Document:

SHARE PURCHASE AND DEBT RESTRUCTURE AGREEMENT

      This Share Purchase and Debt Restructure  Agreement (this  "Agreement") is
dated and  effective  as of August 28,  2006  ("Effective  Date") by and between
Advanced Biotherapy,  Inc. ("Company"),  a Delaware corporation,  and Richard P.
Kiphart ("Noteholder") and made with respect to the facts set forth below.

                                 R E C I T A L S

      A. The Company desires to restructure its long-term and short-term debt by
conversion  of such debt into equity and to raise funds for working  capital and
possible  acquisitions.  The Noteholder  desires to participate in and implement
such debt restructure and capital raise as more specifically provided herein.

      B. As of the Effective  Date, the Company had issued and  outstanding  the
following  principal  amount of  convertible  debt and notes:  (i)  subordinated
convertible debt due September 30, 2004 ("2000-2004  Convertible  Notes") in the
approximate  aggregate  principal  amount of $7,805  as of June 30,  2006,  (ii)
subordinated   convertible  pay-in-kind  notes  due  June  1,  2006  ("2002-2006
Convertible Notes") in the approximate  aggregate principal amount of $4,733,065
as of June 30,  2006,  (iii)  subordinated  convertible  pay-in-kind  notes  due
September 30, 2007 ("2003-2007  Convertible Notes") in the approximate aggregate
principal  amount  of  $1,095,413,  as  of  June  30,  2006,  (iv)  subordinated
convertible  pay-in-kind  notes due September 30, 2009  ("2005-2009  Convertible
Notes") in the approximate aggregate principal amount of $267,213 as of June 30,
2006, (v) term notes due June 30, 2006 in the  approximate  aggregate  principal
amount of $245,637,  and (vi) demand  promissory  notes ("Demand  Notes") in the
approximate  aggregate  principal  amount of  $125,746 as of June 30,  2006.  In
addition,  the Company had booked accrued salaries in the approximate  aggregate
amount of $200,000  ("Accrued  Salary"),  and  certain  other  accounts  payable
("Accounts  Payable")  as more  specifically  described  herein.  The  2002-2004
Convertible Notes, the 2002-2006  Convertible  Notes, the 2003-2007  Convertible
Notes and the 2005-2009 Convertible Notes are referred to herein collectively as
the "Convertible Notes."

      C. The Company's 2002-2004 Convertible Notes and the 2002-2006 Convertible
Notes have matured and the Company lacks funs to repay such indebtedness.

      D. The Noteholder  together with Christopher  Capps ("Capps")  submitted a
written,  non-binding  letter of intent dated May 23, 2006, to the Company ("May
23rd Proposal").  The May 23rd Proposal  provides,  among other terms,  that the
Noteholder  would  invest  new  capital  in  the  Company  and  convert  all  of
Noteholder's Convertible Notes and Demand Notes and in consideration thereof the
Company would sell to Noteholder shares of Company common stock at a share price
of One and One-Half Cents ($0.015) per share,  and the Board of Directors  would
approve  the  reduction  of the  conversion  price  of all  outstanding  Company
Convertible  Notes and Demand Notes to One and One-Half Cents ($0.015) per share
from the current  conversion price in the range of $0.25 to $0.10 per share. The
Noteholder  requires  as  a  condition  to  the  transaction  that  all  Company
Convertible  Notes,  Demand Notes,  Accrued Salary and certain  Accounts Payable
would be converted  into  Company  common  stock as more  specifically  provided
herein.  The May 23rd  Proposal  also  provides that the Company would offer its
stockholders the right to purchase shares of common stock at the same $0.015 per
share price.

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      E.  The  Special  Committee  of the  Board  of  Directors  of the  Company
("Special  Committee")  was  appointed  to consider  the May 23rd  Proposal  and
negotiate  with the  Noteholder  the  terms of the May  23rd  Proposal  and this
Agreement.

      F. The  Noteholder  has  informed the Special  Committee  and the Board of
Directors that, in the absence of the Company  entering into this Agreement,  he
would  declare a default  under the  2002-2006  Convertible  Notes,  and seek to
exercise all collection and other remedies.

      G. The Board of  Directors,  on  behalf of the  Company,  has  engaged  an
independent  investment  banking  firm to render an opinion  as to  whether  the
consideration  to be received by the Company in the transaction  contemplated by
this Agreement is fair, from a financial  point of view, to the  stockholders of
the Company.

      NOW,  THEREFORE,  in consideration  of the foregoing  Recitals and for the
mutual covenants contained herein, the parties agree as follows:

      ARTICLE 1. TRANSACTION.

      The  "Transaction"  means  collectively all the transactions  described in
this Article 1. The  Transaction  and all parts  thereof shall be subject to the
terms and conditions of this Agreement.

      1.1 Sale and Purchase of Shares of Company common stock. Noteholder hereby
subscribes for and  contributes,  and, may, in  Noteholder's  discretion,  cause
Capps,  certain  family  members of  Noteholder  and  prospective  board members
(collectively  "related persons"),  if any, to subscribe for and contribute,  to
the Company the aggregate sum of $6,500,000.00 (collectively, "New Capital") for
shares  of  Company  common  stock at a share  price of One and  One-Half  Cents
($0.015) per share of Company common stock ("New Shares"). The New Capital shall
be paid by wire transfer to the Company in accordance with the following payment
terms:  (i) on or before the First  Closing  Date,  Noteholder  shall pay to the
Company  an  amount   equal  to  One  Million  One  Hundred   Thousand   Dollars
($1,100,000.00)  ("First Payment") to acquire 73,333,333 New Shares. The balance
of the New Capital shall be paid to the Company  concurrently with (but no later
than one (1) business  day after) the filing with the  Secretary of State of the
State  of  Delaware  ("Delaware   Secretary  of  State")  of  the  Amendment  to
Certificate  as provided in Section 1.6 below.  Upon receipt of the New Capital,
the Company  promptly  shall  arrange to deliver to  Noteholder  by  appropriate
certificates  or other  instruments  satisfactory  to Noteholder the appropriate
amount of New Shares purchased pursuant to this Section 1.1. Upon payment of the
entire New Capital, the Noteholder  immediately  thereafter will hold a majority
of the issued and outstanding shares of Company common stock.

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      1.2  Adjustment  of Conversion  Price of  Convertible  Notes.  The Company
hereby  agrees to adjust the  conversion  price of all  outstanding  Convertible
Notes (including the outstanding  2000-2004 Convertible Notes that have matured)
and the Demand  Notes to One and  One-Half  Cents  ($0.015) per share of Company
common stock,  and such adjustment to the conversion  price shall be recorded on
the books and records of the  Company as well as  pursuant  to a written  notice
promptly  delivered by the Company to all such holders of Convertible  Notes and
Demand Notes.

      1.3 Conversion of Noteholder's Convertible Notes and Demand Notes. Section
1.3 of the Company  Disclosure  Schedule contains a correct and complete list of
the  Convertible  Notes,  Demand  Notes  and  other  loans  held  by or  made by
Noteholder as of July 31, 2006.  Subject to the Company  filing the Amendment to
Certificate  with the Delaware  Secretary of State, the Noteholder shall convert
all of his Convertible  Notes,  owned of record or beneficially,  into shares of
Company common stock at the adjusted  conversion price of One and One-Half Cents
($0.015) per share.

      1.4 Conversion by Other  Debtholders.  As a condition to the First Closing
described in Section  5.2(d) below,  the holders of  Convertible  Notes,  Demand
Notes,  Accrued  Salary and  Accounts  Payable  (other than  Noteholder  and his
affiliates)  identified in the Company Disclosure  Schedule,  shall exchange the
entire principal amount,  together with accrued interest thereon, into shares of
Company  common stock at the exchange  price of One and One-Half  Cents ($0.015)
per share of Company common stock,  all as of the First Closing Date. The shares
of Company  common  stock to be issued by the Company  upon  conversion  of such
Convertible Notes,  Accrued Salary and Accounts Payable listed in Section 2.2 of
the Company Disclosure  Schedule are referred to herein as the "Other Debtholder
Shares."

      1.5 Stockholder  Rights  Offering.  Promptly after the First Closing,  the
Company  shall  commence  to  prepare a  registration  statement  ("Registration
Statement")  for shares of Company  common stock to be offered to the  Company's
stockholders  pursuant to a stockholder  rights  offering  ("Rights  Offering"),
excluding  the  Noteholder,  Capps and  related  persons,  at a price of One and
One-Half  Cents ($0.015) per share.  The Rights  Offering will provide that each
stockholder  shall have the right to  purchase  up to ten (10) shares of Company
common stock for each one (1) share then held by such  stockholder at $0.015 per
share.  Subject to the filing of the Amendment to Certificate in accordance with
this  Agreement,  the  Company  will  file  with  the  Securities  and  Exchange
Commission  ("SEC")  the  Registration  Statement,   all  as  more  specifically
described  in Section  4.2  hereof.  The Company  will use its  commercial  best
efforts to register the Other  Debtholder  Shares  (except such shares as may be
transferred  pursuant  to  Rule  144 of  the  Securities  Act)  as  part  of the
Registration Statement.

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      As an inducement to the Company to issue the New Shares to Noteholder, for
a  period  of one  (1)  year  from  the  Closing  Date  ("Restrictive  Period"),
Noteholder  shall not  approve or agree to, and shall not permit the  Company or
any  affiliate  to  approve or agree to,  (i) a merger or  consolidation  of the
Company  unless the  Company  shall be the  surviving  corporation,  or (ii) any
transaction  which gives rise to  appraisal  rights  under  Delaware  law to any
stockholders of the Company,  and (iii) effect an exchange,  reclassification or
cancellation  of all or part of the shares of Company  common stock  including a
reverse  stock  split;   provided,  the  Special  Committee  may,  in  its  sole
discretion,  approve the  shortening  of the  Restrictive  Period so long as the
Registration  Statement  Effective Date (as defined herein) shall have occurred,
the  Rights  Offering  shall have  expired,  and all  shares  purchased  in that
offering  shall  have been  registered  by the  Company;  provided,  further,  a
majority of the  disinterested  stockholders  may approve the  shortening of the
Restrictive Period, whether or not the Special Committee has so approved.

      1.6 Post-Closing Transactions. Following the First Closing, the Noteholder
agrees to take the following actions:

      (i)  Promptly  approve  by  written  consent  ("written  consent"),  as  a
controlling stockholder of the Company along with one or more other stockholders
who together  with the  Noteholder  hold in the aggregate a majority of the then
issued and  outstanding  shares of Company  common  stock,  an  amendment to the
Company's Certificate of Incorporation that would increase the authorized shares
of common  stock of the Company  from  200,000,000  to  2,000,000,000  shares of
Company  common stock  ("Amendment to  Certificate");

      (ii) Cause the  Company to  prepare  and file with the SEC an  Information
Statement  pursuant to Section 14 of the  Securities  Exchange  Act of 1934,  as
amended  ("Exchange Act") regarding the written consent to approve the Amendment
to  Certificate,  and  cause  the  Information  Statement  to be  mailed  to the
Company's stockholders in accordance with the rules and regulations of the SEC;

      (iii)  Subject to expiration of the 20-day  Information  Statement  notice
period to  stockholders,  cause the Company to file the Amendment to Certificate
with the Delaware Secretary of State;

      (iv)  Approximately one (1) month following the Closing and so long as the
Company shall have received the entire amount of New Capital payable pursuant to
Section 1.1, vote as the majority stockholder of the Company to reconstitute the
Board of  Directors  of the  Company  so that the  Board  of  Directors  will be
comprised  of at least  seven  (7)  directors,  of which  the  Noteholder  shall
nominate  and appoint at least four (4)  directors  and  nominate  and elect the
three (3) members of the Special Committee (as described in Section 7 hereof) to
the Board of  Directors;  and

      (v) Cause the Company to secure directors and officers liability insurance
in a policy  amount agreed upon by the  Noteholder  upon  consultation  with the
Special Committee, subject to commercially reasonable premiums and other terms.

      1.7 Grant of Stock  Options/Amendment  to  Termination  Period  for Option
Exercise.  Concurrently  herewith,  the Board of Directors has approved, and the
Company  hereby  approves:  (i) the grant  ("new  grant")  of stock  options  to
directors,  advisory board members and certain consultants for services rendered
during 2006 and other future services for the benefit of the Company as mutually
approved by the Special  Committee and the  Noteholder,  and (ii) for each stock
option and warrant  held by a director  serving on the Board of  Directors as of
the  Effective  Date that  provides by its terms for an exercise  period of less
than one (1) year from the date of  termination  of such person's  services as a
director,  consultant or employee of the Company,  such option and warrant shall
be amended to provide for the exercise thereof for a period of one (1) year from
the date of termination of such person's  services as a director,  consultant or
employee.  The new grant  will be  subject  to the  filing of the  Amendment  to
Certificate in accordance with this Agreement.

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      1.8 Closing.  The term "First Closing" means the date the Company receives
the First Payment  pursuant to Section 1.1. The term "Second  Closing" means the
date on which the  Amendment  to  Certificate  shall be filed with the  Delaware
Secretary of State in accordance with this  Agreement.  The term "Closing" means
the  consummation of the  transactions  described in Sections 1.1, 1.2, 1.3, and
1.4 that  are by their  terms to  occur  at the  First  Closing  and the  Second
Closing,  respectively. The terms "First Closing Date" and "Second Closing Date"
means  the date upon  which the First  Closing  and the  Second  Closing  occur,
respectively, and the "Closing Date" means the date on which the Closing occurs.
All  transactions and deliveries at the Closing shall be deemed to have occurred
simultaneously.

      ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

      Except in each case as  publicly  disclosed  by the Company in the Company
SEC Reports (as defined below) filed prior to the date hereof or as set forth on
the Disclosure  Schedule  delivered by the Company to Noteholder and made a part
of this  Agreement  (the  "Company  Disclosure  Schedule"),  the Company  hereby
represents and warrants to Noteholder as follows:

      2.1.  Organization and  Qualification;  Subsidiaries.  The Company is duly
organized,  validly existing and in good standing under the laws of the State of
Delaware and has all requisite  corporate  power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.  The
Company has heretofore  delivered to Noteholder  accurate and complete copies of
the  Certificate of  Incorporation  and Bylaws,  as currently in effect,  of the
Company.  The Company is not in violation of its Certificate of Incorporation or
Bylaws.  The Company has no  subsidiaries.  The Company is duly qualified and in
good standing in Delaware and California.

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      2.2. Capitalization of the Company.

      (a) The authorized capital stock of the Company consists of (i) 20,000,000
shares of  preferred  stock,  $0.001 par value per share,  which are blank check
preferred stock without  designation,  none of which are issued and outstanding;
and (ii)  200,000,000  shares  of common  stock,  $0.001  par  value per  share,
54,348,346 of which are issued and  outstanding as of August 1, 2006. All of the
outstanding  shares of Company  common  stock have been  validly  issued and are
fully paid,  nonassessable  and free of preemptive  rights.  Section 2.2A of the
Company Disclosure  Schedule contains a correct and complete list of all holders
(excluding  Noteholder and his affiliates) of Convertible Notes,  Accrued Salary
and Accounts Payable as of June 30, 2006, along with the current balance thereon
as of June 30, 2006. The Company will notify  Noteholder  promptly upon becoming
aware  that any  Company  account  payable  has been  omitted  from the  Company
Disclosure Schedule. Section 2.2B of the Company Disclosure Schedule identifies,
as of July 31,  2006,  the  holders of  outstanding  Company  stock  options and
warrants,  and the number of shares of Company  common stock  issuable  upon the
exercise of such stock options and warrants. As of the date hereof, there are no
outstanding  obligations  of the  Company  to  repurchase,  redeem or  otherwise
acquire any Company  securities.  There are no  stockholder  agreements,  voting
trusts or other agreements or  understandings to which the Company is a party or
by which it is bound  relating  to the voting of any shares of capital  stock of
the Company.  Section 2.2C of the Company Disclosure Schedule contains a list of
agreements to which the Company is a party relating to the  registration  of any
shares of capital stock of the Company.

      2.3. Authority  Relative to this Agreement.  The Company has all necessary
corporate  power and  authority  to execute and deliver  this  Agreement  and to
consummate the transactions  contemplated  hereby. The execution and delivery of
this  Agreement  by the  Company  and the  consummation  by the  Company  of the
transactions  contemplated hereby have been recommended by the Special Committee
and duly and validly authorized and recommended by the Board of Directors of the
Company.  This Agreement has been duly and validly executed and delivered by the
Company and, assuming due  authorization,  execution and delivery by Noteholder,
constitutes  a valid,  legal and binding  agreement  of the Company  enforceable
against  the  Company  in  accordance  with  its  terms,  except  that  (i) such
enforcement may be subject to applicable bankruptcy, insolvency, reorganization,
moratorium  or  other  similar  laws,  now or  hereafter  in  effect,  affecting
creditors'  rights  generally,  and (ii) the remedy of specific  performance and
injunctive  and other  forms of  equitable  relief may be  subject to  equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.

      2.4. SEC Reports; Financial Statements. The Company has filed all required
forms, reports and documents with the SEC for the periods on or after January 1,
2004 (such filings, along with any other filings made by the Company pursuant to
the Exchange Act (as defined below) are hereinafter  referred to as "Company SEC
Reports"),  each of  which  has  complied  in all  material  respects  with  all
applicable requirements of the Exchange Act, each as in effect on the dates such
forms,  reports  and  documents  were  filed.  None of such  Company SEC Reports
contained when filed any untrue statement of a material fact or omitted to state
a material fact required to be stated or  incorporated  by reference  therein or
necessary in order to make the statements  therein in light of the circumstances
under  which they were made not  misleading.  The  financial  statements  of the
Company  included in the Company SEC Reports  have been  prepared in  accordance
with generally  accepted  accounting  principles  applied on a consistent  basis
(except as may be indicated  in the notes  thereto),  and fairly  present in all
material  respects the  consolidated  financial  position of the Company and its
consolidated subsidiaries as of the dates thereof and their consolidated results
of  operations  and changes in  financial  position  for the periods then ended,
except,  in the case of  unaudited  interim  financial  statements,  for  normal
year-end audit adjustments and the fact that certain  information and notes have
been condensed or omitted in accordance with the applicable rules of the SEC.

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      2.5. Consents and Approvals; No Violations.

      (a) Except as set forth in Section 2.5 of the Company Disclosure Schedule,
and except for filings, permits,  authorizations,  consents and approvals as may
be required under, and other  applicable  requirements of, the Securities Act of
1933, as amended  ("Securities Act"), the Exchange Act, state securities or blue
sky laws, no filing with or notice to and no permit,  authorization,  consent or
approval of any court, arbitrator or tribunal, or administrative governmental or
regulatory body, agency or authority (a "Governmental  Entity") is necessary for
the execution and delivery by the Company of this Agreement or the  consummation
by the Company of the transactions contemplated hereby, except where the failure
to obtain such  permits,  authorizations,  consents or approvals or to make such
filings or give such notice would not  reasonably  be expected to have a Company
Material Adverse Effect.  The term "Company  Material Adverse Effect" shall mean
any change or effect that, individually or in the aggregate, is or is reasonably
likely to be materially adverse to the business, assets, operations,  results of
operations,  or financial condition of the Company,  taken as a whole other than
any changes or effects arising out of (i) general economic conditions,  (ii) the
financial  markets and (iii) the entering into or the public  disclosure of this
Agreement or the transactions contemplated hereby.

      (b) Except as set forth in Section 2.5 of the Company Disclosure Schedule,
neither the execution, delivery and performance of this Agreement by the Company
nor the consummation by the Company of the transactions contemplated hereby will
(i) conflict with or result in any breach of any provision of its Certificate of
Incorporation or Bylaws of the Company,  (ii) result in a violation or breach of
or  constitute  (with or without  due notice or lapse of time or both) a default
under any material note, bond, mortgage,  indenture,  lease, license,  contract,
agreement or other  instrument  or obligation to which the Company is a party or
by which it or any of its  respective  properties or assets may be bound (each a
"Material  Contract")  or (iii) to the Company's  knowledge,  violate any order,
writ,  injunction,  decree, law, statute,  rule or regulation  applicable to the
Company,  except,  in the case of (ii) or (iii),  for  violations,  breaches  or
defaults  which would not  reasonably  be  expected  to have a Company  Material
Adverse Effect.

      2.6.  No  Default.  Except  as set  forth in  Section  2.6 of the  Company
Disclosure Schedule,  to the Company's knowledge,  the Company is not in breach,
default or  violation  of any term,  condition  or provision of (a) any Material
Contract or (b) any order,  writ,  injunction,  decree,  law,  statute,  rule or
regulation  applicable to the Company,  except,  in the case of (a) and (b), for
violations, breaches or defaults that would not reasonably be expected to have a
Company Material Adverse Effect.

      2.7. Absence of Changes. Except as set forth in Section 2.7 of the Company
Disclosure   Schedule  and  except  for  this  Agreement  and  the  transactions
contemplated hereby, since June 30, 2006, there have not been: (i) any events or
changes with respect to the Company that would  reasonably be expected to have a
Company  Material  Adverse  Effect or that are  outside the  ordinary  course of
business;  (ii) any amendment to the Certificate of  Incorporation  or Bylaws of
the Company; (iii) any sale or transfer of any material portion of its assets or
of any material asset;  (iv) pledge of any of its assets or otherwise  permitted
any of its  assets  to  become  subject  to any lien;  (v) any  commencement  or
settlement  of  material  legal   proceedings;   (vi)  any  action  taken  by  a
Governmental Entity which affects, in any material respect,  the business of the
Company,  except, in the case of each of the foregoing clauses (i) through (vi),
as expressly contemplated by this Agreement.

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      2.8.  Litigation.  Except  as set  forth  in  Section  2.8 of the  Company
Disclosure  Schedule,  to the  Company's  knowledge,  there is no  suit,  claim,
action, proceeding or investigation pending or, to the knowledge of the Company,
threatened  against the Company or any of its  respective  properties  or assets
before any  Governmental  Entity  which could  reasonably  be expected to have a
Company  Material  Adverse Effect or would  reasonably be expected to prevent or
materially  delay the  consummation  of the  transactions  contemplated  by this
Agreement. The Company is not subject to any outstanding order, writ, injunction
or decree of any Governmental Entity that could reasonably be expected to have a
Company  Material  Adverse Effect or would  reasonably be expected to prevent or
materially delay the consummation of the transactions contemplated hereby.

      2.9. Employee Benefit Plans; Labor Matters. Section 2.9 (a) of the Company
Disclosure Schedule lists all employee benefit plans (as defined in Section 3(3)
of the Employee  Retirement  Income Security Act of 1974, as amended  ("ERISA"))
and all bonus, stock option, stock purchase,  incentive,  deferred compensation,
supplemental retirement, savings, profit-sharing, retention, severance and other
material fringe or employee benefit plans,  programs or arrangements  maintained
or  contributed to by the Company for the benefit of or relating to any employee
of the Company,

      2.10. Intellectual Property.

      (a)  Section  2.10(a)  of the  Company  Disclosure  Schedule  sets forth a
complete list of: (i) the Company's  patents,  trademarks,  service marks, trade
names,  trade  secrets,   copyrights  and  other  intellectual  property  rights
(generally "IP Rights") and all  registrations and applications for registration
of IP Rights, and all material  unregistered IP Rights; (ii) within one (1) year
prior to the Effective Date any patent applications or rights to submit any such
patent  application,  for  IP  Rights  assigned  by  the  Company  or  otherwise
abandoned;  and (iii) licenses and other contracts relating to IP rights granted
by or to the Company.

      (b)  Except as set forth on  Section  2.10(b)  of the  Company  Disclosure
Schedule:  (i) no  litigation  is pending and no claim has been made against the
Company:  (A) alleging  that any IP Right  infringes or  misappropriates  any IP
Rights owned by others;  or (B) challenging the title,  inventorship,  validity,
enforceability,  or alleging misuse, of any IP Right owned by Company;  and (ii)
the Company has not  asserted  any claim of  infringement,  misappropriation  or
misuse by any Person of any IP Rights owned by the Company.

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      2.11. Brokers.  No broker,  finder or investment banker (other than Gemini
Partners) is entitled to any  brokerage,  finder's or other fee or commission in
connection  with the  transactions  contemplated  by this  Agreement  based upon
arrangements made by or on behalf of the Company.

      ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF NOTEHOLDER.

      Except as set forth on the Disclosure Schedule delivered by the Noteholder
to  the  Company  (the  "Noteholder  Disclosure  Schedule"),  Noteholder  hereby
represents and warrants to the Company as follows:

      3.1.  Authority  Relative to this Agreement.  Noteholder has all necessary
power and  authority  to execute and deliver this  Agreement  and to perform his
obligations  hereunder.  Noteholder has taken all necessary  action required for
the execution,  delivery and performance of this Agreement by Noteholder and the
consummation  by  Noteholder  of  the  transactions  contemplated  hereby.  This
Agreement has been duly and validly  executed and  delivered by Noteholder  and,
assuming due authorization, execution and delivery by the Company, constitutes a
valid, legal and binding agreement of Noteholder  enforceable against Noteholder
in accordance with its terms, except that (i) such enforcement may be subject to
applicable bankruptcy, insolvency,  reorganization,  moratorium or other similar
laws, now or hereafter in effect,  affecting  creditors' rights  generally,  and
(ii) the  remedy of  specific  performance  and  injunctive  and other  forms of
equitable  relief may be subject to equitable  defenses and to the discretion of
the court before which any proceeding therefor may be brought.

      3.2. Information Supplied.  None of the information supplied by Noteholder
for inclusion in the Registration  Statement for the Stockholder Rights Offering
will,  at the time  that the  related  prospectus  is  mailed  to the  Company's
stockholders,  contain any untrue  statement of a material fact or omit to state
any material  fact  required to be stated  therein or necessary in order to make
the  statements  therein,  in light of the  circumstances  under which they were
made,  not  misleading,  except  that no  representation  or warranty is made by
Noteholder with respect to statements made or incorporated by reference  therein
based on information  supplied by the Company for inclusion or  incorporation by
reference therein.

      3.3.  Consents and Approvals;  No Violations.  Except for the Schedule 13D
(as  defined in Section  4.2(b)  hereof),  no filing by the  Noteholder  with or
notice to, and no permit authorization, consent or approval of, any Governmental
Entity is  necessary  for the  execution  and  delivery  by  Noteholder  of this
Agreement or the  consummation  by Noteholder of the  transactions  contemplated
hereby.  Neither the  execution,  delivery and  performance of this Agreement by
Noteholder nor the consummation by Noteholder of the  transactions  contemplated
hereby  will (a)  result in a  violation  or breach  of or  constitute  (with or
without  due notice or lapse of time or both) a default  under any of the terms,
conditions  or  provisions  of any  material  note,  lease,  license,  contract,
agreement or other  instrument or  obligation to which  Noteholder s a party and
which contemplates a payment from Noteholder,  or (b) to Noteholder's knowledge,
violate any order, writ,  injunction,  decree, law, statute,  rule or regulation
applicable to Noteholder.

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<PAGE>

      3.4. Ownership of Securities. As of the date hereof, Noteholder (including
his affiliates and associates as such terms are defined under the Exchange Act),
beneficially  owns,  directly  or  indirectly,  or is  party  to  an  agreement,
arrangement  or  understanding  (other than this  Agreement)  for the purpose of
acquiring,  holding or disposing of, in each case,  the shares of Company common
stock,  as set  forth in  Section  3.4 of the  Noteholder  Disclosure  Schedule.
Noteholder  has not  assigned  or granted any other  person any  interest in the
Convertible Notes,  Demand Notes or other Company  securities  registered in his
name or otherwise held beneficially by him.

      3.5.  Brokers.  No broker,  finder or investment banker is entitled to any
brokerage,   finder's  or  other  fee  or  commission  in  connection  with  the
transactions  contemplated by this Agreement based upon  arrangements made by or
on behalf of Noteholder.

      3.6. No Additional Representations; Investigation by Noteholder.

      (a) In entering into this  Agreement,  Noteholder has not been induced by,
or relied upon, any representations, warranties or statements by the Company not
set forth or referred to in this Agreement or the Company  Disclosure  Schedule,
whether or not such representations, warranties or statements have actually been
made, in writing or orally.

      (b) Noteholder has conducted his own independent review and analysis of
the businesses,  assets, condition,  operations and prospects of the Company and
has  reviewed  the  Company  SEC  Reports.  In  entering  into  this  Agreement,
Noteholder  has  relied  solely  upon the items set forth in clause (a) above of
this Section 3.6 and his own investigation and analysis, and Noteholder:

            (i) acknowledges that, other than as set forth in this Agreement, or
the Company  Disclosure  Schedule,  none of the Company or any of its directors,
officers,   employees,   affiliates,   agents  or   representatives   makes  any
representation  or warranty,  either  express or implied,  as to the accuracy or
completeness of any of the information  provided or made available to Noteholder
or his agents or representatives;

            (ii)  agrees,  to the fullest  extent  permitted by law (except with
respect to fraud), that none of the Company, or any of its respective directors,
officers, employees,  stockholders,  affiliates, agents or representatives shall
have any  liability or  responsibility  whatsoever  to  Noteholder  on any basis
(including  without  limitation in contract,  tort or otherwise)  based upon any
information  provided or made  available,  or statements  made, to Noteholder in
connection with this Agreement; and

      (c) acknowledges  that, as of the date hereof,  he has no knowledge of any
representation  or warranty of the Company  being  untrue or  inaccurate  in any
Material Respect.

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<PAGE>

      3.7. Investment Representations.

      (a)  Noteholder  is  acquiring  the New Shares and the  Conversion  Shares
(collectively  "Securities") solely for his own account as an investment and not
with a view to any distribution or resale thereof in violation of the Securities
Act.  Noteholder has been advised that the Securities  have not been  registered
under the  Securities  Act or under the  provisions  of any state  securities or
"blue sky" law. Noteholder, by accepting the Securities, agrees and acknowledges
that he will not directly or indirectly offer,  transfer,  sell, assign, pledge,
encumber,  hypothecate  or dispose of any of such  Securities (or to solicit any
offers  to  purchase  or  otherwise  acquire  or  take  a  pledge  of any of the
Securities) unless such offer, transfer, sale, assignment,  pledge, encumbrance,
hypothecation  or  other  disposition  is  made  (i)  pursuant  to an  effective
registration  statement  under the  Securities  Act and in  compliance  with all
applicable  state securities or "blue sky" laws or (ii) pursuant to an available
exemption  from  registration  under,  or  otherwise  in  compliance  with,  the
Securities  Act  and  all  applicable  state  securities  or  "blue  sky"  laws.
Noteholder  understands  and  agrees  that in the  case of a  transfer  or other
disposition  made  pursuant to clause (ii) above,  each  purchaser of Securities
shall be  required  to provide to the  Company an opinion of counsel  reasonably
satisfactory to the Company to the effect that registration under the Securities
Act is not required and that  qualification or registration under any such state
securities  laws and  regulations is not required (or that any applicable  state
qualification or registration requirements have been satisfied in full).

      (b) Noteholder is a director of the Company and an  "accredited  investor"
(as such term is defined in Rule 501 of Regulation D of the Securities Act). The
financial  situation  of  Noteholder  is such  that he can  afford  to bear  the
economic risk of holding the unregistered Securities for an indefinite period of
time. Noteholder can afford to suffer the complete loss of his investment in the
Securities. The knowledge and experience of Noteholder in financial and business
matters is such that he is capable of evaluating  the risk of the  investment in
the Securities. Noteholder acknowledges that he has had access to such financial
and  other  information,  and has  been  afforded  the  opportunity  to ask such
questions of  representatives  of the Company,  and receive answers thereto,  as
Noteholder has deemed  necessary in connection with his decision to purchase the
Securities,  and that no representation or warranties,  express or implied,  are
being made by the Company with respect to the Company or the  Securities,  other
than those expressly set forth herein.

      (c) Noteholder  has been further  advised and  understands  that a limited
trading market and illiquid  public market now exists for the Securities  issued
by the  Company  and  that a  viable  public  market  may  never  exist  for the
Securities.

      3.8.  Permitted  Securities  Legends.  The  certificates  representing the
Securities  shall  bear  a  legend   evidencing  such  restriction  on  transfer
substantially in the following form:

      "The  shares  represented  by this  certificate  have  been  acquired  for
      investment and have not been  registered  under the Securities Act of 1933
      (the  "Act") or the  securities  laws of any state.  The shares may not be
      transferred  by  sale,  assignment,  pledge  or  otherwise  unless  (i)  a
      registration  statement  for the shares under the Act is in effect or (ii)
      the  corporation  has  received  an opinion of counsel,  which  opinion is
      reasonably  satisfactory  to the  corporation,  to the  effect  that  such
      registration  is not required under the Act or the securities  laws of any
      state."

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<PAGE>

The certificates representing the Securities also shall bear legends required or
necessitated by law.

                  ARTICLE 4. COVENANTS.

      4.1. Conduct of Business.  The parties  acknowledge that because of a lack
of capital during 2006, the Company has  substantially  curtailed its operations
and research and development. Except as expressly set forth in this Agreement or
as consented to in writing by  Noteholder,  during the period from the Effective
Date to the Closing or termination of this Agreement if applicable,  the Company
shall not undertake any actions  inconsistent with its business practices during
2006.

      4.2. Preparation of the Registration Statement; Schedule 13D Filing.

      (a) As promptly as  reasonably  practicable  after the  execution  of this
Agreement,  the Company  shall  prepare  and file with the SEC the  Registration
Statement on Form SB-1 (or comparable form) to effect the registration under the
Securities Act of the Other  Debtholder  Shares and the shares of Company common
stock to be offered to stockholders  pursuant to the Stockholder Rights Offering
(excluding  shares held by Noteholder and his affiliates) in accordance with the
terms  and  provisions  set  forth  in  Addendum  A  affixed  hereto   captioned
"Registration  Provisions"  and made a part  hereof.  Company  shall  obtain and
furnish the information  required to be included in the  Registration  Statement
and shall  respond  promptly to any comments made by the SEC with respect to the
Registration  Statement and cause the prospectus  contained in the  Registration
Statement  to be  disseminated  to the  Company's  stockholders  at the earliest
practicable  date.   Noteholder  shall  cooperate  in  the  preparation  of  the
Registration  Statement  and shall as soon as reasonably  practicable  after the
date hereof  furnish the  Company  with all  information  for  inclusion  in the
Registration  Statement  as the  Company  may  reasonably  request.  The Company
agrees, as to information with respect to the Company, its officers,  directors,
stockholders  and  subsidiaries  contained in the  Registration  Statement,  and
Noteholder  agrees,  as to  information  with  respect  to  Noteholder  and  his
affiliates contained in the Registration Statement that such information, at the
date the prospectus contained in the Registration  Statement is disseminated (as
amended or supplemented) to the Company  stockholders,  and will not be false or
misleading with respect to any material fact, or omit to state any material fact
required to be stated  therein or necessary to make the statements  therein,  in
light of the  circumstances  in which they are made, not misleading.  Noteholder
and his  counsel  shall be given  the  opportunity  to review  the  Registration
Statement and all amendments or  supplements  thereof prior to their being filed
with the SEC. The Company  will advise  Noteholder,  promptly  after it receives
notice thereof,  of the time when the  Registration  Statement has been declared
effective  by  the  SEC or  any  request  by the  SEC  for an  amendment  of the
Registration  Statement or comments from the SEC thereon and proposed  responses
thereto or  requests by the SEC for  additional  information  and Company  shall
furnish copies to Noteholder.  The Company, on the one hand, and Noteholder,  on
the other hand, agree to promptly correct any information  provided by either of
them for use in the Registration  Statement,  if and to the extent that it shall
have become  materially  false or misleading,  and the Company further agrees to
take all steps reasonably  necessary to cause the  Registration  Statement as so
corrected  to be filed with the SEC and to use all  reasonable  efforts to cause
the prospectus contained in the Registration Statement to be disseminated to the
Company's  stockholders,  in  each  case,  as  and  to the  extent  required  by
applicable laws.

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<PAGE>

      (b) Concurrently  with the Closing,  Noteholder and his affiliates (to the
extent  required by law) shall prepare and file with the SEC,  together with the
Company,  a Rule 13d-1  Statement on Schedule 13D (together with all supplements
and amendments  thereto,  the "Schedule  13D") with respect to the  transactions
contemplated by this Agreement. The Company shall promptly furnish to Noteholder
all  information  concerning  the  Company as may  reasonably  be  requested  in
connection  with  the  preparation  of the  Schedule  13D.  In any  such  event,
Noteholder  shall take all reasonable  steps necessary to cause the Schedule 13D
as so  supplemented,  updated or  corrected to be filed  promptly  with the SEC.
Noteholder  agrees to provide the  Company  and its  counsel  with copies of any
comments  that  Noteholder  or its counsel may receive from the staff of the SEC
promptly after receipt thereof.

      4.3.  Access to  Information;  Confidentiality.  The Company  shall afford
Noteholder  and his  representatives  reasonable  access during normal  business
hours  during the  period  prior to the  Closing  to all its  books,  contracts,
agreements, commitments, returns, personnel and records and, during such period,
the Company shall  furnish  promptly to  Noteholder,  (a) a copy of each report,
schedule,  registration  statement  and other  document  filed by it during such
period pursuant to the  requirements of federal or state securities laws and (b)
all other  information  concerning  its  business,  properties  and personnel as
Noteholder may reasonably request.

      4.4. Reasonable Efforts;  Notification.  Upon the terms and subject to the
conditions set forth in this Agreement, each of the Company and Noteholder agree
to use reasonable best efforts to take, or cause to be taken,  all actions,  and
to do, or cause to be done,  and to assist and cooperate  with the other parties
in  doing,  all  things  necessary,   proper  or  advisable  to  consummate  the
transactions  contemplated by this Agreement,  including without  limitation (i)
the making of all necessary  applications,  registrations and filings (including
filings with Governmental Entities, if any), (ii) the obtaining of all necessary
consents,  approvals  or waivers  from  Governmental  Entities  and other  third
parties,  (iii)  the  execution  and  delivery  of  any  additional  instruments
necessary to consummate the transactions contemplated by, and to fully carry out
the purposes of, this  Agreement and (iv) the defending of any lawsuits or other
legal proceedings, judicial or administrative, challenging this Agreement or the
consummation of the transactions  contemplated hereby or thereby,  including the
using of all reasonable best efforts necessary to lift,  rescind or mitigate the
effect of any injunction or restraining order or other order adversely affecting
the ability of any party  hereto to  consummate  the  transactions  contemplated
hereby.

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<PAGE>

      4.5. Indemnification, Exculpation and Insurance.

      (a) The Company's  Certificate of Incorporation and the Bylaws on the date
of this  Agreement  contain  provisions  with  respect  to  indemnification  and
exculpation from liability.  Such provisions  shall not be amended,  repealed or
otherwise  modified  in any  manner  that  would  adversely  affect  the  rights
thereunder  of  individuals  who on or  prior  to the  Closing  were  directors,
officers,  employees  or agents of the  Company,  unless  such  modification  is
required by law.

      (b) After the Closing,  the Company shall indemnify and hold harmless (and
shall also advance  expenses as incurred to the fullest extent  permitted  under
applicable  law to) each  person who is or has been prior to the date  hereof or
who becomes prior to the Closing an officer, director,  employee or agent of the
Company (the  "Indemnified  Persons") against (a) all losses,  claims,  damages,
costs,  expenses  (including,  without  limitation,  counsel fees and expenses),
settlement  payments or  liabilities  arising out of or in  connection  with any
claim, demand,  action,  suit,  proceeding or investigation based in whole or in
part on or  arising  in whole or in part out of the fact that such  person is or
was an  officer,  director,  employee  or agent of the  Company  whether  or not
pertaining  to any matter  existing or  occurring at or prior to the Closing and
whether  or  not  asserted  or  claimed  prior  to or at or  after  the  Closing
("Indemnified  Liabilities") and (b) all Indemnified  Liabilities based in whole
or in part on or  arising  in  whole  or in part  out of or  pertaining  to this
Agreement or the transactions  contemplated  hereby, in each case to the fullest
extent  required  or  permitted  under  applicable  law or under  the  Company's
Certificate of Incorporation or Bylaws,  or any agreement with the Company.  The
parties hereto intend,  to the extent not prohibited by applicable law, that the
indemnification  provided  for  in  this  Section  4.5(b)  shall  apply  without
limitation  to  negligent  acts or  omissions  by an  Indemnified  Person.  Each
Indemnified  Person is intended to be a third party  beneficiary of this Section
4.5(b) and may  specifically  enforce its terms.  This Section  4.5(b) shall not
limit or otherwise  adversely effect any rights any Indemnified  Person may have
under any  agreement  with the  Company or under the  Company's  Certificate  of
Incorporation or Bylaws.

      (c) For six years from the Closing,  Noteholder shall cause the Company to
maintain in effect directors' and officers'  liability insurance for current and
former  officers and directors of the Company who were covered by the directors'
and officers'  liability  insurance policy referred to in Section 1.6(iii) above
("Company's  Insurance  Policy") on terms no less favorable to such  indemnified
parties than the terms of such Company  Insurance Policy and providing  coverage
with respect to matters occurring on or prior to the Closing, to the extent that
such  coverage  can be  maintained  at an annual net cost to the  Company of not
greater than 175% of the annual premium for the Company's  Insurance Policy and,
if such coverage cannot be so maintained at such cost, providing as much of such
insurance  as can be so  maintained  at a net cost  equal to 175% of the  annual
premium for the Company's Insurance Policy.

Page 14 of 24
<PAGE>

      (d) The  obligations  of the  Company  and  Noteholder  contained  in this
Section 4.5 shall be binding on the successors and assigns of Noteholder and the
Company.  If the Company or any of its  successors  or assigns (i)  consolidates
with or  merges  into any  other  person  and  shall  not be the  continuing  or
surviving  corporation  or  entity  of  such  consolidation  or  merger  or (ii)
transfers all or  substantially  all of its properties and assets to any person,
then  and in each  such  case,  proper  provisions  shall  be  made so that  the
successors  and  assigns  of the  Company as the case may be,  shall  assume the
obligations set forth in this Section 4.5.

      4.6. Fees and  Expenses.  If the  Transaction  is not  consummated  or the
Closing  does not occur,  all  reasonable  costs and  expenses  incurred  by the
Company and by Noteholder in connection with this Agreement and the transactions
contemplated hereby shall be paid by the Noteholder. Otherwise the Company shall
pay all such reasonable costs and expenses.

      4.7. Public Announcements.  Noteholder,  on the one hand, and the Company,
on the other hand,  will not issue any press release or other public  statements
with respect to the transactions  contemplated by this Agreement,  without first
obtaining the prior consent of the other party; provided,  however, in the event
of any press release that may be required by applicable law or court process, or
the NASDAQ,  the parties will use  reasonable  best efforts to consult with each
other before  issuing,  and to provide each other the  opportunity to review and
comment upon, any such press release or other public statement.

      ARTICLE 5. CONDITIONS PRECEDENT.

      5.1. Conditions to Each Party's Obligations to Effect the Transaction. The
respective  obligation of each party to effect the Transaction is subject to the
satisfaction  or  waiver on or prior to the First  Closing  Date and the  Second
Closing Date, respectively, of the following conditions:

      (a) No Injunctions or Restraints.  No litigation brought by a Governmental
Entity  shall  be  pending,  and  no  litigation  shall  be  threatened  by  any
Governmental  Entity,  which seeks to enjoin or prohibit the consummation of the
Transaction,  and no  temporary  restraining  order,  preliminary  or  permanent
injunction or other order issued by any court of competent jurisdiction or other
legal  restraint or prohibition  preventing the  consummation of the Transaction
shall be in effect.

      5.2. Additional  Conditions to Obligations of Noteholder.  The obligations
of Noteholder to effect the Transaction are also subject to the  satisfaction or
waiver  on or prior to the  First  Closing  Date and the  Second  Closing  Date,
respectively, of the following conditions:

      (a) Representations and Warranties.  The representations and warranties of
the  Company  set  forth in this  Agreement  shall be true  and  correct  in all
Material Respects as of the date of this Agreement and shall be true and correct
in all Material  Respects as of the First Closing Date and Second  Closing Date,
respectively,  as though made on and as of the First Closing Date and the Second
Closing Date (provided that those  representations  and warranties which address
matters  only as of a  particular  date  shall  remain  true and  correct in all
Material Respects as of such date).

Page 15 of 24
<PAGE>

      (b) Agreements and Covenants. The Company shall have performed or complied
in all Material  Respects with all  agreements  and  covenants  required by this
Agreement  to be  performed  or  complied  with by it on or prior  to the  First
Closing Date and the Second Closing Date, respectively.

      (c) Certificates and Other  Deliveries.  The Company shall have delivered,
or caused to be delivered, to Noteholder (i) a certificate of good standing from
the  Delaware   Secretary  of  State  and  of  comparable   authority  in  other
jurisdictions in which the Company is qualified to do business stating that each
is a validly  existing  corporation  in good  standing;  and (ii)  duly  adopted
resolutions  of the Board of Directors of the Company  approving the  execution,
delivery and  performance  of this  Agreement and the  instruments  contemplated
hereby, certified by the Secretary of the Company.

      (d) Consent by Debt Holders to Conversion.  In accordance with Section 1.4
hereof, the Company shall have delivered or caused to be delivered to Noteholder
the  consents  to convert all  Company  debt held by the holders of  Convertible
Notes,  Demand Notes,  Accrued Salary and Accounts Payable as more  specifically
listed  on  Schedule  2.2A  of  the  Company  Disclosure  Schedule  (except  for
Noteholder and his  affiliates,  and except for the sole holder of the Company's
2000-2004 Convertible Notes).

      (e) Resignation of Directors.  In accordance with Section 1.6 hereof,  the
Company will request that the  directors,  as designated by  Noteholder,  submit
written  resignations  to become  effective  upon  nomination  and  election  by
Noteholder as the majority  stockholder of the new directors pursuant to Section
1.6.

      5.3. Additional  Conditions to Obligations of the Company. The obligations
of the Company to effect the Transaction are also subject to the satisfaction or
waivers on or prior to the Closing Date of the following conditions:

      (a) Representations and Warranties.  The representations and warranties of
the  Noteholder  set forth in this  Agreement  shall be true and  correct in all
Material Respects as of the date of this Agreement and shall be true and correct
in all Material  Respects as of the Closing Date as though made on and as of the
Closing Date.

      (b) Agreements and Covenants.  Noteholder shall have performed or complied
in all Material  Respects with all  agreements  and  covenants  required by this
Agreement  to be  performed  or complied  with by him on or prior to the Closing
Date.

      (c) Financing of Noteholder in Place. As of the Effective Date, Noteholder
shall have,  and shall have provided the Company with  satisfactory  evidence of
the  availability  of, funds  sufficient  for the payment of the New Capital and
performance  of  Noteholder's  obligations  with  respect  to  the  transactions
contemplated by this Agreement.

Page 16 of 24
<PAGE>

      (d) Fairness  Opinion.  The Board of  Directors of the Company  shall have
received an opinion  satisfactory to it from Gemini Partners as to the fairness,
from a financial point of view, of the total consideration to be received by the
Company as contemplated by this Agreement, to the Company's stockholders.

      ARTICLE 6. TERMINATION, AMENDMENT AND WAIVER.

      6.1.  Termination.  This  Agreement may be terminated at any time prior to
the Closing:

      (a) by mutual written consent of Noteholder and Company,  if (with respect
to the  Company)  the  Board  of  Directors  of  Company  so  determines  by the
affirmative vote of a majority of the members of its Board of Directors;

      (b) by  Noteholder  (provided  that  Noteholder  is not  then in  Material
Breach,  as  defined  in this  Section  7.1,  of any  representation,  warranty,
covenant or other  agreement  contained  herein),  upon a Material Breach of any
representation,  warranty,  covenant or agreement on the part of the Company set
forth in this  Agreement,  or if any  representation  or warranty of the Company
shall have become untrue,  continuing  thirty (30) days following  notice to the
Company of such breach or untruth;

      (c) by the  Company  (provided  that the  Company is not then in  Material
Breach of any  representation,  warranty,  covenant or other agreement contained
herein),  upon a Material Breach of any  representation,  warranty,  covenant or
agreement  on the part of  Noteholder  set  forth in this  Agreement,  or if any
representation  or warranty of Noteholder  shall have become  untrue,  in either
case continuing  thirty (30) days following  notice to Noteholder of such breach
or untruth;

      (d) by either  Noteholder or the Company if any Governmental  Entity shall
have  issued an order,  decree or ruling or taken any other  action  permanently
enjoining,   restraining  or  otherwise  prohibiting  the  consummation  of  the
Transaction  and such order,  decree or ruling or other action shall have become
final and nonappealable;

      For purposes of Sections 6.1(b) and (c),  "Material Breach" shall mean (i)
when used in connection with a representation,  warranty,  covenant or agreement
made by the  Company  or  Noteholder,  as the  case  may be,  set  forth in this
Agreement  which is  qualified by  materiality  or by Company  Material  Adverse
Effect), any breach of such representation, warranty, covenant or agreement; and
(ii)  when used in  connection  with a  representation,  warranty,  covenant  or
agreement  made by the Company or  Noteholder,  as the case may be, set forth in
this Agreement  that is not so qualified by  materiality or by Company  Material
Adverse Effect, as the case may be, a breach of such  representation,  warranty,
covenant or agreement in any Material Respect.

      6.2. Effect of Termination.  In the event of termination of this Agreement
by either the Company or Noteholder  as provided in Section 6.1, this  Agreement
shall  forthwith  become  void and have no  effect,  without  any  liability  or
obligation on the part of Noteholder or the Company or their respective officers
or  directors,  except as set forth in Section 4.6 and Articles 7, 8 and 9 which
shall survive termination and except to the extent that such termination results
from the willful  breach by a party of any of its  representations,  warranties,
covenants or agreements set forth in this Agreement.

Page 17 of 24
<PAGE>

      ARTICLE 7. SPECIAL COMMITTEE.

      The Board of  Directors  of the Company has  determined  that it is in the
best interest of the Company to form the Special  Committee and has  constituted
and appointed the Special Committee.

      7.1.  Purpose.   The  purpose  of  the  Special  Committee  (the  "Special
Committee") is to oversee,  monitor, and enforce compliance of this Agreement by
Noteholder and the Company.  Noteholder  acknowledges that upon his becoming the
holder of a  majority  of the issued and  outstanding  shares of Company  common
stock and so long as he  controls a majority of such  shares,  he would have the
power to  nominate  and elect a majority  of the  directors  of the  Company and
thereby influence and affect the compliance of this Agreement by the Company and
himself.

      In discharging its  responsibilities  hereunder,  the Special Committee is
empowered  (i) to review and  discuss  with  management  the  compliance  by the
Company  and  Noteholder  of  their  respective  obligations  set  forth in this
Agreement,  (ii) to  investigate  review and analyze  any matter  brought to its
attention  with full access to all books,  records,  facilities and personnel of
the  Company,  (iii) to engage  such  advisers  including,  but not  limited to,
attorneys,  accountants or other consultants (collectively,  "professionals") as
the Special  Committee  shall deem  necessary  or  desirable to assist it in the
discharge of its responsibilities including, without limitation,  enforcement of
this  Agreement  as well  exercise  of all legal and  equitable  remedies of the
Company  as to the  Noteholder,  (iv) to modify or amend any  provision  of this
Agreement as the Special  Committee  deems  reasonable or appropriate and in the
interest of the Company's stockholders,  in the Committee's sole discretion, (v)
to  execute  in the  name  of and  on  behalf  of  the  Company  any  agreement,
certificate, instrument or document to be delivered by the Company in connection
with this  Agreement,  and (vi) to take such other actions as it deems necessary
or  appropriate  to assure  compliance  by the  Company and  Noteholder  of this
Agreement.  The Company shall be responsible for, and the Noteholder shall cause
the Company to pay, the fees and expenses of any such attorneys, accountants and
other  consultants that may be retained by the Special  Committee.  No member of
the Special Committee shall have any responsibility or obligation for payment of
the  fees  and  expenses  of  such  professionals  so  retained  by the  Special
Committee.

      In  carrying  out  its  responsibilities,  the  Special  Committee  is not
providing any expert or special  assurance as to the Company or any professional
certification as to any outside  professional's work. The determinations made by
the Special  Committee and dealings with the Noteholder and the Company shall be
final, shall not be subject to review by the Board of Directors and shall in all
respects be binding upon the Company. The officers, agents, and employees of the
Company are  authorized  to assist the Special  Committee and to provide it with
all  information  and  documents  that it requests  with  respect to the subject
matter of this Agreement.

Page 18 of 24
<PAGE>

      Upon request of the Special Committee, the Noteholder agrees to provide to
the Special  Committee  reasonable  evidence of the compliance by the Noteholder
and/or the Company of his/its obligations set forth in this Agreement.

      7.2.  Membership.  The Special  Committee  shall be comprised of three (3)
members of the Board,  except as otherwise  provided herein. The initial members
of Special  Committee shall be Thomas J. Pernice,  Dr. Joseph Bellanti and Keith
Gregg,  each of whom shall serve until his  successor  is  appointed as provided
hereunder,  he  resigns  or ceases  to be a member  of the  Board of  Directors.
Noteholder  hereby  agrees to take all actions  necessary to call,  or cause the
Company and the  appropriate  officers and  directors of the Company to call, an
annual or special  meeting of  stockholders of the Company to vote all shares of
Company  common  stock  owned or held of  record,  directly  or  indirectly,  by
Noteholder  at any such  annual  or  special  meeting  in favor  of, or take all
actions by written consent in lieu of any such meeting necessary, to ensure that
the individuals  designated  above as comprising the Special  Committee shall be
and are elected as members of the Company's  Board of Directors and to otherwise
effect the intent of this Article 7. In addition  Noteholder  agrees to vote all
shares of Company common stock owned or held of record,  directly or indirectly,
by Noteholder upon any other matter arising under this Agreement  submitted to a
vote of the stockholders of the Company in a manner so as to implement the terms
of this Agreement.

      In the event of a vacancy created on the Special  Committee at any time by
the death,  disability or resignation  or otherwise a vacancy shall occur,  then
the remaining  members of the Special  Committee may (but without any obligation
to do so)  appoint  a then  existing  director  of the  Company  to serve on the
Special Committee so that the Committee shall be comprised of three (3) members.
Notwithstanding  the foregoing  sentence,  the remaining  members of the Special
Committee  may  continue to take all actions on behalf of the Special  Committee
regardless of any such vacancy.

      7.3. Termination of Special Committee. The Special Committee is authorized
to  continue  in  existence  until the  earlier of such time as (i) the  Special
Committee shall recommend its dissolution to the Board of Directors, or (ii) the
Company's and Noteholder's  satisfaction of all of their respective  obligations
hereunder,  which with respect to the stockholder's Rights Offering contemplated
by this Agreement  means that the Company's  Registration  Statement  shall have
been declared  effective by the SEC ("Registration  Statement  Effective Date"),
and either (A) such  offering  shall have expired by reason of no  subscriptions
received by the Company in accordance with the terms of the Rights Offering,  or
(B) the Company shall have accepted all  subscriptions  made in accordance  with
the terms of the Rights  Offering and issued all shares of Company  common stock
required in connection with such exercise and subscriptions.

      7.4. Indemnity.  The Company shall indemnify and hold harmless each member
of the  Special  Committee  against  any  loss,  liability,  claim  or  expense,
including, without limitation,  attorneys' fees, arising out of or in connection
with such member's  participation or service on the Special  Committee or action
or inaction with respect thereto,  including,  without limitation, the costs and
expenses of defending himself against any such loss, liability, claim or expense
relating to or arising from any claims,  demands or lawsuits by a stockholder of
the Company or by the Noteholder against such member or the Special Committee.

Page 19 of 24
<PAGE>

      ARTICLE 8. RELEASE.

      8.1. Release.  Effective upon Closing hereunder,  Noteholder, for himself,
his heirs,  successors  and assigns and for others who may claim  through  them,
hereby  releases and forever  discharges the Company,  its officers,  directors,
agents  and   representatives  of  and  from  all  claims,   demands,   damages,
liabilities,  actions, causes of actions, suits,  obligations,  costs, expenses,
agreements,  contracts  and  promises  (in law and in  equity)  or the  like and
whether known or unknown (collectively the "Claims"),  of any description,  kind
or nature and whether by act or omission  relating directly or indirectly to (i)
the conduct and  management of the Company and its business,  (ii) the discharge
of statutory and common law fiduciary duties with respect to the Company and its
stockholders  prior  to  Closing,  and  (iii)  the  negotiation,  execution  and
performance of this Agreement.  The Claims shall exclude (the  "Exclusions") (i)
claims or causes of action made or brought prior to the Closing  relating to any
material breach by the Company of this Agreement between the date hereof and the
Closing;  (ii) claims or causes relating to this Agreement and the  negotiation,
execution and performance thereof; and (iii) claims and causes of action arising
directly  from actual  fraud,  intentional  misconduct,  or a knowing,  material
violation  of law by the person  against whom such claim is made or against whom
such cause of action is alleged.

      8.2. General Release. In furtherance of the intention that this Release be
a full and final accord and satisfaction and release of the Claims, subject only
to the  Exclusions  and  the  obligations  of the  Company  set  forth  in  this
Agreement,  Noteholder  acknowledges  that he has been informed by his attorneys
of,  and he is  familiar  with,  Section  1542 of the Civil Code of the State of
California which provides as follows:

      "A  GENERAL  RELEASE  DOES NOT EXTEND TO  CLAIMS WHICH THE CREDITOR
      DOES NOT KNOW OR  SUSPECT  TO EXIST  IN HIS  FAVOR  AT THE  TIME OF
      EXECUTING THE RELEASE, WHICH IF  KNOWN BY HIM MUST HAVE  MATERIALLY
      AFFECTED  HIS SETTLEMENT WITH THE DEBTOR."

Noteholder,  for himself,  his heirs,  successors and assigns and for others who
may claim through them,  expressly  waives any and all rights and benefits which
he has or may  have  under  Section  1542  of the  Civil  Code of the  State  of
California  to the full  extent that he may  lawfully  waive all such rights and
benefits.  Noteholder hereby acknowledges that he is aware that he may hereafter
discover  facts in  addition  to or  different  from those which he now knows or
believes to be true with respect to the subject  matter of this  Agreement,  but
that it is his  intention  hereby,  finally and forever and subject  only to the
Exclusions to settle and release any and all Claims,  disputes and  differences,
known or unknown,  suspected and unsuspected,  which do now exist, may hereafter
exist or heretofore have existed between him, on the one hand, and those persons
or entities  released by him on the other hand,  and that in furtherance of such
intention, the releases are binding and effective  notwithstanding the discovery
or existence of any such additional or different facts.

      ARTICLE 9. ADDITIONAL PROVISIONS.

Page 20 of 24
<PAGE>

      9.1. Survival of Representations  and Warranties.  The representations and
warranties  in  this   Agreement   shall   survive  until   December  31,  2007.
Notwithstanding the foregoing,  this Section 9.1 shall not limit any covenant or
agreement of the parties, which by its terms contemplates  performance after the
Closing.

      9.2.  Notices.   All  notices,   requests,   claims,   demands  and  other
communications  under this  Agreement  shall be in  writing  and shall be deemed
given if delivered  personally or sent by reputable overnight courier (providing
proof of delivery) to the parties at the  following  addresses (or at such other
address for a party as shall be specified by like notice):

                  If to Noteholder:         Richard P. Kiphart
                                            William Blair & Co. LLC
                                            222 West Adams Street
                                            Chicago, IL 60606

Page 21 of 24
<PAGE>

                  If to Company:            Special Committee
                                            Board of Directors
                                            c/o Thomas J. Pernice
                                            Advanced Biotherapy, Inc.
                                            141 West Jackson Blvd.
                                            Chicago, ILL 60604

                  With a copy to:           Joseph A. Bellanti M.D.
                                            6007 Corewood Lane
                                            Bethesda, MD 20816

      9.3. Definitions. For purposes of this Agreement:

      (a) an "affiliate"  of any person means another  person that,  directly or
indirectly,  through one or more intermediaries,  controls, is controlled by, or
is under common control with, such first person;

      (b) "Governmental Entity" means any federal, state, local or foreign court
or governmental agency, authority, instrumentality or regulatory body.

      (c) "knowledge" means a fact, event,  circumstance or occurrence  actually
known,  or that reasonably  should have been known by an executive  officer of a
comparable   company  with  comparable   responsibilities   by  virtue  of  such
responsibilities, by any of the executive officers of the Company or Noteholder,
as the case may be;

      (d)  "Material   Respect"  means  (i)  when  used  in  connection  with  a
representation,  warranty,  covenant, condition or agreement to be complied with
or satisfied by the Company or Noteholder, as the case may be, that is qualified
by materiality or by Company Material  Adverse Effect,  any respect (taking into
account  such  qualifications  as to  materiality  or Company  Material  Adverse
Effect,  as  the  case  may  be);  and  (ii)  when  used  in  connection  with a
representation,  warranty,  covenant, condition or agreement to be complied with
or satisfied by the Company or  Noteholder,  as the case may be, which is not so
qualified by materiality or by Company Material Adverse Effect,  as the case may
be, any material respect. and

      (e) "Person" means an individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.

      9.4.  Interpretation.  When a  reference  is made in this  Agreement  to a
Section,  exhibit or schedule,  such  reference  shall be to a Section of, or an
exhibit or schedule to, this Agreement unless otherwise indicated.  The table of
contents and headings  contained in this  Agreement are for  reference  purposes
only and  shall not  affect in any way the  meaning  or  interpretation  of this
Agreement.  Whenever the words "include," "includes" and "including" are used in
this  Agreement,  they  shall be deemed  to be  followed  by the words  "without
limitation."

Page 22 of 24
<PAGE>

      9.5.  Counterparts;  Facsimile.  This  Agreement may be executed in one or
more  counterparts  and via facsimile,  all of which shall be considered one and
the same agreement and shall become effective when one or more counterparts have
been signed by each of the parties and delivered to the other parties.

      9.6.  Entire  Agreement;  No Third-Party  Beneficiaries.  This  Agreement,
including  the  Company  Disclosure  Schedule  and  the  Noteholder   Disclosure
Schedule,  contains  the entire  agreement,  both  written  and oral,  among the
parties with respect to the subject  matter of this Agreement and except for the
provisions of Sections 1.5,  1.6(iii),  4.2, 4.5,  Article VII, Article VIII and
this  Section  9.6,  are not  intended to confer upon any person  other than the
parties hereto any rights or remedies hereunder.

      9.7. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of California,  regardless of
the laws that might otherwise govern under applicable  principles of conflict of
laws thereof.

      9.8. Assignment.  Neither this Agreement nor any of the rights,  interests
or obligations  under this Agreement shall be assigned,  in whole or in part, by
operation of law or otherwise  by any of the parties  without the prior  written
consent of the other party.  Subject to the preceding  sentence,  this Agreement
will be  binding  upon,  inure to the  benefit  of, and be  enforceable  by, the
parties and their respective successors and assigns.

      9.9. Enforcement. The parties agree that irreparable damage would occur in
the event that any of the  provisions  of this  Agreement  were not performed in
accordance  with  their  specific  terms  or  were  otherwise  breached.  It  is
accordingly  agreed that the parties  shall be entitled to seek an injunction or
injunctions to prevent  breaches of this  Agreement and to enforce  specifically
the  terms  and   provisions  of  this  Agreement  in  any  court  of  competent
jurisdiction,  this  being in  addition  to any other  remedy to which  they are
entitled at law or in equity.

      9.10. Amendment. This Agreement may be amended by the parties at any time;
provided,  however,  that  this  Agreement  may  not  be  amended  except  by an
instrument in writing  signed on behalf of each of the parties,  and approved in
writing by the Special  Committee  prior to execution  of such  amendment by the
Company.

      9.11. Extension; Waiver. At any time prior to the Closing, the parties may
(a) extend the time for the  performance of any of the obligations or other acts
of the other parties,  (b) waive any  inaccuracies  in the  representations  and
warranties  contained in this Agreement or in any document delivered pursuant to
this Agreement or (c) waive  compliance with any of the agreements or conditions
contained in this  Agreement.  Any  agreement on the part of a party to any such
extension  or  waiver  shall be valid  only if set  forth  in an  instrument  in
writing,  signed on behalf of such party and  approved in writing by the Special
Committee prior to the execution of any such instrument by the Company.

Page 23 of 24
<PAGE>

The  failure of any party to this  Agreement  to assert any of its rights  under
this Agreement or otherwise shall not constitute a waiver of those rights.

COMPANY:                                                     NOTEHOLDER:

ADVANCED BIOTHERAPY, INC.

By:/s/ Thomas J. Pernice                               /s/ Richard P. Kiphart
   ---------------------------                         -------------------------
   Thomas J. Pernice,                                  Richard P. Kiphart
   Member of Special Committe
   and Board of Directors

By:/s/ Joseph Bellanti M.D.
   ---------------------------
   Joseph Bellanti, M.D.,
   Member of Special Committee
   and Board of Directors

SPECIAL COMMITTEE:

Read and Approved as to Section 7 only:

/s/ Joseph Bellanti M.D.
-------------------------------------------------
Joseph Bellanti, M.D.

/s/ Keith Gregg
-------------------------------------------------
Keith Gregg

/s/ Thomas J. Pernice
-------------------------------------------------
Thomas J. Pernice

Page 24 of 24SECURITIES
      PURCHASE AGREEMENT

    

    THIS SECURITIES
      PURCHASE AGREEMENT
      (this
“Agreement”),
      dated
      as of August 24, 2006, by and among NEOMEDIA
      TECHNOLOGIES, INC.,
      a
      Delaware corporation (the “Company”),
      and
      the Buyers listed on Schedule I attached hereto (individually, a
“Buyer”
or
      collectively “Buyers”).

     

    WITNESSETH

    

    WHEREAS,
      the
      Company and the Buyer(s) are executing and delivering this Agreement in reliance
      upon an exemption from securities registration pursuant to Section 4(2) and/or
      Rule 506 of Regulation D (“Regulation
      D”)
      as
      promulgated by the U.S. Securities and Exchange Commission (the “SEC”)
      under
      the Securities Act of 1933, as amended (the “Securities
      Act”);

     

    WHEREAS,
      the
      parties desire that, upon the terms and subject to the conditions contained
      herein, the Company shall issue and sell to the Buyer(s), as provided herein,
      and the Buyer(s) shall purchase up to Five Million Dollars ($5,000,000) of
      secured convertible debentures (the “Convertible
      Debentures”),
      which
      shall be convertible into shares of the Company’s common stock, par value $0.01
      (the “Common
      Stock”)
      (as
      converted, the “Conversion
      Shares”)
      which
      shall be funded two (2) business days prior to the date the registration
      statement (the “Registration
      Statement”)
      is
      filed, pursuant to the Investor Registration Rights Agreement dated the date
      hereof, with the United States Securities and Exchange Commission (the
“SEC”)
      (the
“Closing”)
      (referred to as a “Closing”
      collectively referred to as the “Closings”),
      for a
      total purchase price of up to Five Million Dollars ($5,000,000), (the
“Purchase
      Price”)
      in the
      respective amounts set forth opposite each Buyer(s) name on Schedule I (the
      “Subscription
      Amount”);
      and

     

    WHEREAS,
      contemporaneously with the execution and delivery of this Agreement, the parties
      hereto are executing and delivering a Registration Rights Agreement (the
“Investor
      Registration Rights Agreement”)
      pursuant to which the Company has agreed to provide certain registration rights
      under the Securities Act and the rules and regulations promulgated there under,
      and applicable state securities laws; and

     

    WHEREAS,
      contemporaneously with the execution and delivery of this Agreement, the Company
      and the Buyers are executing and delivering a Pledge and Security Agreement
      (the
“Security
      Agreement”)
      pursuant to which the Company agreed to provide the Buyers a security interest
      in Pledged Collateral (as this term is defined in the Security Agreement) to
      secure the Company’s obligations under this Agreement, the Transaction
      Documents, or any other obligations of the Company to the Buyer;
      and

     

    WHEREAS,
      contemporaneously with the execution and delivery of this Agreement, the parties
      hereto are executing and delivering Irrevocable Transfer Agent Instructions
      (the
“Irrevocable
      Transfer Agent Instructions”)

     

    NOW,
      THEREFORE,
      in
      consideration of the mutual covenants and other agreements contained in this
      Agreement the Company and the Buyer(s) hereby agree as follows:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    1.  PURCHASE
      AND SALE OF CONVERTIBLE DEBENTURES.

     

    (a)  Purchase
      of Convertible Debentures.
      Subject
      to the satisfaction (or waiver) of the terms and conditions of this Agreement,
      each Buyer agrees, severally and not jointly, to purchase at each Closing and
      the Company agrees to sell and issue to each Buyer, severally and not jointly,
      at each Closing, Convertible Debentures in amounts corresponding with the
      Subscription Amount set forth opposite each Buyer’s name on Schedule I hereto.

     

    (b)  Closing
      Date.
      The
      Closing of the purchase and sale of the Convertible Debentures shall take place
      at 10:00 a.m. Eastern Standard Time two (2) business days prior to the date
      the
      Registration Statement is filed with the SEC, subject to notification of
      satisfaction of the conditions to the Closing set forth herein and in Sections
      6
      and 7 below (or such later date as is mutually agreed to by the Company and
      the
      Buyer(s)) (“Closing
      Date”).
      The
      Closing shall occur on the Closing Date at the offices of Yorkville Advisors,
      LLC, 3700 Hudson Street, Suite 3700, Jersey City, New Jersey 07302 (or such
      other place as is mutually agreed to by the Company and the Buyer(s)).

     

    (c)  Form
      of Payment.
      Subject
      to the satisfaction of the terms and conditions of this Agreement, on the
      Closing Date, (i) the Buyers shall deliver to the Company such aggregate
      proceeds for the Convertible Debentures to be issued and sold to such Buyer(s),
      minus the fees to be paid directly from the proceeds of the Closing as set
      forth
      herein, and (ii) the Company shall deliver to each Buyer, Convertible
      Debentures which such Buyer(s) is purchasing in amounts indicated opposite
      such
      Buyer’s name on Schedule I, duly executed on behalf of the Company.

     

    2.  BUYER’S
      REPRESENTATIONS AND WARRANTIES.

     

    Each
      Buyer represents and warrants, severally and not jointly, that:

     

    (a)  Investment
      Purpose.
      Each
      Buyer is acquiring the Convertible Debentures and, upon conversion of
      Convertible Debentures, the Buyer will acquire the Conversion Shares then
      issuable, for its own account for investment only and not with a view towards,
      or for resale in connection with, the public sale or distribution thereof,
      except pursuant to sales registered or exempted under the Securities Act;
      provided, however, that by making the representations herein, such Buyer
      reserves the right to dispose of the Conversion Shares at any time in accordance
      with or pursuant to an effective registration statement covering such Conversion
      Shares or an available exemption under the Securities Act.

     

    (b)  Accredited
      Investor Status.
      Each
      Buyer is an “Accredited
      Investor”
as
      that
      term is defined in Rule 501(a)(3) of Regulation D.

     

    (c)  Reliance
      on Exemptions.
      Each
      Buyer understands that the Convertible Debentures are being offered and sold
      to
      it in reliance on specific exemptions from the registration requirements of
      United States federal and state securities laws and that the Company is relying
      in part upon the truth and accuracy of, and such Buyer’s compliance with, the
      representations, warranties, agreements, acknowledgments and understandings
      of
      such Buyer set forth herein in order to determine the availability of such
      exemptions and the eligibility of such Buyer to acquire such
      securities.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    (d)  Information.
      Each
      Buyer and its advisors (and his or, its counsel), if any, have been furnished
      with all materials relating to the business, finances and operations of the
      Company and information he deemed material to making an informed investment
      decision regarding his purchase of the Convertible Debentures and the Conversion
      Shares, which have been requested by such Buyer. Each Buyer and its advisors,
      if
      any, have been afforded the opportunity to ask questions of the Company and
      its
      management. Neither such inquiries nor any other due diligence investigations
      conducted by such Buyer or its advisors, if any, or its representatives shall
      modify, amend or affect such Buyer’s right to rely on the Company’s
      representations and warranties contained in Section 3 below. Each Buyer
      understands that its investment in the Convertible Debentures and the Conversion
      Shares involves a high degree of risk. Each Buyer is in a position regarding
      the
      Company, which, based upon employment, family relationship or economic
      bargaining power, enabled and enables such Buyer to obtain information from
      the
      Company in order to evaluate the merits and risks of this investment. Each
      Buyer
      has sought such accounting, legal and tax advice, as it has considered necessary
      to make an informed investment decision with respect to its acquisition of
      the
      Convertible Debentures and the Conversion Shares.

     

    (e)  No
      Governmental Review.
      Each
      Buyer understands that no United States federal or state agency or any other
      government or governmental agency has passed on or made any recommendation
      or
      endorsement of the Convertible Debentures or the Conversion Shares, or the
      fairness or suitability of the investment in the Convertible Debentures or
      the
      Conversion Shares, nor have such authorities passed upon or endorsed the merits
      of the offering of the Convertible Debentures or the Conversion
      Shares.

     

    (f)  Transfer
      or Resale.
      Each
      Buyer understands that except as provided in the Investor Registration Rights
      Agreement: (i) the Convertible Debentures have not been and are not being
      registered under the Securities Act or any state securities laws, and may not
      be
      offered for sale, sold, assigned or transferred unless (A) subsequently
      registered thereunder, or (B) such Buyer shall have delivered to the Company
      an
      opinion of counsel, in a generally acceptable form, to the effect that such
      securities to be sold, assigned or transferred may be sold, assigned or
      transferred pursuant to an exemption from such registration requirements; (ii)
      any sale of such securities made in reliance on Rule 144 under the Securities
      Act (or a successor rule thereto) (“Rule 144”)
      may be
      made only in accordance with the terms of Rule 144 and further, if Rule 144
      is
      not applicable, any resale of such securities under circumstances in which
      the
      seller (or the person through whom the sale is made) may be deemed to be an
      underwriter (as that term is defined in the Securities Act) may require
      compliance with some other exemption under the Securities Act or the rules
      and
      regulations of the SEC thereunder; and (iii) neither the Company nor any other
      person is under any obligation to register such securities under the Securities
      Act or any state securities laws or to comply with the terms and conditions
      of
      any exemption thereunder. 

     

    (g)  Legends.
      Each
      Buyer understands that the certificates or other instruments representing the
      Convertible Debentures and or the Conversion Shares shall bear a restrictive
      legend in substantially the following form (and a stop -transfer order may
      be
      placed against transfer of such stock certificates):

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
      SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A
      VIEW
      TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN
      THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
      THE
      SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR
      AN
      OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
      REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS. 

     

    The
      legend set forth above shall be removed and the Company within two (2) business
      days shall issue a certificate without such legend to the holder of the
      Conversion Shares upon which it is stamped, if, unless otherwise required by
      state securities laws, (i) in connection with a sale transaction, provided
      the
      Conversion Shares are registered under the Securities Act or (ii) in connection
      with a sale transaction, after such holder provides the Company with an opinion
      of counsel, which opinion shall be in form, substance and scope customary for
      opinions of counsel in comparable transactions, to the effect that a public
      sale, assignment or transfer of the Conversion Shares may be made without
      registration under the Securities Act. 

     

    (h)  Authorization,
      Enforcement.
      This
      Agreement has been duly and validly authorized, executed and delivered on behalf
      of such Buyer and is a valid and binding agreement of such Buyer enforceable
      in
      accordance with its terms, except as such enforceability may be limited by
      general principles of equity or applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation and other similar laws relating to,
      or
      affecting generally, the enforcement of applicable creditors’ rights and
      remedies.

     

    (i)  Receipt
      of Documents.
      Each
      Buyer and his or its counsel has received and read in their entirety: (i) this
      Agreement and each representation, warranty and covenant set forth herein and
      the Transaction Documents (as defined herein); (ii) all due diligence and other
      information necessary to verify the accuracy and completeness of such
      representations, warranties and covenants; (iii) the Company’s Form 10-KSB for
      the fiscal year ended December 31, 2005; (iv) the Company’s Form 10-Q for the
      fiscal quarter ended March 31, 2006 and June 30, 2006 (v) answers to all
      questions each Buyer submitted to the Company regarding an investment in the
      Company; and each Buyer has relied on the information contained therein and
      has
      not been furnished any other documents, literature, memorandum or
      prospectus.

     

    (j)  Due
      Formation of Corporate and Other Buyers.
      If the
      Buyer(s) is a corporation, trust, partnership or other entity that is not an
      individual person, it has been formed and validly exists and has not been
      organized for the specific purpose of purchasing the Convertible Debentures
      and
      is not prohibited from doing so.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    (k)  No
      Legal Advice From the Company.
      Each
      Buyer acknowledges, that it had the opportunity to review this Agreement and
      the
      transactions contemplated by this Agreement with his or its own legal counsel
      and investment and tax advisors. Each Buyer is relying solely on such counsel
      and advisors and not on any statements or representations of the Company or
      any
      of its representatives or agents for legal, tax or investment advice with
      respect to this investment, the transactions contemplated by this Agreement
      or
      the securities laws of any jurisdiction. 

     

    3.  REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY.

     

    The
      Company represents and warrants as of the date hereof to each of the Buyers
      that, except as set forth in the SEC Documents (as defined herein) or in the
      Disclosure Schedule attached hereto (the “Disclosure
      Schedule”):

     

    (a)  Organization
      and Qualification.
      The
      Company and its subsidiaries are corporations duly organized and validly
      existing in good standing under the laws of the jurisdiction in which they
      are
      incorporated, and have the requisite corporate power to own their properties
      and
      to carry on their business as now being conducted. Each of the Company and
      its
      subsidiaries is duly qualified as a foreign corporation to do business and
      is in
      good standing in every jurisdiction in which the nature of the business
      conducted by it makes such qualification necessary, except to the extent that
      the failure to be so qualified or be in good standing would not have a material
      adverse effect on the Company and its subsidiaries taken as a
      whole.

     

    (b)  Authorization,
      Enforcement, Compliance with Other Instruments.
      (i) The Company has the requisite corporate power and authority to enter
      into and perform this Agreement, the Security Agreement, the Investor
      Registration Rights Agreement, the Irrevocable Transfer Agent Agreement, the
      Warrants, and any related agreements (collectively the “Transaction
      Documents”)
      and to
      issue the Convertible Debentures and the Conversion Shares in accordance with
      the terms hereof and thereof, (ii) the execution and delivery of the Transaction
      Documents by the Company and the consummation by it of the transactions
      contemplated hereby and thereby, including, without limitation, the issuance
      of
      the Convertible Debentures the Conversion Shares and the reservation for
      issuance and the issuance of the Conversion Shares issuable upon conversion
      or
      exercise thereof, have been duly authorized by the Company’s Board of Directors
      and no further consent or authorization is required by the Company, its Board
      of
      Directors or its stockholders, (iii) the Transaction Documents have been duly
      executed and delivered by the Company, (iv) the Transaction Documents constitute
      the valid and binding obligations of the Company enforceable against the Company
      in accordance with their terms, except as such enforceability may be limited
      by
      general principles of equity or applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation or similar laws relating to, or
      affecting generally, the enforcement of creditors’ rights and remedies. The
      authorized officer of the Company executing the Transaction Documents knows
      of
      no reason why the Company cannot file the registration statement as required
      under the Investor Registration Rights Agreement or perform any of the Company’s
      other obligations under such documents. 

     

    (c)  Capitalization.
      The
      authorized capital stock of the Company consists of 5,000,000,000 shares of
      Common Stock and 25,000,000,000 shares of Preferred Stock, par value $0.01
      (“Preferred
      Stock”)
      of
      which 641,279,245 shares
      of
      Common Stock and 22,000 shares of Preferred Stock are issued and outstanding.
      All of such outstanding shares have been validly issued and are fully paid
      and
      nonassessable. No shares of Common Stock are subject to preemptive rights or
      any
      other similar rights or any liens or encumbrances suffered or permitted by
      the
      Company. As of the date of this Agreement, (i) there are no outstanding options,
      warrants, scrip, rights to subscribe to, calls or commitments of any character
      whatsoever relating to, or securities or rights convertible into, any shares
      of
      capital stock of the Company or any of its subsidiaries, or contracts,
      commitments, understandings or arrangements by which the Company or any of
      its
      subsidiaries is or may become bound to issue additional shares of capital stock
      of the Company or any of its subsidiaries or options, warrants, scrip, rights
      to
      subscribe to, calls or commitments of any character whatsoever relating to,
      or
      securities or rights convertible into, any shares of capital stock of the
      Company or any of its subsidiaries, (ii) there are no outstanding debt
      securities and (iii) there are no agreements or arrangements under which the
      Company or any of its subsidiaries is obligated to register the sale of any
      of
      their securities under the Securities Act (except pursuant to the Registration
      Rights Agreement) and (iv) there are no outstanding registration statements
      and
      there are no outstanding comment letters from the SEC or any other regulatory
      agency. There are no securities or instruments containing anti-dilution or
      similar provisions that will be triggered by the issuance of the Convertible
      Debentures as described in this Agreement. The Company has furnished to the
      Buyer true and correct copies of the Company’s Articles of Incorporation, as
      amended and as in effect on the date hereof (the “Articles
      of Incorporation”),
      and
      the Company’s By-laws, as in effect on the date hereof (the “By-laws”),
      and
      the terms of all securities convertible into or exercisable for Common Stock
      and
      the material rights of the holders thereof in respect thereto other than stock
      options issued to employees and consultants. 

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    (d)  Issuance
      of Securities.
      The
      Convertible Debentures are duly authorized and, upon issuance in accordance
      with
      the terms hereof, shall be duly issued, fully paid and nonassessable, are free
      from all taxes, liens and charges with respect to the issue thereof. The
      Conversion Shares issuable upon conversion of the Convertible Debentures have
      been duly authorized and reserved for issuance. Upon conversion or exercise
      in
      accordance with the Convertible Debentures the Conversion Shares will be duly
      issued, fully paid and nonassessable.

     

    (e)  No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the Company
      and the consummation by the Company of the transactions contemplated hereby
      will
      not (i) result in a violation of the Articles of Incorporation, any certificate
      of designations of any outstanding series of preferred stock of the Company
      or
      the By-laws or (ii) conflict with or constitute a default (or an event which
      with notice or lapse of time or both would become a default) under, or give
      to
      others any rights of termination, amendment, acceleration or cancellation of,
      any agreement, indenture or instrument to which the Company or any of its
      subsidiaries is a party, or result in a violation of any law, rule, regulation,
      order, judgment or decree (including federal and state securities laws and
      regulations and the rules and regulations of The National Association of
      Securities Dealers Inc.’s OTC Bulletin Board on which the Common Stock is
      quoted) applicable to the Company or any of its subsidiaries or by which any
      property or asset of the Company or any of its subsidiaries is bound or
      affected. Neither the Company nor its subsidiaries is in violation of any term
      of or in default under its Articles of Incorporation or By-laws or their
      organizational charter or by-laws, respectively, or any material contract,
      agreement, mortgage, indebtedness, indenture, instrument, judgment, decree
      or
      order or any statute, rule or regulation applicable to the Company or its
      subsidiaries. The business of the Company and its subsidiaries is not being
      conducted, and shall not be conducted in violation of any material law,
      ordinance, or regulation of any governmental entity. Except as specifically
      contemplated by this Agreement and as required under the Securities Act and
      any
      applicable state securities laws, the Company is not required to obtain any
      consent, authorization or order of, or make any filing or registration with,
      any
      court or governmental agency in order for it to execute, deliver or perform
      any
      of its obligations under or contemplated by this Agreement or the Registration
      Rights Agreement in accordance with the terms hereof or thereof. All consents,
      authorizations, orders, filings and registrations which the Company is required
      to obtain pursuant to the preceding sentence have been obtained or effected
      on
      or prior to the date hereof. The Company and its subsidiaries are unaware of
      any
      facts or circumstance, which might give rise to any of the
      foregoing.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    (f)  SEC
      Documents: Financial Statements.
      Since
      January 1, 2005, the Company has filed all reports, schedules, forms, statements
      and other documents required to be filed by it with the SEC under the Securities
      Exchange Act of 1934, as amended (the “Exchange
      Act”)
      (all
      of the foregoing filed prior to the date hereof or amended after the date hereof
      and all exhibits included therein and financial statements and schedules thereto
      and documents incorporated by reference therein, being hereinafter referred
      to
      as the “SEC
      Documents”).
      The
      Company has delivered to the Buyers or their representatives, or made available
      through the SEC’s website at http://www.sec.gov., true and complete copies of
      the SEC Documents. As of their respective dates, the financial statements of
      the
      Company disclosed in the SEC Documents (the “Financial
      Statements”)
      complied as to form in all material respects with applicable accounting
      requirements and the published rules and regulations of the SEC with respect
      thereto. Such financial statements have been prepared in accordance with
      generally accepted accounting principles, consistently applied, during the
      periods involved (except (i) as may be otherwise indicated in such Financial
      Statements or the notes thereto, or (ii) in the case of unaudited interim
      statements, to the extent they may exclude footnotes or may be condensed or
      summary statements) and, fairly present in all material respects the financial
      position of the Company as of the dates thereof and the results of its
      operations and cash flows for the periods then ended (subject, in the case
      of
      unaudited statements, to normal year-end audit adjustments). No other
      information provided by or on behalf of the Company to the Buyer which is not
      included in the SEC Documents, including, without limitation, information
      referred to in this Agreement, contains any untrue statement of a material
      fact
      or omits to state any material fact necessary in order to make the statements
      therein, in the light of the circumstances under which they were made, not
      misleading.

     

    (g)  10(b)-5.
      Neither
      the Transaction Documents nor the SEC Documents include any untrue statements
      of
      material fact, nor do they omit to state any material fact required to be stated
      therein necessary to make the statements made, in light of the circumstances
      under which they were made, not misleading.

     

    (h)  Absence
      of Litigation.
      There
      is no action, suit, proceeding, inquiry or investigation before or by any court,
      public board, government agency, self-regulatory organization or body pending
      against or affecting the Company, the Common Stock or any of the Company’s
      subsidiaries, wherein an unfavorable decision, ruling or finding would (i)
      have
      a material adverse effect on the transactions contemplated hereby (ii) adversely
      affect the validity or enforceability of, or the authority or ability of the
      Company to perform its obligations under, this Agreement or any of the documents
      contemplated herein, or (iii) have a material adverse effect on the business,
      operations, properties, financial condition or results of operations of the
      Company and its subsidiaries taken as a whole.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    (i)  Acknowledgment
      Regarding Buyer’s Purchase of the Convertible Debentures.
      The
      Company acknowledges and agrees that the Buyer(s) is acting solely in the
      capacity of an arm’s length purchaser with respect to this Agreement and the
      transactions contemplated hereby. The Company further acknowledges that the
      Buyer(s) is not acting as a financial advisor or fiduciary of the Company (or
      in
      any similar capacity) with respect to this Agreement and the transactions
      contemplated hereby and any advice given by the Buyer(s) or any of their
      respective representatives or agents in connection with this Agreement and
      the
      transactions contemplated hereby is merely incidental to such Buyer’s purchase
      of the Convertible Debentures or the Conversion Shares. The Company further
      represents to the Buyer that the Company’s decision to enter into this Agreement
      has been based solely on the independent evaluation by the Company and its
      representatives.

     

    (j)  No
      General Solicitation.
      Neither
      the Company, nor any of its affiliates, nor any person acting on its or their
      behalf, has engaged in any form of general solicitation or general advertising
      (within the meaning of Regulation D under the Securities Act) in connection
      with
      the offer or sale of the Convertible Debentures or the Conversion
      Shares.

     

    (k)  No
      Integrated Offering.
      Neither
      the Company, nor any of its affiliates, nor any person acting on its or their
      behalf has, directly or indirectly, made any offers or sales of any security
      or
      solicited any offers to buy any security, under circumstances that would require
      registration of the Convertible Debentures or the Conversion Shares under the
      Securities Act or cause this offering of the Convertible Debentures or the
      Conversion Shares to be integrated with prior offerings by the Company for
      purposes of the Securities Act.

     

    (l)  Employee
      Relations.
      Neither
      the Company nor any of its subsidiaries is involved in any labor dispute nor,
      to
      the knowledge of the Company or any of its subsidiaries, is any such dispute
      threatened. None of the Company’s or its subsidiaries’ employees is a member of
      a union and the Company and its subsidiaries believe that their relations with
      their employees are good.

     

    (m)  Intellectual
      Property Rights.
      The
      Company and its subsidiaries own or possess adequate rights or licenses to
      use
      all trademarks, trade names, service marks, service mark registrations, service
      names, patents, patent rights, copyrights, inventions, licenses, approvals,
      governmental authorizations, trade secrets and rights necessary to conduct
      their
      respective businesses as now conducted. The Company and its subsidiaries do
      not
      have any knowledge of any infringement by the Company or its subsidiaries of
      trademark, trade name rights, patents, patent rights, copyrights, inventions,
      licenses, service names, service marks, service mark registrations, trade secret
      or other similar rights of others, and, to the knowledge of the Company there
      is
      no claim, action or proceeding being made or brought against, or to the
      Company’s knowledge, being threatened against, the Company or its subsidiaries
      regarding trademark, trade name, patents, patent rights, invention, copyright,
      license, service names, service marks, service mark registrations, trade secret
      or other infringement; and the Company and its subsidiaries are unaware of
      any
      facts or circumstances which might give rise to any of the
      foregoing.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (n)  Environmental
      Laws.
      The
      Company and its subsidiaries are (i) in compliance with any and all applicable
      foreign, federal, state and local laws and regulations relating to the
      protection of human health and safety, the environment or hazardous or toxic
      substances or wastes, pollutants or contaminants (“Environmental
      Laws”),
      (ii)
      have received all permits, licenses or other approvals required of them under
      applicable Environmental Laws to conduct their respective businesses and (iii)
      are in compliance with all terms and conditions of any such permit, license
      or
      approval.

     

    (o)  Title.
      Any
      real property and facilities held under lease by the Company and its
      subsidiaries are held by them under valid, subsisting and enforceable leases
      with such exceptions as are not material and do not interfere with the use
      made
      and proposed to be made of such property and buildings by the Company and its
      subsidiaries.

     

    (p)  Insurance.
      The
      Company and each of its subsidiaries are insured by insurers of recognized
      financial responsibility against such losses and risks and in such amounts
      as
      management of the Company believes to be prudent and customary in the businesses
      in which the Company and its subsidiaries are engaged. Neither the Company
      nor
      any such subsidiary has been refused any insurance coverage sought or applied
      for and neither the Company nor any such subsidiary has any reason to believe
      that it will not be able to renew its existing insurance coverage as and when
      such coverage expires or to obtain similar coverage from similar insurers as
      may
      be necessary to continue its business at a cost that would not materially and
      adversely affect the condition, financial or otherwise, or the earnings,
      business or operations of the Company and its subsidiaries, taken as a
      whole.

     

    (q)  Regulatory
      Permits.
      The
      Company and its subsidiaries possess all material certificates, authorizations
      and permits issued by the appropriate federal, state or foreign regulatory
      authorities necessary to conduct their respective businesses, and neither the
      Company nor any such subsidiary has received any notice of proceedings relating
      to the revocation or modification of any such certificate, authorization or
      permit.

     

    (r)  Internal
      Accounting Controls.
      The
      Company and each of its subsidiaries maintain a system of internal accounting
      controls sufficient to provide reasonable assurance that (i) transactions are
      executed in accordance with management’s general or specific authorizations,
      (ii) transactions are recorded as necessary to permit preparation of financial
      statements in conformity with generally accepted accounting principles and
      to
      maintain asset accountability, and (iii) the recorded amounts for assets is
      compared with the existing assets at reasonable intervals and appropriate action
      is taken with respect to any differences.

     

    (s)  No
      Material Adverse Breaches, etc.
      Neither
      the Company nor any of its subsidiaries is subject to any charter, corporate
      or
      other legal restriction, or any judgment, decree, order, rule or regulation
      which in the judgment of the Company’s officers has or is expected in the future
      to have a material adverse effect on the business, properties, operations,
      financial condition, results of operations or prospects of the Company or its
      subsidiaries. Neither the Company nor any of its subsidiaries is in breach
      of
      any contract or agreement which breach, in the judgment of the Company’s
      officers, has or is expected to have a material adverse effect on the business,
      properties, operations, financial condition, results of operations or prospects
      of the Company or its subsidiaries.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    (t)  Tax
      Status.
      The
      Company and each of its subsidiaries has made and filed all federal and state
      income and all other tax returns, reports and declarations required by any
      jurisdiction to which it is subject and (unless and only to the extent that
      the
      Company and each of its subsidiaries has set aside on its books provisions
      reasonably adequate for the payment of all unpaid and unreported taxes) has
      paid
      all taxes and other governmental assessments and charges that are material
      in
      amount, shown or determined to be due on such returns, reports and declarations,
      except those being contested in good faith and has set aside on its books
      provision reasonably adequate for the payment of all taxes for periods
      subsequent to the periods to which such returns, reports or declarations apply.
      There are no unpaid taxes in any material amount claimed to be due by the taxing
      authority of any jurisdiction, and the officers of the Company know of no basis
      for any such claim.

     

    (u)  Certain
      Transactions.
      Except
      for arm’s length transactions pursuant to which the Company makes payments in
      the ordinary course of business upon terms no less favorable than the Company
      could obtain from third parties and other than the grant of stock options
      disclosed in the SEC Documents, none of the officers, directors, or employees
      of
      the Company is presently a party to any transaction with the Company (other
      than
      for services as employees, officers and directors), including any contract,
      agreement or other arrangement providing for the furnishing of services to
      or
      by, providing for rental of real or personal property to or from, or otherwise
      requiring payments to or from any officer, director or such employee or, to
      the
      knowledge of the Company, any corporation, partnership, trust or other entity
      in
      which any officer, director, or any such employee has a substantial interest
      or
      is an officer, director, trustee or partner.

     

    (v)  Fees
      and Rights of First Refusal.
      The
      Company is not obligated to offer the securities offered hereunder on a right
      of
      first refusal basis or otherwise to any third parties including, but not limited
      to, current or former shareholders of the Company, underwriters, brokers, agents
      or other third parties.

     

    4.  COVENANTS.

     

    (a)  Best
      Efforts.
      Each
      party shall use its best efforts to timely satisfy each of the conditions to
      be
      satisfied by it as provided in Sections 6 and 7 of this Agreement.

     

    (b)  Form
      D.
      The
      Company agrees to file a Form D with respect to the Conversion Shares as
      required under Regulation D and to provide a copy thereof to each Buyer promptly
      after such filing. The Company shall, on or before the Closing Date, take such
      action as the Company shall reasonably determine is necessary to qualify the
      Conversion Shares, or obtain an exemption for the Conversion Shares for sale
      to
      the Buyers at the Closing pursuant to this Agreement under applicable securities
      or “Blue Sky” laws of the states of the United States, and shall provide
      evidence of any such action so taken to the Buyers on or prior to the Closing
      Date.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    (c)  Reporting
      Status.
      Until
      the earlier of (i) the date as of which the Buyer(s) may sell all of the
      Conversion Shares without restriction pursuant to Rule 144(k) promulgated under
      the Securities Act (or successor thereto), or (ii) the date on which (A) the
      Buyer(s) shall have sold all the Conversion Shares and (B) none of the
      Convertible Debentures are outstanding (the “Registration
      Period”),
      the
      Company shall file in a timely manner all reports required to be filed with
      the
      SEC pursuant to the Exchange Act and the regulations of the SEC thereunder,
      and
      the Company shall not terminate its status as an issuer required to file reports
      under the Exchange Act even if the Exchange Act or the rules and regulations
      thereunder would otherwise permit such termination.

     

    (d)  Use
      of
      Proceeds.
      The
      Company will use the proceeds from the sale of the Convertible Debentures for
      general corporate and working capital purposes.

     

    (e)  Reservation
      of Shares.
      The
      Company shall take all action reasonably necessary to at all times have
      authorized, and reserved for the purpose of issuance, such number of shares
      of
      Common Stock as shall be necessary to effect the issuance of the Conversion
      Shares. If at any time the Company does not have available such shares of Common
      Stock as shall from time to time be sufficient to effect the conversion of
      all
      of the Conversion Shares, the Company shall call and hold a special meeting
      of
      the shareholders within thirty (30) days of such occurrence, for the sole
      purpose of increasing the number of shares authorized. The Company’s management
      shall recommend to the shareholders to vote in favor of increasing the number
      of
      shares of Common Stock authorized. Management shall also vote all of its shares
      in favor of increasing the number of authorized shares of Common
      Stock.

     

    (f)  Listings
      or Quotation.
      The
      Company shall promptly secure the listing or quotation of the Conversion Shares
      upon each national securities exchange, automated quotation system or The
      National Association of Securities Dealers Inc.’s Over-The-Counter Bulletin
      Board (“OTCBB”)
      or
      other market, if any, upon which shares of Common Stock are then listed or
      quoted (subject to official notice of issuance) and shall use its best efforts
      to maintain, so long as any other shares of Common Stock shall be so listed,
      such listing of all Conversion Shares from time to time issuable under the
      terms
      of this Agreement. The Company shall maintain the Common Stock’s authorization
      for quotation on the OTCBB.

     

    (g)  Fees
      and Expenses.
      

     

    (i)  Each
      of
      the Company and the Buyer(s) shall pay all costs and expenses incurred by such
      party in connection with the negotiation, investigation, preparation, execution
      and delivery of the Transaction Documents. 

     

    On
      the
      date hereof the Company shall issue to the Buyer a warrant to purchase twenty
      five million (25,000,000) shares of the Company’s Common Stock which shall be
      exercisable for a period of five (5) years at an exercise price of Fifteen
      Cents
      ($0.15) per share (collectively referred to as the “A”
      Warrants”).

     

    Furthermore,
      on the date hereof, the Company shall also issue to the Buyer a warrant to
      purchase fifty million (50,000,000) shares of the Company’s Common Stock (the
“B”
      Warrant”)
      exercisable for a period of five (5) years at an exercise price of Twenty Five
      Cents ($0.25) per share. Furthermore, on the date hereof the Company shall
      issue
      to the Buyer a warrant to purchase fifty million (50,000,000) shares of the
      Company’s Common Stock (the “C”
      Warrant”)
      exercisable for a period of five (5) years at an exercise price of Twenty Cents
      ($0.20) per share. Furthermore, on the date hereof the Company shall issue
      to
      the Buyer a warrant to purchase fifty million (50,000,000) shares of the
      Company’s Common Stock (the “D”
      Warrant”)
      exercisable for a period of five (5) years at an exercise price of Five Cents
      ($0.05) per share (The “A” Warrant, the “B” Warrant, the “C” Warrant, and the
“D” Warrant, are collectively referred to as the “Warrants.”)
      The
      shares of Common Stock issuable under the Warrants shall collectively be
      referred to as the “Warrant
      Shares”.
      

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    (ii)  The
      Warrant Shares shall have “piggy-back” and demand registration rights.

     

    (h)  Corporate
      Existence.
      So long
      as any of the Convertible Debentures remain outstanding, the Company shall
      not
      directly or indirectly consummate any merger, reorganization, restructuring,
      reverse stock split consolidation, sale of all or substantially all of the
      Company’s assets or any similar transaction or related transactions (each such
      transaction, an “Organizational
      Change”)
      unless, prior to the consummation an Organizational Change, the Company obtains
      the written consent of each Buyer. In any such case, the Company will make
      appropriate provision with respect to such holders’ rights and interests to
      insure that the provisions of this Section 4(h) will thereafter be applicable
      to
      the Convertible Debentures.

     

    (i)  Transactions
      With Affiliates.
      So long
      as any Convertible Debentures are outstanding, the Company shall not, and shall
      cause each of its subsidiaries not to, enter into, amend, modify or supplement,
      or permit any subsidiary to enter into, amend, modify or supplement any
      agreement, transaction, commitment, or arrangement with any of its or any
      subsidiary’s officers, directors, person who were officers or directors at any
      time during the previous two (2) years, stockholders who beneficially own five
      percent (5%) or more of the Common Stock, or Affiliates (as defined below)
      or
      with any individual related by blood, marriage, or adoption to any such
      individual or with any entity in which any such entity or individual owns a
      five
      percent (5%) or more beneficial interest (each a “Related
      Party”),
      except for (a) customary employment arrangements and benefit programs on
      reasonable terms, (b) any investment in an Affiliate of the Company, (c) any
      agreement, transaction, commitment, or arrangement on an arms-length basis
      on
      terms no less favorable than terms which would have been obtainable from a
      person other than such Related Party, (d) any agreement, transaction,
      commitment, or arrangement which is approved by a majority of the disinterested
      directors of the Company; for purposes hereof, any director who is also an
      officer of the Company or any subsidiary of the Company shall not be a
      disinterested director with respect to any such agreement, transaction,
      commitment, or arrangement. “Affiliate”
for
      purposes hereof means, with respect to any person or entity, another person
      or
      entity that, directly or indirectly, (i) has a ten percent (10%) or more equity
      interest in that person or entity, (ii) has ten percent (10%) or more common
      ownership with that person or entity, (iii) controls that person or entity, or
      (iv) shares common control with that person or entity. “Control”
or
      “controls”
for
      purposes hereof means that a person or entity has the power, direct or indirect,
      to conduct or govern the policies of another person or entity.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    (j)  Transfer
      Agent.
      The
      Company covenants and agrees that, in the event that the Company’s agency
      relationship with the transfer agent should be terminated for any reason prior
      to a date which is two (2) years after the Closing Date, the Company shall
      immediately appoint a new transfer agent and shall require that the new transfer
      agent execute and agree to be bound by the terms of the Irrevocable Transfer
      Agent Instructions (as defined herein).

     

    (k)  Restriction
      on Issuance of the Capital Stock.
      So long
      as any Convertible Debentures are outstanding, the Company shall not, and with
      respect to subsection (iii) herein shall cause its subsidiaries now existing
      or
      later created or acquired not to, without the prior written consent of the
      Buyer(s), (i) issue or sell shares of Common Stock or Preferred Stock without
      consideration or for a consideration per share less than the bid price of the
      Common Stock determined immediately prior to its issuance, (ii) issue any
      preferred stock, warrant, option, right, contract, call, or other security
      or
      instrument granting the holder thereof the right to acquire Common Stock without
      consideration or for a consideration less than such Common Stock’s Bid Price
      determined immediately prior to it’s issuance, (iii) enter into any security
      instrument granting the holder a security interest in any and all assets of
      the
      Company or any of its subsidiaries now existing or later created or acquired
      or
      (iv) file any registration statement on Form S-8.

     

    (l)  Neither
      the Buyer(s) nor any of its affiliates have an open short position in the Common
      Stock of the Company, and the Buyer(s) agrees that it shall not, and that it
      will cause its affiliates not to, engage in any short sales of or hedging
      transactions with respect to the Common Stock as long as any Convertible
      Debentures shall remain outstanding. 

     

    (m)  Rights
      of First Refusal.
      So
      long
      as any portion of Convertible Debentures are outstanding, if the Company intends
      to raise additional capital by the issuance or sale of capital stock of the
      Company, including without limitation shares of any class of common stock,
      any
      class of preferred stock, options, warrants or any other securities convertible
      or exercisable into shares of common stock (whether the offering is conducted
      by
      the Company, underwriter, placement agent or any third party) the Company shall
      be obligated to offer to the Buyers such issuance or sale of capital stock,
      by
      providing in writing the principal amount of capital it intends to raise and
      outline of the material terms of such capital raise, prior to the offering
      such
      issuance or sale of capital stock  to any third parties including, but not
      limited to, current or former officers or directors, current or former
      shareholders and/or investors of the obligor, underwriters, brokers, agents
      or
      other third parties.  The Buyers shall have ten (10) business days from
      receipt of such notice of the sale or issuance of capital stock to accept or
      reject all or a portion of such capital raising offer. 

     

    (n)  Lock
      Up Agreements.
      On the
      date hereof, the Company shall obtain from each officer and director a lock
      up
      agreement in the form attached hereto as Exhibit
      A.

     

    5.  TRANSFER
      AGENT INSTRUCTIONS.

     

    (a)  The
      Company shall issue the Irrevocable Transfer Agent Instructions to its transfer
      agent irrevocably appointing David Gonzalez, Esq. as the Company’s agent for
      purpose of having certificates issued, registered in the name of the Buyer(s)
      or
      its respective nominee(s), for the Conversion Shares representing such amounts
      of Convertible Debentures as specified from time to time by the Buyer(s) to
      the
      Company upon conversion of the Convertible Debentures, for interest owed
      pursuant to the Convertible Debenture, and for any and all Liquidated Damages
      (as this term is defined in the Investor Registration Rights Agreement). David
      Gonzalez, Esq. shall be paid a cash fee of Fifty Dollars ($50) for every
      occasion they act pursuant to the Irrevocable Transfer Agent Instructions.
      The
      Company shall not change its transfer agent without the express written consent
      of the Buyer(s), which may be withheld by the Buyer(s) in its sole discretion.
      Prior to registration of the Conversion Shares under the Securities Act, all
      such certificates shall bear the restrictive legend specified in Section 2(g)
      of
      this Agreement. The Company warrants that no instruction other than the
      Irrevocable Transfer Agent Instructions referred to in this Section 5, and
      stop
      transfer instructions to give effect to Section 2(g) hereof (in the case of
      the
      Conversion Shares prior to registration of such shares under the Securities
      Act)
      will be given by the Company to its transfer agent and as long as the
      registration statement relating to the Conversion Shares is effective, that
      the
      Conversion Shares shall otherwise be freely transferable on the books and
      records of the Company as and to the extent provided in this Agreement and
      the
      Investor Registration Rights Agreement. Nothing in this Section 5 shall affect
      in any way the Buyer’s obligations and agreement to comply with all applicable
      securities laws upon resale of Conversion Shares. If the Buyer(s) provides
      the
      Company with an opinion of counsel, in form, scope and substance customary
      for
      opinions of counsel in comparable transactions to the effect that registration
      of a resale by the Buyer(s) of any of the Conversion Shares is not required
      under the Securities Act, the Company shall within two (2) business days
      instruct its transfer agent to issue one or more certificates in such name
      and
      in such denominations as specified by the Buyer. The Company acknowledges that
      a
      breach by it of its obligations hereunder will cause irreparable harm to the
      Buyer by vitiating the intent and purpose of the transaction contemplated
      hereby. Accordingly, the Company acknowledges that the remedy at law for a
      breach of its obligations under this Section 5 will be inadequate and agrees,
      in
      the event of a breach or threatened breach by the Company of the provisions
      of
      this Section 5, that the Buyer(s) shall be entitled, in addition to all
      other available remedies, to an injunction restraining any breach and requiring
      immediate issuance and transfer, without the necessity of showing economic
      loss
      and without any bond or other security being required.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    6.  CONDITIONS
      TO THE COMPANY’S OBLIGATION TO SELL.

     

    The
      obligation of the Company hereunder to issue and sell the Convertible Debentures
      to the Buyer(s) at the Closings is subject to the satisfaction, at or before
      the
      Closing Dates, of each of the following conditions, provided that these
      conditions are for the Company’s sole benefit and may be waived by the Company
      at any time in its sole discretion:

     

    (a)  Each
      Buyer shall have executed the Transaction Documents and delivered them to the
      Company.

     

    (b)  The
      Buyer(s) shall have delivered to the Company the Purchase Price for Convertible
      Debentures in respective amounts as set forth next to each Buyer as outlined
      on
      Schedule I attached hereto, minus any fees to be paid directly from the proceeds
      the Closings as set forth herein, by wire transfer of immediately available
      U.S.
      funds pursuant to the wire instructions provided by the Company.

     

    (c)  The
      representations and warranties of the Buyer(s) shall be true and correct in
      all
      material respects as of the date when made and as of the Closing Dates as though
      made at that time (except for representations and warranties that speak as
      of a
      specific date), and the Buyer(s) shall have performed, satisfied and complied
      in
      all material respects with the covenants, agreements and conditions required
      by
      this Agreement to be performed, satisfied or complied with by the Buyer(s)
      at or
      prior to the Closing Dates. 

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    7.  CONDITIONS
      TO THE BUYER’S OBLIGATION TO PURCHASE.

     

    (a)  The
      obligation of the Buyer(s) hereunder to purchase the Convertible Debentures
      at
      the Closing is subject to the satisfaction, at or before the First Closing
      Date,
      of each of the following conditions:

     

    (i)  The
      Company shall have executed the Transaction Documents and delivered the same
      to
      the Buyer(s).

     

    (ii)  The
      Common Stock shall be authorized for quotation on the OTCBB, trading in the
      Common Stock shall not have been suspended for any reason, and all the
      Conversion Shares issuable upon the conversion of the Convertible Debentures
      shall be approved by the OTCBB. 

     

    (iii)  The
      representations and warranties of the Company shall be true and correct in
      all
      material respects (except to the extent that any of such representations and
      warranties is already qualified as to materiality in Section 3 above, in which
      case, such representations and warranties shall be true and correct without
      further qualification) as of the date when made and as of the Closing Date
      as
      though made at that time (except for representations and warranties that speak
      as of a specific date) and the Company shall have performed, satisfied and
      complied in all material respects with the covenants, agreements and conditions
      required by this Agreement to be performed, satisfied or complied with by the
      Company at or prior to the Closing Date.

     

    (iv)  The
      Company shall certify, within two (2) business days after the Closing, that
      it
      will file the registration statement with the SEC in compliance with the rules
      and regulations promulgated by the SEC for filing thereof.

     

    (v)  The
      Company shall have executed and delivered to the Buyer(s) the Convertible
      Debentures in the respective amounts set forth opposite each Buyer(s) name
      on
      Schedule I attached hereto.

     

    (vi)  The
      Buyer(s) shall have received an opinion of counsel from Kirkpatrick &
Lockhart Nicholson Graham, LLP in a form satisfactory to the
      Buyer(s).

     

    (vii)  The
      Company shall have provided to the Buyer(s) a certificate of good standing
      from
      the secretary of state from the state in which the Company is
      incorporated.

     

    (viii)  The
      Company shall have filed a form UCC-1 or such other forms as may be required
      to
      perfect the Buyer’s interest in the Pledged Property as detailed in the Pledge
      and Security Agreement dated the date hereof and provided proof of such filing
      to the Buyer(s).

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    (ix)  The
      Company shall have provided to the Buyer an acknowledgement, to the satisfaction
      of the Buyer, from the Company’s independent certified public accountants as to
      its ability to provide all consents required in order to file a registration
      statement in connection with this transaction.

     

    (x)  The
      Company shall have reserved out of its authorized and unissued Common Stock,
      solely for the purpose of effecting the conversion of the Convertible
      Debentures, shares of Common Stock to effect the conversion of all of the
      Conversion Shares then outstanding. 

     

    (xi)  The
      Irrevocable Transfer Agent Instructions, in form and substance satisfactory
      to
      the Buyer, shall have been delivered to and acknowledged in writing by the
      Company’s transfer agent.

     

    (xii)  The
      Company will, within thirty (30) days after the Closing, deliver to the Buyer
      one hundred percent (100%) of the stock of each foreign subsidiary of the
      Company, and stock powers for each executed in blank to perfect Buyer’s security
      interest.

     

    8.  INDEMNIFICATION.

     

    (a)  In
      consideration of the Buyer’s execution and delivery of this Agreement and
      acquiring the Convertible Debentures and the Conversion Shares hereunder, and
      in
      addition to all of the Company’s other obligations under this Agreement, the
      Company shall defend, protect, indemnify and hold harmless the Buyer(s) and
      each
      other holder of the Convertible Debentures and the Conversion Shares, and all
      of
      their officers, directors, employees and agents (including, without
      limitation, those retained in connection with the transactions contemplated
      by
      this Agreement) (collectively, the “Buyer
      Indemnitees”)
      from
      and against any and all actions, causes of action, suits, claims, losses, costs,
      penalties, fees, liabilities and damages, and expenses in connection therewith
      (irrespective of whether any such Buyer Indemnitee is a party to the action
      for
      which indemnification hereunder is sought), and including reasonable attorneys’
fees and disbursements (the “Indemnified
      Liabilities”),
      incurred by the Buyer Indemnitees or any of them as a result of, or arising
      out
      of, or relating to (a) any misrepresentation or breach of any representation
      or
      warranty made by the Company in this Agreement, the Convertible Debentures
      or
      the Investor Registration Rights Agreement or any other certificate, instrument
      or document contemplated hereby or thereby, (b) any breach of any covenant,
      agreement or obligation of the Company contained in this Agreement, or the
      Investor Registration Rights Agreement or any other certificate, instrument
      or
      document contemplated hereby or thereby, or (c) any cause of action, suit or
      claim brought or made against such Indemnitee and arising out of or resulting
      from the execution, delivery, performance or enforcement of this Agreement
      or
      any other instrument, document or agreement executed pursuant hereto by any
      of
      the parties hereto, any transaction financed or to be financed in whole or
      in
      part, directly or indirectly, with the proceeds of the issuance of the
      Convertible Debentures or the status of the Buyer or holder of the Convertible
      Debentures the Conversion Shares, as a Buyer of Convertible Debentures in the
      Company. To the extent that the foregoing undertaking by the Company may be
      unenforceable for any reason, the Company shall make the maximum contribution
      to
      the payment and satisfaction of each of the Indemnified Liabilities, which
      is
      permissible under applicable law.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    (b)  In
      consideration of the Company’s execution and delivery of this Agreement, and in
      addition to all of the Buyer’s other obligations under this Agreement, the Buyer
      shall defend, protect, indemnify and hold harmless the Company and all of its
      officers, directors, employees and agents (including, without limitation, those
      retained in connection with the transactions contemplated by this Agreement)
      (collectively, the “Company
      Indemnitees”)
      from
      and against any and all Indemnified Liabilities incurred by the Indemnitees
      or
      any of them as a result of, or arising out of, or relating to (a) any
      misrepresentation or breach of any representation or warranty made by the
      Buyer(s) in this Agreement, instrument or document contemplated hereby or
      thereby executed by the Buyer, (b) any breach of any covenant, agreement or
      obligation of the Buyer(s) contained in this Agreement, the Investor
      Registration Rights Agreement or any other certificate, instrument or document
      contemplated hereby or thereby executed by the Buyer, or (c) any cause of
      action, suit or claim brought or made against such Company Indemnitee based
      on
      material misrepresentations or due to a material breach and arising out of
      or
      resulting from the execution, delivery, performance or enforcement of this
      Agreement, the Investor Registration Rights Agreement or any other instrument,
      document or agreement executed pursuant hereto by any of the parties hereto.
      To
      the extent that the foregoing undertaking by each Buyer may be unenforceable
      for
      any reason, each Buyer shall make the maximum contribution to the payment and
      satisfaction of each of the Indemnified Liabilities, which is permissible under
      applicable law.

     

    9.  GOVERNING
      LAW: MISCELLANEOUS.

     

    (a)  Governing
      Law.
      This
      Agreement shall be governed by and interpreted in accordance with the laws
      of
      the State of New Jersey without regard to the principles of conflict of laws.
      The parties further agree that any action between them shall be heard in Hudson
      County, New Jersey, and expressly consent to the jurisdiction and venue of
      the
      Superior Court of New Jersey, sitting in Hudson County and the United States
      District Court for the District of New Jersey sitting in Newark, New Jersey
      for
      the adjudication of any civil action asserted pursuant to this
      Paragraph.

     

    (b)  Counterparts.
      This
      Agreement may be executed in two or more identical counterparts, all of which
      shall be considered one and the same agreement and shall become effective when
      counterparts have been signed by each party and delivered to the other party.
      In
      the event any signature page is delivered by facsimile transmission, the party
      using such means of delivery shall cause four (4) additional original executed
      signature pages to be physically delivered to the other party within five (5)
      days of the execution and delivery hereof.

     

    (c)  Headings.
      The
      headings of this Agreement are for convenience of reference and shall not form
      part of, or affect the interpretation of, this Agreement.

     

    (d)  Severability.
      If any
      provision of this Agreement shall be invalid or unenforceable in any
      jurisdiction, such invalidity or unenforceability shall not affect the validity
      or enforceability of the remainder of this Agreement in that jurisdiction or
      the
      validity or enforceability of any provision of this Agreement in any other
      jurisdiction.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    (e)  Entire
      Agreement, Amendments.
      This
      Agreement supersedes all other prior oral or written agreements between the
      Buyer(s), the Company, their affiliates and persons acting on their behalf
      with
      respect to the matters discussed herein, and this Agreement and the instruments
      referenced herein contain the entire understanding of the parties with respect
      to the matters covered herein and therein and, except as specifically set forth
      herein or therein, neither the Company nor any Buyer makes any representation,
      warranty, covenant or undertaking with respect to such matters. No provision
      of
      this Agreement may be waived or amended other than by an instrument in writing
      signed by the party to be charged with enforcement.

     

    (f)  Notices.
      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
      confirmation of receipt, when sent by facsimile; (iii) three (3) days after
      being sent by U.S. certified mail, return receipt requested, or (iv) one (1)
      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.

            
	 	
              2201
                Second Street, Suite #600

            
	 	
              Fort
                Myers, FL 33901

            
	 	
              Attention:
                Charles T. Jensen, President

            
	 	
              Telephone: (239)
                337-3434

            
	 	
              Facsimile: (239)
                337-3668

            
	 	 
	
              With
                a copy to:

            	
              Kirkpatrick
                & Lockhart Nicholson Graham LLP

            
	 	
              201
                South Biscayne Boulevard - Suite 2000

            
	 	
              Miami,
                FL 33131-2399

            
	 	
              Attention: Clayton
                E. Parker, Esq.

            
	 	
              Telephone: (305)
                539-3300

            
	 	
              Facsimile: (305)
                358-7095

            
	 	 
	 	 

    

    If
      to the
      Buyer(s), to its address and facsimile number on Schedule I, with copies to
      the
      Buyer’s counsel as set forth on Schedule I. Each party shall provide five (5)
      days’ prior written notice to the other party of any change in address or
      facsimile number.

     

    (g)  Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their respective successors and assigns. Neither the Company nor any Buyer
      shall
      assign this Agreement or any rights or obligations hereunder without the prior
      written consent of the other party hereto.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    (h)  No
      Third Party Beneficiaries.
      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.

     

    (i)  Survival.
      Unless
      this Agreement is terminated under Section 9(l), the representations and
      warranties of the Company and the Buyer(s) contained in Sections 2 and 3, the
      agreements and covenants set forth in Sections 4, 5 and 9, and the
      indemnification provisions set forth in Section 8, shall survive the Closing
      for
      a period of two (2) years following the date on which the Convertible Debentures
      are converted in full. The Buyer(s) shall be responsible only for its own
      representations, warranties, agreements and covenants hereunder.

     

    (j)  Publicity.
      The
      Company and the Buyer(s) shall have the right to approve, before issuance any
      press release or any other public statement with respect to the transactions
      contemplated hereby made by any party; provided, however, that the Company
      shall
      be entitled, without the prior approval of the Buyer(s), to issue any press
      release or other public disclosure with respect to such transactions required
      under applicable securities or other laws or regulations (the Company shall
      use
      its best efforts to consult the Buyer(s) in connection with any such press
      release or other public disclosure prior to its release and Buyer(s) shall
      be
      provided with a copy thereof upon release thereof).

     

    (k)  Further
      Assurances.
      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 the 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.

     

    (l)  Termination.
      In the
      event that the First Closing shall not have occurred with respect to the Buyers
      on or before five (5) business days from the date hereof due to the Company’s or
      the Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7
      above (and the non-breaching party’s failure to waive such unsatisfied
      condition(s)), the non-breaching party shall have the option to terminate this
      Agreement with respect to such breaching party at the close of business on
      such
      date without liability of any party to any other party; provided, however,
      that
      if this Agreement is terminated by the Company pursuant to this Section 9(l),
      the Company shall remain obligated to reimburse the Buyer(s) for the fees and
      expenses of Yorkville Advisors LLC described in Section 4(g) above.

     

    (m)  Brokerage.
      The
      Company represents that no broker, agent, finder or other party has been
      retained by it in connection with the transactions contemplated hereby and
      that
      no other fee or commission has been agreed by the Company to be paid for or
      on
      account of the transactions contemplated hereby.

     

    (n)  No
      Strict Construction.
      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.

     

    

    [REMAINDER
      PAGE INTENTIONALLY LEFT BLANK]

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF,
      the
      Buyers and the Company have caused this Securities Purchase Agreement to be
      duly
      executed as of the date first written above.

     

    

    
      	 	
              COMPANY:

            
	 	
              NEOMEDIA
                TECHNOLOGIES, INC. 

            
	 	 
	 	
              By:/s/
                Charles T. Jensen 

            
	 	
              Name: 
                Charles T. Jensen 

            
	 	
              Title: 
                President & Chief Executive Officer

            
	 	 

    

    

    

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    

    

     

    SCHEDULE
      I

     

    SCHEDULE
      OF BUYERS 

     

    

    
      	
              Name

            	 	
              Signature

            	 	
              Address/Facsimile
                

              Number
                of Buyer

            	 	
              Amount
                of Subscription

            
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	
              Cornell
                Capital Partners, LP

            	 	
              By: Yorkville
                Advisors, LLC

            	 	
              101
                Hudson Street - Suite 3700

            	 	
              $4,000,000

            
	 	 	
              Its: General
                Partner

            	 	
              Jersey
                City, NJ 07303

            	 	 
	 	 	 	 	
              Facsimile: (201)
                985-8266

            	 	 
	 	 	 	 	 	 	 
	 	 	
              By:___________________   

            	 	 	 	 
	 	 	
              Name: Mark
                Angelo

            	 	 	 	 
	 	 	
              Its: Portfolio
                Manager

            	 	 	 	 
	 	 	 	 	 	 	 
	
              With
                a copy to: 

            	 	
              David
                Gonzalez, Esq.

            	 	
              101
                Hudson Street - Suite 3700

            	 	 
	 	 	 	 	
              Jersey
                City, NJ 07302

            	 	 
	 	 	 	 	
              Facsimile:
                (201) 985-8266

            	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    DISCLOSURE
      SCHEDULE

     

     

     

     

     

     

     

     

     

     

    
 

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A

     

     

    LOCK
      UP AGREEMENT

     

    The
      undersigned hereby agrees that for a period commencing on August ___, 2006
      and
      expiring on the date thirty (30) days after the date that all amounts owed
      to
      Cornell Capital Partners, LP (the “Investor”),
      under
      the Secured Convertible Debentures issued to the Investor pursuant to the
      Securities Purchase Agreement between Neomedia Technologies, Inc. (the
“Company”)
      and
      the Investor dated August ___, 2006 have been paid (the “Lock-up
      Period”),
      he,
      she or it will not, directly or indirectly, without the prior written consent
      of
      the Investor, issue, offer, agree or offer to sell, sell, grant an option for
      the purchase or sale of, transfer, pledge, assign, hypothecate, distribute
      or
      otherwise encumber or dispose of any securities of the Company, including common
      stock or options, rights, warrants or other securities underlying, convertible
      into, exchangeable or exercisable for or evidencing any right to purchase or
      subscribe for any common stock (whether or not beneficially owned by the
      undersigned), or any beneficial interest therein (collectively, the
“Securities”)
      except
      in accordance with the volume limitations set forth in Rule 144(e) of the
      General Rules and Regulations under the Securities Act of 1933, as
      amended.

     

    In
      order
      to enable the aforesaid covenants to be enforced, the undersigned hereby
      consents to the placing of legends and/or stop-transfer orders with the transfer
      agent of the Company’s securities with respect to any of the Securities
      registered in the name of the undersigned or beneficially owned by the
      undersigned, and the undersigned hereby confirms the undersigned’s investment in
      the Company.

     

    Dated:
      _______________, 2006

    

    Signature

    

    

                                 
      ____________________________________

    Name:
      ____________________________________

    Address:      

    City,
      State, Zip
      Code:                                                         

    

    

                                 
      ___________________________________

    Print
      Social Security Number 

    or
      Taxpayer I.D. Number

    

    

    

    
      
        
        

      

      
        3

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