid
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to an independent software developer for one of the existing software transition
tools. Cost of sales as a percentage of related sales was 65.4% during 1997
compared to 30.6% during 1996. This increase in the cost of sales as a
percentage of related sales was primarily due to the increased sales, as a
percentage of total sales, in the software transition tool where fees are paid
to an independent software developer.
SOFTWARE RESALES. Software resales increased by $1.0 million, or 130.2%,
from $769,000 for the three months ended June 30, 1996 to $1.8 million for the
three months ended June 30, 1997. This increase resulted primarily from $1.3
million of resales of software for micro-mainframe computers while there were no
resales of such software during the same period in 1996. This increase was
partially offset with the discontinuation at the end of 1996 of PRS software
sales which contributed $155,000 to sales for the three months ended June 30,
1996 and the $162,000 decrease in resales of UNIX client server administrative
software. Cost of sales as a percentage of related sales was 88.1% during 1997
compared to 69.8% during 1996. This increase in the cost of sales as a
percentage of related sales was primarily due to the discontinuation of PRS
software sales with its lower cost as a percentage of sales and the increase in
resales of software for micro-mainframe with its higher cost as a percentage of
sales.
EQUIPMENT RESALES. Equipment resales increased by $2.7 million, or 123.1%,
to $4.9 million for the three months ended June 30, 1997, as compared to $2.2
million for the three months ended June 30, 1996. This increase primarily
resulted from equipment resales related to Sun Microsystems work stations and
servers which increased $1.3 million (primarily due to increased resales to
NeoMedia's largest customer) and IBM Corporation equipment which increased $1.4
million (primarily due to IBM enhancing its line of 390 micro-mainframe
computers to include the S390). Cost of sales as a percentage of related sales
was 86.9% during 1997, compared to 84.3% during 1996.
SERVICE FEES. NeoMedia's service fees consisting of sales from consulting,
education and postcontract support services decreased by $49,000, or 9.6%, to
$454,000 for the three months ended June 30, 1997, compared to $503,000 for the
three months ended June 30, 1996. This decrease primarily resulted from the
$109,000 decrease in services supplies in conjunction with the sales of existing
software transition tools, partially offset with $78,000 increase in consulting
fees for assisting companies to integrate printer. Cost of service fees as a
percentage of related sales increased to 115.0% during 1997 from 92.0% during
1996 primarily due to the reduction in the utilization of NeoMedia's system
integrators.
AMORTIZATION OF SOFTWARE. Amortization of software for the three months
ended June 30, 1997, as compared to the three months ended June 30, 1996,
increased $21,000 as a result of the amortization of software costs capitalized
during 1997 and 1996, and, as a percentage of total net sales, decreased to
2.2% during 1997 from 3.7% during 1996 due to the increase in net sales.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$409,000, or 98.2%, to $827,000 for the three months ended June 30, 1997, from
$418,000 for the three months ended June 30, 1996. This increase was due mainly
to NeoMedia building its administrative infra-structure, including compensation
and related expenses and legal and professional fees, to manage current and
expected future growth.
SALES AND MARKETING. Sales and marketing expenses have increased $554,000,
or 109.9%, to $1.1 million for the three months ended June 30, 1997 from
$504,000 for the three months ended June 30, 1996, as a result primarily of
hiring managers to direct current and expected future growth. NeoMedia
anticipates that sales and marketing costs will increase as NeoMedia grows.
RESEARCH AND DEVELOPMENT. During the three months ended June 30, 1997,
NeoMedia charged to expense 3.2% of total net sales in research and development
expenses as compared to 1.6% during the three months ended June 30, 1996. This
percentage increase was due to an increase in the number of software developers
employed by NeoMedia to expand its product line. NeoMedia currently intends to
continue to make significant investments in research and development.
11
<PAGE>
INTEREST EXPENSE, NET. Interest expense decreased by $71,000, or 63.8%, to
$41,000 for the three months ended June 30, 1997 from $112,000 for the three
months ended June 30, 1996, due to the repayment of debt in the fourth quarter
of 1996 and interest income earned on the proceeds from the IPO.
BENEFIT FOR INCOME TAXES. The benefit for income taxes recorded during the
three months ended June 30, 1996 represented the recovery of income taxes paid
in prior years from the carryback of operating losses. No benefit for income
taxes was recorded during the three months ended June 30, 1997.
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. In June, 1996, a shareholder lent
additional funds to NeoMedia. In October, 1996, this shareholder contributed
$738,000 of these notes to additional paid-in capital. In December, 1996 and
February, 1997, NeoMedia repaid in full the balance of all of these related
party loans. Also, in January, 1996, NeoMedia borrowed $250,000 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. In January, 1997, NeoMedia closed the IPO's over-allotment and
received net proceeds of $1.3 million. As of June 30, 1997, NeoMedia's working
capital was $2.5 million which represented a $2.4 million decrease from December
31, 1996. NeoMedia is currently in 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 six months ended June 30,
1997 and 1996, was $1.9 million and $151,000, respectively. During 1997, trade
accounts receivable increased $1.5 million, while accounts payable increased
$1.6 million. During 1996, trade accounts receivables increased $795,000, while
accounts payables increased $884,000.
NeoMedia's net cash flow used in investing activities for the six months
ended June 30, 1997 and 1996, was $1.0 million and $53,000, respectively. Net
cash provided by financing activities for the six months ended June 30, 1997 and
1996, was $1.2 million and $526,000, respectively. During January 1997, NeoMedia
sold the over-allotment of its Initial Public Offering receiving net cash
proceeds of $1.3 million.
12
<PAGE>
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits required by Item 601 of Regulation S-B to be filed herewith
are as follows:
Articles of Incorporation, By-laws, instruments defining the rights of
holders, including indentures, and material contracts have heretofore been filed
with the Securities and Exchange Commission and are hereby incorporated by
reference to NeoMedia's Registration Statement and Exhibits thereto (SEC
registration number 333-5534), Form 10-KSB for the year ended December 31, 1996,
and Form 10-QSB for the three months ended March 31, 1997.
10.51 Letter Agreement by and between Dominick & Dominick, Incorporated and
NeoMedia Technologies, Inc. Dated March 20, 1997
10.52 Agreement for Implementation of Symbol Licensed Software Materials by
and between Symbol Technologies, Inc. and NeoMedia Technologies, Inc.
Dated April 29, 1997
10.53 Master Reseller Agreement by and between United States Check Company,
Inc. and NeoMedia Technologies, Inc. Dated June 16, 1997
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended June 30,
1997.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NEOMEDIA TECHNOLOGIES, INC.
---------------------------
Registrant
Date AUGUST 1, 1997 By: /s/ CHARLES W. FRITZ
------------------------------
Charles W. Fritz, President, Chief Executive
Officer and Chairman of the Board
Date AUGUST 1, 1997 By: /s/ CHARLES T. JENSEN
------------------------------
Charles T. Jensen, Vice President, Chief
Financial Officer, Treasurer and Director
14
<PAGE>
EXHIBIT INDEX
SEQUENTIAL EXHIBIT
PAGE NUMBER NUMBER DOCUMENT
- ----------- ------ --------
16 10.51 Letter Agreement by and between Dominick & Dominick,
Incorporated and NeoMedia Technologies, Inc. Dated
March 20, 1997
20 10.52 Agreement for Implementation of Symbol Licensed
Software Materials by and between Symbol Technologies,
Inc. and NeoMedia Technologies, Inc. Dated April 29,
1997
35 10.53 Master Reseller Agreement by and between United States
Check Company, Inc. and NeoMedia Technologies, Inc.
Dated June 16, 1997
45 27.1 Article 5 Financial Data Schedule for June 30, 1997
15
NeoMedia Technologies, Inc.
Exhibit 10.51
Letter Agreement by and between Dominick & Dominick, Inc.
and NeoMedia Technologies, Inc. Dated March 20, 1997
16
<PAGE>
[LOGO] DOMINICK& DOMINICK
INCORPORATED
MEMBER PRINCIPAL EXCHANGES
FINANCIAL SQUARE
32 OLD SLIP
NEW YORK, NY 10005
TEL 212 558 8800
FAX 212 797 5268
March 20, 1997
Mr. Charles W. Friz
Chairman, Chief Executive Officer & President
NeoMedia Technologies, Inc.
2201 Second Street
Suite 600
Ft. Myers, FL 33901
Dear Chas:
You have requested that Dominick & Dominick, Incorporated ("Dominick") act as a
non-exclusive financial advisor for NeoMedia Technologies, Inc.("NMT"), on an
on-going basis. We have had certain discussions concerning our role as NMT's
financial advisor and, in this regard, we are pleased to confirm the following:
1. Dominick will act as financial advisor for NMT.
2. In its capacity as financial advisor, Dominick will be available to advise
NMT on investment banking and other matters such as mergers, acquisitions,
joint ventures, potential public and private financings, bank borrowings,
licensing and other business arrangements.
3. As part of its on-going financial advisory relationship, Dominick will be
available to provide merger and acquisition or joint venture advisory
services for NMT. In the event NMT uses Dominick's advisory services or
sources and (a) acquires in excess of 25% of the stock or assets of
another entity, or (b) another entity acquires in excess of 25% of the
stock or assets of NMT, Dominick shall be entitled to its normal merger and
acquisition fee of 3% of the total value of such transaction. Should NMT
and such a merger or acquisition candidate undertake a sales, licensing,
joint venture or other similar transaction which does not involve a merger
or acquisition, NMT and Dominick agree to negotiate an appropriate closing
fee, which would be anticipated to be in the range of $150,000 to $500,000.
Such fees shall be payable in cash at the time of the consummation of any
such transaction, and will be covered in a separate agreement.
<PAGE>
[LOGO] DOMINICK& DOMINICK
INCORPORATED
Mr. Charles W. Fritz
MEMBER PRINCIPAL EXCHANGES Page 2
March 20, 1996
4. As part of its financial advisory relationship, Dominick will seek, at
appropriate times, to introduce NMT to sources that will consider providing
financing to NMT. Should NMT use such financing sources, Dominick shall be
entitled to its normal cash placement fee for such transactions. Typical
fees, as a percentage of the fair market value of consideration raised, are
1% for bank financing; 6% for public or private debt financing; and 8% for
equity offerings. Payments of financing fees are to be made in cash at
closing. Specific financing fees will be covered in a separate agreement.
5. Fees described in paragraphs three and four herein shall be payable to
Dominick for any transaction described therein with any party or entity
with whom discussions were held during the term of this engagement who was
introduced by Dominick, and which is consummated during the first six month
period following any termination of this engagement. Such fees shall be 60%
of the indicated amount if the transaction is closed in the second six
months, 30% in the third six months, and 15% in the fourth six months
following termination of this engagement.
6. Dominick will receive reimbursement for all of its reasonable out-of-pocket
expenses incurred as a result of its activities for and on behalf of NMT,
to be reimbursed within 30 days of invoice.
7. Dominick and/or its assigns will purchase for $200.00 a warrant to purchase
375,000 common shares of NMT immediately upon approval of this agreement by
the NMT Board of Directors. The warrant is exercisable at $7.375 per share
at any time at the holder's option until November 25, 2001, and shall be
substantially subject to the terms of the warrants described in the NMT
prospectus dated November 25, 1996. The holders of any shares received upon
exercise of the warrant will have typical "piggy-back" registration rights
at any time NMT files a registration statement.
8. NMT will pay Dominick for its financial advisory services, over and above
any transaction consummation fees, an initial engagement fee of $15,000
upon execution of this agreement. Further, NMT agrees to pay Dominick a
quarterly retainer fee of $15,000, payable at the start of each quarterly
period, commencing May 1, 1997. NMT will pay a supplemental $5,000 fee at
the start of each quarterly period in which NMT is scheduled to visit
Dominick's European branch offices.
9. NMT shall not issue any press release, statement, notice, document or other
instrument referring to or mentioning Dominick without Dominick's prior
written approval, except as required by securities laws.
<PAGE>
[LOGO] DOMINICK& DOMINICK
INCORPORATED Mr. Charles W. Fritz
Page 3
MEMBER PRINCIPAL EXCHANGES March 20, 1996
10. As Dominick will be acting on NMT's behalf, NMT agrees to indemnify and
hold harmless Dominick (including any afffliated companies and respective
officers, directors, employees and controlling persons) from and against
all claims, liabilities, losses, damages and expenses (including reasonable
expenses of counsel) as they are incurred in connection with any
proceeding, whether or not Dominick is a party thereto, relating to or
arising out of such engagement or Dominick's role in connection therewith.
NMT will not, however, be responsible for any such claims, liabilities,
losses, damages or expenses to the extent that they result primarily from
actions taken or omitted to be taken by Dominick in bad faith or from its
or their gross negligence. The foregoing indemnification is effective
immediately in respect of all events occurring or omitted prior to or after
the date hereof.
11. This agreement shall be governed by the laws of the State of New York.
12. This agreement, excluding the warrant described in paragraph seven above
and the indemnification described in paragraph ten above, may be canceled
by either NMT or Dominick at any time by notification of termination in
writing; provided that if Dominick terminates its activities hereunder
before October 1, 1997, then the number of warrants to which Dominick
shall be entitled shall be reduced to 187,500.
We look forward to a long and mutually rewarding relationship and we are
confident that we can assist NMT in various aspects of its business and its
intended growth.
Very truly yours,
DOMINICK & DOMINICK INCORPORATED
By:/s/ JOHN R. DOSS
---------------------------
John R. Doss
Executive Vice President
The foregoing is agreed to
and accepted, subject to
approval by NMT's Board of Directors:
NEOMEDIA TECHNOLOGIES, INC.
/s/ MR. CHARLES W. FRITZ
By:------------------------
Mr. Charles W. Fritz
Chairman, Chief Executive
Officer and President
NeoMedia Technologies, Inc.
Exhibit 10.52
Agreement for Implementation of Symbol Licensed Software materials
by and between Symbol Technologies, Inc. and
NeoMedia Technologies, Inc. Dated April 29, 1997
20
<PAGE>
================================================================================
[LOGO]
AGREEMENT
FOR
IMPLEMENTATION
OF SYMBOL LICENSED SOFTWARE MATERIALS
ATTACHMENTS:
Schedule A - License Fees and Royalty Payments.
Schedule B - Licensee's Products.
- --------------------------------------------------------------------------------
COMPANY NAME: NEOMEDIA TECHNOLOGIES, INC.
ADDRESS: 2201 SECOND STREET, SUITE 600
CITY, STATE, ZIP: FORT MYERS, FLORIDA 33091
PHONE: (941) 337-3434 FAX: (941) 337-3361
- --------------------------------------------------------------------------------
CONTRACT COORDINATORS:
SELLER: ALAN MELLING PHONE: (215)343-8551
BUYER: ROBERT DURST PHONE: (941)337-3434
================================================================================
Page 1
<PAGE>
AGREEMENT FOR IMPLEMENTATION OF SYMBOL LICENSED SOFTWARE
MATERIALS
THIS AGREEMENT, entered into this__ day of April, 1997 by and between Symbol
Technologies, Inc., a corporation duly organized and existing under the laws of
the State of Delaware, having it principal place of business at One Symbol
Plaza, Holtsville NY 11742, NY 11716 (hereinafter "Symbol"), and NeoMedia
Technologies, Inc. a Delaware Corporation (hereinafter "Licensee"), having its
principal place of business at:
2201 SECOND STREET SUITE 600
- --------------------------------------------------------------------------------
(Street Address)
FORT MYERS, FLORIDA 33091
- --------------------------------------------------------------------------------
(City, State, Zip)
THE PARTIES AGREE AS FOLLOWS:
1. DEFINITIONS
1.1 AFFILIATE shall mean, as to any party, any entity that directly or
indirectly is under common control with that party, including a subsidiary
or parent company of that party.
1.2 BACKUP REMEDY shall have the meaning set forth in Article 12.
1.3 CLAIM shall mean any and all claims, counterclaims, cross claims and the
like for monetary or injunctive relief in respect to any alleged or proven
injury (including bodily injury or death) in or before any court,
administrative agency, or other forum having the legal power to adjudicate
such disputes, and any and all demands not yet matured into one or more
of the foregoing, with the exception in the case of an intellectual
property infringement claim of a claim solely for contributory and/or
inducement for infringement.
1.4 COMBINATION USE shall mean the Use of the Licensed Software in combination
or in conjunction with any of the following:
1.) any software not provided by Symbol; or
2.) any apparatus, device or equipment not provided by Symbol;
or;
3.) any activity beyond the scope of the License Activities or
engagement in any Licensed Activities by any person other
than Licensee.
1.5 CUSTOMER shall mean any entity to which Licensee sublicenses the Licensed
Software in combination with the sale, lease, transfer or license of
Licensee's Product(s).
1.6 DATE OF DELIVERY shall have the meaning set forth in Article 4.1
1.7 INFRINGEMENT CLAIM shall have the meaning set forth in Article 11.1
1.8 LICENSE ACTIVITIES shall have the meaning set forth in Article 2.1
1.9 LICENSE COMMENCEMENT DATE shall mean the date of execution of this
Agreement by Symbol.
1.10 LICENSED DOCUMENTATION shall mean documentation relating to Licensed
Software, if any, but shall include documentation that describes the data
flows, data structures, and control logic of Licensed Software.
1.11 LICENSED SOFTWARE shall mean the PaperData Application Software including
PaperData decoder, (including Secure Macro), PaperData encoder (including
Secure Macro), PDF417 Encode, and PDF417 Decode software available from
Symbol.
1.12 LICENSEE'S PRODUCT(S) shall mean either or both of: (i) Software Products,
as defined in Exhibit B hereto, that Licensee creates and/or owns and
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<PAGE>
that Licensee utilized the Licensed Software to operate in conjunction with; or
(ii) Hardware Products as defined in Exhibit B hereto, in which the Licensed
Software is Used but is inaccessible directly to the user and can be used only
in conjunction with the use of the hardware product. Licensee's Product(s),
whether hardware or software, shall include a substantial portion of software
code that performs functions that do not duplicate in any way the functions of
the Licensed Software, Licensee's Product(s) shall not include a "tool kit" or
software routine "library" wherein the Licensed Software is or would be licensed
to Customers by Licensee for code incorporation into Customer's software
programs to perform the functions of the Licensed Software alone, or where
Licensee's Product(s) are comprised of minimal software code or hardware that
adds no significant value to the Licensed Software above the value of the
Licensed Software itself.
1.13 PHYSICAL MEDIA WARRANTY shall have the meaning set forth in Article 10.1
1.14 SYMBOL shall mean Symbol Technologies, Inc. and its subsidiaries and
Affiliates.
1.15 SYMBOL TRADEMARK shall mean the trademark PaperData registered by Symbol
in respect of software programs.
1.16 TERRITORY shall mean all countries.
1.17 USE shall mean copying any portion of the Licensed Software into a machine
and/or transmitting such software to a machine for processing of the
machine instructions or statements contained in such software.
1.18 DERIVATIVE WORKS shall mean any software program sufficiently based on the
Licensed Software such that copying it without permission would infringe
the copyright and violate the license under which the Licensed Software, is
provided. Further, the Licensed Software, or appropriate subset thereof,
shall be sufficiently embedded in the software program to prevent an End
User from accessing the Licensed Software shall derive its primary
functionality from operations that are fundamentally different from the
functions of the embedded Licensed Software.
1.19 SPECIFICATIONS shall mean requirements for the Licensed Software operation,
function, capabilities and performance and the Licensed Documentation to be
delivered therewith.
1.20 IMPROVEMENTS shall mean improvements in function and/or performance made
for or by NeoMedia to the Licensed Software, but excluding those functions
in the Licensee's Products that perform functions that do not duplicate
in any way the functions of the Licensed Software.
2. LICENSED GRANT
2.1 LICENSED GRANT Subject to the terms and conditions of this Agreement,
Symbol hereby grants to Licensee, and Licensee hereby accepts an exclusive
license in respect of the PaperData (including Secure Macro) software for
a period of twelve (12) months from the first delivery and a non-exclusive
license in respect of the PDF417 encoder and decoder software (the
"License") solely in the Territory, under any and all intellectual property
rights in such software owned or otherwise assertable by Symbol, to engage
in the following License Activities and no others:
(1) Use TWENTY (20) copies of the Licensed Software on Licensee owned or
leased equipment solely for Licensee's business, software
engineering or demonstration purposes, solely with Licensee's
business or enginering data, but not including renting or leasing.
Use of the Licensed Software on Licensee owned or leased equipment,
such as, for example, timesharing arrangements or data services; and
(2) sublicensing distribution of Licensed Software in accordance with
the requirements of Article 16, only in executable form and only in
combination with the sale, lease, transfer or license of Licensee's
Product(s); and
(3) creation of Improvements subject to Article 9 and/or Derivative
Works; and
(4) copying the License Software as necessary to engage in sublicensing
distribution rights and making one copy for archival and backup
purposes;
(5) distributing reasonable quantities of the Licensed Software without
incurring royalty payments to Symbol for
Page 3
<PAGE>
promotional purposes only. It is agreed that Licensee will be able
to develop and/or market Licensee's Products in which software
containing the Licensed Software will be distributed by Licensee
free or at a nominal charge, with revenues realized from other
components of the Licensee's Products, only after the parties have
negotiated and agreed upon a new basis for royalty payments to
Symbol for such Licensee's Products, which shall be based on a
mutually agreed upon target price, reflective of the value delivered
by the software containing the Licensed Software or any component
thereof, in the overall Licensee's Product.
2.2 SYMBOL RIGHT TO USE. It is specifically understood and agreed to by
Licensee, that notwithstanding any exclusive rights granted to Licensee
hereunder, Symbol retains the rights to use, modify, upgrade and update
the Licensed Software.
2.3 EXTENSION OF EXCLUSIVITY. At the end of the twelve months period the
parties hereto will negotiate in good faith the terms for an extension of
the exclusive license rights granted hereunder for additional terms.
Nothing contained herein will be construed as an obligation on Symbol's
behalf to extend the exclusive license granted herein for any additional
terms.
2.4 SYMBOL TRADEMARK. Subject to the terms and conditions of this Agreement,
Symbol hereby grants to Licensee an option for an exclusive license to use
the Symbol Trademark as defined in Section 1.15 of this Agreement in
connection with the marketing and sale of the Licensee Products (the
"Option"). The Option expires at the end of ninety (90) days from
execution of this agreement by Licensee.
2.5 NO OTHER RIGHTS GRANTED. Apart from the License rights enumerated in this
Agreement, the License does not include a grant to Licensee of any right to
engage in any other activity (including Combination Use under any Symbol
intellectual property rights and use of any Symbol trademark or tradename
other than as required herein), nor any ownership right, title, or
interest, nor any security interest or other interest, in any intellectual
property rights relating to the Licensed Software nor in any copy of any
part of the Licensed Software.
2.6 LICENSED SOFTWARE AS CONFIDENTIAL INFORMATION. The Licensed Software and
Licensed Documentation shall be deemed Confidential Information.
2.7 Symbol represents that the Licensed Software is copyrighted and published
by Symbol and that any markings or notices thereon are proper and
authorized. Licensee agrees to reproduce any proper and authorized Symbol
copyright notice or other proprietary legend of Symbol appearing thereon
that is not inconsistent with this Agreement and to include the same on all
copies it makes in whole or in part, and in the case of object code
software embedded in EPROM or other semiconductor memory, to include a
copyright notice on a label on such product or the packaging or
specifications therefor. Symbol's copyright or proprietary notice may
appear in several forms, including machine-readable form and Licensee
agrees to reproduce such notice in each form it appears, to the extent it
is physically possible to do so. With reference to Derivative Works
Licensee creates, if any, Licensee agrees to produce a proper and
authorized Symbol copyright notice thereon in accordance with this Article
2.7.
2.8 The Licensed Software delivered hereunder and any copies made by Licensee,
in whole or part, and all of Symbol's intellectual property rights in such
software shall remain the property solely of Symbol.
3. TERM AND TERMINATION
3.1 TERM OF LICENSE. The License shall be in effect until termination of the
Licensed Software copyright unless otherwise terminated in accordance with
this Agreement.
3.2 TERMINATION. In case of a breach of this Agreement by either party, other
party shall have the right, without limitation of any other right it may
have on account of such failure, to terminate this Agreement and the
License granted herein by giving the breaching party at least sixty (60)
days' written notice of its intention, specifying the default; provided,
however, that if, the breaching party remedies such failure during such
sixty (60) day period, then this Agreement and the License granted herein
shall not be terminated on the date specified in such notice.
Page 4
<PAGE>
3.3 EFFECT OF TERMINATION. Upon termination, neither party shall have further
obligation to the other hereunder, except as provided in the Articles
herein entitled "Confidential Information" and "Improvements", and
Licensee shall return all copies of the Licensed Software in Licensee's
possession or under Licensee's control to Symbol forthwith, and the license
granted herein shall be automatically canceled, provided, however,
Customer's of Licensee who have already received Licensee's Product(s)
which incorporate Licensed Software shall be permitted to continue to use
the Licensed Software, subject to the terms and conditions of the
sublicense Agreement between the Customer and Licensee involving the
Licensed Software. Symbol may terminate Customer's right to use the
Licensed Software and sue Customer if Customer fails to comply with the
terms of its sublicense Agreement with Licensee.
4. DELIVERY OF LICENSED SOFTWARE
4.1 DELIVERY OF LICENSED SOFTWARE PRODUCT. Unless the Licensed Software has
already been provided for evaluation, within fifteen (15) days following
the execution hereof by Symbol, Symbol shall ship the Licensed Software
(source code and object code) to Licensee. The date on which delivery
is deemed complete is referred to herein as the "Date of Delivery" and
shall be the later of the actual date the Licensed Software is received by
Licensee or the License Commencement Date.
4.2 LICENSED SOFTWARE TESTING BY LICENSEE. Licensee shall have sixty (60) days
from the Date of Delivery to test and examine the Licensed Software to
ensure it meets Licensee's requirements. If for any reason whatsoever
Licensee determines within the sixty (60) day testing period that the
Licensed Software does not meet its requirements, Licensee shall notify
Symbol in writing of that fact and this Agreement shall thereafter be
terminated. It is specifically agreed by both parties that in the case of
termination of the Agreement under this clause, there will be no
reimbursement to Licensee of the first one half ($125,000) of the initial
License Fee paid in accordance with the Exhibit A of this Agreement.
4.3 ACCEPTANCE BY LICENSEE. Absent written notice of non-acceptance by
Licensee, acceptance of the Licensed Software by Licensee shall be deemed
to have occurred on the sixty first (61st) day after the Date of Delivery.
Symbol will have 30 business days, commencing upon receipt by Symbol of
such non-acceptance notice, specifying in detail why the Licensed Software
does not materially conform to the Specifications, to cure the reported
nonconformity.
5. LICENSE FEE AND ROYALTY PAYMENTS
5.1 PAYMENTS. For rights granted under this Agreement, Licensee shall pay an
Initial License Fee and Running Royalty Payments, in the amounts and at
the terms stated in Exhibit A hereto (the "Fee Schedule").
5.2 ROYALTY STATEMENTS. Within sixty (60) days after the end of each calendar
year, Licensee shall furnish to Symbol a written statement signed by an
authorized representative of Licensee (the "Royalty Statement")
identifying:
5.2.1 the number of Licensed Products with which the Licensed Software is
distributed by Licensee during such period;
5.2.2 the per Licensed Product royalty for such products;
5.2.3 the net amount of the royalty payment based upon the Fee Schedule.
5.3 PAYMENT DUE. Within such sixty (60) days of the end of each year, Licensee
shall pay to Symbol the Running Royalty Payment due in accordance with
Exhibit A for sales made by Licensee in the year as shown on the Royalty
Statement.
5.4 ADDITIONAL INFORMATION. Licensee shall furnish whatever additional
information Symbol may reasonably prescribe from time to time to enable
Symbol to ascertain the amounts of any payments due hereunder.
5.5 RECORDS. Licensee shall keep full, clear and accurate records sufficient
to prepare statements to Symbol as required hereunder.
6. UPGRADE VERSIONS
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During the term Licensee has the exclusive License rights to the Licensed
Software under this Agreement, Symbol will offer to Licensee for no
additional fee, copies of upgrade versions of the Licensed Software, if
available from Symbol. Upon expiration of Licensee's exclusivity to the
Licensed Software, such offers, if available, may be conditioned on
Licensee paying a charge to Symbol in an amount determined by Symbol in its
sole discretion. Any copy of an upgrade version provided by Symbol shall be
deemed to be Licensed Software.
Nothing contained in this provision shall be interpreted as an
undertaking by Symbol to come up with any upgrade versions to the Licensed
Software.
7. ASSISTANCE AND RIGHTS IN DATA
Licensee agrees that Symbol may, without additional cost, use all
suggestions, inventions, Improvements, and written materials furnished in
connection with this Agreement by Licensee to Symbol relating or applying
to the Licensed Software but excluding all suggestions, inventions,
improvements and written materials furnished by Licensee to Symbol in
connection with this Agreement in the Licensee's Products which perform
functions that do not duplicate in any way the functions of the Licensed
Software, and that Symbol may include the foregoing in any software or
products and claim the copyright thereon as part of Symbol's overall
copyright on any software or products, without accounting to the Licensee.
8. SOFTWARE SUPPORT
8.1 Symbol shall provide two (2) weeks of initial training at its Holtsville,
New York facility for up to three (3) of Licensee's associates.
8.2 Symbol shall provide telephone support for a period of three months from
first delivery of the Licensed Software to Licensee for no additional
charge to Licensee. Following this period support services shall be
available at Symbol's then current standard software support rates.
9. IMPROVEMENTS
As part of this Agreement, without additional compensation, and
notwithstanding any other provisions hereof and notwithstanding any
terminations of this Agreement, Licensee hereby grants to Symbol (subject
to the terms of this Agreement) a fully paid up, royalty free, perpetual,
non exclusive license to use, make, have made and sell the Improvements
and Symbol may include the Improvements in any software or products and
claim the copyright thereon as part of Symbol's overall copyright on any
software or products, without accounting to the Licensee.
10. LIMITED WARRANTIES AND REPRESENTATION, AND LIMITED REMEDIES, CONCERNING
THE LICENSED SOFTWARE.
SYMBOL PROVIDES THE WARRANTIES AND REPRESENTATION SET FORTH BELOW IN THIS
ARTICLE 10 ("SYMBOL'S WARRANTIES"), AND NO OTHER WARRANTIES OR
REPRESENTATIONS, WITH RESPECT TO THE LICENSED SOFTWARE.
10.1 PHYSICAL MEDIA WARRANTY. Symbol warrants that the Licensed Software will
perform in accordance with the Specifications. Symbol further warrants to
Licensee, subject to the warranty exclusions set forth in this Article 10,
that each copy of the Licensed Software provided by Symbol is and will be
free from physical defects in the media that tangibly embodies the copy
(the "Physical Media Warranty"), for a period of ninety (90) days
following the Date of Delivery. The Physical Media Warranty does not
apply to defects arising from acts of non-Symbol personnel, misuse, theft,
vandalism, fire, water, acts of God, or other peril. Licensee's sole
remedy for breach of the Physical Media Warranty, TO THE EXCLUSION OF ALL
OTHER REMEDIES THEREFOR, shall be replacement by Symbol of any copy
provided by Symbol that does not comply with the warranty, at Symbol's
expense, including shipping and handling costs.
10.2 DISCLAIMER OF ALL OTHER WARRANTIES AND REPRESENTATIONS. THE EXPRESS
WARRANTIES AND REPRESENTATIONS SET FORTH IN THIS ARTICLE 10 ARE IN LIEU
OF, AND SYMBOL DISCLAIMS, ANY AND ALL OTHER WARRANTIES, CONDITIONS, OR
REPRESEN-
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TATIONS (EXPRESS OR IMPLIED, ORAL OR WRITTEN), WITH RESPECT TO THE LICENSED
SOFTWARE OR ANY PART THEREOF, INCLUDING ANY AND ALL IMPLIED WARRANTIES OR
CONDITIONS OF TITLE. NON-INFRINGEMENT, MERCHANTABILITY, OR FITNESS OR
SUITABILITY FOR A PARTICULAR PURPOSE OR ANY PURPOSE (WHETHER OR NOT SYMBOL
KNOWS, HAS REASON TO KNOW, HAS BEEN ADVISED, OR IS OTHERWISE IN FACT AWARE
OF ANY SUCH PURPOSE), WHETHER ALLEGED TO ARISE BY LAW, BY REASON OF CUSTOM
OR USAGE IN THE TRADE, OR BY COURSE OF DEALING. IN ADDITION, SYMBOL
EXPRESSLY DISCLAIMS ANY WARRANTY OR REPRESENTATION TO ANY PERSON OTHER THAN
LICENSEE, INCLUDING CUSTOMERS, WITH RESPECT TO THE LICENSED SOFTWARE OR ANY
PART THEREOF.
11. INTELLECTUAL PROPERTY INFRINGEMENT DEFENSE
11.1 In the event a Claim is brought against Licensee by third parties, other
than Affiliates of Licensee, alleging that the Use or sublicense of the
Licensed Software constitutes an infringement of a United States patent
or copyright in existence as of the License Commencement Date (an
"Infringement Claim"), Symbol shall defend such Claim so long as Symbol is
notified promptly in writing by Licensee as to any such claim and is given
full authority, information and assistance (at Symbol's expense) for the
defense. In addition to Symbol's obligation to defend, Symbol shall pay
all damages and costs (except consequential damages) awarded therein
against Licensee. The obligations set forth above shall not, however,
extend to products delivered hereunder which would give rise to a claim,
suit, proceeding, finding or conclusion solely for contributory
infringement or inducement of infringement. Symbol shall not be
responsible for any compromise made by Licensee without its consent.
Notwithstanding the foregoing, in the event of an Infringement Claim,
Symbol's obligation under this paragraph shall be fulfilled, at Symbol's
sole option and expense, if Symbol at any time: (i) obtains a license
for Licensee to continue the use or sublicense the infringing product
licensed from Symbol, or (ii) refunds the Initial License Fee and Royalty
Payments paid to Symbol by Licensee for such infringing product less a
reasonable amount for use, damage, or obsolenscence, and removes such
product, or (iii) replaces or modifies the infringing product so as to be
substantially functionally equivalent to the infringing product but non-
infringing.
Symbol shall have no further liability to Licensee for any Infringement
Claim based on Licensee's use or transfer of the product delivered
hereunder, incurred after Symbol's notice that Licensee shall cease use or
transfer of such product due to such Claim.
11.2 Licensee agrees that in the event an Infringement Claim is made against
Symbol as a result of Licensee's exercise of License Activities or Symbol's
compliance with Licensee's particular design requirements, specifications
or instructions, Licensee shall indemnify Symbol for any and all damages
and costs, including, but not limited to reasonable attorney's fees,
arising therefrom.
11.3 Licensee grants to Symbol the benefit of any license to Licensee under any
patent which may be the subject of an infringement allegation hereunder,
to the extent permitted by said license.
11.4 Symbol shall have no liability to Licensee under this Article to the extent
any Infringement Claim is based upon the (i) Combination Use of Licensed
Software, or (ii) use of Licensed Software delivered hereunder in a manner
for which the same were not designed, or (iii) modification by Licensee of
the Licensed Software delivered hereunder to the extent such modification
is the cause of the claim or suit. EXCEPT AS STATED ABOVE, SYMBOL DISCLAIMS
ALL WARRANTIES AND INDEMNITIES, EXPRESS, IMPLIED, OR STATUTORY, FOR PATENT
OR COPYRIGHT INFRINGEMENT.
12. BACKUP REMEDY DEFINITION
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TO THE EXCLUSION OF ALL OTHER REMEDIES AVAILABLE TO LICENSEE EXCEPT AS
EXPRESSLY STATED OTHERWISE IN THIS AGREEMENT, AND EXERCISABLE ONLY IN
CONNECTION WITH A TERMINATION OF THE LICENSE BY THE LICENSEE UPON A FAILURE
OF OTHER REMEDIES FOR BREACH OF A WARRANTY OR COVENANT MADE BY SYMBOL, the
"Backup Remedy" shall be for Symbol to pay Licensee (and/or credit against
any amounts owed to Symbol by Licensee) the INITIAL LICENSE fEE to the
extent paid or owed to Symbol and for Licensee to return the Licensed
Software, all copies thereof and all Licensed Documentation to Symbol.
13. LIMITATION OF LIABILITY
13.1 EXCLUSION OF INCIDENTAL AND CONSEQUENTIAL DAMAGE. INDEPENDENT OF, SEVERABLE
FROM, AND TO BE ENFORCED INDEPENDENTLY OF ANY OTHER ENFORCEABLE OR
UNENFORCEABLE PROVISION OF THIS AGREEMENT, OTHER THAN FOR INFRINGEMENT OF
ONE PARTY'S INTELLECTUAL PROPERTY RIGHTS BY ANOTHER PARTY (INCLUDING ANY
ENGAGEMENT IN ACTIVITIES BY LICENSEE BEYOND THE SCOPE OF THE LICENSE
ACTIVITIES) OR FOR BREACH OF A NONCOMPETITION COVENANT OR FOR
INDEMNIFICATION BY LICENSEE OF SYMBOL FOR A CLAIM OF INTELLECTUAL PROPERTY
INFRINGEMENT, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY (NOR TO ANY
PERSON CLAIMING RIGHTS DERIVED FROM THE OTHER PARTY'S RIGHTS) FOR
INCIDENTAL, CONSEQUENTIAL, SPECIAL, PUNITIVE, OR EXEMPLARY DAMAGES OF ANY
KIND, INCLUDING LOST PROFITS, LOSS OF BUSINESS, OR OTHER ECONOMIC DAMAGE,
AND FURTHER INCLUDING INJURY TO PROPERTY, AS A RESULT OF BREACH OF ANY
WARRANTY OR OTHER TERM OF THIS AGREEMENT, REGARDLESS OF WHETHER THE PARTY
ALLEGEDLY LIABLE WAS ADVISED, HAD OTHER REASON TO KNOW, OR IN FACT KNEW OF
THE POSSIBLITY THEREOF. EACH PARTY ACKNOWLEDGES THAT THE FOREGOING SENTENCE
REFLECTS AND INFORMED, VOLUNTARY ALLOCATION BETWEEN THE PARTIES OF THE
RISKS (KNOWN AND UNKNOWN) THAT MAY EXIST IN CONNECTION WITH THIS AGREEMENT,
THAT SUCH VOLUNTARY RISK ALLOCATION WAS A MATERIAL PART OF THE BARGAIN
BETWEEN THE PARTIES, AND THAT THE ECONOMIC AND OTHER TERMS OF THIS
AGREEMENT WERE NEGOTIATED AND AGREED TO BY THE PARTIES IN RELIANCE ON SUCH
VOLUNTARY RISK ALLOCATION.
13.2 MAXIMUM AGGREGATE LIABILITY. INDEPENDENT OF, SEVERABLE FROM, AND TO BE
ENFORCED INDEPENDENTLY OF ANY OTHER ENFORCEABLE OR UNENFORCEABLE PROVISION
OF THIS AGREEMENT, IN NO EVENT SHALL SYMBOL'S AGGREGATE LIABILITY TO
LICENSEE (INCLUDING LIABILIITY TO ANY PERSON OR PERSONS WHOSE CLAIM OR
CLAIMS ARE BASED ON OR DERIVED FROM A RIGHT OR RIGHTS CLAIMED BY LICENSEE),
WITH RESPECT TO ANY AND ALL CLAIMS AT ANY AND ALL TIMES ARISING FROM OR
RELATED TO THE SUBJECT MATTER OF THIS AGREEMENT, IN CONTRACT, TORT, OR
OTHERWISE, EXCEED THE AGGREGATE AMOUNTS PAID TO SYMBOL BY LICENSEE, PLUS
INTEREST AS PROVIDED HEREIN, COMPUTED AS OF THE DATE OF ANY FINAL JUDGMENT
AGAINST SYMBOL.
14. INDEMNITY AND DEFENSE OBLIGATIONS
APPLICABILITY OF THIS ARTICLE. Other than the indemnity obligations set
forth in Article 11, there shall be no other indemnity obligations or
right to indemnification based on this Agreement.
15. CONFIDENTIAL INFORMATION
15.1 NO CONFIDENTIAL DISCLOSURE BY LICENSEE. The parties do not intend that
Licensee will disclose to Symbol, and agree that Licensee will refrain from
disclosing to Symbol, any information that Licensee regards as
confidential. Licensee warrants that all information disclosed to Symbol by
Licensee is or will be free of any obligation of confidence.
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15.2 DEFINITION OF CONFIDENTIAL INFORMATION. AS USED IN THIS AGREEMENT, the term
"Confidential Information" means THE CONFIDENTIAL INFORMATION AS DEFINED IN
SECTION 2.6 HEREUNDER and information that is disclosed in writing or other
tangible form to Licensee by Symbol or a person or entity having an
obligation of confidence to Symbol (or, if disclosure is made orally, is
reduced to or summarized in such a writing or other tangible form within
thirty (30) days after such oral disclosure).
15.3 Licensee agrees to keep in confidence and prevent the disclosure to any
unauthorized person or persons of ALL CONFIDENTIAL INFORMATION and all
written information, documentation, or software which is designated by an
appropriate stamp or legend by Symbol to be of a proprietary nature and is
received from Symbol under the terms hereof (including, but not limited to,
the source code version of the Licensed Software,) provided that Licensee
shall not be liable for any use or disclosure of such information if the
same:
(1) was in the public domain or copyrighted as a published work at the time
it was disclosed; or
(2) was known to Licensee prior to the time of receipt from Symbol, without
any restrictions on its disclosure and the same is reported in writing
to Symbol within ten (10) days of disclosure; or
(3) is disclosed with the prior written approval of Symbol; or
(4) is made available to a third party by Symbol without restriction on its
further dissemination by the third party; or
(5) becomes known to Licensee from a source other than Symbol without
direct or indirect obligation restricting its use or disclosure.
(6) is disclosed in response to a valid order of a court or government body
of the USA or any political subdivision thereof, provided however, that
Licensee shall: (a) immediately notify Symbol of such order; and (b)
first make a good faith effort as an interested party to such
proceeding to obtain a protective order or similar provision requiring
that the Confidential Information so disclosed be used only for the
purpose for which such order was issued.
15.4 APPROPRIATE MEASURES. Licensee shall take all appropriate measures, by
instruction, agreement or otherwise, with employees and persons permitted
access to Confidential Information, including, but not limited to, the
source code version of the Licensed Software, to enable Licensee to satisfy
its obligations under this Agreement. Such appropriate measures shall
include at least the same measures Licensee uses to protect its own
Confidential Information.
16. SUBLICENSING DISTRIBUTION
16.1 SUBLICENSE AGREEMENTS. Licensee shall enter into only such forms of
sublicense agreement with Customers that provide adequate protection for
Symbol's intellectual property rights in the Licensed Software, as set
forth herein.
16.2 Subject to the limitations of this Article 16, Licensee may use any form of
sublicense agreement that provides the same or equivalent protection for
Symbols's intellectual property rights in the Licensed Software as for
Licensee's intellectual property rights in its own proprietary software
distributed to the public; provided that Licensee shall include a statement
granting Symbol the right to enforce the sublicense agreement against
Customers.
16.3 Licensee shall limit license rights of Customer in its sublicense
agreements in accordance with following restrictions;
(1) no right for any Customer(s) to sublicense the Licensed Software shall
be granted; and
(2) Customer(s) shall only be permitted to Use the License Software within
the Territory; and
(3) Customer(s) shall only be permitted to make one backup and/or archival
copy of the Licensed Software.
Licensee's failure to include the foregoing limitations of rights in its
sublicense agreements with Customer(s) shall be deemed a material breach of
this Agreement
16.4 Any form of sublicense agreement used by Licensee for Licensed Software
shall include a disclaimer of any warranty or representation made by
Symbol to the sublicensee, an exlusion of incidental, consequential,
special, punitive, or exemplary damage remedies against Symbol, and a
limitation of Symbol's maximum liability substantially as set forth in this
Agreement.
16.5 If at any time Symbol gives Licensee notice of circumstances that in
Symbol's business
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judgment make continued use of Licensee's form of sublicense agreement
inappropriate to protect Symbol's intellectual property rights, then
Licensee shall discontinue use of that form.
16.6 Licensee acknowledges that;
(1) any review by Symbol and/or Symbol's counsel of any form of sublicense
agreement is intended solely to protect Symbol's interests for
Symbol's benefit; and
(2) neither Symbol nor its counsel warrants or represents that any form of
sublicense agreement will protect Licensee's interest or otherwise meet
any particular standard of suitability; and
(3) no attorney-client relationship is established between Licensee and
Symbol's counsel by virtue of any such review.
16.7 Symbol shall have no right to object to pricing terms in any proposed form
of sublicense agreement.
16.8 Any form of sublicense agreement used by Licensee for transactions that
involve the Licensed Software with U.S. Government departments or agencies
shall include a restricted-rights clause conforming to the Federal
Acquisition Regulations (FARs) then in effect that apply to software
developed entirely at private expense.
17. MISCELLANEOUS
17.1 ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement and
understanding between the parties as to the subject matter hereof, and
supersedes and replaces all prior or contemporaneous Agreements, written or
oral, as to such subject matter. This Agreement may be changed only in a
writing stating that is is an amendment to this Agreement, and signed by
an authorized representative of each of the parties hereto.
17.2 RELATIONSHIP OF PARTIES. This Agreement does not constitute a partnership,
joint venture or agency between the parties thereto, nor shall either of
the parties hold itself out as such contrary to the terms hereof by
advertising or otherwise, nor shall wither of the parties become bound or
become liable because of any representation, action or omission of the
other.
17.3 OPERATING SYSTEMS. Licensee hereby acknowledges its understanding that the
Licensed Software is intended to be used with computer equipment
manufactured by other parties and manufacturer provided operating systems,
and that such computer equipment and operating systems software are not
provided under this Agreement. Licensee is sole responsible for acquiring
and maintaining such equipment and software, the utilization rights of
such software, and for the overall effectiveness and efficiency of the
operating environment in which Licensed Software is to function. Symbol
does not make any representations, warranties, or understanding concerning
the suitability, availability, or performance of any computer or operating
system software for use with the Licensed Software provided hereunder.
17.4 OTHER AGREEMENTS. This Agreement has been expressly requested by Licensee
from Symbol, and has been negotiated between the parties to include all
those rights which Licensee, at the present time, requires from Symbol.
Except as expressly set forth herein, this Agreement is not conditioned
upon, and does not require or contemplate, Licensee to purchase or license
from Symbol any additional software, hardware, laser scanners and/or
related subassemblies or components, or entry into any other agreement with
Symbol, such as for software maintenance or service. Licensee is free to
manufacture, or contract with other manufacturers and suppliers, for the
procurement of software, hardware, laser scanner, and/or related
subassemblies or components, or maintenance services, subject to any
applicable intellectual property rights of Symbol or third parties
pertaining thereto.
17.5 NO OTHER PATENT LICENSES. Other than as specifically set forth herein, no
right or license is granted by this Agreement, either expressly or by
implication, estoppel, otherwise, under any Symbol patent, patent
application, or patent right.
17.6 SEVERABILITY. Should any part or provision of this Agreement be held
unenforceable or in conflict with the law of any jurisdiction, the validity
of the remaining parts or provisions shall not be affected by such
holding, provided the intent of the parties can be given effect except for
immaterial matters.
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17.7 WAIVER. Any waiver of a default or condition held by either party shall not
be deemed a continuing waiver of such default of condition or a waiver of
any other default or condition.
17.8 NON-ASSIGNABILITY. The parties acknowledge that his agreement is personal
in nature and agree that this Agreement shall not be assigned by the other,
in whole or in part. Any purported assignment of this Agreement or any
interest therein without the other party's written consent shall be void.
17.9 CAPTIONS. The headings of articles, sections and other subdivisions hereof
are inserted only for the purpose of convenient reference and it is
recognized that they may not adequately or accurately describe the
contents of the paragraphs which they head. Such headings shall not be
deemed to govern, limit, modify or in any other manner affect the scope,
meaning or intent of the provisions of this agreement or any part or
portion thereof, nor shall they otherwise be give any legal effect.
17.10 APPLICABLE LAW. This Agreement shall be governed by, performed under and
construed in accordance with the laws of the State of New York, without
giving effect to the conflict of law principles thereof.
17.11 CHOICE OF FORUM. Each party hereby irrevocably and unconditionally submits
for itself and its property in any legal action or proceeding relating to
this Agreement or for recognition and enforcement of any judgment in
respect thereof, to the exclusive general jurisdiction of the courts of the
United States of New York, and the courts of America for the Eastern
District of New York, and appelate courts for any thereof. It is agreed
that the party intending to so initiate such proceedings, prior to
instituting any action or proceeding, will first offer to the other party
the opportunity to submit the dispute(s) to a mutually acceptable mediator
for non-binding mediation. If (i) the party to whom the offer is made fails
to accept such offer within seven days of its receipt, or (ii) if the
parties are unable to resolve their dispute(s) following the nonbinding
decision of the mediator, then, either party may, at is descretion,
thereafter pursue any remedy, legal or quasi-legal, available to it.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the date below:
LICENSEE
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SIGNATURE: /s/ ROBERT T. DURST, JR. DATE: 4/22/97
-------------------------
NAME: Robert T. Durst, Jr.
TITLE: EVP/CTO
SYMBOL TECHNOLOGIES, INC.
SIGNATURE: /s/ TONO HAZMILOVIC DATE: 4/29/97
--------------------
NAME: Tono Hazmilovic
TITLE: President/COO
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EXHIBIT A
LICENSE FEES AND ROYALTY PAYMENTS
INITIAL LICENSE FEE
Licensee shall pay an Initial License Fee in the amount of $250,000, out of
which $125,000 shall be paid on the Date of Delivery of the Licensed Software
and the additional $125,000 shall be paid upon the acceptance of the Licensed
Software by Licensee as specified in Section 4.3 of the Agreement. In the event
the Licensed Software does not materially perform in accordance with the
Specifications, after Symbol has had the opportunity to cure the non-conformity,
all as specified in said Section 4.3, any amount paid as the Initial License Fee
will be reimbursed to Licensee by Symbol.
RUNNING ROYALTY.
Licensee shall pay a Running Royalty of 5% of the sale price of all Licensee
Products.
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EXHIBIT B
LICENSEE'S PRODUCTS
SOFTWARE
1. AUTOMATED RELATIONAL INDEXING APPLICATION.
2. WEBLINK APPLICATION.
3. PAPERDATA ANNOTATION APPLICATION
HARDWARE
NONE.
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NeoMedia Technologies, Inc.
Exhibit 10.53
Master Reseller Agreement by and between United States Check Company, Inc.
and NeoMedia Technologies, Inc. Dated June 16, 1997
35
<PAGE>
MASTER RESELLER AGREEMENT
AGREEMENT made this 16th day of June 1997 by and between United States
Check Company, Inc. 2001 Jefferson Davis Highway, Suite 504, Arlington, Virginia
22202 (hereinafter called U.S. Check) and NeoMedia Technologies, Inc. 2201
Second Ave., Ft. Myers, Florida (herenafter called NeoMedia).
WHEREAS, U.S. Check has developed and patented data processing and security
enhancements for machine readable documents and NeoMedia desires to introduce
these products into a defined "product area" and Territory in accordance with
the terms and conditions hereof,
Now, THEREFORE, it is mutually agreed:
DEFINITIONS
(1) The "Product Area" mean non-micr forms(paper)having pre-coated
non-visible snippets for use in desktop or high speed laser printing of
gift certificates and money orders.
(2) The "Territory" is Worldwide.
(3) U.S. Check's Price List of the Products is appended hereto as
Schedule A.
(4) "Subsidiary" means any organization in which a substantial interest is
held directly or indirectly by another organization; "Parent" means any
organization which holds, directly or indirectly, an interest in
another organization; and "Affiliates" means Subsidiaries, Parents, and
other organizations which have a parent or subsidiary in common with an
organization.
I. RIGHTS GRANTED
(A) U.S. Check hereby appoints NeoMedia Technologies as the exclusive
Master Reseller of the Products in the Product Area and Territory
except as limited herein. During the term of this Agreement, U.S. Check
agrees not to appoint any other such Master Resellers or sell blank
non-micr documents for use as gift certificates and/or money orders in
desk top or laser printing systems and further undertakes to refer to
NeoMedia any leads concerning prospective customers of the Products
which, directly, or indirectly, come to the attention of U.S. Check.
(B) In return for such appointment, NeoMedia shall pay U.S. Check an
appointment fee of Two Hundred Thousand Dollars ($200,000.00) the
receipt of which is acknowledged by U.S. Check.
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II. SALES AND DISTRIBUTION AGREEMENTS
(A) NeoMedia acknowledges that Bottomline Technologies, Inc. is the only
other authorized purchaser of non-micr blank forms used in desk top and
laser printing systems for money orders and gift certificates. Nothing
in this agreement shall limit U.S. Check or Bottomline Technologies
from using the U.S. Check products for gift certificates and/or money
orders in the Product Area or Territory. U.S. Check will pay NeoMedia
25% of the royalty paid by Bottomline for products that can be readily
idenfified as gift certificates or money orders.
III. TERMS OF SALE TO NEOMEDIA
U.S. Check agrees to sell the Products to NeoMedia at the published
Price(s) in Exhibit A. U.S. Check agrees to give NeoMedia thirty (30) days'
written notice of any price changes, and U.S. Check further agrees to FAX to
NeoMedia any changes that might be critical to ongoing bids being submitted by
NeoMedia to prospective customers.
Sales from U.S. Check to NeoMedia will be against irrevocable letters
of credit, payable forty-five (45) days after shipment, unless the parties
mutually agree to some other terms of payment as being more appropriate in any
particular transaction.
IV. PERFORMANCE BY NEOMEDIA
NeoMedia agrees to devote its best efforts to promote the sale of the
Products in the Territory. Without limiting the generality of the foregoing,
NeoMedia agrees:
(A) To place an initial order for the Products, the particulars of
which are set forth in Exhibit B hereto.
(B) To develop, in reasonable stages, a technically qualified sales
force and/or Value Added Resellers (VARs) for the Products in the
Territory, affording U.S. Check an opportunity to appraise and
approve the appointment of potential dealers, which approval will
not be unreasonably withheld by U.S. Check. U.S. Check will not
withhold approval unless there is strong indication that security
of its technology will be breached.
(C) In order to maintain the defined exclusivity of its appointment
granted herein, NeoMedia agrees to purchase minimum quantities of
the Products as follows, each year being measured from January 1st
through December 31st.
PERIOD MINIINUM NUMBER OF DOCUMENTS PURCHASED
Calendar 1997 None
Calendar 1998 None
Calendar 1999 One million
Calendar 2000 Three million
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Calendar 2001 Five million
Calendar 2002 Ten million
Calendar 2003 and beyond Ten million
(D) For years three through ten of this Agreement if actual sales by
NeoMedia are fifteen percent (15% lower than the specified
minimums during two (2) consecutive years, U.S. Check will have
the option of terminating NeoMedia's exclusive rights within sixty
(60) days following the end of the second of those years, in all
or part of the Territory.
(E) NeoMedia agrees to sponsor an advertising and promotional
campaign. The campaign will include participation by NeoMedia in
at least one appropriate trade show during each calendar year of
this Agreement, at which the U.S. Check's technology will be
prominently featured.
(F) NeoMedia agrees to send U.S. Check quarterly operating statements,
in the form U.S.Check suggests, not later than five days following
the end of each calendar quarter and after such results have been
made public. In preparing these operating statements, NeoMedia
will follow all reasonable requests for information made by U.S.
Check.
V. PERFOMANCE BY U.S. CHECK:
U.S. Check agrees to support NeoMedia's marketing and sales activities.
Without limiting the generality of the foregoing, U.S. Check agrees:
(A) To make available to NeoMedia, free of charge, a reasonable
quantity of Product literature and promotional material used by
U.S. Check in the United States and Canada. NeoMedia is hereby
authorized to reproduce or edit this literature and material, and
to make needed translations thereof, as may be appropriate in the
Territory, at NeoMedia's expense; U.S. Check will have the right
to approve all such literature and material prior to its exposure
to potential customers, which approval will not unreasonably be
withheld.
(B) To promptly answer any queries concerning the Products or
applications thereof which NeoMedia may submit to U.S. Check in
connection with the proposed marketing campaigns or contemplated
sales.
(C) To endeavor to make the Products to meet NeoMedia's orders, but
U.S. Check nevertheless reserves the right to allot its production
as it deems best. NeoMedia agrees that any failure to supply those
amounts of Products which may be agreed upon from time to time, or
making only part shipment, or no shipment at all, against any
order of NeoMedia, will not make U.S. Check liable or responsible
to NeoMedia except as provided for herein. In all orders greater
than $10,000 NeoMedia shall accompany such order with a deposit
equal to 25% of such order. In the event there are terms in a
purchase order that U.S. Check cannot meet, U.S. Check shall
notify Neomedia within five (5) business days to that effect. In
the event the purchase order is acceptable the order shall be
confirmed and it shall be U.S. Check's responsibility to deliver
per the terms of the purchase order.
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(D) To the best of U.S. Check's knowledge there are no claims of
infringement against U.S. Check relating to products being sold by
US Check to NeoMedia. If ever in the future, U.S. Check receives
nofification of any such claim(s), U.S. Check will notify NeoMedia
as soon as possible.
VI. TERM AND TERMINATION
This Agreement will have a term of ten (10) years from the date hereof. Not
less than ninety (90) days prior to the expiration of the term, U.S. Check and
NeoMedia agree to review with NeoMedia the operations under this Agreement to
determine whether, and under what terms, this Agreernent is to continue.
(A) This Agreement can be terminated by either party if, 1) There is a
judicial determination of insolvency or bankruptcy of either party
except that NeoMedia shall have the right of first refusal to
purchase U.S. Check's technology in the event of insolvency or
bankruptcy or 2) The other party fails to comply in any material
way with any of the provisions of this Agreement, provided the
aggrieved party has served upon the other party at least 30 days'
prior notice of such noncompliance. The party upon which notice
has been served shall have thirty days thereafter to cure the
breach provision.
Example of material breaches are: 1) The lack of payment per
terms, 2) Failure to meet minimum purchase requirements, 3)
Failure to receive U.S. Check's approval of potential dealers
and/or 4) Failure by U.S. Check to cure defective product shall be
considered material breaches under this Agreement. No other breach
shall be considered material unless such breach undermines U.S.
Check's technology.
(B) In the event of termination, (if it is not sooner terminated) U.S.
Check will hereafter stand wholly freed and discharged, and
NeoMedia hereby expressly releases and discharges U.S. Check and
U.S. Check hereby expressly releases and discharges Neomedia of
and from any and all obligations or liability whatsoever, whether
arising hereunder or from, or in connection with, any manner or
thing relating to, or in any manner connected with, the subject
matter of this Agreement. The foregoing right of termination and
the additional right of non-renewal at the end of the stated term
are absolute, and neither U.S. Check nor NeoMedia will be liable
to the other because of the termination or non-renewal hereof
(whether with or without cause) for compensation, reimbursement,
or damages on account of the loss of prospective profits on
anticipated sales, or on account of expenditures, investments,
leases, or commitments in connection with the business or good
will of U.S. Check or the NeoMedia, or for any other reason
whatsoever except that U.S. Check shall remain liable to NeoMedia
for all damages and expenses, including fees and reasonable
attorney costs, for claims of patent, trademark and service mark
infringement relating to products sold by U.S. Check to NeoMedia.
NeoMedia will not be relieved, however, of any obligations for
unpaid balances for goods shipped hereunder prior to termination
or expiration.
<PAGE>
(C) The termination of this Agreement will operate as a cancellation,
as of the date thereof, of all orders which have not been shipped
by U.S. Check to NeoMedia. Thereafter, neither party will be under
any obligation to the other with respect to orders so canceled.
(E) Upon termination of this Agreement for any reason, U.S. Check will
have the right to elect to repurchase from NeoMedia any and all of
NeoMedia's existing inventory of new and unused Products. The
repurchase price to U.S. Check for new and unused Products will be
the net price paid by NeoMedia, but not including freight and
import duties. U.S. Check can also elect to repurchase sales
samples of the Products that have been used by NeoMedia at a ten
percent (10%) reduction of the net price originally paid by
NeoMedia, provided those Products are, in the opinion of U.S.
Check, in good re-sellable condition.
VII. WARRANTY
NeoMedia will not modify insofar as ink and pre-coded areas within
snippets are concerned any of the Products without the specific written
permission of U.S. Check, which permission will not unreasonably be withheld if
such modifications would be important to meet market or legal requirements
within the Product Area while, at the same time, not adversely affecting the
performance of the Products. Any modifications to the Products performed in the
Product Area by NeoMedia pursuant to this paragraph will fall outside U.S.
Check's original manufacturer (printer) standard warranty, and will be the sole
responsibility of NeoMedia.
VIII. TRADE
(A) U.S. Check hereby grants permission to NeoMedia to display the
trademark "UV SMART" and/or "U.S. Check" in relation to the
Products at NeoMedia's place of business and otherwise as may be
appropriate to market and sell the Products provided the Notice of
U.S. Check's ownership of these trademarks is expressed.
(B) Whether or not U.S. Check succeeds in obtaining Registrations of
any or all of the aforesaid trademarks in the Product Area,
NeoMedia hereby acknowledges U.S. Check's proprietary rights
therein and undertakes not to do anything, during or after the
term of this Agreement, which could adversely affect such
proprietary rights or the distinctiveness of the aforesaid
trademarks. NeoMedia also agrees to obtain the prior written
approval of U.S. Check for the manner in which NeoMedia displays
the aforesaid trademarks at NeoMedia's place of business, at trade
shows, and in Product literature.
IX. BEST EFFORTS
NeoMedia hereby acknowledges that its concentrated and best effort is
essential if this Agreement is to realize the degree of success contemplated by
the parties and NeoMedia agrees to exert such best efforts.
<PAGE>
X. ARM'S LENGTH RELATIONSHIP
During the term hereof, the relationship between U.S. Check and
NeoMedia is that of vendor and vendee. NeoMedia its agents, employees, and
dealers, under no circumstances will be deemed to be agents or representatives
of U.S. Check, nor will any of them have the right to enter into any contracts
or commitments in the name of U.S. Check or otherwise to bind or commit U.S.
Check.
XI. CONFIDENTIALITY
The parties hereto agree to keep strictly confidential, and to bind
their respective directors, officers, and employees to like covenants, the terms
of this Agreement and all matters relating thereto, and to the Products. All
parties undertake not to disclose any of those terms or matters to any other
person except as may be necessary for the furtherance of this Agreement. No
party to this Agreement is authorized to disclose the terms and conditions of
this Agreement to any third party without the express prior written consent of
the other party.
XII. ASSIGNABILITY AND SURVIVAL OF AGREEMENT
This Agreement is not assignable by NeoMedia without the prior written
permission of U.S. Check except to an entity controlled by NeoMedia.
This Agreement will survive any change of ownership, status, merger,
tranfer, assignment or acquisition. The new entity, under its new form, shall be
responsible for the administration and execution of this Agreement in its
entirety.
XIII. FORCE MAJEURE
Neither party will be in default hereunder by reason of its delay in
the performance of or failure to perform any of its obligations hereunder if the
delay or failure is caused by strikes, acts of God or the public enemy, riots,
incendiaries, interference by civil or military authorities, compliance with
governmental laws, rules, or regulations, delays in transit or delivery,
inability to secure governmental priorities for materials, or any fault beyond
its control or without its fault or negligence.
XIV. ARBITRATION
Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, will be settled by arbitration in accordance with the
Rules of the American Arbitration Association, and the judgment upon the award
rendered by the Arbitrator can be entered in any court having jurisdiction
thereof.
<PAGE>
XV. GOVERNING LAW
(A) This Agreement shall be interpreted in accordance with the laws of
The District of Columbia, Washington, D.C.
(B) If any provisions hereunder are illegal or unenforceable under the
laws of the Territory, this Agreement will be otherwise unaffected
unless U.S. Check, in its sole discretion, believes that the
deletion of those provisions goes to the heart of this Agreement,
in which event this Agreement will be terminable forthwith by U.S.
Check.
XVI. GENERAL PROVISIONS
(A) This Agreement contains all the understandings and representations
between the parties relating to the matters referred to herein,
supersedes any arrangements previously entered into between them
with respect thereto, and can be amended only by a written
supplement, duly executed on behalf of the respective parties.
(B) This Agreement will be binding upon Affiliates of NeoMedia.
(C) No term or condition of this Agreement will ever be considered as
waived unless reduced to writing and duly executed by an officer
of the waiving party. Any waiver by either party of a breach of
any term or condition of this Agreement will not be considered as
a waiver of any subsequent breach of the Agreement or any other
term or condition hereof.
(D) The effective date of this Agreement will be that set forth in the
beginning hereof, any approvals of any of the terms or conditions
of this Agreement required by the laws of the Territory will be
obtained by NeoMedia prior to that effective date.
(E) The paragraph headings are for convenience only and will not, be
deemed to affect in any way the language of the provisions to
which they refer.
(F) All notices will be sent to the last known address of the other
party which have been communicated in writing and will be deemed
to take effect five (5) days following the mailing thereof. Each
party agrees to inform the other if they have availability of FAX
and/or email, and if so, to furnish the appropriate FAX or email
addresses. In this event, important notices will be transmitted
via FAX or email, and they will be deemed to have been received
upon acknowledgment thereof immediately following correct
dispatch.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the duly
authorized officers of the respective parties, as of the date first above
written.
NEOMEDIA TECHNOLOGIES, INC.
ATTEST: By: /s/ CHARLES W. FRITZ
----------------------------
Charles W. Fritz
/s/ ROBERT V. CHRISTIANSEN Title: PRESIDENT
- ------------------------- -------------------------
Robert V. Christiansen UNITED STATES CHECK COMPANY, INC.
By: /s/ ILLEGIBLE
ATTEST: ----------------------------
/s/ ILLEGIBLE Title: VICE PRESIDENT
- ---------------------- -------------------------
<PAGE>
EXHIBIT A PRICE LIST
--------------------
To Be Determined. Prices are dependent on volumes. In the event U.S. Check
permits licensees to manufacture non-micr forms for sale to end users, NeoMedia
shall be permitted to purchase such UV Smart enhanced forms from said authorized
manufacturers.
EXHIBIT B NEOMEDIA'S INITIAL ORDER
----------------------------------
To Be Determined
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,403
<SECURITIES> 0
<RECEIVABLES> 6,425
<ALLOWANCES> 124
<INVENTORY> 67
<CURRENT-ASSETS> 9,510
<PP&E> 3,776
<DEPRECIATION> 2,183
<TOTAL-ASSETS> 11,103
<CURRENT-LIABILITIES> 6,972
<BONDS> 0
0
0
<COMMON> 10,174
<OTHER-SE> (7,024)
<TOTAL-LIABILITY-AND-EQUITY> 11,103
<SALES> 11,825
<TOTAL-REVENUES> 11,825
<CGS> 10,465
<TOTAL-COSTS> 10,465
<OTHER-EXPENSES> 3,792
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 52
<INCOME-PRETAX> (2,544)
<INCOME-TAX> (45)
<INCOME-CONTINUING> (2,499)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,499)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)
</TABLE>
