Document:

AMENDED
      AND RESTATED REGISTRATION RIGHTS AGREEMENT

     

    AMENDED
      AND RESTATED REGISTRATION RIGHTS AGREEMENT
      (this
      "Agreement"),
      dated
      as of May 20, 2008, by and among Wo Hing Li (the "Seller")
      and
      the undersigned buyers (each, a "Buyer",
      and
      collectively, the "Buyers").

    

    WHEREAS:

     

    A. The
      Company and the Purchasers are parties to that certain Registration Rights
      Agreement, dated as of March 13, 2008 (the "Existing
      RRA"),
      pursuant to which the Buyers received certain registration rights to have shares
      of the common stock, par value $0.001 per share (the "Common
      Stock")
      of
      China Precision Steel, Inc., a Delaware corporation, with headquarters located
      at 87 Wing Lok Street, 8th
      Floor,
      Teda Building, Sheung Wan, Hong Kong, PRC (the "Company")
      registered for re-sale under the Securities Act of 1933, as amended, and the
      rules and regulations thereunder, or any similar successor statute
      (collectively, the "1933
      Act"),
      and
      applicable state securities laws.

     

    B. In
      connection with the Amended and Restated Securities Purchase Agreement by and
      among the Seller and the Buyers of even date herewith (the "Securities
      Purchase Agreement"),
      the
      Seller has agreed, upon the terms and subject to the conditions set forth in
      the
      Securities Purchase Agreement, to sell to each Buyer shares (the "Purchased
      Shares")
      of the
      common stock, par value $0.001 per share (the "Common
      Stock")
      of
      China Precision Steel, Inc., a Delaware corporation, with headquarters located
      at 87 Wing Lok Street, 8th
      Floor,
      Teda Building, Sheung Wan, Hong Kong, PRC (the "Company").

     

    C. The
      parties desire to enter into this Agreement, pursuant to which, the Existing
      RRA
      is hereby amended and restated in its entirety as set forth herein.

     

    NOW,
      THEREFORE,
      in
      consideration of the premises and the mutual covenants contained herein and
      other good and valuable consideration, the receipt and sufficiency of which
      are
      hereby acknowledged, the Company and each of the Buyers hereby agree as
      follows:

     

    1. Definitions.
      

     

    Capitalized
      terms used herein and not otherwise defined herein shall have the respective
      meanings set forth in the Securities Purchase Agreement. As used in this
      Agreement, the following terms shall have the following meanings:

     

    a. "Additional
      Effective Date"
      means
      the date the Additional Registration Statement is declared effective by the
      SEC.

     

    b. "Additional
      Effectiveness Deadline"
      means
      the date which is ninety (90) calendar days after the earlier of the Additional
      Filing Date and the Additional Filing Deadline.

     

    c. "Additional
      Filing Date"
      means
      the date on which the Additional Registration Statement is filed with the
      SEC.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    d. "Additional
      Filing Deadline"
      means
      if Cutback Shares are required to be included in any Additional Registration
      Statement, the later of (i) the date sixty (60) days after the date
      substantially all of the Registrable Securities registered
      under the immediately preceding Registration Statement are sold
      and (ii)
      the date six (6) months from the Initial Effective Date or the most recent
      Additional Effective Date, as applicable.

     

    e. "Additional
      Registrable Securities"
      means,
      (i) any Cutback Shares not previously included on a Registration Statement
      and
      (ii) any capital stock of the Company issued or issuable with respect to the
      Purchased Shares or Cutback Shares as a result of any stock split, stock
      dividend, recapitalization, exchange or similar event or otherwise.

     

    f. "Additional
      Registration Statement"
      means a
      registration statement or registration statements of the Company filed under
      the
      1933 Act covering any Additional Registrable Securities.

     

    g. "Additional
      Required Registration Amount"
      means
      any Cutback Shares not previously included on a Registration Statement, all
      subject to adjustment as provided in Section 2(f).

     

    h. "Business
      Day"
      means
      any day other than Saturday, Sunday or any other day on which commercial banks
      in the City of New York are authorized or required by law to remain
      closed.

     

    i. "Cutback
      Shares"
      means
      any of the Initial Required Registration Amount (without regard to clause (II)
      in the definition thereof) of Registrable Securities not included in all
      Registration Statements previously declared effective hereunder as a result
      of a
      limitation on the maximum number of shares of Common Stock of the Company
      permitted to be registered by the staff of the SEC pursuant to Rule 415.

     

    j. "Effective
      Date"
      means
      the Initial Effective Date and the Additional Effective Date, as
      applicable.

     

    k. "Effectiveness
      Deadline"
      means
      the Initial Effectiveness Deadline and the Additional Effectiveness Deadline,
      as
      applicable.

     

    l. "Filing
      Deadline"
      means
      the Initial Filing Deadline and the Additional Filing Deadline, as
      applicable.

     

    m. "Initial Closing"
      shall
      have the meaning set forth in the Securities Purchase Agreement.

     

    n. "Initial
      Effective Date"
      means
      the date that the Initial Registration Statement has been declared effective
      by
      the SEC.

     

    o. "Initial
      Effectiveness Deadline"
      means
      the
      date one-hundred and twenty (120) calendar days after the Initial
      Closing. 

    
      
        
        

      

      
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    p. "Initial
      Filing Deadline"
      means
      the date which is thirty (30) calendar days after the Initial
      Closing.

     

    q. "Initial
      Registrable Securities"
      for the
      Initial Registration Statement means (i) the Purchased Shares and (ii) any
      capital stock of the Company issued or issuable, with respect to the Purchased
      Shares as a result of any stock split, stock dividend, recapitalization,
      exchange or similar event or otherwise.

     

    r. "Initial
      Registration Statement"
      means a
      registration statement or registration statements of the Company filed under
      the
      1933 Act covering the Initial Registrable Securities.

     

    s. "Initial
      Required Registration Amount"
      means
      (I)
the
      number of Purchased Shares issued and issuable pursuant to the Securities
      Purchase Agreement or
      (II)
      such other amount as may be required by the staff of the SEC pursuant to Rule
      415 with any cutback applied pro rata to all Registrable Securities. 

     

    t. "Investor"
      means a
      Buyer or any transferee or assignee thereof to whom a Buyer assigns its rights
      under this Agreement and who agrees to become bound by the provisions of this
      Agreement in accordance with Section 9 and any transferee or assignee thereof
      to
      whom a transferee or assignee assigns its rights under this Agreement and who
      agrees to become bound by the provisions of this Agreement in accordance with
      Section 9.

     

    u. "Person"
      means
      an individual, a limited liability company, a partnership, a joint venture,
      a
      corporation, a trust, an unincorporated organization and a government or any
      department or agency thereof.

     

    v. "register,"
      "registered,"
      and
      "registration"
      refer
      to a registration effected by preparing and filing one or more Registration
      Statements in compliance with the 1933 Act and pursuant to Rule 415 and the
      declaration or ordering of effectiveness of such Registration Statement(s)
      by
      the SEC.

     

    w. "Registrable
      Securities"
      means
      the Initial Registrable Securities and the Additional Registrable
      Securities.

     

    x. "Registration
      Statement"
      means
      the Initial Registration Statement and the Additional Registration Statement,
      as
      applicable.

     

    y. "Required
      Holders"
      means
      the holders of at least a majority of the Registrable Securities.

     

    z. "Required
      Registration Amount"
      means
      either the Initial Required Registration Amount or the Additional Required
      Registration Amount, as applicable.

     

    aa. "Rule
      415"
      means
      Rule 415 promulgated under the 1933 Act or any successor rule providing for
      offering securities on a continuous or delayed basis.

     

    bb. "SEC"
      means
      the United States Securities and Exchange Commission.

    
      
        
        

      

      
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    2. Registration.

     

    a. Initial
      Mandatory Registration.
      The
      Seller shall cause the Company to prepare, and, as soon as practicable, but
      in
      no event later than the Initial Filing Deadline, file with the SEC the Initial
      Registration Statement on Form S-3 covering the resale of all of the Initial
      Registrable Securities. In the event that Form S-3 is unavailable for such
      a
      registration, the Seller shall cause the Company to use such other form as
      is
      available for such a registration on another appropriate form reasonably
      acceptable to the Required Holders, subject to the provisions of Section 2(e).
      The Initial Registration Statement prepared pursuant hereto shall register
      for
      resale at least the number of shares of Common Stock equal to the Initial
      Required Registration Amount determined as of the date the Initial Registration
      Statement is initially filed with the SEC. The Initial Registration Statement
      shall contain (except if otherwise directed by the Required Holders) the
      "Selling
      Stockholders"
      and
      "Plan
      of Distribution"
      sections in substantially the form attached hereto as Exhibit
      B.
      The
      Seller shall cause the Company to use its best efforts to have the Initial
      Registration Statement declared effective by the SEC as soon as practicable,
      but
      in no event later than the Initial Effectiveness Deadline. By 9:30 a.m. New
      York
      time on the third Business Day following the Initial Effective Date, the Seller
      shall cause the Company to file with the SEC in accordance with Rule 424 under
      the 1933 Act the final prospectus to be used in connection with sales pursuant
      to such Initial Registration Statement.

     

    b. Additional
      Mandatory Registrations.
      The
      Seller shall cause the Company to prepare, and, as soon as practicable but
      in no
      event later than the Additional Filing Deadline, file with the SEC an Additional
      Registration Statement on Form S-3 covering the resale of all of the Additional
      Registrable Securities not previously registered on an Additional Registration
      Statement hereunder. To the extent the staff of the SEC does not permit the
      Additional Required Registration Amount to be registered on an Additional
      Registration Statement, the Seller shall cause the Company to file Additional
      Registration Statements successively trying to register on each such Additional
      Registration Statement the maximum number of remaining Additional Registrable
      Securities until the Additional Required Registration Amount has been registered
      with the SEC. In the event that Form S-3 is unavailable for such a registration,
      the Seller shall cause the Company to use such other form as is available for
      such a registration on another appropriate form reasonably acceptable to the
      Required Holders, subject to the provisions of Section 2(e). Each Additional
      Registration Statement prepared pursuant hereto shall register for resale at
      least that number of shares of Common Stock equal to the Additional Required
      Registration Amount determined as of the date such Additional Registration
      Statement is initially filed with the SEC. Each Additional Registration
      Statement shall contain (except if otherwise directed by the Required Holders)
      the "Selling
      Stockholders"
      and
      "Plan
      of Distribution"
      sections in substantially the form attached hereto as Exhibit
      B.
      The
      Seller shall cause the Company to use its best efforts to have each Additional
      Registration Statement declared effective by the SEC as soon as practicable,
      but
      in no event later than the Additional Effectiveness Deadline. By 9:30 a.m.
      New
      York time on the third Business Day following the Additional Effective
      Date,
      the
      Seller shall cause the Company to file with the SEC in accordance with Rule
      424
      under the 1933 Act the final prospectus to be used in connection with sales
      pursuant to such Additional Registration Statement.

    
      
        
        

      

      
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    c. Allocation
      of Registrable Securities.
      The
      initial number of Registrable Securities included in any Registration Statement
      and any increase in the number of Registrable Securities included therein shall
      be allocated pro rata among the Investors based on the number of Registrable
      Securities held by each Investor at the time the Registration Statement covering
      such initial number of Registrable Securities or increase thereof is declared
      effective by the SEC. In the event that an Investor sells or otherwise transfers
      any of such Investor's Registrable Securities, each transferee shall be
      allocated a pro rata portion of the then remaining number of Registrable
      Securities included in such Registration Statement for such transferor. Any
      shares of Common Stock included in a Registration Statement and which remain
      allocated to any Person which ceases to hold any Registrable Securities covered
      by such Registration Statement shall be allocated to the remaining Investors,
      pro rata based on the number of Registrable Securities then held by such
      Investors which are covered by such Registration Statement. In no event shall
      any securities other than Registrable Securities be included on any Registration
      Statement without the prior written consent of the Required
      Holders.

     

    d. Legal
      Counsel.
      Subject
      to Section 5 hereof, the Required Holders shall have the right to select one
      legal counsel to review and oversee any registration pursuant to this Section
      2
      ("Legal
      Counsel"),
      which
      shall be Schulte Roth & Zabel LLP or such other counsel as thereafter
      designated by the Required Holders. The Seller shall cause the Company to
      reasonably cooperate with Legal Counsel in performing the Seller's obligations
      under this Agreement.

     

    e. Ineligibility
      for Form S-3.
      In the
      event that Form S-3 is not available for the registration of the resale of
      Registrable Securities hereunder, the Seller shall cause the Company to (i)
      register the resale of the Registrable Securities on another appropriate form
      reasonably acceptable to the Required Holders and (ii) undertake to register
      the
      Registrable Securities on Form S-3 as soon as such form is available, provided
      that the Seller shall cause the Company to maintain the effectiveness of the
      Registration Statement then in effect until such time as a Registration
      Statement on Form S-3 covering the Registrable Securities has been declared
      effective by the SEC.

     

    f. Sufficient
      Number of Shares Registered.
      In the
      event the number of shares available under a Registration Statement filed
      pursuant to Section 2(a) or Section 2(b) is insufficient to cover all of the
      Registrable Securities required to be covered by such Registration Statement
      or
      an Investor's allocated portion of the Registrable Securities pursuant to
      Section 2(c), the Seller shall cause the Company to amend the applicable
      Registration Statement, or file a new Registration Statement (on the short
      form
      available therefor, if applicable), or both, so as to cover at least the
      Required Registration Amount as of the Trading Day immediately preceding the
      date of the filing of such amendment or new Registration Statement, in each
      case, as soon as practicable, but in any event not later than thirty (30) days
      after the necessity therefor arises. The Seller shall cause the Company to
      use
      its best efforts to cause such amendment and/or new Registration Statement
      to
      become effective as soon as practicable following the filing thereof. For
      purposes of the foregoing provision, the number of shares available under a
      Registration Statement shall be deemed "insufficient to cover all of the
      Registrable Securities" if at any time the number of shares of Common Stock
      available for resale under the Registration Statement is less than the product
      determined by multiplying (i) the Required Registration Amount as of such time
      by (ii) 0.90.

    
      
        
        

      

      
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    g. Effect
      of Failure to File and Obtain and Maintain Effectiveness of Registration
      Statement.
      If (i)
      a Registration Statement covering all of the Registrable Securities required
      to
      be covered thereby and required to be filed by the Company pursuant to this
      Agreement is (A) not filed with the SEC on or before the respective Filing
      Deadline (a "Filing
      Failure")
      or (B)
      not declared effective by the SEC on or before the respective Effectiveness
      Deadline (an "Effectiveness
      Failure");
      (ii)
      on any day after the Effective Date sales of all of the Registrable Securities
      required to be included on such Registration Statement cannot be made (other
      than during an Allowable Grace Period (as defined in Section 3(r)) pursuant
      to
      such Registration Statement or otherwise (including, without limitation, because
      of a failure to keep such Registration Statement effective, to disclose such
      information as is necessary for sales to be made pursuant to such Registration
      Statement, to register a sufficient number of shares of Common Stock or to
      maintain the listing of the Common Stock) (a "Maintenance
      Failure");
      or
      (iii) the Seller shall fail to cause the Company to comply with Section 8 below
      (a "Public
      Information Failure");
      then,
      as partial relief for the damages to any holder by reason of any such delay
      in
      or reduction of its ability to sell the underlying shares of Common Stock (which
      remedy shall not be exclusive of any other remedies available at law or in
      equity), the Seller shall pay to each holder of Registrable Securities relating
      to such Registration Statement an amount in cash equal to one and one-half
      a
      percent (1.5%) of the aggregate Purchase Price (as such term is defined in
      the
      Securities Purchase Agreement) of such Investor's Registrable Securities
      (whether or not included in such Registration Statement) paid to the Seller
      at
      the time of such failure, on each of the following dates: (i) the day of a
      Filing Failure; (ii) the day of an Effectiveness Failure; (iii) the initial
      day
      of a Maintenance Failure; (iv) the initial day of a Public Information Failure;
      (v) on every thirtieth day after the day of a Filing Failure and thereafter
      (pro
      rated for periods totaling less than thirty days) until such Filing Failure
      is
      cured; (vi) on every thirtieth day after the day of an Effectiveness Failure
      and
      thereafter (pro rated for periods totaling less than thirty days) until such
      Effectiveness Failure is cured; (vii) on every thirtieth day after the initial
      day of a Maintenance Failure and thereafter (pro rated for periods totaling
      less
      than thirty days) until such Maintenance Failure is cured; and (viii) on every
      thirtieth day after the initial day of a Public Information Failure and
      thereafter (pro rated for periods totaling less than thirty days) until such
      Public Information Failure is cured. The payments to which a holder shall be
      entitled pursuant to this Section 2(g) are referred to herein as "Registration
      Delay Payments."
      Registration Delay Payments shall be paid on the earlier of (I) the dates set
      forth above and (II) the third Business Day after the event or failure giving
      rise to the Registration Delay Payments is cured. In the event the Seller fails
      to make Registration Delay Payments in a timely manner, such Registration Delay
      Payments shall bear interest at the rate of one percent (1.0%) per month
      (prorated for partial months) until paid in full. 

     

    h. Assignment
      of Registration Rights.
      The
      Seller hereby transfers and assigns any and all registration rights in and
      to
      the Purchased Shares to the Buyers. The Seller shall use his best efforts as
      a
      party to any registration rights agreement or understanding and as the holder
      of
      such shares to enforce such registration rights to the benefit of the Buyers.
      Without limiting the foregoing, the Seller shall also take such actions as
      are
      necessary or appropriate to cause the Company to take the actions set forth
      in
      this Agreement with respect to registration of the Purchased Shares;
provided,
      that
      the Seller shall take such actions only his capacity as a party to any
      registration rights agreement with respect to the Purchased Shares and as a
      shareholder of the Company, but not as an officer or director of the Company.
      The Buyers acknowledge and agree that the Seller shall not be obligated to
      take
      any action with respect hereto in his capacity as Chief Executive Officer and/or
      director of the Company. The parties further acknowledge and agree that the
      Seller shall be entitled to abstain from any vote of directors of the Company
      regarding the matters set forth herein.

    
      
        
        

      

      
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    3. Related
      Obligations.

     

    At
      such
      time as the Seller is obligated to cause the Company to file a Registration
      Statement with the SEC pursuant to Section 2(a), 2(b), 2(e) or 2(f), the Seller
      shall cause the Company to use its best efforts to effect the registration
      of
      the Registrable Securities in accordance with the intended method of disposition
      thereof and, pursuant thereto, the Seller shall cause the Company to have the
      following obligations:

     

    a. The
      Seller shall cause the Company to promptly prepare and file with the SEC a
      Registration Statement with respect to the Registrable Securities and use its
      reasonable best efforts to cause such Registration Statement relating to the
      Registrable Securities to become effective as soon as practicable after such
      filing (but in no event later than the Effectiveness Deadline). The Seller
      shall
      cause the Company to keep each Registration Statement effective pursuant to
      Rule
      415 at all times until the earlier of (i) the date as of which the Investors
      may
      sell all of the Registrable Securities covered by such Registration Statement
      without restriction pursuant to Rule 144 and without the requirement to be
      in
      compliance with Rule 144(c)(1) (or any successor thereto) promulgated under
      the
      1933 Act or (ii) the date on which the Investors shall have sold all of the
      Registrable Securities covered by such Registration Statement (the "Registration
      Period").
      The
      Seller shall cause the Company to ensure that each Registration Statement
      (including any amendments or supplements thereto and prospectuses contained
      therein) shall not contain any untrue statement of a material fact or omit
      to
      state a material fact required to be stated therein, or necessary to make the
      statements therein (in the case of prospectuses, in the light of the
      circumstances in which they were made) not misleading. The term "best efforts"
      shall mean, among other things, that the Seller shall cause the Company to
      submit to the SEC, within two (2) Business Days after the later of the date
      that
      (i) the Company learns that no review of a particular Registration Statement
      will be made by the staff of the SEC or that the staff has no further comments
      on a particular Registration Statement, as the case may be, and (ii) the
      approval of Legal Counsel pursuant to Section 3(c) (which approval is
      immediately sought), a request for acceleration of effectiveness of such
      Registration Statement to a time and date not later than two (2) Business Days
      after the submission of such request. The Seller shall cause the Company to
      respond in writing to comments made by the SEC in respect of a Registration
      Statement as soon as practicable, but in no event later than fifteen (15) days
      after the receipt of comments by or notice from the SEC that an amendment is
      required in order for a Registration Statement to be declared
      effective.

    
      
        
        

      

      
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    b. The
      Seller shall cause the Company to prepare and file with the SEC such amendments
      (including post-effective amendments) and supplements to a Registration
      Statement and the prospectus used in connection with such Registration
      Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
      under the 1933 Act, as may be necessary to keep such Registration Statement
      effective at all times during the Registration Period, and, during such period,
      comply with the provisions of the 1933 Act with respect to the disposition
      of
      all Registrable Securities of the Company covered by such Registration Statement
      until such time as all of such Registrable Securities shall have been disposed
      of in accordance with the intended methods of disposition by the seller or
      sellers thereof as set forth in such Registration Statement. In the case of
      amendments and supplements to a Registration Statement which are required to
      be
      filed pursuant to this Agreement (including pursuant to this Section 3(b))
      by
      reason of the Company filing a report on Form 10-Q, Form 10-QSB, Form 10-K,
      Form
      10-KSB or any analogous report under the Securities Exchange Act of 1934, as
      amended (the "1934
      Act"),
      the
      Seller shall cause the Company to have incorporated such report by reference
      into such Registration Statement, if applicable, or shall file such amendments
      or supplements with the SEC on the same day on which the 1934 Act report is
      filed which created the requirement for the Company to amend or supplement
      such
      Registration Statement.

     

    c. The
      Seller shall cause the Company to (A) permit Legal Counsel to review and comment
      upon (i) a Registration Statement at least five (5) Business Days prior to
      its
      filing with the SEC and (ii) all amendments and supplements to all Registration
      Statements (except for Annual Reports on Form 10-K or Form 10-KSB, Quarterly
      Reports on Form 10-Q or Form 10-QSB, Current Reports on Form 8-K, and any
      similar or successor reports) within a reasonable number of days prior to their
      filing with the SEC, and (B) not file any Registration Statement or amendment
      or
      supplement thereto in a form to which Legal Counsel reasonably objects. The
      Seller shall cause the Company to not submit a request for acceleration of
      the
      effectiveness of a Registration Statement or any amendment or supplement thereto
      without the prior approval of Legal Counsel, which consent shall not be
      unreasonably withheld. The Seller shall cause the Company to furnish to Legal
      Counsel, without charge, (i) copies of any correspondence from the SEC or the
      staff of the SEC to the Company or its representatives relating to any
      Registration Statement, (ii) promptly after the same is prepared and filed
      with
      the SEC, one copy of any Registration Statement and any amendment(s) thereto,
      including financial statements and schedules, all documents incorporated therein
      by reference, if requested by an Investor, and all exhibits and (iii) upon
      the
      effectiveness of any Registration Statement, one copy of the prospectus included
      in such Registration Statement and all amendments and supplements thereto.
      The
      Seller shall cause the Company to reasonably cooperate with Legal Counsel in
      performing obligations the Seller is required to cause the Company to perform
      pursuant to this Section 3. 

     

    d. The
      Seller shall cause the Company to furnish to each Investor whose Registrable
      Securities are included in any Registration Statement, without charge, (i)
      promptly after the same is prepared and filed with the SEC, at least one copy
      of
      such Registration Statement and any amendment(s) thereto, including financial
      statements and schedules, all documents incorporated therein by reference,
      if
      requested by an Investor, all exhibits and each preliminary prospectus, (ii)
      upon the effectiveness of any Registration Statement, ten (10) copies of the
      prospectus included in such Registration Statement and all amendments and
      supplements thereto (or such other number of copies as such Investor may
      reasonably request) and (iii) such other documents, including copies of any
      preliminary or final prospectus, as such Investor may reasonably request from
      time to time in order to facilitate the disposition of the Registrable
      Securities owned by such Investor.

    
      
        
        

      

      
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    e. The
      Seller shall cause the Company to use its reasonable best efforts to (i)
      register and qualify, unless an exemption from registration and qualification
      applies, the resale by Investors of the Registrable Securities covered by a
      Registration Statement under such other securities or "blue sky" laws of all
      applicable jurisdictions in the United States, (ii) prepare and file in those
      jurisdictions, such amendments (including post-effective amendments) and
      supplements to such registrations and qualifications as may be necessary to
      maintain the effectiveness thereof during the Registration Period, (iii) take
      such other actions as may be necessary to maintain such registrations and
      qualifications in effect at all times during the Registration Period, and (iv)
      take all other actions reasonably necessary or advisable to qualify the
      Registrable Securities for sale in such jurisdictions; provided, however, that
      the Company shall not be required in connection therewith or as a condition
      thereto to (x) qualify to do business in any jurisdiction where it would not
      otherwise be required to qualify but for this Section 3(e), (y) subject itself
      to general taxation in any such jurisdiction, or (z) file a general consent
      to
      service of process in any such jurisdiction. The Seller shall cause the Company
      to promptly notify Legal Counsel and each Investor who holds Registrable
      Securities of the receipt by the Company of any notification with respect to
      the
      suspension of the registration or qualification of any of the Registrable
      Securities for sale under the securities or "blue sky" laws of any jurisdiction
      in the United States or its receipt of actual notice of the initiation or
      threatening of any proceeding for such purpose.

     

    f. The
      Seller shall cause the Company to notify Legal Counsel and each Investor in
      writing of the happening of any event, as promptly as practicable after becoming
      aware of such event, as a result of which the prospectus included in a
      Registration Statement, as then in effect, includes an untrue statement of
      a
      material fact or omission to state a material fact required to be stated therein
      or necessary to make the statements therein, in the light of the circumstances
      under which they were made, not misleading (provided that in no event shall
      such
      notice contain any material, nonpublic information), and, subject to Section
      3(r), promptly prepare a supplement or amendment to such Registration Statement
      to correct such untrue statement or omission and deliver ten (10) copies of
      such
      supplement or amendment to Legal Counsel and each Investor (or such other number
      of copies as Legal Counsel or such Investor may reasonably request). The Seller
      shall cause the Company to also promptly notify Legal Counsel and each Investor
      in writing (i) when a prospectus or any prospectus supplement or post-effective
      amendment has been filed, and when a Registration Statement or any
      post-effective amendment has become effective (notification of such
      effectiveness shall be delivered to Legal Counsel and each Investor by facsimile
      or e-mail on the same day of such effectiveness and by overnight mail), (ii)
      of
      any request by the SEC for amendments or supplements to a Registration Statement
      or related prospectus or related information, and (iii) of the Company's
      reasonable determination that a post-effective amendment to a Registration
      Statement would be appropriate. 

     

    g. The
      Seller shall cause the Company to use its reasonable best efforts to prevent
      the
      issuance of any stop order or other suspension of effectiveness of a
      Registration Statement, or the suspension of the qualification of any of the
      Registrable Securities for sale in any jurisdiction and, if such an order or
      suspension is issued, to obtain the withdrawal of such order or suspension
      at
      the earliest possible moment and to notify Legal Counsel and each Investor
      who
      holds Registrable Securities being sold of the issuance of such order and the
      resolution thereof or its receipt of actual notice of the initiation or threat
      of any proceeding for such purpose.

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    h. If
      any
      Investor is required under applicable securities laws to be described in the
      Registration Statement as an underwriter or
      an
      Investor believes that it could reasonably be deemed to be an underwriter of
      Registrable Securities,
      at the
      reasonable request of such Investor, the Seller shall cause the Company to
      furnish to such Investor, on the date of the effectiveness of the Registration
      Statement and thereafter from time to time on such dates as an Investor may
      reasonably request (i) a letter, dated such date, from the Company's independent
      certified public accountants in form and substance as is customarily given
      by
      independent certified public accountants to underwriters in an underwritten
      public offering, addressed to the Investors, and (ii) an opinion, dated as
      of
      such date, of counsel representing the Company for purposes of such Registration
      Statement, in form, scope and substance as is customarily given in an
      underwritten public offering, addressed to the Investors.

     

    i. If
      any
      Investor is required under applicable securities laws to be described in the
      Registration Statement as an underwriter or an Investor believes that it could
      reasonably be deemed to be an underwriter of Registrable Securities, the Seller
      shall cause the Company to make available for inspection by (i) such Investor,
      (ii) Legal Counsel and (iii) one firm of accountants or other agents retained
      by
      the Investors (collectively, the "Inspectors"),
      all
      pertinent financial and other records, and pertinent corporate documents and
      properties of the Company (collectively, the "Records"),
      as
      shall be reasonably deemed necessary by each Inspector, and cause the Company's
      officers, directors and employees to supply all information which any Inspector
      may reasonably request; provided, however, that each Inspector shall agree
      to
      hold in strict confidence and shall not make any disclosure (except to an
      Investor) or use of any Record or other information which the Company determines
      in good faith to be confidential, and of which determination the Inspectors
      are
      so notified, unless (a) the disclosure of such Records is necessary to avoid
      or
      correct a misstatement or omission in any Registration Statement or is otherwise
      required under the 1933 Act, (b) the release of such Records is ordered pursuant
      to a final, non-appealable subpoena or order from a court or government body
      of
      competent jurisdiction, or (c) the information in such Records has been made
      generally available to the public other than by disclosure in violation of
      this
      Agreement. Each Investor agrees that it shall, upon learning that disclosure
      of
      such Records is sought in or by a court or governmental body of competent
      jurisdiction or through other means, give prompt notice to the Company and
      allow
      the Company, at its expense, to undertake appropriate action to prevent
      disclosure of, or to obtain a protective order for, the Records deemed
      confidential. Nothing herein (or in any other confidentiality agreement between
      the Company and any Investor) shall be deemed to limit the Investors' ability
      to
      sell Registrable Securities in a manner which is otherwise consistent with
      applicable laws and regulations.

     

    j. The
      Seller shall and shall cause the Company to hold in confidence and not make
      any
      disclosure of information concerning an Investor provided to the Company unless
      (i) disclosure of such information is necessary to comply with federal or state
      securities laws, (ii) the disclosure of such information is necessary to avoid
      or correct a misstatement or omission in any Registration Statement, (iii)
      the
      release of such information is ordered pursuant to a subpoena or other final,
      non-appealable order from a court or governmental body of competent
      jurisdiction, or (iv) such information has been made generally available to
      the
      public other than by disclosure in violation of this Agreement or any other
      agreement. The Seller agrees that he shall cause the Company to, upon learning
      that disclosure of such information concerning an Investor is sought in or
      by a
      court or governmental body of competent jurisdiction or through other means,
      give prompt written notice to such Investor and allow such Investor, at the
      Investor's expense, to undertake appropriate action to prevent disclosure of,
      or
      to obtain a protective order for, such information.

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    k. The
      Seller shall cause the Company to use its best efforts either to (i) cause
      all
      of the Registrable Securities covered by a Registration Statement to be listed
      on each securities exchange on which securities of the same class or series
      issued by the Company are then listed, if any, if the listing of such
      Registrable Securities is then permitted under the rules of such exchange or
      (ii) secure the inclusion for quotation of all of the Registrable Securities
      on
      The NASDAQ Global Select Market or (iii) if, despite the Company's best efforts,
      the Company is unsuccessful in satisfying the preceding clauses (i) and (ii),
      to
      secure the inclusion for quotation on The NASDAQ Global Market, the New York
      Stock Exchange, The NASDAQ Capital Market or the American Stock Exchange for
      such Registrable Securities and, without limiting the generality of the
      foregoing, to use its best efforts to arrange for at least two market makers
      to
      register with the Financial
      Industry Regulatory Authority, Inc.
      ("FINRA")
      as
      such with respect to such Registrable Securities. The Seller shall, or shall
      cause the Company to, pay all fees and expenses in connection with satisfying
      its obligation under this Section 3(k).

     

    l. The
      Seller shall cause the Company to cooperate with the Investors who hold
      Registrable Securities being offered and, to the extent applicable, facilitate
      the timely preparation and delivery of certificates (not bearing any restrictive
      legend) representing the Registrable Securities to be offered pursuant to a
      Registration Statement and enable such certificates to be in such denominations
      or amounts, as the case may be, as the Investors may reasonably request and
      registered in such names as the Investors may request.

     

    m. If
      requested by an Investor, the Seller shall cause the Company to as soon as
      practicable (i) incorporate in a prospectus supplement or post-effective
      amendment such information as an Investor reasonably requests to be included
      therein relating to the sale and distribution of Registrable Securities,
      including, without limitation, information with respect to the number of
      Registrable Securities being offered or sold, the purchase price being paid
      therefor and any other terms of the offering of the Registrable Securities
      to be
      sold in such offering; (ii) make all required filings of such prospectus
      supplement or post-effective amendment after being notified of the matters
      to be
      incorporated in such prospectus supplement or post-effective amendment; and
      (iii) supplement or make amendments to any Registration Statement if reasonably
      requested by an Investor holding any Registrable Securities.

     

    n. The
      Seller shall cause the Company to use its reasonable best efforts to cause
      the
      Registrable Securities covered by a Registration Statement to be registered
      with
      or approved by such other governmental agencies or authorities as may be
      necessary to consummate the disposition of such Registrable
      Securities.

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    o. The
      Seller shall cause the Company to make generally available to its security
      holders as soon as practical, but not later than ninety (90) days after the
      close of the period covered thereby, an earnings statement (in form complying
      with, and in the manner provided by, the provisions of Rule 158 under the 1933
      Act) covering a twelve-month period beginning not later than the first day
      of
      the Company's fiscal quarter next following the applicable Effective Date of
      a
      Registration Statement.

     

    p. The
      Seller shall cause the Company to otherwise use its best efforts to comply
      with
      all applicable rules and regulations of the SEC in connection with any
      registration hereunder.

     

    q. Within
      two (2) Business Days after a Registration Statement which covers Registrable
      Securities is ordered effective by the SEC, the Seller shall cause the Company
      to deliver, and shall cause legal counsel for the Company to deliver, to the
      transfer agent for such Registrable Securities (with copies to the Investors
      whose Registrable Securities are included in such Registration Statement)
      confirmation that such Registration Statement has been declared effective by
      the
      SEC in the form attached hereto as Exhibit
      A.

     

    r. Notwithstanding
      anything to the contrary herein, at any time after the Effective Date, the
      Company may delay the disclosure of material, non-public information concerning
      the Company the disclosure of which at the time is not, in the good faith
      opinion of the Board of Directors of the Company and its counsel, in the best
      interest of the Company and, in the opinion of counsel to the Company, otherwise
      required (a "Grace
      Period");
      provided, that the Seller shall (i) notify the Investors in writing of the
      existence of material, non-public information giving rise to a Grace Period
      (provided that in each notice the Seller shall not, and shall cause the Company
      not to, disclose the content of such material, non-public information to the
      Investors) and the date on which the Grace Period will begin, and
      (ii) notify the Investors in writing of the date on which the Grace Period
      ends; and, provided further, that no Grace Period shall exceed five (5)
      consecutive days and during any three hundred sixty five (365) day period such
      Grace Periods shall not exceed an aggregate of twenty (20) days and the first
      day of any Grace Period must be at least five (5) Trading Days after the last
      day of any prior Grace Period (each, an "Allowable
      Grace Period").
      For
      purposes of determining the length of a Grace Period above, the Grace Period
      shall begin on and include the date the Investors receive the notice referred
      to
      in clause (i) and shall end on and include the later of the date the Investors
      receive the notice referred to in clause (ii) and the date referred to in such
      notice. The provisions of Section 3(g) hereof shall not be applicable during
      the
      period of any Allowable Grace Period. Upon expiration of the Grace Period,
      the
      Seller shall again be bound by the first sentence of Section 3(f) with respect
      to the information giving rise thereto unless such material, non-public
      information is no longer applicable. Notwithstanding anything to the contrary,
      the Seller shall cause the Company to cause its transfer agent to deliver
      unlegended shares of Common Stock to a transferee of an Investor in accordance
      with the terms of the Securities Purchase Agreement in connection with any
      sale
      of Registrable Securities with respect to which an Investor has entered into
      a
      contract for sale, prior to the Investor's receipt of the notice of a Grace
      Period and for which the Investor has not yet settled. 

     

    s. The
      Seller shall cause the Company not to, and shall cause the Company's
      Subsidiaries and affiliates not to, identify any Buyer as an underwriter in
      any
      public disclosure or filing with the SEC or any Principal Market (as
      defined in the Securities Purchase Agreement) or
      Eligible Market and any Buyer being deemed an underwriter by the SEC shall
      not
      relieve the Seller of any obligations it has under this Agreement or any other
      Transaction Document (as
      defined in the Securities Purchase Agreement); provided,
      however,
      that
      the foregoing shall not prohibit the Company from including the disclosure
      found
      in the "Plan of Distribution" section attached hereto as Exhibit
      B
      in the
      Registration Statement.
      

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    4. Obligations
      of the Investors.

     

    a. At
      least
      five (5) Business Days prior to the first anticipated filing date of a
      Registration Statement, the Seller shall cause the Company to notify each
      Investor in writing of the information the Company requires from each such
      Investor if such Investor elects to have any of such Investor's Registrable
      Securities included in such Registration Statement. It shall be a condition
      precedent to the obligations of the Seller to cause the Company to complete
      the
      registration pursuant to this Agreement with respect to the Registrable
      Securities of a particular Investor that such Investor shall furnish to the
      Company such information regarding itself, the Registrable Securities held
      by it
      and the intended method of disposition of the Registrable Securities held by
      it,
      as shall be reasonably required to effect and maintain the effectiveness of
      the
      registration of such Registrable Securities and shall execute such documents
      in
      connection with such registration as the Company may reasonably request.

     

    b. Each
      Investor, by such Investor's acceptance of the Registrable Securities, agrees
      to
      cooperate with the Company as reasonably requested by the Company in connection
      with the preparation and filing of any Registration Statement hereunder, unless
      such Investor has notified the Company in writing of such Investor's election
      to
      exclude all of such Investor's Registrable Securities from such Registration
      Statement.

     

    c. Each
      Investor agrees that, upon receipt of any notice from the Company or Seller
      of
      the happening of any event of the kind described in Section 3(g) or the first
      sentence of 3(f), such Investor will immediately discontinue disposition of
      Registrable Securities pursuant to any Registration Statement(s) covering such
      Registrable Securities until such Investor's receipt of the copies of the
      supplemented or amended prospectus contemplated by Section 3(g) or the first
      sentence of 3(f) or receipt of notice that no supplement or amendment is
      required. Notwithstanding anything to the contrary, the Seller shall cause
      the
      Company to cause its transfer agent to deliver unlegended shares of Common
      Stock
      to a transferee of an Investor in accordance with the terms of the Securities
      Purchase Agreement in connection with any sale of Registrable Securities with
      respect to which an Investor has entered into a contract for sale prior to
      the
      Investor's receipt of a notice from the Company of the happening of any event
      of
      the kind described in Section 3(g) or the first sentence of 3(f) and for which
      the Investor has not yet settled.

     

    d. Each
      Investor covenants and agrees that it will comply with the prospectus delivery
      requirements of the 1933 Act as applicable to it or an exemption therefrom
      in
      connection with sales of Registrable
      Securities pursuant to the Registration Statement.

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    5. Expenses
      of Registration.

     

    All
      reasonable expenses, other than underwriting discounts and commissions, incurred
      in connection with registrations, filings or qualifications pursuant to Sections
      2 and 3, including, without limitation, all registration, listing and
      qualifications fees, printers and accounting fees, and fees and disbursements
      of
      counsel for the Company shall be paid by the Seller, if not paid by the Company.
      The Seller shall also reimburse the Investors for the fees and disbursements
      of
      Legal Counsel in connection with registration, filing or qualification pursuant
      to Sections 2 and 3 of this Agreement which amount shall be limited to $7,500
      for
      each
      such registration, filing or qualification.

     

    6. Indemnification.

     

    In
      the
      event any Registrable Securities are included in a Registration Statement under
      this Agreement:

     

    a. To
      the
      fullest extent permitted by law, the Seller will, and hereby does, indemnify,
      hold harmless and defend each Investor, the directors, officers, members,
      partners, employees, agents, representatives of, and each Person, if any, who
      controls any Investor within the meaning of the 1933 Act or the 1934 Act (each,
      an "Indemnified
      Person"),
      against any losses, claims, damages, liabilities, judgments, fines, penalties,
      charges, costs, reasonable attorneys' fees, amounts paid in settlement or
      expenses, joint or several, (collectively, "Claims")
      incurred in investigating, preparing or defending any action, claim, suit,
      inquiry, proceeding, investigation or appeal taken from the foregoing by or
      before any court or governmental, administrative or other regulatory agency,
      body or the SEC, whether pending or threatened, whether or not an indemnified
      party is or may be a party thereto ("Indemnified
      Damages"),
      to
      which any of them may become subject insofar as such Claims (or actions or
      proceedings, whether commenced or threatened, in respect thereof) arise out
      of
      or are based upon: (i) any untrue statement or alleged untrue statement of
      a
      material fact in a Registration Statement or any post-effective amendment
      thereto or in any filing made in connection with the qualification of the
      offering under the securities or other "blue sky" laws of any jurisdiction
      in
      which Registrable Securities are offered ("Blue
      Sky Filing"),
      or
      the omission or alleged omission to state a material fact required to be stated
      therein or necessary to make the statements therein not misleading, (ii) any
      untrue statement or alleged untrue statement of a material fact contained in
      any
      preliminary prospectus if used prior to the effective date of such Registration
      Statement, or contained in the final prospectus (as amended or supplemented,
      if
      the Company files any amendment thereof or supplement thereto with the SEC)
      or
      the omission or alleged omission to state therein any material fact necessary
      to
      make the statements made therein, in light of the circumstances under which
      the
      statements therein were made, not misleading, (iii) any violation or alleged
      violation by the Company of the 1933 Act, the 1934 Act, any other law,
      including, without limitation, any state securities law, or any rule or
      regulation thereunder relating to the offer or sale of the Registrable
      Securities pursuant to a Registration Statement or (iv) any violation of this
      Agreement (the matters in the foregoing clauses (i) through (iv) being,
      collectively, "Violations").
      Subject to Section 6(c), the Seller shall reimburse the Indemnified Persons,
      promptly as such expenses are incurred and are due and payable, for any legal
      fees or other reasonable expenses incurred by them in connection with
      investigating or defending any such Claim. Notwithstanding anything to the
      contrary contained herein, the indemnification agreement contained in this
      Section 6(a): (i) shall not apply to a Claim by an Indemnified Person arising
      out of or based upon a Violation which occurs in reliance upon and in conformity
      with information furnished in writing to the Company by such Indemnified Person
      for such Indemnified Person expressly for use in connection with the preparation
      of the Registration Statement or any such amendment thereof or supplement
      thereto, if such prospectus was timely made available by the Company pursuant
      to
      Section 3(d); and (ii) shall not apply to amounts paid in settlement of any
      Claim if such settlement is effected without the prior written consent of the
      Seller, which consent shall not be unreasonably withheld or delayed. Such
      indemnity shall remain in full force and effect regardless of any investigation
      made by or on behalf of the Indemnified Person and shall survive the transfer
      of
      the Registrable Securities by the Investors pursuant to Section
      9.

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    b. In
      connection with any Registration Statement in which an Investor is
      participating, each such Investor agrees to severally and not jointly indemnify,
      hold harmless and defend, to the same extent and in the same manner as is set
      forth in Section 6(a), the Seller and the Company, each of its directors, each
      of its officers who signs the Registration Statement and each Person, if any,
      who controls the Company within the meaning of the 1933 Act or the 1934 Act
      (each, an "Indemnified
      Party"),
      against any Claim or Indemnified Damages to which any of them may become
      subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim
      or
      Indemnified Damages arise out of or are based upon any Violation, in each case
      to the extent, and only to the extent, that such Violation occurs in reliance
      upon and in conformity with written information furnished to the Company by
      such
      Investor expressly for use in connection with such Registration Statement;
      and,
      subject to Section 6(c), such Investor shall reimburse the Indemnified Party,
      promptly as such expenses are incurred and are due and payable, for any legal
      or
      other expenses reasonably incurred by an Indemnified Party in connection with
      investigating or defending any such Claim; provided, however, that the indemnity
      agreement contained in this Section 6(b) and the agreement with respect to
      contribution contained in Section 7 shall not apply to amounts paid in
      settlement of any Claim if such settlement is effected without the prior written
      consent of such Investor, which consent shall not be unreasonably withheld
      or
      delayed; provided, further, however, that the Investor shall be liable under
      this Section 6(b) for only that amount of a Claim or Indemnified Damages as
      does
      not exceed the net proceeds to such Investor as a result of the sale of
      Registrable Securities pursuant to such Registration Statement. Such indemnity
      shall remain in full force and effect regardless of any investigation made
      by or
      on behalf of such Indemnified Party and shall survive the transfer of the
      Registrable Securities by the Investors pursuant to Section 9. 

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    c. Promptly
      after receipt by an Indemnified Person or Indemnified Party under this Section
      6
      of notice of the commencement of any action or proceeding (including any
      governmental action or proceeding) involving a Claim, such Indemnified Person
      or
      Indemnified Party shall, if a Claim in respect thereof is to be made against
      any
      indemnifying party under this Section 6, deliver to the indemnifying party
      a
      written notice of the commencement thereof, and the indemnifying party shall
      have the right to participate in, and, to the extent the indemnifying party
      so
      desires, jointly with any other indemnifying party similarly noticed, to assume
      control of the defense thereof with counsel mutually satisfactory to the
      indemnifying party and the Indemnified Person or the Indemnified Party, as
      the
      case may be; provided, however, that an Indemnified Person or Indemnified Party
      shall have the right to retain its own counsel with the fees and expenses of
      not
      more than one counsel for all such Indemnified Person or Indemnified Party
      to be
      paid by the indemnifying party, if, in the reasonable opinion of counsel
      retained by the indemnifying party, the representation by such counsel of the
      Indemnified Person or Indemnified Party and the indemnifying party would be
      inappropriate due to actual or potential differing interests between such
      Indemnified Person or Indemnified Party and any other party represented by
      such
      counsel in such proceeding. In the case of an Indemnified Person, legal counsel
      referred to in the immediately preceding sentence shall be selected by the
      Investors holding at least a majority in
      interest of the Registrable Securities included in the Registration Statement
      to
      which the Claim relates. The Indemnified Party or Indemnified Person shall
      cooperate reasonably with the indemnifying party in connection with any
      negotiation or defense of any such action or Claim by the indemnifying party
      and
      shall furnish to the indemnifying party all information reasonably available
      to
      the Indemnified Party or Indemnified Person which relates to such action or
      Claim. The indemnifying party shall keep the Indemnified Party or Indemnified
      Person fully apprised at all times as to the status of the defense or any
      settlement negotiations with respect thereto. No indemnifying party shall be
      liable for any settlement of any action, claim or proceeding effected without
      its prior written consent, provided, however, that the indemnifying party shall
      not unreasonably withhold, delay or condition its consent. No indemnifying
      party
      shall, without the prior written consent of the Indemnified Party or Indemnified
      Person, consent to entry of any judgment or enter into any settlement or other
      compromise which does not include as an unconditional term thereof the giving
      by
      the claimant or plaintiff to such Indemnified Party or Indemnified Person of
      a
      release from all liability in respect to such Claim or litigation, and such
      settlement shall not include any admission as to fault on the part of the
      Indemnified Party. Following indemnification as provided for hereunder, the
      indemnifying party shall be subrogated to all rights of the Indemnified Party
      or
      Indemnified Person with respect to all third parties, firms or corporations
      relating to the matter for which indemnification has been made. The failure
      to
      deliver written notice to the indemnifying party within a reasonable time of
      the
      commencement of any such action shall not relieve such indemnifying party of
      any
      liability to the Indemnified Person or Indemnified Party under this Section
      6,
      except to the extent that the indemnifying party is prejudiced in its ability
      to
      defend such action.

     

    d. The
      indemnification required by this Section 6 shall be made by periodic payments
      of
      the amount thereof during the course of the investigation or defense, as and
      when bills are received or Indemnified Damages are incurred.

     

    e. The
      indemnity agreements contained herein shall be in addition to (i) any cause
      of
      action or similar right of the Indemnified Party or Indemnified Person against
      the indemnifying party or others, and (ii) any liabilities the indemnifying
      party may be subject to pursuant to the law.

     

    7. Contribution.

     

    To
      the
      extent any indemnification by an indemnifying party is prohibited or limited
      by
      law, the indemnifying party agrees to make the maximum contribution with respect
      to any amounts for which it would otherwise be liable under Section 6 to the
      fullest extent permitted by law; provided, however, that: (i) no Person involved
      in the sale of Registrable Securities which Person is guilty of fraudulent
      misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in
      connection with such sale shall be entitled to contribution from any Person
      involved in such sale of Registrable Securities who was not guilty of fraudulent
      misrepresentation; and (ii) contribution by any seller of Registrable Securities
      shall be limited in amount to the amount of net proceeds received by such seller
      from the sale of such Registrable Securities pursuant to such Registration
      Statement.

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    8. Reports
      Under the 1934 Act.
      

     

    Until
      the
      later of (i) the date twelve (12) months after the date the last of the
      Purchased Shares are issued to the Investors pursuant to the Securities Purchase
      Agreement and (ii) the date on which the Investors may sell all of the
      Registrable Securities without restriction pursuant to Rule 144 and without
      the
      requirement to be in compliance with Rule 144(c)(1) (or any successor thereto)
      promulgated under the 1933 Act without the Company's compliance with subsections
      (a) through (c) below, with a view to making available to the Investors the
      benefits of Rule 144 promulgated under the 1933 Act or any other similar rule
      or
      regulation of the SEC that may at any time permit the Investors to sell
      securities of the Company to the public without registration ("Rule
      144"),
      the
      Seller shall cause the Company to:

     

    a. make
      and
      keep public information available, as those terms are understood and defined
      in
      Rule 144; 

     

    b. file
      with
      the SEC in a timely manner all reports and other documents required of the
      Company under the 1933 Act and the 1934 Act so long as the Company remains
      subject to such requirements and the filing of such reports and other documents
      is required for the applicable provisions of Rule 144; and

     

    c. furnish
      to each Investor so long as such Investor owns Registrable Securities, promptly
      upon request, (i) a written statement by the Company, if true, that it has
      complied with the reporting requirements of Rule 144, the 1933 Act and the
      1934
      Act, (ii) a copy of the most recent annual or quarterly report of the Company
      and such other reports and documents so filed by the Company, and (iii) such
      other information as may be reasonably requested to permit the Investors to
      sell
      such securities pursuant to Rule 144 without registration.

     

    9. Assignment
      of Registration Rights.
      

     

    The
      rights under this Agreement shall be automatically assignable by the Investors
      to any transferee of all or any portion of such Investor's Registrable
      Securities if: (i) the Investor agrees in writing with the transferee or
      assignee to assign such rights, and a copy of such agreement is furnished to
      the
      Seller within a reasonable time after such assignment; (ii) the Seller is,
      within a reasonable time after such transfer or assignment, furnished with
      written notice of (a) the name and address of such transferee or assignee,
      and
      (b) the securities with respect to which such registration rights are being
      transferred or assigned; (iii) immediately following such transfer or assignment
      the further disposition of such securities by the transferee or assignee is
      restricted under the 1933 Act or applicable state securities laws; (iv) at
      or
      before the time the Seller receives the written notice contemplated by clause
      (ii) of this sentence the transferee or assignee agrees in writing with the
      Seller to be bound by all of the provisions contained herein; and (v) such
      transfer shall have been made in accordance with the applicable requirements
      of
      the Securities Purchase Agreement.

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    10. Amendment
      of Registration Rights.

     

    Provisions
      of this Agreement may be amended and the observance thereof may be waived
      (either generally or in a particular instance and either retroactively or
      prospectively), only with the written consent of the Seller and the Required
      Holders. Any amendment or waiver effected in accordance with this Section 10
      shall be binding upon each Investor and the Seller. No such amendment shall
      be
      effective to the extent that it applies to less than all of the holders of
      the
      Registrable Securities. No consideration shall be offered or paid to any Person
      to amend or consent to a waiver or modification of any provision of this
      Agreement unless the same consideration also is offered to all of the parties
      to
      this Agreement.

     

    11. Miscellaneous.

     

    a. A
      Person
      is deemed to be a holder of Registrable Securities whenever such Person owns
      or
      is deemed to own of record such Registrable Securities. If the Company receives
      conflicting instructions, notices or elections from two or more Persons with
      respect to the same Registrable Securities, the Seller shall cause the Company
      to act upon the basis of instructions, notice or election received from such
      record owner of such Registrable Securities.

     

    b. Any
      notices, consents, waivers or other communications required or permitted to
      be
      given under the terms of this Agreement must be in writing and will be deemed
      to
      have been delivered: (i) upon receipt, when delivered personally; (ii) upon
      receipt, when sent by facsimile (provided confirmation of transmission is
      mechanically or electronically generated and kept on file by the sending party);
      or (iii) one Business Day after deposit with a nationally recognized overnight
      delivery service, in each case properly addressed to the party to receive the
      same. The addresses and facsimile numbers for such communications shall
      be:

    

    If
      to the
      Seller: 

    

    Wo
      Hing
      Li

    c/o
      China
      Precision Steel, Inc.

    8th
      Floor,
      Teda Building

    87
      Wing
      Lok Street

    Sheung
      Wan

    Hong
      Kong, The People's Republic of China 

    Telephone:
       +852-2543-8223

    Facsimile:
       +021-59940382

    

    with
      a
      copy to (for information purposes only) to:

     

    Guzov
      Ofsink, LLC

    600
      Madison Avenue, 14th Floor

    New
      York,
      New York 10022

    Attention:
      Darren L. Ofsink, Esq.

    Telephone:
      (212) 371-8008

    Facsimile:
      (212) 688-7273

    Attention:
      Darren L. Ofsink, Esq.

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    If
      to the
      Transfer Agent:

     

    Corporate
      Stock Transfer

    3300
      Cherry Creek Drive South, Suite 430

    Denver,
      Colorado 80209

    Telephone:
      (303) 282-4800

    Facsimile:
      (303) 282-5800

    Attention:
      Carylyn
      Bell

    

    If
      to
      Legal Counsel:

    

    Schulte 
      Roth
& Zabel LLP

    919
      Third
      Avenue

    New
      York,
      New York 10022

    Telephone:
      (212) 756-2000

    Facsimile:
      (212) 593-5955

    Attention:
      Eleazer N. Klein, Esq.

    

    If
      to a
      Buyer, to its address and facsimile number set forth on the Schedule of Buyers
      attached hereto, with copies to such Buyer's representatives as set forth on
      the
      Schedule of Buyers, or to such other address and/or facsimile number and/or
      to
      the attention of such other Person as the recipient party has specified by
      written notice given to each other party five (5) days prior to the
      effectiveness of such change. Written confirmation of receipt (A) given by
      the
      recipient of such notice, consent, waiver or other communication, (B)
      mechanically or electronically generated by the sender's facsimile machine
      containing the time, date, recipient facsimile number and an image of the first
      page of such transmission or (C) provided by a courier or overnight courier
      service shall be rebuttable evidence of personal service, receipt by facsimile
      or receipt from a nationally recognized overnight delivery service in accordance
      with clause (i), (ii) or (iii) above, respectively.

     

    c. Failure
      of any party to exercise any right or remedy under this Agreement or otherwise,
      or delay by a party in exercising such right or remedy, shall not operate as
      a
      waiver thereof.

     

    d. All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be governed by the internal laws of the State of New
      York, without giving effect to any choice of law or conflict of law provision
      or
      rule (whether of the State of New York or any other jurisdictions) that would
      cause the application of the laws of any jurisdictions other than the State
      of
      New York. Each party hereby irrevocably submits to the exclusive jurisdiction
      of
      the state and federal courts sitting in The City of New York, Borough of
      Manhattan, for the adjudication of any dispute hereunder or in connection
      herewith or with any transaction contemplated hereby or discussed herein, and
      hereby irrevocably waives, and agrees not to assert in any suit, action or
      proceeding, any claim that it is not personally subject to the jurisdiction
      of
      any such court, that such suit, action or proceeding is brought in an
      inconvenient forum or that the venue of such suit, action or proceeding is
      improper. Each party hereby irrevocably waives personal service of process
      and
      consents to process being served in any such suit, action or proceeding by
      mailing a copy thereof to such party at the address for such notices to it
      under
      this Agreement and agrees that such service shall constitute good and sufficient
      service of process and notice thereof. Nothing contained herein shall be deemed
      to limit in any way any right to serve process in any manner permitted by law.
      The Seller hereby appoints Guzov Ofsink, LLC, with offices at 600 Madison
      Avenue, 14th Floor, New York, New York 10022, as its agent for service of
      process. EACH
      PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
      REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
      CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
      CONTEMPLATED HEREBY.

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    e. If
      any
      provision of this Agreement is prohibited by law or otherwise determined to
      be
      invalid or unenforceable by a court of competent jurisdiction, the provision
      that would otherwise be prohibited, invalid or unenforceable shall be deemed
      amended to apply to the broadest extent that it would be valid and enforceable,
      and the invalidity or unenforceability of such provision shall not affect the
      validity of the remaining provisions of this Agreement so long as this Agreement
      as so modified continues to express, without material change, the original
      intentions of the parties as to the subject matter hereof and the prohibited
      nature, invalidity or unenforceability of the provision(s) in question does
      not
      substantially impair the respective expectations or reciprocal obligations
      of
      the parties or the practical realization of the benefits that would otherwise
      be
      conferred upon the parties. The parties will endeavor in good faith negotiations
      to replace the prohibited, invalid or unenforceable provision(s) with a valid
      provision(s), the effect of which comes as close as possible to that of the
      prohibited, invalid or unenforceable provision(s).

     

    f. This
      Agreement, the other Transaction Documents (as defined in the Securities
      Purchase Agreement) and the instruments referenced herein and therein constitute
      the entire agreement among the parties hereto with respect to the subject matter
      hereof and thereof. There are no restrictions, promises, warranties or
      undertakings, other than those set forth or referred to herein and therein.
      This
      Agreement, the other Transaction Documents and the instruments referenced herein
      and therein supersede all prior agreements and understandings among the parties
      hereto with respect to the subject matter hereof and thereof.

     

    g. Subject
      to the requirements of Section 9, this Agreement shall inure to the benefit
      of
      and be binding upon the permitted successors and assigns of each of the parties
      hereto.

     

    h. The
      headings in this Agreement are for convenience of reference only and shall not
      limit or otherwise affect the meaning hereof.

     

    i. This
      Agreement may be executed in identical counterparts, each of which shall be
      deemed an original but all of which shall constitute one and the same agreement.
      This Agreement, once executed by a party, may be delivered to the other party
      hereto by facsimile transmission of a copy of this Agreement bearing the
      signature of the party so delivering this Agreement.

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    j. Each
      party shall do and perform, or cause to be done and performed, all such further
      acts and things, and shall execute and deliver all such other agreements,
      certificates, instruments and documents as any other party may reasonably
      request in order to carry out the intent and accomplish the purposes of this
      Agreement and the consummation of the transactions contemplated
      hereby.

     

    k. All
      consents and other determinations required to be made by the Investors pursuant
      to this Agreement shall be made, unless otherwise specified in this Agreement,
      by the Required Holders.

     

    l. The
      language used in this Agreement will be deemed to be the language chosen by
      the
      parties to express their mutual intent and no rules of strict construction
      will
      be applied against any party. 

     

    m. This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns, and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person.

     

    n. The
      obligations of each Investor hereunder are several and not joint with the
      obligations of any other Investor, and no provision of this Agreement is
      intended to confer any obligations on any Investor vis-à-vis any other Investor.
      Nothing contained herein, and no action taken by any Investor pursuant hereto,
      shall be deemed to constitute the Investors as a partnership, an association,
      a
      joint venture or any other kind of entity, or create a presumption that the
      Investors are in any way acting in concert or as a group with respect to such
      obligations or the transactions contemplated herein.

     

     

    *
      * * * *
      *

     

    [Signature
      Page Follows]

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      each
      Buyer and the Seller have caused their respective signature page to this Amended
      and Restated Registration Rights Agreement to be duly executed as of the date
      first written above.

     

    
      	Seller:
	 	 
	 	
                 
                

            
	 	
              Wo
                Hing Li

            

    

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      each
      Buyer and the Seller have caused their respective signature page to this Amended
      and Restated Registration Rights Agreement to be duly executed as of the date
      first written above.

     

    

    
      	
              BUYERS:

            
	 
	
              HUDSON
                BAY FUND, LP

            
	 	 
	
              By:

            	
                   
                

            
	 	
              Name:  

              Title:    

            

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      each
      Buyer and the Seller have caused their respective signature page to this Amended
      and Restated Registration Rights Agreement to be duly executed as of the date
      first written above.

     

    

    
      	
              BUYERS:

            
	 
	
              HUDSON
                BAY OVERSEAS FUND, LTD

            
	 	 
	
              By:

            	     

	 	
              Name:  

              Title:    

            

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      each
      Buyer and the Seller have caused their respective signature page to this Amended
      and Restated Registration Rights Agreement to be duly executed as of the date
      first written above.

    

    
      	
              BUYERS:

            
	 
	
              ENABLE
                GROWTH PARTNERS LP

            
	 	 
	
              By:

            	
                   
                

            
	 	
              Name:  

              Title:    

            

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    SCHEDULE
      OF BUYERS

    

    
      	
              Buyer

            	 	
              Buyer
                Address

              and
                Facsimile Number

            	 	
              Buyer's
                Representative's Address

              and
                Facsimile Number

            
	 	 	 	 	 
	
              Hudson
                Bay Fund, LP

            	 	
              120
                Broadway, 40th Floor

              New
                York, New York 10271

              Attention:
                Yoav Roth

              Facsimile:
                212-571-1279

              Telephone:
                212-571-1244

              Residence:
                United States

              E-mail: investments@hudsonbaycapital.com

            	 	
              Schulte Roth &
                Zabel LLP

              919
                Third Avenue

              New
                York, NY 10022

              Attn:
                Eleazer Klein, Esq. 

              Facsimile:
                (212) 593-5955

              Telephone:
                (212) 756-2000

            
	 	 	 	 	 
	
              Hudson Bay Overseas Fund, Ltd.

            	 	
              120
                Broadway, 40th Floor

              New
                York, New York 10271

              Attention:
                Yoav Roth

              Facsimile:
                212-571-1279

              Telephone:
                212-571-1244

              E-mail: investments@hudsonbaycapital.com

            	
            	
              Schulte
                Roth & Zabel LLP

              919
                Third Avenue

              New
                York, NY 10022

              Attn:
                Eleazer Klein, Esq. 

              Facsimile:
                (212) 593-5955

              Telephone:
                (212) 756-2000

            
	 	 	 	 	 
	
              Enable
                Growth Partners LP

            	 	
              One
                Ferry Building, Suite 255

              San
                Francisco, CA 94111

              Attention:
                Adam Epstein

              Facsimile:
                415-677-1580

              Telephone
                415-677-1579

              Email:
                aepstein@enablecapital.com

            	 	 

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A

    

    FORM
      OF NOTICE OF EFFECTIVENESS

    OF
      REGISTRATION STATEMENT

     

    Corporate
      Stock Transfer

    3300
      Cherry Creek Drive South, Suite 430

    Denver,
      Colorado 80209

    Attention:
      Carylyn Bell

    

    Re: China
      Precision Steel, Inc.

     

    Ladies
      and Gentlemen:

     

    [We
      are][I am] counsel to China Precision Steel, Inc., a Delaware corporation (the
      "Company"),
      and
      have represented the Company in connection with that certain Amended and
      Restated Securities Purchase Agreement (the "Securities
      Purchase Agreement")
      entered into by and among the Wo Hing Li (the "Seller")
      and
      the buyers named therein (collectively, the "Holders")
      pursuant to which the Seller issued to the Holders shares (the "Purchased
      Shares")
      the
      Company's common stock, par value $0.001 per share (the "Common
      Stock").
      Pursuant to the Securities Purchase Agreement, the Company has entered into
      a
      Amended and Restated Registration Rights Agreement with the Holders (the
      "Registration
      Rights Agreement")
      pursuant to which the Company agreed, among other things, to register the
      Registrable Securities (as defined in the Registration Rights Agreement), under
      the Securities Act of 1933, as amended (the "1933
      Act").
      In
      connection with the Company's obligations under the Registration Rights
      Agreement, on ____________ ___, 200_, the Company filed a Registration Statement
      on Form S-3 (File No. 333-_____________) (the "Registration
      Statement")
      with
      the Securities and Exchange Commission (the "SEC")
      relating to the Registrable Securities which names each of the Holders as a
      selling stockholder thereunder.

     

    In
      connection with the foregoing, [we][I] advise you that a member of the SEC's
      staff has advised [us][me] by telephone that the SEC has entered an order
      declaring the Registration Statement effective under the 1933 Act at
[ENTER
      TIME OF EFFECTIVENESS]
      on
[ENTER
      DATE OF EFFECTIVENESS]
      and
      [we][I] have no knowledge, after telephonic inquiry of a member of the SEC's
      staff, that any stop order suspending its effectiveness has been issued or
      that
      any proceedings for that purpose are pending before, or threatened by, the
      SEC
      and the Registrable Securities are available for resale under the 1933 Act
      pursuant to the Registration Statement.

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    This
      letter shall serve as our standing instruction to you that the shares of Common
      Stock are freely transferable by the Holders pursuant to the Registration
      Statement. You need not require further letters from us to effect any future
      legend-free issuance or reissuance of shares of Common Stock to the Holders.
      

     

    
      	
              Very
                truly yours,

            
	 
	
              [ISSUER'S
                COUNSEL]

            
	 	 
	
              By:

            	
                   
                

            

    

    

    CC: [LIST
      NAMES OF HOLDERS]

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    EXHIBIT
      B

    

    SELLING
      STOCKHOLDERS

     

    The
      shares of common stock being offered by the selling stockholders are those
      previously issued to the Selling Stockholders. For additional information
      regarding the issuances of common stock, see "Private Placement of Purchased
      Shares" above. We are registering the shares of common stock in order to permit
      the selling stockholders to offer the shares for resale from time to time.
      Except for the ownership of the shares of common stock issued pursuant to the
      Securities Purchase Agreement, the selling stockholders have not had any
      material relationship with us within the past three years.

     

    The
      table
      below lists the selling stockholders and other information regarding the
      beneficial ownership of the shares of common stock by each of the selling
      stockholders. The second column lists the number of shares of common stock
      beneficially owned by each selling shareholder, based on its ownership of the
      shares of common stock, as of ________, 2008.

     

    The
      third
      column lists the shares of common stock being offered by this prospectus by
      the
      selling stockholders.

     

    In
      accordance with the terms of a registration rights agreement with the selling
      stockholders, this prospectus generally covers the resale of at least 100%
      of
      the number of shares of common stock issued pursuant to the Securities Purchase
      Agreement. The fourth column assumes the sale of all of the shares offered
      by
      the selling stockholders pursuant to this prospectus.

     

    The
      selling stockholders may sell all, some or none of their shares in this
      offering. See "Plan of Distribution."

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    
      	
              Name of Selling Stockholder

            	 	
              Number of Shares of

              Common Stock Owned

              Prior to Offering

            	 	
              Maximum Number of Shares

              of Common Stock to be Sold

              Pursuant to this Prospectus

            	 	
              Number of Shares of

              Common Stock Owned

              After Offering

            
	 	 	 	 	 	 	 
	
              Hudson Bay
                Fund LP (1)

            	 	 	 	 	 	
              0

            
	 	 	 	 	 	 	 
	
              Hudson
                Bay Overseas Fund LTD (2)

            	 	 	 	 	 	 
	 	 	 	 	 	 	 
	
              Enable
                Growth Partners LP (3)

            	 	 	 	 	 	 

    

     

    (1)
      Sander Gerber, Yoav Roth and John Doscas share voting and investment power
      over
      these securities. Each of Sander Gerber, Yoav Roth and John Doscas disclaim
      beneficial ownership over the securities held by Hudson Bay Fund LP. The selling
      stockholder acquired the securities offered for its own account in the ordinary
      course of business, and at the time it acquired the securities, it had no
      agreements, plans or understandings, directly or indirectly to distribute the
      securities. 

    

    (2)
      Sander Gerber, Yoav Roth and John Doscas share voting and investment power
      over
      these securities. Each of Sander Gerber, Yoav Roth and John Doscas disclaim
      beneficial ownership over the securities held by Hudson Bay Overseas Fund LTD.
      The selling stockholder acquired the securities offered for its own account
      in
      the ordinary course of business, and at the time it acquired the securities,
      it
      had no agreements, plans or understandings, directly or indirectly to distribute
      the securities.

    

    (3)

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    PLAN
      OF DISTRIBUTION

     

    We
      are
      registering the shares of common stock previously issued to the selling
      stockholders to permit the resale of these shares of common stock by the holders
      of the shares from time to time after the date of this prospectus. We will
      not
      receive any of the proceeds from the sale by the selling stockholders of the
      shares of common stock. We will bear all fees and expenses incident to our
      obligation to register the shares of common stock.

     

    The
      selling stockholders may sell all or a portion of the shares of common stock
      beneficially owned by them and offered hereby from time to time directly or
      through one or more underwriters, broker-dealers or agents. If the shares of
      common stock are sold through underwriters or broker-dealers, the selling
      stockholders will be responsible for underwriting discounts or commissions
      or
      agent's commissions. The shares of common stock may be sold in one or more
      transactions at fixed prices, at prevailing market prices at the time of the
      sale, at varying prices determined at the time of sale, or at negotiated prices.
      These sales may be effected in transactions, which may involve crosses or block
      transactions, 

     

    
      	
            	·	
              on
                any national securities exchange or quotation service on which the
                securities may be listed or quoted at the time of
                sale;

            

    

     

    
      	
            	·	
              in
                the over-the-counter market;

            

    

     

    
      	
            	·	
              in
                transactions otherwise than on these exchanges or systems or in the
                over-the-counter market;

            

    

     

    
      	
            	·	
              through
                the writing of options, whether such options are listed on an options
                exchange or otherwise;

            

    

     

    
      	
            	·	
              ordinary
                brokerage transactions and transactions in which the broker-dealer
                solicits purchasers;

            

    

     

    
      	
            	·	
              block
                trades in which the broker-dealer will attempt to sell the shares
                as agent
                but may position and resell a portion of the block as principal to
                facilitate the transaction;

            

    

     

    
      	
            	·	
              purchases
                by a broker-dealer as principal and resale by the broker-dealer for
                its
                account;

            

    

     

    
      	
            	·	
              an
                exchange distribution in accordance with the rules of the applicable
                exchange;

            

    

     

    
      	
            	·	
              privately
                negotiated transactions;

            

    

     

    
      	
            	·	
              short
                sales;

            

    

     

    
      	
            	·	
              sales
                pursuant to Rule 144;

            

    

     

    
      	
            	·	
              broker-dealers
                may agree with the selling securityholders to sell a specified number
                of
                such shares at a stipulated price per
                share;

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
            	·	
              a
                combination of any such methods of sale;
                and

            

    

     

    
      	
            	·	
              any
                other method permitted pursuant to applicable
                law.

            

    

     

    If
      the
      selling stockholders effect such transactions by selling shares of common stock
      to or through underwriters, broker-dealers or agents, such underwriters,
      broker-dealers or agents may receive commissions in the form of discounts,
      concessions or commissions from the selling stockholders or commissions from
      purchasers of the shares of common stock for whom they may act as agent or
      to
      whom they may sell as principal (which discounts, concessions or commissions
      as
      to particular underwriters, broker-dealers or agents may be in excess of those
      customary in the types of transactions involved). In connection with sales
      of
      the shares of common stock or otherwise, the selling stockholders may enter
      into
      hedging transactions with broker-dealers, which may in turn engage in short
      sales of the shares of common stock in the course of hedging in positions they
      assume. The selling stockholders may also sell shares of common stock short
      and
      deliver shares of common stock covered by this prospectus to close out short
      positions and to return borrowed shares in connection with such short sales.
      The
      selling stockholders may also loan or pledge shares of common stock to
      broker-dealers that in turn may sell such shares.

     

    The
      selling stockholders may pledge or grant a security interest in some or all
      of
      the shares of common stock owned by them and, if they default in the performance
      of their secured obligations, the pledgees or secured parties may offer and
      sell
      the shares of common stock from time to time pursuant to this prospectus or
      any
      amendment to this prospectus under Rule 424(b)(3) or other applicable provision
      of the Securities Act of 1933, as amended, amending, if necessary, the list
      of
      selling stockholders to include the pledgee, transferee or other successors
      in
      interest as selling stockholders under this prospectus. The selling stockholders
      also may transfer and donate the shares of common stock in other circumstances
      in which case the transferees, donees, pledgees or other successors in interest
      will be the selling beneficial owners for purposes of this
      prospectus.

     

    The
      selling stockholders and any broker-dealer participating in the distribution
      of
      the shares of common stock may be deemed to be "underwriters" within the meaning
      of the Securities Act, and any commission paid, or any discounts or concessions
      allowed to, any such broker-dealer may be deemed to be underwriting commissions
      or discounts under the Securities Act. At the time a particular offering of
      the
      shares of common stock is made, a prospectus supplement, if required, will
      be
      distributed which will set forth the aggregate amount of shares of common stock
      being offered and the terms of the offering, including the name or names of
      any
      broker-dealers or agents, any discounts, commissions and other terms
      constituting compensation from the selling stockholders and any discounts,
      commissions or concessions allowed or reallowed or paid to
      broker-dealers.

     

    Under
      the
      securities laws of some states, the shares of common stock may be sold in such
      states only through registered or licensed brokers or dealers. In addition,
      in
      some states the shares of common stock may not be sold unless such shares have
      been registered or qualified for sale in such state or an exemption from
      registration or qualification is available and is complied
      with.

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    There
      can
      be no assurance that any selling stockholder will sell any or all of the shares
      of common stock registered pursuant to the registration statement, of which
      this
      prospectus forms a part.

     

    The
      selling stockholders and any other person participating in such distribution
      will be subject to applicable provisions of the Securities Exchange Act of
      1934,
      as amended, and the rules and regulations thereunder, including, without
      limitation, Regulation M of the Exchange Act, which may limit the timing of
      purchases and sales of any of the shares of common stock by the selling
      stockholders and any other participating person. Regulation M may also restrict
      the ability of any person engaged in the distribution of the shares of common
      stock to engage in market-making activities with respect to the shares of common
      stock. All of the foregoing may affect the marketability of the shares of common
      stock and the ability of any person or entity to engage in market-making
      activities with respect to the shares of common stock.

     

    We
      will
      pay all expenses of the registration of the shares of common stock pursuant
      to
      the registration rights agreement, estimated to be
      $[     ] in total, including, without limitation,
      Securities and Exchange Commission filing fees and expenses of compliance with
      state securities or "blue sky" laws; provided, however, that a selling
      stockholder will pay all underwriting discounts and selling commissions, if
      any.
      We will indemnify the selling stockholders against liabilities, including some
      liabilities under the Securities Act, in accordance with the registration rights
      agreements, or the selling stockholders will be entitled to contribution. We
      may
      be indemnified by the selling stockholders against civil liabilities, including
      liabilities under the Securities Act, that may arise from any written
      information furnished to us by the selling stockholder specifically for use
      in
      this prospectus, in accordance with the related registration rights agreement,
      or we may be entitled to contribution.

     

    Once
      sold
      under the registration statement, of which this prospectus forms a part, the
      shares of common stock will be freely tradable in the hands of persons other
      than our affiliates.

    
      
        
        

      

      
        3NEITHER
      THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS CONVERTIBLE
      HAVE
      BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
      COMMISSION OF ANY STATE. THESE SECURITIES HAVE BEEN SOLD IN RELIANCE UPON AN
      EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
      “SECURITIES
      ACT”),
      AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
      REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
      EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
      REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
      SECURITIES LAWS.

     

    NEOMEDIA
      TECHNOLOGIES, INC.

     

    Secured
      Convertible Debenture

     

    
      	
              Issuance
                Date: May 16, 2008

            	
              Original
                Principal Amount: $500,000

            
	
              No.
                NEO-2008-2

            	 

    

    

    FOR
      VALUE RECEIVED,
      NEOMEDIA
      TECHNOLOGIES, INC., a Delaware corporation (the "Company"),
      hereby promises to pay to the order of YA GLOBAL INVESTMENTS, L.P f/k/a Cornell
      Capital Partners, L.P., or registered assigns (the "Holder")
      the
      amount set out above as the Original Principal Amount (as reduced pursuant
      to
      the terms hereof pursuant to redemption, conversion or otherwise, the
      "Principal")
      when
      due, upon the Maturity Date (as defined below), acceleration, redemption or
      otherwise (in each case in accordance with the terms hereof) and to pay interest
      ("Interest")
      on any
      outstanding Principal at the applicable Interest Rate from the date set out
      above as the Issuance Date (the "Issuance
      Date")
      until
      the same becomes due and payable as set forth below, or upon acceleration,
      conversion, redemption or otherwise (in each case in accordance with the terms
      hereof). This Secured Convertible Debenture (including all Secured Convertible
      Debentures issued in exchange, transfer or replacement hereof, this
      "Debenture")
      is one
      of an issue of Secured Convertible Debentures issued by the Company to the
      Holder (collectively, the "Debentures"
      and
      such other Convertible Debentures, the "Other
      Debentures").
      Certain capitalized terms used herein are defined in Section 17.

     

    (1) GENERAL
      TERMS

     

    (a) Payment
      of Principal.
      On
      the
      Maturity Date, the Company shall pay to the Holder an amount in cash
      representing all outstanding Principal, accrued and unpaid Interest.
The
      "Maturity
      Date"
      shall
      be May 16, 2010, as may be extended at the option of the Holder (i) in the
      event
      that, and for so long as, an Event of Default (as defined below) shall have
      occurred and be continuing on the Maturity Date (as may be extended pursuant
      to
      this Section 1) or any event shall have occurred and be continuing on the
      Maturity Date (as may be extended pursuant to this Section 1) that with the
      passage of time and the failure to cure would result in an Event of Default.
      Other than as specifically permitted by this Debenture, the Company may not
      prepay or redeem any portion of the outstanding Principal without the prior
      written consent of the Holder.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (b) Interest.
      Interest shall accrue on the outstanding principal balance hereof at an annual
      rate equal to fifteen percent (15%) (“Interest
      Rate”).
      Interest shall be calculated on the basis of a 360-day year and the actual
      number of days elapsed, to the extent permitted by applicable law. Interest
      hereunder shall be paid quarterly in arrears, beginning on July 1, 2008, and
      on
      the Maturity Date (or sooner as provided herein) to the Holder or its assignee
      in whose name this Debenture is registered on the records of the Company
      regarding registration and transfers of Debentures at the option of the Company
      in cash. 

     

    (c) Security.
      The
      Debenture is secured by (i) a security interest in all of the assets of the
      Company and of each of the Company's subsidiaries pursuant to the Security
      Agreement dated August 24, 2007 (the “Security
      Agreement”)
      and
      (ii) a security interest in all of the patents, trademarks and copyrights of
      the
      Company and of each of the Company's subsidiaries pursuant to the Patent
      Security Agreement dated as of August 24, 2007 (the “Patent
      Security Agreement”)
      (the
      Security Agreement and the Patent Security Agreement are collectively referred
      to as the “Security
      Documents”).

     

    (2) EVENTS
      OF DEFAULT. 

     

    (a) An
      “Event
      of Default”,
      wherever used herein, means any one of the following events (whatever the reason
      and whether it shall be voluntary or involuntary or effected by operation of
      law
      or pursuant to any judgment, decree or order of any court, or any order, rule
      or
      regulation of any administrative or governmental body):

     

    (i) the
      Company's failure to pay to the Holder any amount of Principal, Interest, or
      other amounts when and as due under this Debenture (including, without
      limitation, the Company's failure to pay any redemption payments or amounts
      hereunder) or any other Transaction Document;

     

    (ii) The
      Company or any subsidiary of the Company shall commence, or there shall be
      commenced against the Company or any subsidiary of the Company under any
      applicable bankruptcy or insolvency laws as now or hereafter in effect or any
      successor thereto, or the Company or any subsidiary of the Company commences
      any
      other proceeding under any reorganization, arrangement, adjustment of debt,
      relief of debtors, dissolution, insolvency or liquidation or similar law of
      any
      jurisdiction whether now or hereafter in effect relating to the Company or
      any
      subsidiary of the Company or there is commenced against the Company or any
      subsidiary of the Company any such bankruptcy, insolvency or other proceeding
      which remains undismissed for a period of 61 days; or the Company or any
      subsidiary of the Company is adjudicated insolvent or bankrupt; or any order
      of
      relief or other order approving any such case or proceeding is entered; or
      the
      Company or any subsidiary of the Company suffers any appointment of any
      custodian, private or court appointed receiver or the like for it or any
      substantial part of its property which continues undischarged or unstayed for
      a
      period of sixty one (61) days; or the Company or any subsidiary of the Company
      makes a general assignment for the benefit of creditors; or the Company or
      any
      subsidiary of the Company shall fail to pay, or shall state that it is unable
      to
      pay, or shall be unable to pay, its debts generally as they become due; or
      the
      Company or any subsidiary of the Company shall call a meeting of its creditors
      with a view to arranging a composition, adjustment or restructuring of its
      debts; or the Company or any subsidiary of the Company shall by any act or
      failure to act expressly indicate its consent to, approval of or acquiescence
      in
      any of the foregoing; or any corporate or other action is taken by the Company
      or any subsidiary of the Company for the purpose of effecting any of the
      foregoing;

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    (iii) The
      Company or any subsidiary of the Company shall default in any of its obligations
      under any other debenture or any mortgage, credit agreement or other facility,
      indenture agreement, factoring agreement or other instrument under which there
      may be issued, or by which there may be secured or evidenced any indebtedness
      for borrowed money or money due under any long term leasing or factoring
      arrangement of the Company or any subsidiary of the Company in an amount
      exceeding $100,000, whether such indebtedness now exists or shall hereafter
      be
      created and such default shall result in such indebtedness becoming or being
      declared due and payable prior to the date on which it would otherwise become
      due and payable;

     

    (iv) If
      the
      Common Stock is quoted or listed for trading on any of the following and it
      ceases to be so quoted or listed for trading and shall not again be quoted
      or
      listed for trading on any Primary Market within five (5) Trading Days of such
      delisting: (a) the American Stock Exchange, (b) New York Stock Exchange, (c)
      the
      Nasdaq Global Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC
      Bulletin Board (“OTCBB”) (each, a “Primary Market”);

     

    (v) The
      Company or any subsidiary of the Company shall be a party to any Change of
      Control Transaction (as defined in Section 6) unless in connection with such
      Change of Control Transaction this Debenture is retired; 

     

    (vi) (RESERVED)

     

    (vii) The
      Company's (A) failure to cure a Conversion Failure by delivery of the required
      number of shares of Common Stock within five (5) Business Days after the
      applicable Conversion Failure or (B) notice, written or oral, to any holder
      of
      the Debentures, including by way of public announcement, at any time, of its
      intention not to comply with a request for conversion of any Debentures into
      shares of Common Stock that is tendered in accordance with the provisions of
      the
      Debentures, other than pursuant to Section 4(c);

     

    (viii) The
      Company shall fail for any reason to deliver the payment in cash pursuant to
      a
      Buy-In (as defined herein) within three (3) Business Days after such payment
      is
      due; 

     

    (ix) The
      Company shall fail to observe or perform any other covenant, agreement or
      warranty contained in, or otherwise commit any breach or default of any
      provision of this Debenture (except as may be covered by Section 2(a)(i) through
      2(a)(vii) hereof) or any Transaction Document (as defined in Section 17) which
      is not cured within the time prescribed.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    (x) any
      Event
      of Default (as defined in the Other Debentures) occurs with respect to any
      Other
      Debentures, or with respect to any other debentures issued by the Company to
      the
      Holder.

     

    (b) During
      the time that any portion of this Debenture is outstanding, if any Event of
      Default has occurred, the full unpaid Principal amount of this Debenture,
      together with interest and other amounts owing in respect thereof, to the date
      of acceleration shall become at the Holder's election, immediately due and
      payable in cash; provided however, the Holder may request (but shall have no
      obligation to request) payment of such amounts in Common Stock of the Company.
      If an Event of Default (after giving effect to any specified cure period) occurs
      and for so long as such Event of Default remains uncured, the Interest Rate
      on
      this Debenture shall immediately become twenty-four percent (24%) per annum
      and
      shall remain at such increased interest rate until the applicable Event of
      Default is cured. Furthermore, in addition to any other remedies, the Holder
      shall have the right (but not the obligation) to convert this Debenture at
      any
      time after (x) an Event of Default or (y) the Maturity Date at the lower of
      the
      Conversion Price or the Company Conversion Price. The Holder need not provide
      and the Company hereby waives any presentment, demand, protest or other notice
      of any kind, (other than required notice of conversion) and the Holder may
      immediately and without expiration of any grace period enforce any and all
      of
      its rights and remedies hereunder and all other remedies available to it under
      applicable law. Such declaration may be rescinded and annulled by Holder at
      any
      time prior to payment hereunder. No such rescission or annulment shall affect
      any subsequent Event of Default or impair any right consequent thereon.

     

    (3) COMPANY
      REDEMPTIONS 

     

    The
      Company shall be permitted to prepay this Debenture, in whole or in part, at
      any
      time. In order to make a redemption pursuant to this Section, the Company shall
      first provide written notice to the Holder of its intention to make a redemption
      (the “Redemption
      Notice”)
      setting forth the amount of Principal it desires to redeem (the “Redemption
      Amount”).
      The
      Company shall pay an amount equal to the principal amount being redeemed plus
      a
      redemption premium (“Redemption
      Premium”)
      equal
      to twenty percent (20%) of the Principal amount being redeemed, and accrued
      Interest, (collectively referred to as the “Company
      Additional Redemption
      Amount”).
      In
      order to make a redemption pursuant to this Section, the Company shall first
      provide written notice to the Holder of its intention to make a redemption
      (the
“Redemption
      Notice”)
      setting forth the amount of Principal it desires to redeem. After receipt of
      the
      Redemption Notice the Holder shall have five (5) Business Days to elect to
      convert all or any portion of this Debenture, subject to the limitations set
      forth in Section 4(b). On the sixth (6th) Business Day after the Redemption
      Notice, the Company shall deliver to the Holder the Company Additional
      Redemption Amount with respect to the Principal amount redeemed after giving
      effect to conversions effected during the five (5) Business Day
      period.

     

    (4) CONVERSION
      OF DEBENTURE. This
      Debenture shall be convertible into shares of the Company's Common Stock, on
      the
      terms and conditions set forth in this Section 4.

     

    (a) Conversion
      Right.
      Subject
      to the provisions of Section 4(c), at any time or times on or after the Issuance
      Date, the Holder shall be entitled to convert any portion of the outstanding
      and
      unpaid Conversion Amount (as defined below) into fully paid and nonassessable
      shares of Common Stock in accordance with Section 4(b), at the Conversion Rate
      (as defined below). The number of shares of Common Stock issuable upon
      conversion of any Conversion Amount pursuant to this Section 4(a) shall be
      determined by dividing (x) such Conversion Amount by (y) the Conversion Price
      (the "Conversion
      Rate").
      The
      Company shall not issue any fraction of a share of Common Stock upon any
      conversion. If the issuance would result in the issuance of a fraction of a
      share of Common Stock, the Company shall round such fraction of a share of
      Common Stock up to the nearest whole share. The Company shall pay any and all
      transfer, stamp and similar taxes that may be payable with respect to the
      issuance and delivery of Common Stock upon conversion of any Conversion Amount.
      

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    (i) "Conversion
      Amount"
      means
      the portion of the Principal and accrued Interest to be converted, redeemed
      or
      otherwise with respect to which this determination is being made.

     

    (ii) "Conversion
      Price"
      means,
      as of any Conversion Date (as defined below) or other date of determination,
      the
      lesser of (a) $0.015 (the “Fixed
      Conversion Price”),
      subject to adjustment as provided herein, or (b) eighty percent (80%) of
      the lowest Volume Weighted Average Price during the ten (10) Trading Days
      immediately preceding the Conversion Date (the “Market
      Conversion Price”).

     

    (b) Mechanics
      of Conversion.

     

    (i) Optional
      Conversion.
      To
      convert any Conversion Amount into shares of Common Stock on any date (a
      "Conversion
      Date"),
      the
      Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt
      on or
      prior to 11:59 p.m., New York Time, on such date, a copy of an executed notice
      of conversion in the form attached hereto as Exhibit
      I
      (the
      "Conversion
      Notice")
      to the
      Company and (B) if required by Section 4(b)(iv), surrender this Debenture to
      a
      nationally recognized overnight delivery service for delivery to the Company
      (or
      an indemnification undertaking reasonably satisfactory to the Company with
      respect to this Debenture in the case of its loss, theft or destruction). On
      or
      before the third Business Day following the date of receipt of a Conversion
      Notice (the "Share
      Delivery Date"),
      the
      Company shall (X) if legends are not required to be placed on certificates
      of
      Common Stock pursuant to any agreements between the Company and the Holder
      and
      provided that the Transfer Agent is participating in the Depository Trust
      Company's ("DTC")
      Fast
      Automated Securities Transfer Program, credit such aggregate number of shares
      of
      Common Stock to which the Holder shall be entitled to the Holder's or its
      designee's balance account with DTC through its Deposit Withdrawal Agent
      Commission system or (Y) if the Transfer Agent is not participating in the
      DTC
      Fast Automated Securities Transfer Program, issue and deliver to the address
      as
      specified in the Conversion Notice, a certificate, registered in the name of
      the
      Holder or its designee, for the number of shares of Common Stock to which the
      Holder shall be entitled which certificates shall not bear any restrictive
      legends unless required pursuant to any agreement between the Company and the
      Holder. If this Debenture is physically surrendered for conversion and the
      outstanding Principal of this Debenture is greater than the Principal portion
      of
      the Conversion Amount being converted, then the Company shall as soon as
      practicable and in no event later than three (3) Business Days after receipt
      of
      this Debenture and at its own expense, issue and deliver to the holder a new
      Debenture representing the outstanding Principal not converted. The Person
      or
      Persons entitled to receive the shares of Common Stock issuable upon a
      conversion of this Debenture shall be treated for all purposes as the record
      holder or holders of such shares of Common Stock upon the transmission of a
      Conversion Notice. 

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    (ii) Company's
      Failure to Timely Convert.
      If
      within three (3) Trading Days after the Company's receipt of the facsimile
      copy
      of a Conversion Notice the Company shall fail to issue and deliver a certificate
      to the Holder or credit the Holder's balance account with DTC for the number
      of
      shares of Common Stock to which the Holder is entitled upon such holder's
      conversion of any Conversion Amount (a "Conversion
      Failure"),
      and
      if on or after such Trading Day the Holder purchases (in an open market
      transaction or otherwise) Common Stock to deliver in satisfaction of a sale
      by
      the Holder of Common Stock issuable upon such conversion that the Holder
      anticipated receiving from the Company (a "Buy-In"),
      then
      the Company shall, within three (3) Business Days after the Holder's request
      and
      in the Holder's discretion, either (i) pay cash to the Holder in an amount
      equal
      to the Holder's total purchase price (including brokerage commissions and other
      out of pocket expenses, if any) for the shares of Common Stock so purchased
      (the
"Buy-In
      Price"),
      at
      which point the Company's obligation to deliver such certificate (and to issue
      such Common Stock) shall terminate, or (ii) promptly honor its obligation to
      deliver to the Holder a certificate or certificates representing such Common
      Stock and pay cash to the Holder in an amount equal to the excess (if any)
      of
      the Buy-In Price over the product of (A) such number of shares of Common Stock,
      times (B) the Closing Bid Price on the Conversion Date.

     

    (iii) Book-Entry.
      Notwithstanding anything to the contrary set forth herein, upon conversion
      of
      any portion of this Debenture in accordance with the terms hereof, the Holder
      shall not be required to physically surrender this Debenture to the Company
      unless (A) the full Conversion Amount represented by this Debenture is being
      converted or (B) the Holder has provided the Company with prior written notice
      (which notice may be included in a Conversion Notice) requesting reissuance
      of
      this Debenture upon physical surrender of this Debenture. The Holder and the
      Company shall maintain records showing the Principal and Interest converted
      and
      the dates of such conversions or shall use such other method, reasonably
      satisfactory to the Holder and the Company, so as not to require physical
      surrender of this Debenture upon conversion.

     

    (c) Limitations
      on Conversions.

     

    (i) Beneficial
      Ownership.
      The
      Company shall not effect any conversions of this Debenture and the Holder shall
      not have the right to convert any portion of this Debenture or receive shares
      of
      Common Stock as payment of interest hereunder to the extent that after giving
      effect to such conversion or receipt of such interest payment, the Holder,
      together with any affiliate thereof, would beneficially own (as determined
      in
      accordance with Section 13(d) of the Exchange Act and the rules promulgated
      thereunder) in excess of 4.99% of the number of shares of Common Stock
      outstanding immediately after giving effect to such conversion or receipt of
      shares as payment of interest. Since the Holder will not be obligated to report
      to the Company the number of shares of Common Stock it may hold at the time
      of a
      conversion hereunder, unless the conversion at issue would result in the
      issuance of shares of Common Stock in excess of 4.99% of the then outstanding
      shares of Common Stock without regard to any other shares which may be
      beneficially owned by the Holder or an affiliate thereof, the Holder shall
      have
      the authority and obligation to determine whether the restriction contained
      in
      this Section will limit any particular conversion hereunder and to the extent
      that the Holder determines that the limitation contained in this Section
      applies, the determination of which portion of the principal amount of this
      Debenture is convertible shall be the responsibility and obligation of the
      Holder. If the Holder has delivered a Conversion Notice for a principal amount
      of this Debenture that, without regard to any other shares that the Holder
      or
      its affiliates may beneficially own, would result in the issuance in excess
      of
      the permitted amount hereunder, the Company shall notify the Holder of this
      fact
      and shall honor the conversion for the maximum principal amount permitted to
      be
      converted on such Conversion Date in accordance with Section 4(a) and, any
      principal amount tendered for conversion in excess of the permitted amount
      hereunder shall remain outstanding under this Debenture. The provisions of
      this
      Section may be waived by a Holder (but only as to itself and not to any other
      Holder) upon not less than 65 days prior notice to the Company. Other Holders
      shall be unaffected by any such waiver.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    (d) Other
      Provisions.

     

    (i) The
      Company shall at all times reserve and keep available out of its authorized
      Common Stock the full number of shares of Common Stock issuable upon conversion
      of all outstanding amounts under this Debenture; and within three (3) Business
      Days following the receipt by the Company of a Holder's notice that such minimum
      number of Underlying Shares is not so reserved, the Company shall promptly
      reserve a sufficient number of shares of Common Stock to comply with such
      requirement.

     

    (ii) All
      calculations under this Section 4 shall be rounded to the nearest $0.0001 or
      whole share.

     

    (iii) The
      Company covenants that it will at all times reserve and keep available out
      of
      its authorized and unissued shares of Common Stock solely for the purpose of
      issuance upon conversion of this Debenture and payment of interest on this
      Debenture, each as herein provided, free from preemptive rights or any other
      actual contingent purchase rights of persons other than the Holder, not less
      than such number of shares of the Common Stock as shall (subject to any
      additional requirements of the Company as to reservation of such shares set
      forth in this Debenture or in the Transaction Documents) be issuable (taking
      into account the adjustments and restrictions set forth herein) upon the
      conversion of the outstanding principal amount of this Debenture and payment
      of
      interest hereunder. The Company covenants that all shares of Common Stock that
      shall be so issuable shall, upon issue, be duly and validly authorized, issued
      and fully paid, nonassessable and, if the Underlying Shares Registration
      Statement has been declared effective under the Securities Act, registered
      for
      public sale in accordance with such Underlying Shares Registration
      Statement.

     

    (iv) Nothing
      herein shall limit a Holder's right to pursue actual damages or declare an
      Event
      of Default pursuant to Section 2 herein for the Company 's failure to deliver
      certificates representing shares of Common Stock upon conversion within the
      period specified herein and such Holder shall have the right to pursue all
      remedies available to it at law or in equity including, without limitation,
      a
      decree of specific performance and/or injunctive relief, in each case without
      the need to post a bond or provide other security. The exercise of any such
      rights shall not prohibit the Holder from seeking to enforce damages pursuant
      to
      any other Section hereof or under applicable law. 

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    (5) Adjustments
      to Conversion Price

     

    (a) Adjustment
      of Conversion Price upon Issuance of Common Stock.
      If the
      Company, at any time while this Debenture is outstanding, issues or sells,
      or in
      accordance with this Section 5(a) is deemed to have issued or sold, any shares
      of Common Stock, excluding shares of Common Stock deemed to have been issued
      or
      sold by the Company in connection with any Excluded Securities, for a
      consideration per share (the “New
      Issuance Price”)
      less
      than a price equal to the Conversion Price in effect immediately prior to such
      issue or sale (such price the "Applicable
      Price")
      (the
      foregoing a "Dilutive
      Issuance"),
      then
      immediately after such Dilutive Issuance the Conversion Price then in effect
      shall be reduced to an amount equal to the New Issuance Price. For purposes
      of
      determining the adjusted Conversion Price under this Section 5(a), the following
      shall be applicable:

     

    (i) Issuance
      of Options.
      If the
      Company in any manner grants or sells any Options and the lowest price per
      share
      for which one share of Common Stock is issuable upon the exercise of any such
      Option or upon conversion or exchange or exercise of any Convertible Securities
      issuable upon exercise of such Option is less than the Applicable Price, then
      such share of Common Stock shall be deemed to be outstanding and to have been
      issued and sold by the Company at the time of the granting or sale of such
      Option for such price per share. For purposes of this Section, the "lowest
      price
      per share for which one share of Common Stock is issuable upon the exercise
      of
      any such Option or upon conversion or exchange or exercise of any Convertible
      Securities issuable upon exercise of such Option" shall be equal to the sum
      of
      the lowest amounts of consideration (if any) received or receivable by the
      Company with respect to any one share of Common Stock upon granting or sale
      of
      the Option, upon exercise of the Option and upon conversion or exchange or
      exercise of any Convertible Security issuable upon exercise of such Option.
      No
      further adjustment of the Conversion Price shall be made upon the actual
      issuance of such share of Common Stock or of such Convertible Securities upon
      the exercise of such Options or upon the actual issuance of such Common Stock
      upon conversion or exchange or exercise of such Convertible
      Securities.

     

    (ii) Issuance
      of Convertible Securities.
      If the
      Company in any manner issues or sells any Convertible Securities and the lowest
      price per share for which one share of Common Stock is issuable upon such
      conversion or exchange or exercise thereof is less than the Applicable Price,
      then such share of Common Stock shall be deemed to be outstanding and to have
      been issued and sold by the Company at the time of the issuance or sale of
      such
      Convertible Securities for such price per share. For the purposes of this
      Section, the "lowest price per share for which one share of Common Stock is
      issuable upon such conversion or exchange or exercise" shall be equal to the
      sum
      of the lowest amounts of consideration (if any) received or receivable by the
      Company with respect to any one share of Common Stock upon the issuance or
      sale
      of the Convertible Security and upon the conversion or exchange or exercise
      of
      such Convertible Security. No further adjustment of the Conversion Price shall
      be made upon the actual issuance of such share of Common Stock upon conversion
      or exchange or exercise of such Convertible Securities, and if any such issue
      or
      sale of such Convertible Securities is made upon exercise of any Options for
      which adjustment of the Conversion Price had been or are to be made pursuant
      to
      other provisions of this Section, no further adjustment of the Conversion Price
      shall be made by reason of such issue or sale.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    (iii) Change
      in Option Price or Rate of Conversion.
      If the
      purchase price provided for in any Options, the additional consideration, if
      any, payable upon the issue, conversion, exchange or exercise of any Convertible
      Securities, or the rate at which any Convertible Securities are convertible
      into
      or exchangeable or exercisable for Common Stock changes at any time, the
      Conversion Price in effect at the time of such change shall be adjusted to
      the
      Conversion Price which would have been in effect at such time had such Options
      or Convertible Securities provided for such changed purchase price, additional
      consideration or changed conversion rate, as the case may be, at the time
      initially granted, issued or sold. For purposes of this Section, if the terms
      of
      any Option or Convertible Security that was outstanding as of the Issuance
      Date
      are changed in the manner described in the immediately preceding sentence,
      then
      such Option or Convertible Security and the Common Stock deemed issuable upon
      exercise, conversion or exchange thereof shall be deemed to have been issued
      as
      of the date of such change. No adjustment shall be made if such adjustment
      would
      result in an increase of the Conversion Price then in effect.

     

    (iv) Calculation
      of Consideration Received.
      In case
      any Option is issued in connection with the issue or sale of other securities
      of
      the Company, together comprising one integrated transaction in which no specific
      consideration is allocated to such Options by the parties thereto, the Options
      will be deemed to have been issued for the difference of (x) the aggregate
      fair
      market value of such Options and other securities issued or sold in such
      integrated transaction, less (y) the fair market value of the securities other
      than such Option, issued or sold in such transaction and the other securities
      issued or sold in such integrated transaction will be deemed to have been issued
      or sold for the balance of the consideration received by the Company. If any
      Common Stock, Options or Convertible Securities are issued or sold or deemed
      to
      have been issued or sold for cash, the consideration received therefor will
      be
      deemed to be the gross amount raised by the Company; provided, however, that
      such gross amount is not greater than 110% of the net amount received by the
      Company therefor. If any Common Stock, Options or Convertible Securities are
      issued or sold for a consideration other than cash, the amount of the
      consideration other than cash received by the Company will be the fair value
      of
      such consideration, except where such consideration consists of securities,
      in
      which case the amount of consideration received by the Company will be the
      Closing Bid Price of such securities on the date of receipt. If any Common
      Stock, Options or Convertible Securities are issued to the owners of the
      non-surviving entity in connection with any merger in which the Company is
      the
      surviving entity, the amount of consideration therefor will be deemed to be
      the
      fair value of such portion of the net assets and business of the non-surviving
      entity as is attributable to such Common Stock, Options or Convertible
      Securities, as the case may be. The fair value of any consideration other than
      cash or securities will be determined jointly by the Company and the Holder.
      If
      such parties are unable to reach agreement within ten (10) days after the
      occurrence of an event requiring valuation (the "Valuation
      Event"),
      the
      fair value of such consideration will be determined within five (5) Business
      Days after the tenth (10th)
      day
      following the Valuation Event by an independent, reputable appraiser jointly
      selected by the Company and the Holder. The determination of such appraiser
      shall be deemed binding upon all parties absent manifest error and the fees
      and
      expenses of such appraiser shall be borne by the Company.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    (v) Record
      Date.
      If the
      Company takes a record of the holders of Common Stock for the purpose of
      entitling them (A) to receive a dividend or other distribution payable in Common
      Stock, Options or in Convertible Securities or (B) to subscribe for or purchase
      Common Stock, Options or Convertible Securities, then such record date will
      be
      deemed to be the date of the issue or sale of the Common Stock deemed to have
      been issued or sold upon the declaration of such dividend or the making of
      such
      other distribution or the date of the granting of such right of subscription
      or
      purchase, as the case may be.

     

    (b) Adjustment
      of Conversion Price upon Subdivision or Combination of Common
      Stock.
      If the
      Company, at any time while this Debenture is outstanding, shall (a) pay a
      stock dividend or otherwise make a distribution or distributions on shares
      of
      its Common Stock or any other equity or equity equivalent securities payable
      in
      shares of Common Stock, (b) subdivide outstanding shares of Common Stock into
      a
      larger number of shares, (c) combine (including by way of reverse stock split)
      outstanding shares of Common Stock into a smaller number of shares, or (d)
      issue
      by reclassification of shares of the Common Stock any shares of capital stock
      of
      the Company, then the Conversion Price shall be multiplied by a fraction of
      which the numerator shall be the number of shares of Common Stock (excluding
      treasury shares, if any) outstanding before such event and of which the
      denominator shall be the number of shares of Common Stock outstanding after
      such
      event. Any adjustment made pursuant to this Section shall become effective
      immediately after the record date for the determination of stockholders entitled
      to receive such dividend or distribution and shall become effective immediately
      after the effective date in the case of a subdivision, combination or
      re-classification.

     

    (c) Purchase
      Rights.
      If at
      any time the Company grants, issues or sells any Options, Convertible Securities
      or rights to purchase stock, warrants, securities or other property pro rata
      to
      the record holders of any class of Common Stock (the "Purchase
      Rights"),
      then
      the Holder will be entitled to acquire, upon the terms applicable to such
      Purchase Rights, the aggregate Purchase Rights which the Holder could have
      acquired if the Holder had held the number of shares of Common Stock acquirable
      upon complete conversion of this Debenture (without taking into account any
      limitations or restrictions on the convertibility of this Debenture) immediately
      before the date on which a record is taken for the grant, issuance or sale
      of
      such Purchase Rights, or, if no such record is taken, the date as of which
      the
      record holders of Common Stock are to be determined for the grant, issue or
      sale
      of such Purchase Rights.

     

    (d) Other
      Events.
      If any
      event occurs of the type contemplated by the provisions of this Section 4 but
      not expressly provided for by such provisions (including, without limitation,
      the granting of stock appreciation rights, phantom stock rights or other rights
      with equity features), then the Company's Board of Directors will make an
      appropriate adjustment in the Conversion Price so as to protect the rights
      of
      the Holder under this Debenture; provided that no such adjustment will increase
      the Conversion Price as otherwise determined pursuant to this Section
      5.

     

    (e) Other
      Corporate Events.
      In
      addition to and not in substitution for any other rights hereunder, prior to
      the
      consummation of any Fundamental Transaction pursuant to which holders of shares
      of Common Stock are entitled to receive securities or other assets with respect
      to or in exchange for shares of Common Stock (a "Corporate
      Event"),
      the
      Company shall make appropriate provision to insure that the Holder will
      thereafter have the right to receive upon a conversion of this Debenture, at
      the
      Holder's option, (i) in addition to the shares of Common Stock receivable upon
      such conversion, such securities or other assets to which the Holder would
      have
      been entitled with respect to such shares of Common Stock had such shares of
      Common Stock been held by the Holder upon the consummation of such Corporate
      Event (without taking into account any limitations or restrictions on the
      convertibility of this Debenture) or (ii) in lieu of the shares of Common Stock
      otherwise receivable upon such conversion, such securities or other assets
      received by the holders of shares of Common Stock in connection with the
      consummation of such Corporate Event in such amounts as the Holder would have
      been entitled to receive had this Debenture initially been issued with
      conversion rights for the form of such consideration (as opposed to shares
      of
      Common Stock) at a conversion rate for such consideration commensurate with
      the
      Conversion Rate. Provision made pursuant to the preceding sentence shall be
      in a
      form and substance satisfactory to the Required Holders. The provisions of
      this
      Section shall apply similarly and equally to successive Corporate Events and
      shall be applied without regard to any limitations on the conversion or
      redemption of this Debenture.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    (f) Whenever
      the Conversion Price is adjusted pursuant to Section 5 hereof, the Company
      shall
      promptly mail to the Holder a notice setting forth the Conversion Price after
      such adjustment and setting forth a brief statement of the facts requiring
      such
      adjustment.

     

    (g) In
      case
      of any (1) merger or consolidation of the Company or any subsidiary of the
      Company with or into another Person, or (2) sale by the Company or any
      subsidiary of the Company of more than one-half of the assets of the Company
      in
      one or a series of related transactions, a Holder shall have the right to (A)
      declare the entire amount due and owing under the Debenture (A) exercise any
      rights under Section 2(b), (B) convert the aggregate amount of this Debenture
      then outstanding into the shares of stock and other securities, cash and
      property receivable upon or deemed to be held by holders of Common Stock
      following such merger, consolidation or sale, and such Holder shall be entitled
      upon such event or series of related events to receive such amount of
      securities, cash and property as the shares of Common Stock into which such
      aggregate principal amount of this Debenture could have been converted
      immediately prior to such merger, consolidation or sales would have been
      entitled, or (C) in the case of a merger or consolidation, require the surviving
      entity to issue to the Holder a convertible Debenture with a principal amount
      equal to the aggregate principal amount of this Debenture then held by such
      Holder, plus all accrued and unpaid interest and other amounts owing thereon,
      which such newly issued convertible Debenture shall have terms identical
      (including with respect to conversion) to the terms of this Debenture, and
      shall
      be entitled to all of the rights and privileges of the Holder of this Debenture
      set forth herein and the agreements pursuant to which this Debentures were
      issued. In the case of clause (C), the conversion price applicable for the
      newly
      issued shares of convertible preferred stock or convertible Debentures shall
      be
      based upon the amount of securities, cash and property that each share of Common
      Stock would receive in such transaction and the Conversion Price in effect
      immediately prior to the effectiveness or closing date for such transaction.
      The
      terms of any such merger, sale or consolidation shall include such terms so
      as
      to continue to give the Holder the right to receive the securities, cash and
      property set forth in this Section upon any conversion or redemption following
      such event. This provision shall similarly apply to successive such
      events.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    (6) REISSUANCE
      OF THIS DEBENTURE.

     

    (a) Transfer.
      If this
      Debenture is to be transferred, the Holder shall surrender this Debenture to
      the
      Company, whereupon the Company will forthwith issue and deliver upon the order
      of the Holder a new Debenture (in accordance with Section 6(d)), registered
      in
      the name of the registered transferee or assignee, representing the outstanding
      Principal being transferred by the Holder and, if less then the entire
      outstanding Principal is being transferred, a new Debenture (in accordance
      with
      Section 6(d)) to the Holder representing the outstanding Principal not being
      transferred. The Holder and any assignee, by acceptance of this Debenture,
      acknowledge and agree that, by reason of the provisions of Section 4(b)(iii)
      following conversion or redemption of any portion of this Debenture, the
      outstanding Principal represented by this Debenture may be less than the
      Principal stated on the face of this Debenture.

     

    (b) Lost,
      Stolen or Mutilated Debenture.
      Upon
      receipt by the Company of evidence reasonably satisfactory to the Company of
      the
      loss, theft, destruction or mutilation of this Debenture, and, in the case
      of
      loss, theft or destruction, of any indemnification undertaking by the Holder
      to
      the Company in customary form and, in the case of mutilation, upon surrender
      and
      cancellation of this Debenture, the Company shall execute and deliver to the
      Holder a new Debenture (in accordance with Section 6(d)) representing the
      outstanding Principal.

     

    (c) Debenture
      Exchangeable for Different Denominations.
      This
      Debenture is exchangeable, upon the surrender hereof by the Holder at the
      principal office of the Company, for a new Debenture or Debentures (in
      accordance with Section 6(d)) representing in the aggregate the outstanding
      Principal of this Debenture, and each such new Debenture will represent such
      portion of such outstanding Principal as is designated by the Holder at the
      time
      of such surrender.

     

    (d) Issuance
      of New Debentures.
      Whenever the Company is required to issue a new Debenture pursuant to the terms
      of this Debenture, such new Debenture (i) shall be of like tenor with this
      Debenture, (ii) shall represent, as indicated on the face of such new Debenture,
      the Principal remaining outstanding (or in the case of a new Debenture being
      issued pursuant to Section 6(a) or Section 6(c), the Principal designated by
      the
      Holder which, when added to the principal represented by the other new
      Debentures issued in connection with such issuance, does not exceed the
      Principal remaining outstanding under this Debenture immediately prior to such
      issuance of new Debentures), (iii) shall have an issuance date, as indicated
      on
      the face of such new Debenture, which is the same as the Issuance Date of this
      Debenture, (iv) shall have the same rights and conditions as this Debenture,
      and
      (v) shall represent accrued and unpaid Interest from the Issuance
      Date.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    (7) NOTICES. Any
      notices, consents, waivers or other communications required or permitted to
      be
      given under the terms hereof must be in writing and will be deemed to have
      been
      delivered: (i) upon receipt, when delivered personally; (ii) upon receipt,
      when
      sent by facsimile (provided confirmation of transmission is mechanically or
      electronically generated and kept on file by the sending party); or (iii) one
      (1) Trading Day after deposit with a nationally recognized overnight delivery
      service, in each case properly addressed to the party to receive the same.
      The
      addresses and facsimile numbers for such communications shall be:

     

    

    
      	
              If
                to the Company, to:

            	
              Neomedia
                Technologies, Inc.

            
	 	
              Two
                Concourse Parkway, Suite 500

            
	 	
              Atlanta,
                GA 30328

            
	 	
              Attention:
                Frank Pazera

            
	 	
              Telephone: (678)
                638-0460

            
	 	
              Facsimile: (678)
                638-0467

            
	 	 
	
              With
                a copy to: 

            	
              Kirkpatrick
                & Lockhart Preston Gates Ellis LLP

            
	 	
              200
                South Biscayne Boulevard - Suite 3900

            
	 	
              Miami,
                FL 33131-2399

            
	 	
              Attention: Clayton
                E. Parker, Esq.

            
	 	
              Telephone: (305)
                539-3300

            
	 	
              Facsimile: (305)
                358-7095

            

    

    

    
      	
              If
                to the Holder:

            	
              YA
                Global Investments, LP

            
	 	
              101
                Hudson Street, Suite 3700

            
	 	
              Jersey
                City, NJ 07303

            
	 	
              Attention: Mark
                Angelo

            
	 	
              Telephone: (201)
                985-8300

            
	 	 
	
              With
                a copy to:

            	
              David
                Gonzalez, Esq. 

            
	 	
              101
                Hudson Street - Suite 3700

            
	 	
              Jersey
                City, NJ 07302

            
	 	
              Telephone: (201)
                985-8300

            
	 	
              Facsimile: (201)
                985-8266

            
	 	 

    

    

    or
      at
      such other address and/or facsimile number and/or to the attention of such
      other
      person as the recipient party has specified by written notice given to each
      other party three (3) Business Days prior to the effectiveness of such change.
      Written confirmation of receipt (i) given by the recipient of such notice,
      consent, waiver or other communication, (ii) mechanically or electronically
      generated by the sender's facsimile machine containing the time, date, recipient
      facsimile number and an image of the first page of such transmission or (iii)
      provided by a nationally recognized overnight delivery service, shall be
      rebuttable evidence of personal service, receipt by facsimile or receipt from
      a
      nationally recognized overnight delivery service in accordance with clause
      (i),
      (ii) or (iii) above, respectively.

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    (8) Except
      as
      expressly provided herein, no provision of this Debenture shall alter or impair
      the obligations of the Company, which are absolute and unconditional, to pay
      the
      principal of, interest and other charges (if any) on, this Debenture at the
      time, place, and rate, and in the coin or currency, herein prescribed. This
      Debenture is a direct obligation of the Company. As long as this Debenture
      is
      outstanding, the Company shall not and shall cause their subsidiaries not to,
      without the consent of the Holder, (i) amend its certificate of incorporation,
      bylaws or other charter documents so as to adversely affect any rights of the
      Holder; (ii) repay, repurchase or offer to repay, repurchase or otherwise
      acquire shares of its Common Stock or other equity securities other than as
      to
      the Underlying Shares to the extent permitted or required under the Transaction
      Documents; or (iii) enter into any agreement with respect to any of the
      foregoing. 

     

    (9) This
      Debenture shall not entitle the Holder to any of the rights of a stockholder
      of
      the Company, including without limitation, the right to vote, to receive
      dividends and other distributions, or to receive any notice of, or to attend,
      meetings of stockholders or any other proceedings of the Company, unless and
      to
      the extent converted into shares of Common Stock in accordance with the terms
      hereof.

     

    (10) No
      indebtedness of the Company is senior to this Debenture in right of payment,
      whether with respect to interest, damages or upon liquidation or dissolution
      or
      otherwise. Without the Holder’s consent, the Company will not and will not
      permit any of their subsidiaries to, directly or indirectly, enter into, create,
      incur, assume or suffer to exist any indebtedness of any kind, on or with
      respect to any of its property or assets now owned or hereafter acquired or
      any
      interest therein or any income or profits there from that is senior in any
      respect to the obligations of the Company under this Debenture.

     

    (11) This
      Debenture shall be governed by and construed in accordance with the laws of
      the
      State of New Jersey, without giving effect to conflicts of laws thereof. Each
      of
      the parties consents to the jurisdiction of the Superior Courts of the State
      of
      New Jersey sitting in Hudson County, New Jersey and the U.S. District Court
      for the District of New Jersey sitting in Newark, New Jersey in connection
      with
      any dispute arising under this Debenture and hereby waives, to the maximum
      extent permitted by law, any objection, including any objection based on forum
      non conveniens to the bringing of any such proceeding in such jurisdictions.
      

     

    (12) If
      the
      Company fails to strictly comply with the terms of this Debenture, then the
      Company shall reimburse the Holder promptly for all fees, costs and expenses,
      including, without limitation, attorneys’ fees and expenses incurred by the
      Holder in any action in connection with this Debenture, including, without
      limitation, those incurred: (i) during any workout, attempted workout, and/or
      in
      connection with the rendering of legal advice as to the Holder’s rights,
      remedies and obligations, (ii) collecting any sums which become due to the
      Holder, (iii) defending or prosecuting any proceeding or any counterclaim to
      any
      proceeding or appeal; or (iv) the protection, preservation or enforcement of
      any
      rights or remedies of the Holder.

     

    (13) Any
      waiver by the Holder of a breach of any provision of this Debenture shall not
      operate as or be construed to be a waiver of any other breach of such provision
      or of any breach of any other provision of this Debenture. The failure of the
      Holder to insist upon strict adherence to any term of this Debenture on one
      or
      more occasions shall not be considered a waiver or deprive that party of the
      right thereafter to insist upon strict adherence to that term or any other
      term
      of this Debenture. Any waiver must be in writing.

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    (14) If
      any
      provision of this Debenture is invalid, illegal or unenforceable, the balance
      of
      this Debenture shall remain in effect, and if any provision is inapplicable
      to
      any person or circumstance, it shall nevertheless remain applicable to all
      other
      persons and circumstances. If it shall be found that any interest or other
      amount deemed interest due hereunder shall violate applicable laws governing
      usury, the applicable rate of interest due hereunder shall automatically be
      lowered to equal the maximum permitted rate of interest. The Company covenants
      (to the extent that it may lawfully do so) that it shall not at any time insist
      upon, plead, or in any manner whatsoever claim or take the benefit or advantage
      of, any stay, extension or usury law or other law which would prohibit or
      forgive the Company from paying all or any portion of the principal of or
      interest on this Debenture as contemplated herein, wherever enacted, now or
      at
      any time hereafter in force, or which may affect the covenants or the
      performance of this indenture, and the Company (to the extent it may lawfully
      do
      so) hereby expressly waives all benefits or advantage of any such law, and
      covenants that it will not, by resort to any such law, hinder, delay or impeded
      the execution of any power herein granted to the Holder, but will suffer and
      permit the execution of every such as though no such law has been
      enacted.

     

    (15) Whenever
      any payment or other obligation hereunder shall be due on a day other than
      a
      Business Day, such payment shall be made on the next succeeding Business
      Day.

     

    (16) THE
      PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY
      OF
      THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON
      OR
      ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION
      DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL
      OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT
      FOR
      THE PARTIES’ ACCEPTANCE OF THIS AGREEMENT.

     

    (17) CERTAIN
      DEFINITIONS  For
      purposes of this Debenture, the following terms shall have the following
      meanings:

     

    (a) “Approved
      Stock Plan”
means
      a
      stock option plan that has been approved by the Board of Directors of the
      Company, pursuant to which the Company’s securities may be issued only to any
      employee, officer, or director for services provided to the
      Company.

     

    (b) "Bloomberg"
      means
      Bloomberg Financial Markets.

     

    (c) “Business
      Day”
means
      any day except Saturday, Sunday and any day which shall be a federal legal
      holiday in the United States or a day on which banking institutions are
      authorized or required by law or other government action to close.

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    (d) “Change
      of Control Transaction”
means
      the occurrence of (a) an acquisition after the date hereof by an individual
      or
      legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the
      Exchange Act) of effective control (whether through legal or beneficial
      ownership of capital stock of the Company, by contract or otherwise) of in
      excess of fifty percent (50%) of the voting securities of the Company (except
      that the acquisition of voting securities by the Holder or any other current
      holder of convertible securities of the Company shall not constitute a Change
      of
      Control Transaction for purposes hereof), (b) a replacement at one time or
      over
      time of more than one-half of the members of the board of directors of the
      Company which is not approved by a majority of those individuals who are members
      of the board of directors on the date hereof (or by those individuals who are
      serving as members of the board of directors on any date whose nomination to
      the
      board of directors was approved by a majority of the members of the board of
      directors who are members on the date hereof), (c) the merger, consolidation
      or
      sale of fifty percent (50%) or more of the assets of the Company or any
      subsidiary of the Company in one or a series of related transactions with or
      into another entity, or (d) the execution by the Company of an agreement to
      which the Company is a party or by which it is bound, providing for any of
      the
      events set forth above in (a), (b) or (c).

     

    (e) “Closing
      Bid Price”
means
      the price per share in the last reported trade of the Common Stock on a Primary
      Market or on the exchange which the Common Stock is then listed as quoted by
      Bloomberg.

     

    (f) “Convertible
      Securities”
means
      any
      stock
      or securities (other than Options) directly or indirectly convertible into
      or
      exercisable or exchangeable for Common Stock.

     

    (g) “Commission”
means
      the Securities and Exchange Commission.

     

    (h) “Common
      Stock”
means
      the common stock, par value $.001, of the Company and stock of any other class
      into which such shares may hereafter be changed or reclassified.

     

    (i) "Company
      Conversion Price"
      means,
      the lower of (i) the applicable Conversion Price and (ii) that price which
      shall
      be computed as fifty percent (50%) of the lowest daily Volume Weighted Average
      Price of the Common Stock during the ten (10) consecutive Trading Days
      immediately preceding the applicable Installment Date. All such determinations
      to be appropriately adjusted for any stock split, stock dividend, stock
      combination or other similar transaction.

     

    (j) "Equity
      Conditions"
      means
      that each of the following conditions is satisfied: (i) on each day during
      the
      period beginning two (2) weeks prior to the applicable date of determination
      and
      ending on and including the applicable date of determination (the "Equity
      Conditions Measuring Period"), either (x) the Underlying Shares Registration
      Statement filed pursuant to the Registration Rights Agreement shall be effective
      and available for the resale of all applicable shares of Common Stock to be
      issued in connection with the event requiring determination or (y) all
      applicable shares of Common Stock to be issued in connection with the event
      requiring determination shall be eligible for sale without restriction and
      without the need for registration under any applicable federal or state
      securities laws; (ii) on each day during the Equity Conditions Measuring Period,
      the Common Stock is designated for quotation on the Principal Market and shall
      not have been suspended from trading on such exchange or market nor shall
      delisting or suspension by such exchange or market been threatened or pending
      either (A) in writing by such exchange or market or (B) by falling below the
      then effective minimum listing maintenance requirements of such exchange or
      market; (iii) during the Equity Conditions Measuring Period, the Company shall
      have delivered Conversion Shares upon conversion of the Debentures to the Holder
      on a timely basis as set forth in Section 4(b)(ii) hereof; (iv) any applicable
      shares of Common Stock to be issued in connection with the event requiring
      determination may be issued in full without violating Section 4(c) hereof and
      the rules or regulations of the Primary Market; (v) during the Equity Conditions
      Measuring Period, there shall not have occurred either (A) an Event of Default
      or (B) an event that with the passage of time or giving of notice would
      constitute an Event of Default; and (vii) the Company shall have no knowledge
      of
      any fact that would cause (x) the Registration Statements required pursuant
      to
      the Registration Rights Agreement not to be effective and available for the
      resale of all applicable shares of Common Stock to be issued in connection
      with
      the event requiring determination or (y) any applicable shares of Common Stock
      to be issued in connection with the event requiring determination not to be
      eligible for sale without restriction and without the need for registration
      under any applicable federal or state securities laws.

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    (k) "Equity
      Conditions Failure"
      means
      that on any applicable date the Equity Conditions have not been satisfied (or
      waived in writing by the Holder).

     

    (l) “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended.

     

    (m) “Excluded
      Securities”
means,
      (a) shares issued or deemed to have been issued by the Company pursuant to
      an
      Approved Stock Plan (b) shares of Common Stock issued or deemed to be issued
      by
      the Company upon the conversion, exchange or exercise of any right, option,
      obligation or security outstanding on the date prior to date hereof, provided
      that the terms of such right, option, obligation or security are not amended
      or
      otherwise modified on or after the date hereof, and provided that the conversion
      price, exchange price, exercise price or other purchase price is not reduced,
      adjusted or otherwise modified and the number of shares of Common Stock issued
      or issuable is not increased (whether by operation of, or in accordance with,
      the relevant governing documents or otherwise) on or after the date hereof,
      (c)
      shares issued in connection with any acquisition by the Company, whether through
      an acquisition of stock or a merger of any business, assets or technologies,
      leasing arrangement or any other transaction the primary purpose of which is
      not
      to raise equity capital, and (d) the shares of Common Stock issued or
      deemed to be issued by the Company upon conversion of this
      Debenture.

     

    (n) “Options”
      means
      any
      rights, warrants or options to subscribe for or purchase shares of Common Stock
      or Convertible Securities.

     

    (o) “Original
      Issue Date”
means
      the date of the first issuance of this Debenture regardless of the number of
      transfers and regardless of the number of instruments, which may be issued
      to
      evidence such Debenture.

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    (p) “Person”
means
      a
      corporation, an association, a partnership, organization, a business, an
      individual, a government or political subdivision thereof or a governmental
      agency.

     

    (q) “Securities
      Act”
means
      the Securities Act of 1933, as amended, and the rules and regulations
      promulgated thereunder.

     

    (r) “Trading
      Day”
means
      a
      day on which the shares of Common Stock are quoted on the OTCBB or quoted or
      traded on such Primary Market on which the shares of Common Stock are then
      quoted or listed; provided, that in the event that the shares of Common Stock
      are not listed or quoted, then Trading Day shall mean a Business
      Day.

     

    (s) “Transaction
      Documents”
means
      the Securities Purchase Agreements between the Company and the Holder, and
      all
      agreements made or delivered in connection therewith, including, without
      limitation, the Security Documents, the Irrevocable Transfer Agent Instructions,
      and the Registration Rights Agreement (as those terms are defined in the various
      Securities Purchase Agreements).

     

    (t) “Underlying
      Shares”
means
      the shares of Common Stock issuable upon conversion of this Debenture or as
      payment of interest in accordance with the terms hereof.

     

    (u) “Underlying
      Shares Registration Statement”
means
      a
      registration statement meeting the requirements set forth in the Registration
      Rights Agreement, covering among other things the resale of the Underlying
      Shares and naming the Holder as a “selling stockholder” thereunder.

     

    (v) "Volume
      Weighted Average Price"
      means,
      for any security as of any date, the daily dollar volume-weighted average price
      for such security as reported by Bloomberg through its “Historical Price Table
      Screen (HP)” with “Market: Weighted Ave” function selected, or, if no dollar
      volume-weighted average price is reported for such security by Bloomberg, the
      average of the highest closing bid price and the lowest closing ask price of
      any
      of the market makers for such security as reported in the "pink sheets" by
      Pink
      Sheets LLC. 

     

    (w) "Warrants"
      has the
      meaning ascribed to such term in the Securities Purchase Agreements between
      the
      Company and the Holder, and shall include all warrants issued in exchange
      therefor or replacement thereof.

     

    

     

    [Signature
      Page Follows]

     

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

     

    IN
      WITNESS WHEREOF,
      the
      Company has caused this Secured Convertible Debenture to be duly executed by
      a
      duly authorized officer as of the date set forth above.

     

    

    
      	 	
              COMPANY:

            
	 	
              NEOMEDIA
                TECHNOLOGIES, INC.

            
	 	 
	 	
              By:      

            
	 	
              Name: 
                Frank Pazera

            
	 	
              Title:   
                Chief Financial Officer

            
	 	 

    

    

    

    

    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    EXHIBIT
      I

     

     

    CONVERSION
      NOTICE

     

     

    (To
      be executed by the Holder in order to Convert the
      Debenture)

     

    

    
      	
              TO:
                

            

    

    

    The
      undersigned hereby irrevocably elects to convert $     
      of the
      principal amount of Debenture No. NEO-2008-1 into Shares of Common Stock of
      NEOMEDIA
      TECHNOLOGIES, INC.,
      according to the conditions stated therein, as of the Conversion Date written
      below.

     

    
      	
              Conversion
                Date:

            	 	  

	
              Conversion
                Amount to be converted:

            	$	         

	
              Conversion
                Price:

            	$	      

	
              Number
                of shares of Common Stock to be issued:

            	 	 
	
              Amount
                of Debenture Unconverted:

            	$	     

	 	 	
                 
                

            
	 	 	 
	
              Please
                issue the shares of Common Stock in the following name and to the
                following address:

            
	
              Issue
                to:

            	 	 
	 	 	 
	 	 	 
	
              Authorized
                Signature:

            	 	    

	
              Name:

            	 	   

	
              Title:

            	 	   

	
              Broker
                DTC Participant Code:

            	 	 
	
              Account
                Number:

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