EXECUTION COPY MERGER AGREEMENT THIS MERGER AGREEMENT (the "Agreement") is entered into this 6 day of February, 2004, by and among NEOMEDIA TECHNOLOGIES, INC., a Delaware corporation ("Parent"), [NEOMEDIA ACQUISITION CO.,] a Nevada corporation and a wholly-owned subsidiary of the Parent and a ("Merger Sub"), CSI INTERNATIONAL, INC., a corporation organized under the laws of the Province of Alberta, Canada (the "Company"), and each of Stanton P. Hill, Linda Louise Hill, Ron Thomas, Robin Hill, Shaun Hill, Kelly Hill and Cheri Lynn Hill (individually, a "Shareholder" and collectively, the "Shareholders"). RECITALS: A. The authorized capital stock of the Company consists of 20,000 shares of common stock, no par value, 100 of which are issued and outstanding (the "Company Common Stock"). The Shareholders own all of the outstanding Company Common Stock as provided in Schedule A. B. The Shareholders desire to exchange the Company Common Stock for newly-issued shares of common stock, par value $0.01 per share of Parent (the "Parent Common Stock"), on the terms and conditions set forth herein. C. Upon the terms and subject to the conditions set forth in this Agreement, the Company shall merge with and into Merger Sub (the "Merger") with Merger Sub surviving, in accordance with the Nevada Revised Statutes (the "NRS"). D. For the purposes hereof, references to the Company shall mean CSI International, Inc. up to and including the Closing Date and thereafter shall mean Merger Sub, which shall include the operations of the Company. AGREEMENT: NOW, THEREFORE, forth and certain other sufficiency of which is follows: 1. in consideration of the mutual premises herein set good and valuable consideration, the receipt and hereby acknowledged, the parties hereto agree as
THE MERGER AND RELATED TRANSACTIONS.
1.1. Merger. In accordance with the provisions of this Agreement, the NRS and other applicable law, on the Closing Date (as defined below), the Company shall be merged with and into the Merger Sub, which shall be the surviving corporation (hereinafter sometimes referred to as the "Surviving Corporation") and shall continue its corporate existence under the laws of the State of Nevada as a wholly-owned subsidiary of Parent. As of the Closing, the name of the Merger Sub shall be NeoMedia Micro Paint Repair, Inc., and the separate existence of Merger Sub shall cease. On the Closing Date and by virtue of the Merger and without any action on the part of the Shareholders, all of the then issued and outstanding shares of capital stock of the Company shall be automatically canceled and shall entitle the Shareholders to receive the Merger
Consideration set forth in Section 1.2 hereof.
1.2. Merger Consideration and Payment. 1.2.1. Merger Consideration. In consideration of the Merger, Parent shall (a) issue an aggregate amount of cash equal to Two Million Five Hundred Thousand Dollars (US $2,500,000) to the Shareholders' Representative and Disbursement Agent; and (b) issue newly-issued shares of Parent Common Stock to the Shareholders' Representative and Disbursement Agent (the "Parent Shares," also hereinafter sometimes referred to as the "Merger Consideration"). The total number of shares of Parent's Common Stock issued to Shareholders' Representative and Disbursement Agent shall be equal to a total of seven million (7,000,000) shares. 1.2.2. Manner of Payment. The Merger Consideration shall be payable as follows: (a) at Closing, an aggregate of Two Million Five Hundred Thousand Dollars (US $2,500,000) shall be paid to the Shareholders' Representative and Disbursement Agent; and (b) after Closing, the Parent Shares shall be issued and delivered to the Shareholders' Representative and Disbursement Agent. 1.3. Closing. The parties to this Agreement shall file Articles of Merger (as defined below) pursuant to the NRS, cause the Merger to become effective and consummate the other transactions contemplated by this Agreement (the "Closing") no later than January 30, 2004; provided, in no event shall the Closing occur prior to the satisfaction of the conditions precedent set forth in Sections 6, 7 and 8 hereof. The date of the Closing is referred to herein as the "Closing Date." The Closing shall take place at the offices of counsel to Parent, or at such other place as may be mutually agreed upon by Parent and the Shareholders' Representative and Disbursement Agent. At the Closing, (i) the Shareholders' Representative and Disbursement Agent shall deliver to Parent the original stock certificates representing the Company Common Stock, together with stock powers duly executed in blank; and (ii) Parent shall deliver to Parent's transfer agent instructions with respect to issuing stock certificates representing the Parent Shares. 1.4. Plan of Merger; Articles of Merger. The parties to this Agreement shall cause the Company and Merger Sub to enter into a Plan of Merger on the date hereof, a copy of which is attached hereto as Exhibit "B" (the "Plan of Merger"), and, at the Closing, to execute the Articles of Merger in the form attached hereof as Exhibit "C" (the "Articles of Merger"). The Articles of Merger shall be filed with the Secretary of State of Nevada on the Closing Date in accordance with the NRS. 1.5. Approval of Merger. By his execution of this Agreement, each Shareholder hereby ratifies, approves and adopts the Plan of Merger for all purposes under the NRS. On or before the execution of this Agreement, the respective Boards of Directors of Parent, Merger Sub and the Company shall have approved this Agreement, the Plan of Merger and the transactions contemplated hereby and thereby. 2
2.
ADDITIONAL AGREEMENTS.
2.1. Access and Inspection, Etc. The Company and the Shareholders' Representative and Disbursement Agent have allowed and shall allow Parent and its authorized representatives full access during normal business hours from and after the date hereof and prior to the Closing Date to all of the properties, books, contracts, commitments and records of the Company for the purpose of making such investigations as Parent may reasonably request in connection with the transactions contemplated hereby, and shall cause the Company to furnish Parent such information concerning its affairs as Parent may reasonably request. The Company and the Shareholders' Representative and Disbursement Agent have caused and shall cause the personnel of the Company to assist Parent in making such investigation and shall use his best efforts to cause the counsel, accountants, and other non-employee representatives of the Company to be reasonably available to Parent for such purposes. The Shareholders shall cause the Company to comply with all obligations of the Company under this Agreement. 2.2. Confidential Treatment of Information. From and after the date hereof, the parties hereto shall and shall cause their representatives to hold in confidence this Agreement (including the Exhibits and Schedules hereto), all matters relating hereto and all data and information obtained with respect to the other parties or their business, except such data or information as is published or is a matter of public record, or as compelled by legal process. In the event this Agreement is terminated pursuant to Section 10 hereof, each party shall promptly return to the other(s) any statements, documents, schedules, exhibits or other written information obtained from them in connection with this Agreement, and shall not retain any copies thereof. 2.3. Public Announcements. After the date hereof and prior to the Closing, none of the parties hereto shall make any press release, statement to employees or other disclosure of this Agreement or the transactions contemplated hereby without the prior written consent of the other parties, except as may be required by law. Neither the Company nor the Shareholders nor the Shareholders' Representative and Disbursement Agent shall make any such disclosure unless Parent shall have received prior notice of the contemplated disclosure and has had adequate time and opportunity to comment on such disclosure, which shall be satisfactory in form and content to Parent and its counsel. 2.4. Securities Law Compliance. The issuance of the Parent Shares to the Shareholders hereunder shall not be registered under the Securities Act of 1933, as amended, by reason of the exemption provided by Section 4(2) thereof, and such shares may not be further transferred unless such transfer is registered under applicable securities laws or, in the opinion of Parent's counsel, such transfer complies with an exemption from such registration. All certificates evidencing the Parent Shares to be issued to the Shareholders shall be legended to reflect the foregoing restriction. 2.5. Best Efforts. Subject to the terms and conditions provided in this Agreement, each of the parties shall use its best efforts in good faith to take or cause to be taken as promptly as practicable all reasonable actions that are within its power to cause to be fulfilled those conditions precedent to its obligations or the obligations of the other parties to consummate the transactions contemplated by this Agreement that are dependent upon its actions. 3
2.6. Further Assurances. The parties shall deliver any and all other instruments or documents required to be delivered pursuant to, or necessary or proper in order to give effect to, the provisions of this Agreement, including, without limitation, all necessary stock powers and such other instruments of transfer as may be necessary or desirable to transfer ownership of the Company Common Stock and to consummate the transactions contemplated by this Agreement. 2.7. Noncompetition. 2.7.1. Competitive Business. From and after the Closing Date and for a period four (4) years thereafter (the "Restricted Period"), no Shareholder shall directly or indirectly compete with Parent and/or the Surviving Corporation by owning, managing, controlling or participating in the ownership, management or control of or be employed by or engaged in any Competitive Business (as defined herein) in any location worldwide in which Parent and/or the Surviving Corporation are doing business. The Shareholders acknowledge and agree that the Company's contracts are on a global basis and each Shareholder hereby agrees that he/she shall not compete in the core business of Parent and/or the Surviving Corporation. As used herein, a "Competitive Business" is any other corporation, partnership, proprietorship, firm or other business entity which is engaged in a "core business of Parent and/or the Surviving Corporation." A "core business of Parent and/or the Surviving Corporation" is the development of technology and products in the micro paint industry. Notwithstanding the above, any Shareholder may become employed by or engaged by a "Competitive Business" so long as the Shareholder (a) was not directly involved with or participating in the areas of "core business of Parent and/or the Surviving Corporation" which makes the other business a "Competitive Business," or (b) if the Shareholder is not involved directly in that part of the Competitive Business which is competitive with the "core business of Parent and/or the Surviving Corporation." In addition, a Shareholder may be employed by or engaged by any business which after the Closing Date becomes a "Competitive Business," if such employment or engagement occurred prior to Parent and/or the Surviving Corporation entering into a new "core business of Parent and/or the Surviving Corporation" (whether by acquisition or through Parent and/or the Surviving Corporation's own initiative), which caused such other business to become a Competitive Business. Also, this Section is not violated if a Shareholder owns no more than five percent (5%) of the stock of any publicly traded Competitive Business. 2.7.2. Non-Interference. From and after the date hereof and during the Restricted Period, no Shareholder shall induce or solicit any employee of Parent and/or the Surviving Corporation or any person doing business with Parent and/or the Surviving Corporation to terminate his or her employment or business relationship with Parent and/or the Surviving Corporation or otherwise interfere with any such relationship. 4 2.7.3. Confidentiality. The Shareholders and the Shareholders' Representative and Disbursement Agent agree and acknowledge that, by reason of the nature of the Shareholders' ownership interest in Parent and/or the Surviving Corporation, each Shareholder will have or may have access to and
become informed of confidential and secret information which is a competitive asset of Parent and/or the Surviving Corporation ("Confidential Information"), including, without limitation, technology, any lists of customers, financial statistics, research data or any other statistics and plans contained in profit plans, capital plans, critical issue plans, strategic plans or marketing or operation plans or other trade secrets of Parent and/or the Surviving Corporation and any of the foregoing which belong to any person or company but to which the Shareholders have had access by reason of their relationship with Parent and/or the Surviving Corporation. The Shareholders agree faithfully to keep in strict confidence, and not, either directly or indirectly, to make known, divulge, reveal, furnish, make available or use any such Confidential Information. The Shareholders acknowledge that all manuals, instruction books, price lists, information and records and other information and aids relating to Parent and/or the Surviving Corporation's business, and any and all other documents containing Confidential Information furnished to the Shareholders by Parent and/or the Surviving Corporation or otherwise acquired or developed by the Shareholders, shall at all times be the property of Parent and/or the Surviving Corporation. Upon the termination of this Agreement, each Shareholder shall return to Parent and/or the Surviving Corporation any such property or documents which are in their possession, custody or control, but the Shareholders' obligation of confidentiality shall survive such termination and unless any such Confidential Information shall have become, through no fault of the Shareholder, generally known to the trade. The obligations of the Shareholders under this subsection are in addition to, and not in limitation or preemption of, all other obligations of confidentiality which each Shareholder may have to Parent and/or the Surviving Corporation under general legal or equitable principles. Notwithstanding the above, however, Parent and/or the Surviving Corporation acknowledges that each Shareholder may have extensive experience in the general industry in which Parent and/or the Surviving Corporation operate, and these restrictions are not intended to prevent a Shareholder from using his knowledge of the industry. These restrictions only apply to Confidential Information which is owned by Parent and/or the Surviving Corporation, or was learned by a Shareholder as a shareholder of Parent. 2.7.4. Remedies. It is expressly agreed by the Shareholders and the Shareholders' Representative and Disbursement Agent and Parent that the provisions in this Section 2 are reasonable for purposes of preserving for Parent and/or the Surviving Corporation its business, goodwill and Confidential Information. It is also agreed that if any provision is found by a court having jurisdiction to be unreasonable because of scope, area or time, then that provision shall be amended to correspond in scope, area and time to that considered reasonable by a court and as amended shall be enforced and the remaining provisions shall remain effective. In the event any breach of these provisions by any Shareholder, the parties recognize and acknowledge that a remedy at law will be inadequate and Parent and/or the Surviving Corporation may suffer irreparable injury. The Shareholders and the Shareholders' Representative and Disbursement Agent consent to injunctive and other appropriate equitable relief without the posting of a bond upon the institution of proceedings therefor by Parent and/or the Surviving Corporation in order to protect Parent and/or the Surviving Corporation 's rights. Such relief shall be in addition to any other relief to which Parent and/or the Surviving Corporation may be entitled at law, in equity, or under any other agreement between each Shareholder and Parent and/or the Surviving Corporation. The provisions of this Section 2.7 (including the subsections) shall survive the termination of this Agreement.
5 2.8. Certain Tax Matters.
(a) Section 338(h)(10) Election. The Company and the Shareholders will join with Parent in making an election under Code ss.338(h)(10) of the Internal Revenue Code of 1986, as amended (the "Code") (and any corresponding election under state, local, and foreign tax law) with respect to the Merger (a "Section 338(h)(10) Election"). (b) Allocation of Merger Consideration. Parent and the Shareholders agree that the Merger Consideration and the liabilities of the Company (plus other relevant items) will be allocated to the assets of the Company for all purposes (including tax and financial accounting) in a manner consistent with the fair market values set forth on Schedule 2.8 hereto. Parent, the Company and the Shareholders shall file all tax returns (including amended returns and claims for refund) and information reports in a manner consistent with such values). (c) Tax Periods Ending on or before the Closing Date. Parent shall prepare or cause to be prepared and filed or cause to be filed all tax returns for the Company for all periods ending on or prior to the Closing Date which are filed after the Closing Date. To the extent permitted by applicable law, the Shareholders shall include any income, gain, loss, deduction or other tax items for such periods on their tax returns in a manner consistent with the tax documents furnished by the Company to the Shareholders for such periods. The Shareholders shall reimburse Parent for any taxes of the Company with respect to such period within fifteen (15) days after payment by Parent or the Company. (d) Cooperation on Tax Matters. (i) Parent, the Company and the Shareholders shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of tax returns pursuant to this Section 2.8 and any audit, litigation or other proceeding with respect to taxes. Such cooperation shall include the retention and (upon the other party's request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Company and the Shareholders agree (A) to retain all books and records with respect to tax matters pertinent to the Company relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by Parent or any Shareholder, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (B) to give the other party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other party so requests, the Company or any Shareholder, as the case may be, shall allow the other party to take possession of such books and records. (ii) Parent and the Shareholders further agree, upon request, to use their best efforts to obtain any