Document:

INVESTMENT AGREEMENT

      THIS  INVESTMENT  AGREEMENT (the  "Agreement") is dated as of February 17,
2006,  by  and  between  CORNELL  CAPITAL  PARTNERS,   LP,  a  Delaware  limited
partnership   (referred  to  as  "Cornell"  and/or  a  "Buyer"),   and  NEOMEDIA
TECHNOLOGIES  INC., a corporation  organized and existing  under the laws of the
State of Delaware (the "Company").

                                    RECITALS:

      WHEREAS,  the Company and the Buyers 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 "1933 Act");

      WHEREAS,  the Buyer has  purchased  from the Company an eight percent (8%)
promissory note dated March 30, 2005 in the original  principal amount of Twenty
Million Dollars ($20,000,000) (referred to as the "Prior Securities").

      WHEREAS,  as of the date hereof,  the Buyer is the beneficial owner of the
Prior  Securities.  The Buyer  desires to surrender  the Prior  Securities  plus
accrued and unpaid interest on the Prior  Securities  through the date hereof in
an amount equal to Three  Million Two Hundred Eight  Thousand  Seven Hundred Two
Dollars ($3,208,702) (consisting of $2,790,000 in principal plus $418,702 as and
for interest on the Prior  Securities)  for  conversion  into Series C Preferred
Shares and to purchase additional Series C Preferred Shares as outlined below;

      WHEREAS,  the  parties  desire  that,  upon the terms and  subject  to the
conditions  contained herein,  the Company shall issue and sell to the Buyer, as
provided herein, and the Buyer shall purchase up to Twenty Seven Million Dollars
($27,000,000)  of Series C Preferred  Shares (the "Series C Preferred  Shares"),
which shall be convertible  into shares of the Company's common stock, par value
$0.01 (the "Common  Stock") (as  converted,  the  "Conversion  Shares") of which
Three Million Two Hundred Eight Thousand Seven Hundred Two Dollars  ($3,208,702)
shall be purchased for consideration solely consisting of surrendering the Prior
Securities,  Eighteen  Million  Seven  Hundred  Ninety One  Thousand Two Hundred
Ninety Eight Dollars  ($18,791,298)  shall be purchased by an additional funding
by the Buyer on the date hereof (the "First  Closing") and Five Million  Dollars
($5,000,000)  shall be  purchased by an  additional  funding by the Buyer on the
date the registration statement (the "Registration Statement") filed pursuant to
the Investor  Registration  Rights Agreement dated the date hereof,  is declared
effective by the United States  Securities and Exchange  Commission  (the "SEC")
(the "Second  Closing")  (individually  referred to as a "Closing"  collectively
referred to as the  "Closings"),  for a total  purchase  price of Twenty Million
Dollars ($27,000,000) (the "Purchase Price"); and

      WHEREAS,  the Company has authorized the following series of its Preferred
Stock, par value $0.001 per share (the "Series C Preferred Shares"), which shall
be convertible  into shares of the Company's  Common Stock,  par value $0.01 per
share  (the  "Common  Stock")  (as  converted,   the  "Conversion  Shares"),  in
accordance  with  the  terms  of  the  Company   Certificate  of   Designations,
Preferences,  and Rights of the Series C  Preferred  Shares  attached  hereto as
Exhibit A (the "Certificate of Designations"); and

<PAGE>

      WHEREAS,  contemporaneously  with  the  execution  and  delivery  of  this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement  substantially in the form attached hereto as Exhibit B (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 parties hereto are executing and delivering Irrevocable Transfer
Agent  Instructions  substantially in the form attached hereto as Exhibit C (the
"Irrevocable Transfer Agent Instructions"); and

      NOW,  THEREFORE,  in consideration of the mutual premises herein set forth
and certain other good and valuable  consideration,  the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:

1.    ISSUANCE OF SHARES AND RELATED TRANSACTIONS.

      1.1 Purchase Price.  The Purchase Price for the Series C Preferred  Shares
shall be paid to the Company in immediately  available funds on the Closing Date
(as set forth in Section 1.2 hereof.  The Purchase Price shall be reduced by the
fees described in Section 14.9 hereof.

      1.2 Closings. On the date hereof the Company shall issue to the Buyers and
the Buyer's shall  purchase  22,000 shares of Series C Preferred  Shares,  which
shall have the right and  designations  set forth on Exhibit A hereto,  of which
Three Million Two Hundred Eight Thousand Seven Hundred Two Dollars  ($3,208,702)
shall be purchased for consideration solely consisting of surrendering the Prior
Securities  and Eighteen  Million Seven Hundred  Ninety One Thousand Two Hundred
Ninety Eight Dollars  ($18,791,298)  shall be purchased by an additional funding
(consisting of a combination of a wire transfer of immediately  available  funds
and the assignment of certain other securities as set forth on Exhibit E) by the
Buyer (the "First Closing Date") and on the date the  Registration  Statement is
declared  effective  by the SEC the  Company  shall  issue to the Buyers and the
Buyer's shall  purchase 5,000 shares of Series C Preferred  Shares,  which shall
have the right and  designations  set forth on Exhibit A hereto for Five Million
Dollars ($5,000,000) (the "Second Closing Date") (the First Closing Date and the
Second Closing Date are collectively  referred to as the "Closing Dates"). In no
event shall the Closing Dates occur prior to the  satisfaction of the conditions
precedent  set forth in  Sections 9, 10 and 11 hereof.  The Closing  Dates shall
take place at the offices of the Buyer or at such other place as may be mutually
agreed upon by the Buyers and the  Company.  On the Closing  Dates,  the Company
shall  deliver to the Buyers  certificates  representing  the Series C Preferred
Shares.

      1.3  Issuance  of  Shares.  At the First  Closing,  subject  to the terms,
restrictions and conditions of this Agreement the Company shall issue, sell, and
deliver to the Buyers Twenty Two Thousand  (22,000) shares of Series C Preferred
Shares,  which  shall  have the right and  designations  set forth on  Exhibit A
hereto and on the Second Closing Date,  subject to the terms,  restrictions  and
conditions of this  Agreement the Company shall issue,  sell, and deliver to the
Buyers Five Thousand  (5,000) shares of Series C Preferred  Shares,  which shall
have the right and designations set forth on Exhibit A hereto. All of the Series

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C  Preferred  Shares  and the  Conversion  Shares  into  which such the Series C
Preferred Shares are convertible  shall be free and clear of all liens,  claims,
pledges,   mortgages,   restrictions,   obligations,   security   interests  and
encumbrances of any kind, nature and description (collectively, "Encumbrances").

2.    ADDITIONAL AGREEMENTS.

      2.1 Investor  Registration  Rights Agreement.  Contemporaneously  with the
execution and delivery of this  Agreement  the parties  hereto are executing and
delivering a Investor  Registration Rights Agreement,  substantially in the form
attached  hereto as Exhibit B, pursuant to which the Company shall  register the
Conversion Shares underlying the Series C Preferred Shares with the SEC.

      2.2  Irrevocable  Transfer  Agent  Agreement.  Contemporaneously  with the
execution and delivery of this  Agreement,  the parties hereto are executing and
delivering an Irrevocable Transfer Agent Instructions, substantially in the form
attached hereto as Exhibit C.

      Collectively   the  Investor   Registration   Rights   Agreement  and  the
Irrevocable   Transfer  Agent   Instructions,   shall  be  referred  to  as  the
"Transaction Documents".

3.    COVENANTS.

      3.1 Access and Inspection, Etc. The Company shall allow the Buyers and its
authorized  representatives  full access during normal  business  hours from and
after the date  hereof and prior to the Closing  Date to all of the  properties,
books,  contracts,  commitments  and  records of the  Company for the purpose of
making such  investigations  as the Buyers may reasonably  request in connection
with the  transactions  contemplated  hereby,  and shall  cause the  Company  to
furnish the Buyers  such  information  concerning  its affairs as the Buyers may
reasonably  request.  The Company has caused and shall  cause its  personnel  to
assist the Buyers in making such  investigation and shall use their best efforts
to  cause  the   counsel,   accountants,   engineers   and   other   nonemployee
representatives  of the Company to be  reasonably  available  to Buyers for such
purposes.

      3.2 Public Announcements.  The parties will consult with each other before
issuing any press releases or otherwise making any public statement with respect
to this Agreement or any of the  transactions  contemplated  hereby and no party
will issue any such press release or make any such public statement  without the
prior written consent of the other parties,  except as may be required by law or
by the  rules  and  regulations  of any  governmental  authority  or  securities
exchange.

      3.3 Best  Efforts.  Subject to the terms and  conditions  provided in this
Agreement,  each of the parties shall use its best efforts in good faith to take
or cause to be taken as promptly as practicable all reasonable  actions that are
within its power to cause to be  fulfilled  those  conditions  precedent  to its
obligations  or  the   obligations  of  the  other  parties  to  consummate  the
transactions  contemplated by this Agreement and the Transaction  Documents that
are dependent upon its actions.

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<PAGE>

      3.4  Further  Assurances.  The  parties  shall  deliver  any and all other
instruments or documents  required to be delivered  pursuant to, or necessary or
proper in order to give effect to, the provisions of this Agreement,  including,
without limitation, to issue the Series C Preferred Shares and to consummate the
transactions contemplated by this Agreement and the Transaction Documents.

4.    NEGATIVE COVENANTS.  The following covenants shall remain in effect for so
      long as the Series C Preferred Shares are outstanding:

      4.1 Lock-up Agreement. Not Applicable.

      4.2 Use of  Proceeds.  The  Company  covenants  to the Buyers that the net
proceeds to be received by the Company in this transaction shall be used to fund
general  corporate  purposes  and any  acquisitions  approved  by the  Board  of
Directors of the Company.

      4.3 No Merger or Sale of Business.  The Company hereby agrees that it will
not merge or  consolidate  with any person or entity  unless it is the servicing
corporation,  or sell,  lease or otherwise  dispose of its assets or  liquidate,
dissolve, recapitalize or reorganize.

      4.4 No  Indebtedness.  The Company  shall not incur any  indebtedness  for
borrowed  money or become a guarantor or otherwise  contingently  liable for any
such  indebtedness  except for trade  payables  or  purchase  money  obligations
incurred in the ordinary course of business.

      4.5 No Other Registration Statements. The Company shall not file any other
registration  statements  on any form  (including  but not limited to forms S-1,
SB-2,  S-3 and S-8) without the prior written  consent of the Buyers except that
the Company may file a  registration  statement on Form S-8 to register up to 60
million shares underlying its 2005 Stock Option Plan..

      4.6  Restriction on Issuance of the Capital Stock.  The Company  covenants
and agrees that,  so long as any of the Series C Preferred  Stock remain  unpaid
and unconverted, the Company shall not, without the prior consent of the Buyers,
(i) issue or sell any common stock or preferred  stock less than the closing bid
price on the date of issuance,  (ii) issue or sell any preferred stock, warrant,
option,  right,  contract,  call, or other  security or instrument  granting the
holder thereof the right to acquire common stock less than the closing bid price
or the date of issuance,  (iii) enter into any security  instrument granting the
holder a security interest in any of the assets of the Company or any subsidiary
now  existing  or later  created  or  acquired,  or (iv)  file any  registration
statements  on Form  S-8  (except  that  the  Company  may  file a  registration
statement on Form S-8 to register up to 60 million  shares  underlying  its 2005
Stock  Option  Plan).  Excluded  from the  restriction  above  is any  security,
provided  such  security is issued at a price which is greater  than or equal to
the arithmetic  average of the closing bid prices of the Company's  Common Stock
for the ten (10)  consecutive  trading days  immediately  preceding  the date of
issuance, any of the following: (a) any issuance by the Company of securities in
connection with a strategic  partnership or a joint venture (the primary purpose
of which is not to raise  equity  capital),  (b) any  issuance by the Company of
securities as consideration  for a merger or consolidation or the acquisition of
a business,  product,  license,  or other assets of another person or entity (c)
options to purchase shares of Common Stock,  provided the exercise price of such
options is not less than the Closing  Bid Price of the Common  Stock on the date
of issuance of such option.

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<PAGE>

5.    REPRESENTATIONS, COVENANTS AND WARRANTIES OF THE COMPANY.

      To  induce  Buyers to enter  into this  Agreement  and to  consummate  the
transactions  contemplated  hereby,  the Company  represents and warrants to and
covenants with the Buyers as follows:

      5.1 Organization; Compliance. The Company is a corporation duly organized,
validly  existing and in good standing  under the laws of the State of Delaware.
The Company is: (a) entitled to own or lease its  properties and to carry on its
business as and in the places where such business is now conducted, and (b) duly
licensed and qualified in all jurisdictions  where the character of the property
owned by it or the nature of the business transacted by it makes such license or
qualification necessary, except where the failure to do so would not result in a
material adverse effect on the Company.

      5.2 Capitalization and Related Matters.

            (a) As of the  date  hereof,  the  authorized  capital  stock of the
Company  consists of One Billion  (1,000,000,000)  shares of common  stock,  par
value $0.01 per share and Twenty Five Million  (25,000,000)  shares of Preferred
Shares,   par  value   $0.01.   As  of  the  date   hereof,   the   Company  had
471,030,711shares  of common stock issued and 466,111,091 shares of common stock
outstanding and zero (0) shares of Preferred Shares issued and  outstanding.  No
Common  Stock  (i) was  issued  in  violation  of the  preemptive  rights of any
shareholder, or (ii) is held as treasury stock.

            (b)  Except as set forth on  Schedule  5.2(b) in the  Company's  the
Company's  Form  10-KSB for the fiscal  year ended  December  31,  2004 and Form
10-QSB for the fiscal quarters ended March 31, 2005, June 30, 2005 and September
30,  2005  (the  "SEC  Documents")  there  are  no  outstanding  any  securities
convertible  into Common Stock or any other capital stock of the Company nor any
rights to subscribe  for or to purchase,  or any options for the purchase of, or
any agreements  providing for the issuance  (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, such capital stock or
securities  convertible  into  such  capital  stock  (collectively,  "Securities
Rights").  The  Company:  (i) is not subject to any  obligation  (contingent  or
otherwise)  to  repurchase  or  otherwise  acquire or retire any of its  capital
stock; or (ii) has no liability for dividends or other distributions declared or
accrued, but unpaid, with respect to any capital stock.

            (c) The Company is not a party to any  agreement,  understanding  or
arrangement,  direct  or  indirect,  relating  to any  class  or  series  of the
Company's capital stock,  including,  without limitation,  any voting agreement,
restriction on resale,  shareholder  agreement or registration rights agreement,
other than the Permitted Registration Rights Agreements.

            (d) The  Company  shall,  on or before July 1, 2006,  effectuate  an
increase its authorized capital stock to a sufficient number of shares of Common
Stock to satisfy the reservation  requirements of this Agreement. It shall be an
event of default  hereunder  if the Company  fails to  strictly  comply with its
obligations under this Section 5.2(d)

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            (e) On  the  date  hereof,  the  Company  shall  reserve  out of its
authorized Common Stock (i) 100,000,000 shares of Common Stock for issuance upon
conversion of the Series C Preferred Shares and (ii) 75,000,000 shares of Common
Stock for issuance upon exercise of the Warrants. On or before July 1, 2006, the
Company  shall  reserve an  additional  250,000,000  shares of Common  Stock for
issuance upon conversion of the Series C Preferred Shares.

      5.3   Subsidiaries and Investments.

            (a) The SEC Documents  disclose with respect to each  Subsidiary (as
defined below) (i) its name, (ii) the  jurisdiction of its  organization,  (iii)
the number of its authorized shares or other equity  interests,  (iv) the number
of its outstanding shares or other equity interests of each class or series, and
(v) the name of the owner and the number and percentage of outstanding shares or
other  equity  interests  of each  class or series of such  Subsidiary  owned of
record  and,  if  different,  owned  beneficially  by the  Company and any other
person. All of the outstanding  capital stock and other equity interests of each
of the  Subsidiaries is validly  issued,  fully paid and  nonassessable  and was
issued in compliance with all applicable  federal and state  securities or "blue
sky" laws and regulations. There are no securities rights relating to any shares
of capital  stock,  other  equity  interests or other  securities  of any of the
Subsidiaries.  The  Company  and the  Subsidiaries  have  good,  marketable  and
exclusive  title to the shares or other  equity  interests  disclosed in the SEC
Documents  as being owned by each of them,  free and clear of all  Encumbrances.
All rights and powers to vote such  shares or other  equity  interests  are held
exclusively  by the Company,  directly or indirectly  through one or more of the
Subsidiaries,  as the  case  may  be.  Each  Subsidiary  is a  corporation  duly
organized,  validly  existing  and  in  good  standing  under  the  laws  of its
jurisdiction of  organization,  and has the corporate power and authority to own
or lease its properties  and to carry on its business as now conducted.  For the
purposes  hereof,  a  "Subsidiary"  means  any  corporation,  limited  liability
company,  partnership,  joint venture or other entity in which the Company owns,
directly or indirectly,  more than 20% of the outstanding  voting  securities or
equity interests.

            (b) Except as disclosed in SEC Documents,  the Company does not own,
nor has it ever owned, any equity interest in any corporation, limited liability
company, partnership, joint venture or other entity.

      5.4   Execution; No Inconsistent Agreements; Etc.

            (a) This Agreement is a valid and binding  agreement of the Company,
enforceable  in accordance  with its terms,  except as such  enforcement  may be
limited by bankruptcy or similar laws  affecting the  enforcement  of creditors'
rights generally, and the availability of equitable remedies.

            (b) The execution and delivery of this Agreement by the Company does
not, and the  consummation  of the  transactions  contemplated  hereby will not,
constitute a breach or  violation of the charter or bylaws of the Company,  or a
default  under  any of the  terms,  conditions  or  provisions  of (or an act or
omission  that  would  give rise to any right of  termination,  cancellation  or
acceleration under) any note, bond,  mortgage,  lease,  indenture,  agreement or
obligation  to which the  Company  is a party,  pursuant  to which  the  Company
otherwise receives benefits, or to which any of the properties of the Company is
subject.

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      5.5 Corporate Records. The statutory records, including the stock register
and minute books of the Company,  fully  reflect all  issuances,  transfers  and
redemptions  of its capital  stock,  correctly  show and will correctly show the
total number of shares of its capital stock issued and  outstanding  on the date
hereof and on the Closing Date,  the charter or other  organizational  documents
and all amendments thereto, and bylaws as amended and currently in force.

      5.6   Financial Statements.

            (a) All  the  foregoing  financial  statements,  and  any  financial
statements  delivered  pursuant to subsection (c) below,  are referred to herein
collectively as the "Company Financial Statements."

            (b) The Company Financial  Statements have been and will be prepared
in accordance  with U.S.  GAAP,  applied on a consistent  basis (except that the
unaudited  statements do not contain all the disclosures  required by GAAP), and
fairly reflect and will reflect in all material respects the financial condition
of the Company as at the dates thereof and the results of the  operations of the
Company for the periods then ended.

      5.7 Liabilities. The Company has no material debt, liability or obligation
of any kind,  whether accrued,  absolute,  contingent or otherwise,  except: (a)
those  reflected in the SEC  Documents,  including  the notes  thereto,  and (b)
liabilities incurred in the ordinary course of business,  none of which have had
or will  have a  material  adverse  effect  on the  financial  condition  of the
Company.

      5.8   Absence of Changes.  Except as described in the SEC Documents and in
the other Schedules to this Agreement:

            (a) there has not been any adverse  change in the business,  assets,
liabilities,  results of operations or financial  condition of the Company or in
its relationships with suppliers,  customers, employees, lessors or others other
than changes in the ordinary course of business, none of which, singularly or in
the aggregate,  have had or will have a material adverse effect on the business,
properties or financial condition of the Company; and

            (b) the Company has complied with the covenants and restrictions set
forth in this Agreement.

      5.9 Title to Properties.  The Company has good and marketable title to all
of its properties and assets, real and personal,  including, but not limited to,
those reflected in the SEC Documents (except as since sold or otherwise disposed
of in the  ordinary  course of business,  or as  expressly  provided for in this
Agreement),  free and clear of all Encumbrances of any kind or character except:
(a) those securing  liabilities of the Company  incurred in the ordinary  course
(with respect to which no material default exists); (b) liens of real estate and
personal  property taxes; and (c)  imperfections of title and  Encumbrances,  if
any,  which,  in the aggregate (i) are not  substantial  in amount;  (ii) do not
detract from the value of the property  subject thereto or impair the operations
of the  Company  or;  and  (iii) do not have a  material  adverse  effect on the
business, properties or assets of the Company.

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      5.10  Compliance  with Law. The business and activities of the Company has
at all times been conducted in accordance with its articles of incorporation and
bylaws and any applicable law,  regulation,  ordinance,  order, License (defined
below),  permit, rule, injunction or other restriction or ruling of any court or
administrative  or  governmental  agency,  ministry,  or body,  except where the
failure to do so would not result in a material adverse effect on the Company.

      5.11 Taxes. The Company has duly filed all material federal,  state, local
and foreign tax  returns and  reports,  and all returns and reports of all other
governmental units having jurisdiction with respect to taxes imposed on it or on
its income, properties, sales, franchises,  operations or employee benefit plans
or trusts, all such returns were complete and accurate when filed, and all taxes
and  assessments  payable by the Company  have been paid to the extent that such
taxes have  become  due.  All taxes  accrued or payable by the  Company  for all
periods  have been  accrued or paid in full,  whether or not due and payable and
whether or not disputed.  The Company has withheld  proper and accurate  amounts
from its employees for all periods in full  compliance  with the tax withholding
provisions of applicable foreign,  federal,  state and local tax laws. There are
no  waivers or  agreements  by the  Company  for the  extension  of time for the
assessment of any taxes. The tax returns of the Company have never been examined
by any authority or other  administrative body or court of any state or country.
There are not now any  examinations  of the  income tax  returns of the  Company
pending,  or any proposed  deficiencies  or  assessments  against the Company of
additional taxes of any kind. The Company shall duly and timely prepare and file
all material federal, state, local and foreign tax returns and reports necessary
and all returns and reports of all other governmental units having  jurisdiction
with  respect to taxes  imposed on the  Company  or on its  income,  properties,
sales, franchises,  operations or employee benefit plans or trusts, and all such
returns will be complete and accurate when filed.

      5.12 Real  Properties.  The Company  does not have an interest in any real
property, except for the Leases (as defined below).

      5.13 Leases of Real Property.  All leases pursuant to which the Company is
lessee or lessor  of any real  property  (the  "Leases")  are  listed in the SEC
Documents and are valid and enforceable in accordance with their terms. There is
not under any of such leases (a) any  material  default or any claimed  material
default by the  Company or any event of  default or event  which with  notice or
lapse of time, or both,  would  constitute a material default by the Company and
in  respect  to which the  Company  has not taken  adequate  steps to  prevent a
default on its part from occurring,  or (b) to the knowledge of the Company, any
material  default by any lessee of the  Company or any event of default or event
which with notice or lapse of time, or both, would constitute a material default
by any lessee. The copies of the Leases heretofore furnished to Buyers are true,
correct and  complete,  and such  Leases  have not been  modified in any respect
since the date  they  were so  furnished,  and are in full  force and  effect in
accordance  with their terms.  The Company is lawfully in possession of all real
properties of which they are a lessee (the "Leased Properties").

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      5.14 Contingencies. Except as disclosed in the SEC Documents, there are no
actions,  suits,  claims or  proceedings  pending,  or to the  knowledge  of the
Company threatened against, by or affecting,  the Company in any court or before
any arbitrator or governmental agency that may have a material adverse effect on
the Company or which could  materially and adversely affect the right or ability
of the  Company to  consummate  the  transactions  contemplated  hereby.  To the
knowledge  of the  Company,  there is no valid basis upon which any such action,
suit, claim, or proceeding may be commenced or asserted against it. There are no
unsatisfied  judgments  against the  Company  and no consent  decrees or similar
agreements  to which the  Company  is  subject  and which  could have a material
adverse effect on the Company.

      5.15 Products Liability; Warranties;  Insurance. The Company will have not
loss, damage,  liability,  fine, penalty, cost and expense (each, a "Liability")
that is not fully  covered by  insurance  relating to any product  manufactured,
distributed  or sold by the Company  prior to the  Closing,  whether or not such
Liability is related to products that are  defective or  improperly  designed or
manufactured or are in breach of any express or implied product warranty.

      5.16  Intellectual Property Rights.

            (a) The Company owns and possesses all right,  title and interest in
and to, or has a valid license to use, all of the Proprietary Rights (as defined
below)  necessary for the  operation of its business as presently  conducted and
none of such Proprietary Rights have been abandoned;

            (b)  no  claim  by  any  third  party   contesting   the   validity,
enforceability,  use or ownership of any such Proprietary  Rights has been made,
is currently outstanding or, to the knowledge of the Company, is threatened, and
to the knowledge of the Company there is no reasonable basis for any such claim;

            (c)  neither  the  Company  nor any  registered  agent of any of the
foregoing has received any notice of, nor is the Company aware of any reasonable
basis for an allegation of, any infringement or misappropriation by, or conflict
with,  any third  party with  respect to such  Proprietary  Rights,  nor has the
Company,  or  any  registered  agent  of any  of  them  received  any  claim  of
infringement  or  misappropriation  of or other  conflict  with any  Proprietary
Rights of any third party;

            (d) the  Company has not  infringed,  misappropriated  or  otherwise
violated any  Proprietary  Rights of any third  parties,  and the Company is not
aware of any  infringement,  misappropriation  or conflict which will occur as a
result of the  continued  operation of the Company as presently  operated and as
contemplated  to  be  operated  or  as a  result  of  the  consummation  of  the
transactions contemplated hereby; and

            (e) all employees who have  contributed  to or  participated  in the
conception and/or development of all or any part of the Proprietary Rights which
are not licensed to the Company from a third party either (i) have been party to
a "work-for-hire"  arrangement or agreement with the Company, in accordance with
applicable federal and state law, that has accorded the Company full, effective,
exclusive,  and  original  ownership of all  tangible  and  intangible  property
thereby arising, or (ii) have executed appropriate  instruments of assignment in
favor of the  Company  as  assignee  that have  conveyed  to the  Company  full,
effective  and  exclusive  ownership  of all tangible  and  intangible  property
thereby arising.

                                     - 9 -
<PAGE>

            (f)  As  used  herein,  the  term  "Proprietary  Rights"  means  all
proprietary  information  of the  Company,  as the  case may be,  including  all
patents, patent applications,  patent disclosures and inventions (whether or not
patentable  and whether or not reduced to  practice),  all  trademarks,  service
marks, trade dress, trade names, corporate names, domain names, copyrights,  all
trade  secrets,   confidential  information,   ideas,  formulae,   compositions,
know-how, processes and techniques,  drawings,  specifications,  designs, logos,
plans, improvements,  proposals,  technical and computer data, documentation and
software,  financial,  business and marketing plans, and related information and
all other  proprietary,  industrial or intellectual  property rights relating to
the  business  of  the  Company,  including  those  proprietary,  industrial  or
intellectual  property rights found at the Company's  websites listed in the SEC
Documents.

            (g)  the  consummation  of the  transactions  contemplated  by  this
Agreement will not adversely  affect the right of the Company to continue to use
the Proprietary  Rights.  To the extent that the registration of any Proprietary
Right is  required  by law,  such  Proprietary  Right has been duly and  validly
registered  or filed,  and any fees that are  necessary to maintain in force any
Proprietary  Rights or  registrations  thereof have been paid. The SEC Documents
sets forth a list and description of the copyrights,  trademarks, service marks,
trade dress, trade names and domain names used or held by the Company and, where
appropriate,  the  date,  serial  or  registration  number,  and  place  of  any
registration thereof.

      5.17 Material  Contracts.  Schedule  5.17 or the SEC  Documents  contain a
complete  list of all  contracts of the Company that  involve  consideration  in
excess of the  equivalent  of Twenty Five Thousand  Dollars  ($25,000) or have a
term of one year or more (the "Material Contracts").  Except as disclosed in the
SEC  Documents:  (a) the Company has  performed all material  obligations  to be
performed  by them  under all such  contracts,  and is not in  material  default
thereof,  and (b) no condition  exists or has occurred  which with the giving of
notice or the lapse of time, or both, would constitute a material default by the
Company or accelerate the maturity of, or otherwise  modify,  any such contract,
and (c) all such contracts are in full force and effect.  No material default by
any other party to any of such  contracts  is known or claimed by the Company to
exist.

      5.18  Employee Benefit Matters.

            (a) Except as disclosed in the SEC  Documents,  the Company does not
provide,  nor is it obligated to provide,  directly or indirectly,  any benefits
for employees other than salaries, sales commissions and bonuses, including, but
not limited to, any pension,  profit sharing, stock option,  retirement,  bonus,
hospitalization,  insurance,  severance,  vacation  or other  employee  benefits
(including  any  housing  or social  fund  contributions)  under  any  practice,
agreement or understanding.

            (b) Each  employee  benefit plan  maintained  by or on behalf of the
Company or any other party (including any terminated pension plans) which covers
or covered any employees or former employees of the Company  (collectively,  the
"Employee  Benefit  Plan") is  listed  in the SEC  Documents.  The  Company  has
delivered to Buyers true and  complete  copies of all such plans and any related

                                     - 10 -
<PAGE>

documents. With respect to each such plan: (a) no litigation,  administrative or
other  proceeding  or claim is  pending,  or to the  knowledge  of the  Company,
threatened or  anticipated  involving  such plan;  (b) there are no  outstanding
requests for information by participants or  beneficiaries of such plan; and (c)
such plan has been  administered in compliance in all material respects with all
applicable laws and regulations.

            (c) The Company has timely made payment in full of all contributions
to all of the  Employee  Benefit  Plans which the Company was  obligated to make
prior to the date hereof; and there are no contributions  declared or payable by
the Company to any Employee  Benefit Plan which, as of the date hereof,  has not
been paid in full.

      5.19 Possession of Franchises,  Licenses,  Etc. The Company: (a) possesses
all   material   franchises,   certificates,   licenses,   permits   and   other
authorizations  (collectively,  the "Licenses") from  governmental  authorities,
political  subdivisions  or  regulatory  authorities  that are necessary for the
ownership,  maintenance  and  operation of its business in the manner  presently
conducted;  (b) are not in violation  of any  provisions  thereof;  and (c) have
maintained  and amended,  as  necessary,  all Licenses  and duly  completed  all
filings and notifications in connection therewith.

      5.20 Environmental Matters. Except as disclosed in the SEC Documents:  (i)
the Company is not in violation,  in any material respect,  of any Environmental
Law (as defined below);  (ii) the Company has received all permits and approvals
with  respect to  emissions  into the  environment  and the  proper  collection,
storage,  transport,  distribution  or disposal of Wastes (as defined below) and
other materials  required for the operation of its business at present operating
levels;  and (iii) the  Company is not liable or  responsible  for any  material
clean up, fines,  liability or expense arising under any Environmental Law, as a
result of the disposal of Wastes or other materials in or on the property of the
Company  (whether owned or leased),  or in or on any other  property,  including
property no longer  owned,  leased or used by the Company.  As used herein,  (a)
"Environmental  Laws"  means,  collectively,   the  Comprehensive  Environmental
Response,  Compensation  and Liability  Act of 1980,  as amended,  the Superfund
Amendments  and  Reauthorization  Act of 1986,  the  Resource  Conservation  and
Recovery Act, the Toxic Substances  Control Act, as amended,  the Clean Air Act,
as  amended,  the  Clean  Water  Act,  as  amended,  any  other  "Superfund"  or
"Superlien" law or any other federal, or applicable state or local statute, law,
ordinance,  code,  rule,  regulation,  order or  decree  (foreign  or  domestic)
regulating,   relating  to,  or  imposing  liability  or  standards  of  conduct
concerning,  Wastes, or the environment; and (b) "Wastes" means and includes any
hazardous,  toxic or dangerous waste,  liquid,  substance or material (including
petroleum  products  and  derivatives),   the  generation,   handling,  storage,
disposal, treatment or emission of which is subject to any Environmental Law.

      5.21 Agreements and Transactions with Related Parties. Except as disclosed
on the SEC  Documents  the Company is not, a party to any  contract,  agreement,
lease or transaction  with, or any other  commitment to, (a) a shareholder,  (b)
any person  related by blood,  adoption  or  marriage  to  shareholder,  (c) any
director or officer of the Company, (d) any corporation or other entity in which
any of the foregoing parties has, directly or indirectly,  at least five percent
(5.0%) beneficial interest in the capital stock or other type of equity interest
in such  corporation or other entity,  or (e) any  partnership in which any such
party is a general  partner or a limited  partner  having a five percent (5%) or
more interest therein (any or all of the foregoing being herein referred to as a
"Related Party" and collectively as the "Related Parties"). Without limiting the

                                     - 11 -
<PAGE>

generality of the foregoing,  except as set forth in the SEC  Documents,  (a) no
Related Party, directly or indirectly, owns or controls any assets or properties
which are or have been used in the business of the  Company,  and (b) no Related
Party, directly or indirectly,  engages in or has any significant interest in or
connection  with any  business:  (i) which is or which  within  the last two (2)
years has been a competitor, customer or supplier of, or has done business with,
the Company,  or (ii) which as of the date hereof sells or distributes  products
or provides services which are similar or related to the products or services of
the Company.

      5.22 Business  Practices.  Except as disclosed in the SEC  Documents,  the
Company has not, at any time, directly or indirectly,  made any contributions or
payment,  or provided any compensation or benefit of any kind, to any municipal,
county, state, federal or foreign governmental officer or official, or any other
person charged with similar public or quasi-public  duties, or any candidate for
political office. The Company's books, accounts and records (including,  without
limitation,  customer files, product packaging and invoices) accurately describe
and reflect,  in all material  respects,  the nature and amount of the Company's
products,  purchases,  sales  and  other  transactions.   Without  limiting  the
generality  of  the  foregoing,  the  Company  has  not  engaged,   directly  or
indirectly,  in:  (a) the  practice  known as  "double-invoicing"  or the use or
issuance of  pro-forma or dummy  invoices;  or (b) the  incorrect or  misleading
labeling, marketing or sale of refurbished goods as new goods.

      5.23 Shareholder Matters.  None of the matters set forth in this Agreement
require the approval of the Company's shareholders.

      5.24  Full  Disclosure.  No  representation  or  warranty  of the  Company
contained  in  this  Agreement,  and  none  of  the  statements  or  information
concerning the Company  contained in this Agreement and the Schedules,  contains
or  will  contain  any  untrue  statement  of a  material  fact  nor  will  such
representations,  warranties,  covenants or  statements  taken as a whole omit a
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.

6.    REPRESENTATIONS AND WARRANTIES OF BUYERS.

      To induce the Company to enter into this  Agreement and to consummate  the
transactions  contemplated  hereby,  the  Buyers  represent  and  warrant to and
covenant with the Company as follows:

      6.1  Organization.  Each Buyer is a limited  partnership  duly  organized,
validly  existing and in good  standing  under the laws of Delaware.  The Buyers
have all  requisite  power and  authority to execute,  deliver and carry out the
terms of this Agreement and the  consummation of the  transactions  contemplated
herein.

      6.2   Execution; No Inconsistent Agreements; Etc.

            (a) The execution and delivery of this Agreement and the performance
of the transactions  contemplated  hereby have been duly and validly  authorized
and approved by the Buyers and this  Agreement is a valid and binding  agreement
of the  Buyers,  enforceable  against the Buyers in  accordance  with its terms,
except  as such  enforcement  may be  limited  by  bankruptcy  or  similar  laws
affecting the enforcement of creditors' rights  generally,  and the availability
of equitable remedies.

                                     - 12 -
<PAGE>

            (b) The execution and delivery of this  Agreement by the Buyers does
not, and the  consummation  of the  transactions  contemplated  hereby will not,
constitute a breach or  violation  of the charter or bylaws of the Buyers,  or a
default  under  any of the  terms,  conditions  or  provisions  of (or an act or
omission  that  would  give rise to any right of  termination,  cancellation  or
acceleration  under)  any  material  note,  bond,  mortgage,  lease,  indenture,
agreement or obligation  to which the Buyers are a party,  pursuant to which any
of them otherwise receive  benefits,  or by which any of their properties may be
bound.

      6.3   Securities Laws.

            (a) The Buyers are  purchasing  the  Series C  Preferred  Shares for
investment purposes.

            (b)  Investment  Representations.  The Buyers have been  offered the
opportunity  to ask  questions  of,  and  receive  answers  from  the  Company's
management,  and the  Buyers  have been given  full and  complete  access to all
available  information  and data  relating  to the  business  and  assets of the
Company and has obtained such  additional  information  about the Company as the
Buyers  have  deemed  necessary  in order to evaluate  the  opportunities,  both
financial and  otherwise,  with respect to the Company and,  except as set forth
herein,  has not  relied  on any  representation,  warranty  or other  statement
concerning  the Company and its  evaluation  of the decision to  consummate  the
transactions  contemplated herein. In its judgment,  the Buyers are sufficiently
familiar with the Company to enable the Buyers to proceed with the  transactions
contemplated hereby.

            (c) The Buyers are "accredited investors" as such term is defined in
Rule 501 of  Regulation  D  promulgated  under the  Securities  Act of 1933,  as
amended (the "Securities Act").

            (d) The Buyers are sophisticated investors familiar with the type of
risks inherent in the  acquisition of securities  such as the Series C Preferred
Shares.

7.    CONDUCT OF BUSINESS OF THE COMPANY PENDING CLOSING.

      The  Company  covenants  and agrees  that  between the date hereof and the
Closing Date:

      7.1   Business  in the  Ordinary  Course.  Except  as set forth in the SEC
Documents,  the business of the Company shall be conducted  only in the ordinary
course,  and consistent with past practice.  Without  limiting the generality of
the  foregoing,  and except as set forth in the SEC  Documents  or as  otherwise
approved by the Buyers:

            (a) Except for the  transaction  contemplated  hereby,  the  Company
shall not enter into any contract,  agreement or other  arrangement  which would
constitute a Material Contract,  except for contracts to sell or supply goods or
services to customers in the ordinary  course of business at prices and on terms
substantially consistent with the prior operating practices of the Company;

                                     - 13 -
<PAGE>

            (b) except for sales of personal  property in the ordinary course of
its business, the Company shall not sell, assign,  transfer,  mortgage,  convey,
encumber  or  otherwise  dispose  of, or cause the sale,  assignment,  transfer,
mortgage,  conveyance,  encumbrance or other disposition of any of the assets or
properties of the Company or any interest therein;

            (c) the  Company  shall not  acquire  any  material  assets,  except
expenditures made in the ordinary course of business as reasonably  necessary to
enable the Company to conduct its normal business operations and to maintain its
normal  inventory of goods and materials,  at prices and on terms  substantially
consistent with current market conditions and prior operating practices;

            (d)  the  books,  records  and  accounts  of the  Company  shall  be
maintained  in the usual,  regular  and  ordinary  course of business on a basis
consistent with prior practices and in accordance with GAAP;

            (e) the Company  shall use its best efforts to preserve its business
organization,  to preserve the good will of its suppliers,  customers and others
having  business  relations with the Company,  and to retain the services of key
employees and agents of the Company;

            (f) except as it may terminate in accordance  with the terms of this
Agreement,  the  Company  shall keep in full force and  effect,  and not cause a
default  of  any  of  its  obligations   under,  each  of  their  contracts  and
commitments;

            (g) the Company shall duly comply in all material  respects with all
laws applicable to it and to the conduct of its business;

            (h) the Company  shall not create,  incur or assume any liability or
indebtedness,  except in the ordinary  course of business  consistent  with past
practices;

            (i) other than as contemplated in this Agreement,  the Company shall
not  apply any of its  assets to the  direct  or  indirect  payment,  discharge,
satisfaction or reduction of any amount payable directly or indirectly to or for
the benefit of any shareholder or any Related Party; and

            (j) the  Company  shall  not take or omit to take any  action  which
would render any of the  representations or warranties untrue or misleading,  or
which would be a breach of any of the covenants.

      7.2   No Material Changes.  Except as contemplated in this Agreement,  the
Company  shall  not  materially  alter  its  organization,   capitalization,  or
financial structure, practices or operations. Without limiting the generality of
the foregoing:

            (a) no change  shall be made in the  articles of  incorporation  and
bylaws of the Company;

            (b) no change  shall be made in the  authorized  or  issued  capital
stock of the Company;

                                     - 14 -
<PAGE>

            (c) the  Company  shall  not  issue or grant  any right or option to
purchase or otherwise acquire any of its capital stock or other securities;

            (d) no dividend or other  distribution  or payment shall be declared
or made with respect to any of the capital stock of the Company; and

            (e) no change shall be made  affecting the banking  arrangements  of
the Company.

      7.3  Notification.  Each party to this Agreement shall promptly notify the
other parties in writing of the  occurrence,  or threatened  occurrence,  of any
event that would constitute a breach or violation of this Agreement by any party
or that would cause any  representation  or warranty made by the notifying party
in this  Agreement to be false or  misleading  in any respect.  The Company will
promptly  notify the  Buyers of any event  that  could  have a material  adverse
effect on the business, assets, financial condition or prospects of the Company.
The  Company  shall have the right to update  the  Schedules  to this  Agreement
immediately prior to Closing; provided, if such update discloses any breach of a
representation,  warranty,  covenant or  obligation  of the Company,  the Buyers
shall  have the  rights to then  exercise  its  available  rights  and  remedies
hereunder.

8.    CONDITIONS TO OBLIGATIONS OF ALL PARTIES.

      The   obligation  of  the  Buyers  and  the  Company  to  consummate   the
transactions contemplated by this Agreement are subject to the satisfaction,  on
or before the Closing, of each of the following conditions;  any or all of which
may be waived in whole or in part by the joint  agreement  of the Buyers and the
Company:

      8.1 Absence of Actions. No action or proceeding shall have been brought or
threatened before any court or administrative agency to prevent the consummation
or  to  seek  damages  in a  material  amount  by  reason  of  the  transactions
contemplated hereby, and no governmental  authority shall have asserted that the
within  transactions (or any other pending  transaction  involving the Buyers or
the Company when  considered in light of the effect of the within  transactions)
shall  constitute a violation  of law or give rise to material  liability on the
part of the Company or the Buyers.

      8.2 Consents. The parties shall have received from any suppliers, lessors,
lenders,  lien holders or  governmental  authorities,  bodies or agencies having
jurisdiction over the transactions  contemplated by this Agreement,  or any part
hereof,  such  consents,  authorizations  and approvals as are necessary for the
consummation hereof.

9.    CONDITIONS TO OBLIGATIONS OF THE BUYERS.

      All obligations of the Buyers to consummate the transactions  contemplated
by this Agreement are subject to the  fulfillment  and  satisfaction of each and
every of the  following  conditions  on or prior to the  Closing,  any or all of
which may be waived in whole or in part by the Buyers:

                                     - 15 -
<PAGE>

      9.1  Representations  and Warranties.  The  representations and warranties
contained in Section 5 of this  Agreement  and in any  certificate,  instrument,
schedule, agreement or other writing delivered by or on behalf of the Company in
connection with the  transactions  contemplated by this Agreement shall be true,
correct and complete in all material  respects (except for  representations  and
warranties  which are by their terms  qualified by  materiality,  which shall be
true,  correct and complete in all  respects) as of the date when made and shall
be  deemed  to be made  again at and as of the  Closing  Date and shall be true,
correct and complete at and as of such time in all material respects (except for
representations   and  warranties   which  are  by  their  terms   qualified  by
materiality, which shall be true, correct and complete in all respects).

      9.2 Certificate of Designations, Preferences and Rights. The Company shall
have  filed the  Certificate  of  Designations,  Preferences  and Rights for the
Series C Preferred Shares with the Delaware  Secretary of State and provided the
Buyers a stamped filed copy.

      9.3  Compliance  with  Agreements and  Conditions.  The Company shall have
performed and complied with all material  agreements and conditions  required by
this Agreement to be performed or complied with by it prior to or on the Closing
Date.

      9.4 Absence of Material Adverse Changes. No material adverse change in the
business,  assets,  financial condition,  or prospects of the Company shall have
occurred,  no  substantial  part of the assets of the Company not  substantially
covered by insurance  shall have been  destroyed due to fire or other  casualty,
and no event shall have occurred  which has had or will have a material  adverse
effect on the business, assets, financial condition or prospects of the Company.

      9.5 Board Approval.  The Company's Board of Directors shall have taken the
action  required by them pursuant to this  Agreement,  including an amendment to
the Company's  articles of  incorporation to adopt the rights and preferences of
the Series C  Preferred  Shares,  authorize  issuance  of the Series C Preferred
Shares and the  Conversion  Shares to be issued upon  conversion of the Series C
Preferred  Shares and the  reservation of the shares of Conversion  Shares to be
issued upon conversion of the Series C Preferred Shares.

      9.6 Other Agreements. The Company shall have executed and delivered to the
Buyers the Transaction Documents all in a form acceptable to the Buyers.

      9.7 Other  Documents.  The Company shall have delivered to the Buyers such
other  documents and  instruments  as the Buyers deems  reasonably  necessary or
desirable to consummate the transactions contemplated hereby.

      9.8 The  Buyers(s)  shall have received an opinion of counsel from Counsel
to the Company in a form satisfactory to the Buyers.

      9.9 The Company shall have  provided to the Buyers a  certificate  of good
standing from the secretary of state from Delaware.

      9.10 The Company shall have  provided to the Investor an  acknowledgement,
to the satisfaction of the Investor, from its certified public accountants as to
its ability to provide  all  consents  required in order to file a  registration
statement in connection with this transaction.

                                     - 16 -
<PAGE>

      9.11 The Company  shall have  satisfied  its  obligations  to increase its
authorized capital stock pursuant to Section 5.2(d) prior to the Second Closing.

      All  documents  delivered  to the  Buyers  shall be in form and  substance
reasonably satisfactory to the Buyers.

10.   CONDITIONS TO OBLIGATIONS OF THE COMPANY.

      All of the  obligations  of the  Company to  consummate  the  transactions
contemplated by this Agreement are subject to the  fulfillment and  satisfaction
of each and every of the following conditions on or prior to the Closing, any or
all of which may be waived in whole or in part by the Company:

      10.1  Representations  and Warranties.  The representations and warranties
contained in Section 6 of this  Agreement  and in any  certificate,  instrument,
schedule,  agreement or other writing delivered by or on behalf of the Buyers in
connection  with the  transactions  contemplated by this Agreement shall be true
and correct in all material respects (except for  representations and warranties
which are by their terms qualified by materiality,  which shall be true, correct
and complete in all respects)  when made and shall be deemed to be made again at
and as of the  Closing  Date  and  shall  be true at and as of such  time in all
material respects (except for  representations and warranties which are by their
terms qualified by materiality, which shall be true, correct and complete in all
respects).

      10.2  Compliance  with  Agreements and  Conditions.  The Buyers shall have
performed and complied with all material  agreements and conditions  required by
this Agreement to be performed or complied with by the Buyers prior to or on the
Closing Date.

11.   EVENTS OF DEFAULT.

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

      11.2 The Company shall fail to observe or perform any covenant,  agreement
or  warranty  contained  in, or  otherwise  commit  any breach or default of any
provision  contained  herein or in any  Transaction  Document (as defined in the
Investment  Agreement  of even  date  herewith)  which is not cured  within  any
applicable cure period;

      11.3 The Company or any subsidiary of the Company shall commence, or there
shall be commenced  against the Company or any  subsidiary  of the Company under
any  applicable  bankruptcy or insolvency  laws as now or hereafter in effect or
any successor thereto, or the Company or any subsidiary of the Company commences
any other proceeding under any reorganization,  arrangement, adjustment of debt,
relief of debtors, dissolution,  insolvency or liquidation or similar law of any
jurisdiction  whether now or hereafter in effect  relating to the Company or any
subsidiary  of the  Company or there is  commenced  against  the  Company or any
subsidiary of the Company any such  bankruptcy,  insolvency or other  proceeding
which remains undismissed for a period of sixty one (61) days; or the Company or
any subsidiary of the Company is adjudicated insolvent or bankrupt; or any order

                                     - 17 -
<PAGE>

of relief or other order  approving any such case or  proceeding is entered;  or
the Company or any  subsidiary  of the Company  suffers any  appointment  of any
custodian,  private  or  court  appointed  receiver  or the  like  for it or any
substantial part of its property which continues  undischarged or unstayed for a
period of sixty one (61) days;  or the Company or any  subsidiary of the Company
makes a general  assignment for the benefit of creditors;  or the Company or any
subsidiary of the Company shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay,  its debts  generally as they become due; or the
Company or any  subsidiary  of the Company shall call a meeting of its creditors
with a view to  arranging a  composition,  adjustment  or  restructuring  of its
debts;  or the  Company or any  subsidiary  of the  Company  shall by any act or
failure to act expressly indicate its consent to, approval of or acquiescence in
any of the  foregoing;  or any corporate or other action is taken by the Company
or any  subsidiary  of the  Company  for the  purpose  of  effecting  any of the
foregoing;

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

      11.5 The Common  Stock  shall cease to be quoted for trading or listed for
trading on the Nasdaq OTC Bulletin Board ("OTC"),  Nasdaq SmallCap  Market,  New
York Stock Exchange or the Nasdaq National Market (each, a "Subsequent  Market")
and shall not again be quoted or listed  for  trading  thereon  within  five (5)
Trading Days of such delisting; or

      11.6 The  Company  shall  fail for any  reason  to  deliver  Common  Stock
certificates to a Holder prior to the fifth (5th) Trading Day after a conversion
or the Company  shall provide  notice to the Holder,  including by way of public
announcement,  at any time,  of its  intention  not to comply with  requests for
conversions of the Series C Preferred Stock in accordance with the terms hereof.

      11.7 During the time that any  portion of the Series C Preferred  Stock is
outstanding,  if any  Event of  Default  has  occurred,  all of the  outstanding
principal  and unpaid  dividends  under the Series C Preferred  Shares  shall be
immediately due and payable  notwithstanding  any  limitations  contained in the
Certificate  of  Designations  or the  Transaction  Documents,  as this  term is
defined in the Investment Agreement.  Upon an event of default the Holders shall
have the right  (but not the  obligation)  to convert  the entire  amount of the
Series C Preferred  Shares  outstanding  as provided for in the  Certificate  of
Designations.

                                     - 18 -
<PAGE>

12.   INDEMNITY.

      12.1  Indemnification   by   the   Company.   The   Company   (hereinafter
collectively called the "Company  Indemnitor") shall defend,  indemnify and hold
harmless the Buyers,  their  respective  general  partners,  direct and indirect
parent  corporations,  subsidiaries  and affiliates,  their  officers,  members,
directors,  employees, attorneys and agents (hereinafter collectively called the
"Buyers  Indemnitees")  against  and in  respect  of any and all  loss,  damage,
liability, fine, penalty, cost and expense, including reasonable attorneys' fees
and amounts paid in settlement (collectively,  the "Buyers Losses"), suffered or
incurred by any Buyers Indemnitee by reason of, or arising out of:

            (a)  any   misrepresentation,   breach  of  warranty  or  breach  or
nonfulfillment of any covenant, obligation or agreement of the Company contained
in this  Agreement  or in any  certificate,  schedule,  instrument  or  document
delivered  to  the  Buyers  by or on  behalf  of  the  Company  pursuant  to the
provisions of this Agreement (without regard to materiality thresholds contained
therein); and

            (b)  any  liabilities  of  the  Company  of  any  nature  whatsoever
(including tax liability,  penalties and interest),  whether accrued,  absolute,
contingent  or  otherwise,  (i) existing as of the date hereof on the  Company's
Balance Sheet,  and required to be shown therein in accordance with GAAP, to the
extent  not  reflected  or  reserved  against  in full in;  or (ii)  arising  or
occurring  between January 31, 2005 and the date of this  Agreement,  except for
liabilities arising in the ordinary course of business, none of which shall have
a material adverse effect on the Company.

            (c)  Indemnification by the Buyers. The Buyers  (hereinafter  called
the "Buyers Indemnitors") shall defend, indemnify and hold harmless the Company,
its direct and indirect parent corporations,  subsidiaries and affiliates, their
officers,  members,  directors,  employees,  attorneys  and agents  (hereinafter
called "Company Indemnitee") against and in respect of any and all loss, damage,
liability,  cost and expense,  including reasonable  attorneys' fees and amounts
paid in settlement  (collectively,  "Company  Losses"),  suffered or incurred by
Company Indemnitee by reason of or arising out of any misrepresentation,  breach
of warranty or breach or non-fulfillment of any material covenant, obligation or
agreement of the Buyers contained in this Agreement or in any other certificate,
schedule, instrument or document delivered to the Company by or on behalf of the
Buyers  pursuant  to  the  provisions  of  this  Agreement  (without  regard  to
materiality thresholds contained therein).

      12.2  Defense of Claims.

            (a) Each party seeking indemnification  hereunder (an "Indemnitee"):
(i) shall provide the other party or parties (the  "Indemnitor")  written notice
of any claim or action by a third  party for which an  Indemnitor  may be liable
under the terms of this  Agreement,  within  ten (10) days  after  such claim or
action arises and is known to  Indemnitee,  and (ii) shall give the Indemnitor a
reasonable opportunity to participate in any proceedings and to settle or defend
any such claim or action. The expenses of all proceedings,  contests or lawsuits
with respect to such claims or actions shall be borne by the Indemnitor.  If the
Indemnitor wishes to assume the defense of such claim or action,  the Indemnitor
shall give written  notice to the  Indemnitee  within ten (10) days after notice
from the Indemnitee of such claim or action, and the Indemnitor shall thereafter
assume the defense of any such claim or liability,  through  counsel  reasonably
satisfactory to the Indemnitee, provided that Indemnitee may participate in such
defense at their own expense,  and the Indemnitor  shall, in any event, have the
right  to  control  the  defense  of the  claim or  action.  The  failure  of an
Indemnitee  to give any notice  required by this Section shall not affect any of
such party's  rights under this Section or  otherwise,  except and to the extent
that such failure is actually  prejudicial  to the rights or  obligations of the
Indemnitor.

                                     - 19 -
<PAGE>

            (b) If the  Indemnitor  shall not assume the defense of, or if after
so assuming it shall fail to defend,  any such claim or action,  the  Indemnitee
may  defend  against  any such  claim or action in such  manner as they may deem
appropriate  and the  Indemnitees  may settle such claim or  litigation  on such
terms as they may deem  appropriate  but subject to the  Indemnitor's  approval,
such approval not to be unreasonably withheld;  provided, however, that any such
settlement shall be deemed approved by the Indemnitor if the Indemnitor fails to
object thereto,  by written notice to the  Indemnitee,  within fifteen (15) days
after the  Indemnitor's  receipt of a written  summary of such  settlement.  The
Indemnitor  shall  promptly  reimburse  the  Indemnitee  for the  amount  of all
expenses, legal and otherwise, incurred by the Indemnitee in connection with the
defense and settlement of such claim or action.

            (c) If a non-appealable  judgment is rendered against any Indemnitee
in any action covered by the indemnification  hereunder, or any lien attaches to
any of the assets of any of the  Indemnitee,  the Indemnitor  shall  immediately
upon such entry or attachment  pay such judgment in full or discharge  such lien
unless, at the expense and direction of the Indemnitor, an appeal is taken under
which the execution of the judgment or  satisfaction  of the lien is stayed.  If
and when a final judgment is rendered in any such action,  the Indemnitor  shall
forthwith  pay such  judgment or discharge  such lien before any  Indemnitee  is
compelled to do so.

      12.3 Waiver.  The failure of any  Indemnitee to give any notice or to take
any action  hereunder  shall not be deemed a waiver of any of the rights of such
Indemnitee  hereunder,   except  to  the  extent  that  Indemnitor  is  actually
prejudiced by such failure.

13.   TERMINATION.

      13.1  Termination.  This  Agreement  may be  terminated  at any time on or
prior to the Closing:

            (a) By mutual consent of the Buyers and the Company; or

            (b) At the  election of the Buyers if: (i) a Company has breached or
failed  to  perform  or  comply  with  any of its  representations,  warranties,
covenants or  obligations  under this  Agreement;  or (ii) any of the conditions
precedent  set forth in  Section  3, 4, 7, 8 or 9 is not  satisfied  as and when
required by this  Agreement;  or (iii) the Closing has not been  consummated  by
within five (5) business days from the date hereof; or

            (c) At the election of the Company if: (i) the Buyers have  breached
or failed to  perform  or comply  with any of its  representations,  warranties,
covenants or  obligations  under this  Agreement;  or (ii) any of the conditions
precedent  set forth in Section 7, 8, or 9 is not satisfied as and when required
by this Agreement;  or (iii) the Closing has not been consummated by within five
(5) business days from the date hereof.

                                     - 20 -
<PAGE>

      13.2 Manner and Effect of  Termination.  Written notice of any termination
("Termination  Notice")  pursuant to this Section 13 shall be given by the party
electing termination of this Agreement  ("Terminating Party") to the other party
or parties  (collectively,  the "Terminated Party"), and such notice shall state
the reason for termination.  The party or parties receiving  Termination  Notice
shall have a period of ten (10) days after receipt of Termination Notice to cure
the matters giving rise to such  termination to the reasonable  satisfaction  of
the  Terminating  Party. If the matters giving rise to termination are not cured
as required hereby, this Agreement shall be terminated effective as of the close
of business on the tenth (10th) day following the Terminated  Party's receipt of
Termination Notice. Upon termination of this Agreement prior to the consummation
of the Closing and in accordance  with the terms hereof,  this  Agreement  shall
become void and of no effect,  and none of the parties  shall have any liability
to the others,  except that nothing  contained  herein  shall  relieve any party
from: (a) its  obligations  under Sections 3.2 and 3.3; or (b) liability for its
intentional breach of any representation, warranty or covenant contained herein,
or its  intentional  failure  to comply  with the terms and  conditions  of this
Agreement or to perform its obligations hereunder.

14.   MISCELLANEOUS.

      14.1  Notices.

            (a) All notices, requests, demands, or other communications required
or permitted hereunder shall be in writing and shall be deemed to have been duly
given upon  receipt if delivered in person,  or upon the  expiration  of two (2)
days  after the date sent,  if sent by federal  express  (or  similar  overnight
courier service) to the parties at the following addresses:

If to the Company, to:       Neomedia Technologies Inc.
                             2201 2nd Floor - Suite 402
                             Fort Myers, FL  33901
                             Attention: Charles T. Jensen
                             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 Buyers,  to their address and  facsimile  numbers on Schedule I,
with copies to each Buyers' 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.

            (b) Notices may also be given in any other manner  permitted by law,
effective  upon  actual  receipt.  Any party may  change  the  address  to which
notices,  requests,  demands  or other  communications  to such  party  shall be
delivered or mailed by giving notice  thereof to the other parties hereto in the
manner provided herein.

                                     - 21 -
<PAGE>

      14.2   Survival.   The   representations,   warranties,   agreements   and
indemnifications  of the parties  contained in this  Agreement or in any writing
delivered  pursuant  to the  provisions  of this  Agreement  shall  survive  any
investigation  heretofore or hereafter made by the parties and the  consummation
of the  transactions  contemplated  herein and shall  continue in full force and
effect after the Closing.

      14.3 Counterparts;  Interpretation.  This Agreement may be executed in any
number of  counterparts,  each of which shall be deemed an original,  and all of
which shall  constitute one and the same instrument.  This Agreement  supersedes
all prior  discussions  and  agreements  between the parties with respect to the
subject matter hereof, and this Agreement contains the sole and entire agreement
among the parties  with respect to the matters  covered  hereby.  All  Schedules
hereto shall be deemed a part of this  Agreement.  This  Agreement  shall not be
altered or amended  except by an instrument in writing signed by or on behalf of
all of the  parties  hereto.  No  ambiguity  in any  provision  hereof  shall be
construed  against a party by reason of the fact it was drafted by such party or
its counsel. For purposes of this Agreement:  "herein",  "hereby",  "hereunder",
"herewith",  "hereafter"  and  "hereinafter"  refer  to  this  Agreement  in its
entirety,  and not to any  particular  subsection  or  paragraph.  References to
"including"  means including  without limiting the generality of any description
preceding such term. Nothing expressed or implied in this Agreement is intended,
or shall be construed,  to confer upon or give any person other than the parties
hereto any rights or remedies under or by reason of this Agreement.

      14.4 Governing Law. This Agreement shall be governed by and interpreted in
accordance  with  the  laws of the  State  of  Delaware  without  regard  to the
principles  of  conflict  of laws.  The  parties  further  agree that any action
between  them shall be heard  exclusively  in Hudson  County,  New  Jersey,  and
expressly  consent to the  jurisdiction  and venue of the Superior  Court of New
Jersey,  sitting in Hudson  County,  New Jersey and the United  States  District
Court of New Jersey,  sitting in Newark, New Jersey, for the adjudication of any
civil action asserted pursuant to this paragraph.  Each party hereby irrevocably
waives,  to the  fullest  extent it may  effectively  do so,  the  defense of an
inconvenient  forum to the  maintenance of any such action in the forum selected
hereby.

      14.5 Successors and Assigns;  Assignment.  This Agreement shall be binding
upon and shall inure to the benefit of the parties  hereto and their  respective
heirs, executors, legal representatives, and successors; provided, however, that
the Company may not assign this Agreement or any rights  hereunder,  in whole or
in part.

      14.6 Partial  Invalidity  and  Severability.  All rights and  restrictions
contained  herein may be exercised and shall be  applicable  and binding only to
the extent that they do not violate any  applicable  laws and are intended to be
limited  to the extent  necessary  to render  this  Agreement  legal,  valid and
enforceable.  If any terms of this  Agreement  not  essential to the  commercial
purpose of this Agreement shall be held to be illegal,  invalid or unenforceable
by a court of competent  jurisdiction,  it is the  intention of the parties that
the remaining terms hereof shall  constitute their agreement with respect to the
subject  matter hereof and all such  remaining  terms shall remain in full force
and  effect.  To  the  extent  legally  permissible,  any  illegal,  invalid  or
unenforceable provision of this Agreement shall be replaced by a valid provision
which  will  implement  the  commercial  purpose  of  the  illegal,  invalid  or
unenforceable provision.

                                     - 22 -
<PAGE>

      14.7 Waiver.  Any term or condition of this Agreement may be waived at any
time by the party which is entitled  to the  benefit  thereof,  but only if such
waiver is evidenced by a writing signed by such party. No failure on the part of
a party  hereto to exercise,  and no delay in  exercising,  any right,  power or
remedy  created  hereunder,  shall  operate as a waiver  thereof,  nor shall any
single or  partial  exercise  of any  right,  power or remedy by any such  party
preclude any other future  exercise  thereof or the exercise of any other right,
power or  remedy.  No waiver by any party  hereto to any breach of or default in
any term or condition of this Agreement  shall  constitute a waiver of or assent
to any  succeeding  breach  of or  default  in the  same  or any  other  term or
condition hereof.

      14.8  Headings.  The headings as to contents of  particular  paragraphs of
this Agreement are inserted for convenience only and shall not be construed as a
part  of  this  Agreement  or as a  limitation  on the  scope  of any  terms  or
provisions of this Agreement.

      14.9  Expenses.

            (a)  Structuring  Fees.  The Company shall pay a structuring  fee to
Yorkville Advisors,  LLC of Twenty Five Thousand Dollars ($25,000),  which shall
be paid directly from the proceeds held in escrow for the Closing.

            (b) Fees and Expenses.  Each of the Company and the Buyers shall pay
all  costs  and  expenses   incurred  by  such  party  in  connection  with  the
negotiation,   investigation,   preparation,  execution  and  delivery  of  this
Agreement and all related documents to this  transaction.  The Company shall pay
Yorkville Advisors LLC a fee equal to Two Million Seven Hundred Thousand Dollars
($2,700,000)  which shall be paid  directly from the proceeds held in escrow for
the Closing.

            (c) The  Company  shall  issue  also issue to the Buyer a warrant to
purchase twenty million  (20,000,000)  shares of the Company's Common Stock (the
"Buyers "A" Warrant")  exercisable for a period of five (5) years at an exercise
price of Fifty Cents ($0.50) per share. Furthermore the Company shall also issue
to the Buyer a warrant to purchase  twenty five million  (25,000,000)  shares of
the Company's  Common Stock (the "Buyers "B" Warrant")  exercisable for a period
of five  (5)  years at an  exercise  price of Forty  Cents  ($0.40)  per  share.
Furthermore,  the  Company  shall also issue to the Buyer a warrant to  purchase
thirty million  (30,000,000)  shares of the Company's  Common Stock (the "Buyers
"C" Warrant") exercisable for a period of five (5) years at an exercise price of
Thirty-Five  Cents  ($0.35) per share.  (The Buyers "A" Warrant,  the Buyers "B"
Warrant and the Buyers "C" Warrant are collectively  referred to as the "Buyers'
Warrants.")  The shares of the Company's  Common Stock issuable upon exercise of
the Buyers Warrant shall have "piggy-back" and demand registration rights.

      14.10 Finder's  Fees. The Buyers  represent to the Company 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 have been
agreed  to by the  Buyers  to be  paid  for or on  account  of the  transactions
contemplated hereby. The Company represents to the Buyers that no broker, agent,
finder or other party has been  retained by the Company 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.

                                     - 23 -
<PAGE>

      14.11  Gender.  Where the context  requires,  the use of the singular form
herein  shall  include  the  plural,  the use of the plural  shall  include  the
singular, and the use of any gender shall include any and all genders.

      14.12 Currency.  All foreign  currency amounts required to be converted to
U.S.  Dollars for purposes of this  Agreement  shall be converted in  accordance
with GAAP.

      14.13  Acceptance by Fax. This Agreement shall be accepted,  effective and
binding, for all purposes, when the parties shall have signed and transmitted to
each other, by telecopier or otherwise, copies of the signature pages hereto.

      14.14 Attorneys  Fees. If any legal action or other  proceeding is brought
for the enforcement of this Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any provision of this Agreement,
the prevailing  party shall be entitled to recover  reasonable  attorneys' fees,
court costs and all  expenses  (including,  without  limitation,  all such fees,
costs  and  expenses  incident  to  appellate,  bankruptcy,   post-judgment  and
alternative  dispute  resolution  proceedings),   incurred  in  that  action  or
proceeding, in addition to any other relief to which such party may be entitled.

      14.15  NO JURY  TRIAL.  THE  PARTIES  HEREBY  KNOWINGLY,  VOLUNTARILY  AND
INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY  LITIGATION  BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION  WITH
THIS  AGREEMENT  AND ANY  DOCUMENT  CONTEMPLATED  TO BE EXECUTED IN  CONJUNCTION
HEREWITH,  OR ANY COURSE OF  CONDUCT,  COURSE OF  DEALING,  STATEMENTS  (WHETHER
VERBAL OR  WRITTEN)  OR  ACTIONS  OF ANY  PARTY.  THIS  PROVISION  IS A MATERIAL
INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS AGREEMENT.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                     - 24 -
<PAGE>

      IN WITNESS WHEREOF, the parties have executed this Investment Agreement or
caused this  Investment  Agreement to be duly executed by their duly  authorized
officers as of the day and year first above written.

                                   COMPANY:
                                   NEOMEDIA TECHNOLOGIES, INC.

                                   By: /s/ Charles T. Jensen
                                      ------------------------------------------
                                      Name:  Charles T. Jensen
                                      Title: President & Chief Executive Officer

                                   CORNELL CAPITAL PARTNERS, L.P.
                                   By:  Yorkville Advisors, LLC
                                   Its:  General Partner

                                   By: /s/ Mark A. Angelo
                                      ------------------------------------------
                                      Name: Mark A. Angelo
                                      Its:  President and Portfolio Manager

                                     - 25 -
<PAGE>

                                    EXHIBIT A

               CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
                        OF THE SERIES C PREFERRED SHARES

                                     - 26 -
<PAGE>

                                    EXHIBIT B
                 FORM OF INVESTOR REGISTRATION RIGHTS AGREEMENT

                                     - 27 -
<PAGE>

                                    EXHIBIT C

                            FORM OF ESCROW AGREEMENT

                                     - 28 -
<PAGE>

                                    EXHIBIT D

                  FORM IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

                                     - 29 -
<PAGE>

                                    EXHIBIT E

                         ASSIGNMENT OF OTHER SECUIRITES

Break Down of Consideration:                                    $  18,791,298

Assignment of Certain Promissory Notes                          $1,611,231.78
Assignment of Certain Shares of Common Stock                    $  388,768.22

Wire Transfer of Immediately Available Funds                    $  16,791,298

                                     - 30 -
<PAGE>

                                   SCHEDULE I

                               SCHEDULE OF BUYERS

<TABLE>
<CAPTION>
--------------------------------------------- ---------------------------------------- -------------------------------
                                                         ADDRESS/FACSIMILE                       AMOUNT OF
                    NAME                                 NUMBER OF BUYERS                       SUBSCRIPTION
--------------------------------------------- ---------------------------------------- -------------------------------
<S>                                           <C>                                      <C>
Cornell Capital Partners, LP                  101 Hudson Street Suite 3700                                $27,000,000
                                              Jersey City, NJ 07303
                                              Attention: Mark Angelo
                                              Facsimile: (201) 985-8266

With a copy to                                101 Hudson Street - Suite 3700
                                              Jersey City, NJ 07302
                                              Attention: David Gonzalez, Esq.
                                              Facsimile: (201) 985-8266
</TABLE>

                                     - 31 -INVESTOR REGISTRATION RIGHTS AGREEMENT

      THIS  REGISTRATION  RIGHTS  AGREEMENT  (this  "Agreement"),  dated  as  of
February  17,  2006,  by and among  NEOMEDIA  TECHNOLOGIES  INC.  a  corporation
organized and existing under the laws of the State of Delaware (the  "Company"),
and CORNELL CAPITAL  PARTNERS,  LP, a Delaware  limited  partnership ( "Cornell"
and/or the "Investor").

                                    WHEREAS:

      A. The parties  hereto have  entered  into an  Investment  Agreement  (the
"Investment Agreement") of even date herewith.

      B. This Agreement is a condition precedent of the Investment Agreement.

      C.  To  induce  the  Investors  to  execute  and  deliver  the  Investment
Agreement,  the  Company  has agreed to provide  certain  Investor  Registration
Rights  under  the  Securities  Act of  1933,  as  amended,  and the  rules  and
regulations  there under, or any similar successor  statute  (collectively,  the
"1933 Act"), and applicable state securities laws.

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

      1.    DEFINITIONS.  As used in this  Agreement,  the following terms shall
have the following meanings:

            (a) "Person" means a corporation,  a limited liability  company,  an
association,  a partnership,  an  organization,  a business,  an  individual,  a
governmental or political subdivision thereof or a governmental agency.

            (b)  "Register,"   "registered,"  and  "registration"   refer  to  a
registration   effected  by  preparing  and  filing  one  or  more  Registration
Statements  (as defined  below) in compliance  with the 1933 Act and pursuant to
Rule 415  under  the 1933  Act or any  successor  rule  providing  for  offering
securities on a continuous or delayed basis ("Rule 415"), and the declaration or
ordering of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").

            (c)  "Registrable  Securities"  means the  shares  of  Common  Stock
issuable to the Investors upon  conversion of (i) the Series C Preferred  Shares
(the "Series C Preferred Shares") pursuant to the Investment  Agreement and (ii)
shares of the Company's  Common Stock underlying the Buyer's  Warrants,  as this
term is defined in the Investment Agreement dated the date hereof.

            (d)  "Registration  Statement" means a registration  statement under
the 1933 Act which covers the Registrable Securities.

<PAGE>

      2.    REGISTRATION.

            (a)  Subject  to the terms and  conditions  of this  Agreement,  the
Company  shall  prepare  and  file  by  June  1,  2006  (the  "Scheduled  Filing
Deadline"),  with the SEC a  registration  statement on Form S-1 or SB-2 (or, if
the  Company is then  eligible,  on Form S-3)  under the 1933 Act (the  "Initial
Registration  Statement") for the  registration  for the resale by the Investors
for at least Three Hundred Fifty Million  (350,000,000)  shares of the Company's
Common  Stock to be issued  upon  conversion  of the Series C  Preferred  Shares
issued  pursuant to the  Investment  Agreement  as well as seventy  five million
(75,000,000)  shares  of the  Company's  Common  Stock  underlying  the  Buyer's
Warrant,  as this term is defined  in the  Investment  Agreement  dated the date
hereof.

            (b) The Company  shall cause the  Registration  Statement  to remain
effective until all of the Registrable Securities have been sold.

            (c) Effectiveness of the Initial Registration Statement. The Company
shall  use its best  efforts  (i) to have  the  Initial  Registration  Statement
declared  effective by the SEC no later than one hundred eighty (180) days after
the filing thereof (the "Scheduled  Effective Deadline") and (ii) to insure that
the Initial  Registration  Statement and any subsequent  Registration  Statement
remains  in  effect  until all of the  Registrable  Securities  have been  sold,
subject to the terms and conditions of this  Agreement.  It shall be an event of
default  hereunder  if  the  Initial  Registration  Statement  is  not  declared
effective by the SEC within one hundred eighty (180) days after filing thereof.

            (d)  Failure  to File or Obtain  Effectiveness  of the  Registration
Statement. In the event the Registration Statement is not filed by the Scheduled
Filing  Deadline  or is not  declared  effective  by the  SEC on or  before  the
Scheduled  Effective Deadline,  or if after the Registration  Statement has been
declared effective by the SEC, sales cannot be made pursuant to the Registration
Statement  (whether  because  of a failure  to keep the  Registration  Statement
effective,  failure to disclose such information as is necessary for sales to be
made  pursuant to the  Registration  Statement,  failure to register  sufficient
shares of Common  Stock or  otherwise  in addition to filing a new  registration
statement  or post  effective  amendment  within  thirty (30)  calendar  days of
determining that there are insufficient shares of Common Stock registered), then
as partial  relief for the damages to any holder of  Registrable  Securities  by
reason of any such delay in or reduction  of its ability to sell the  underlying
shares  of Common  Stock  (which  remedy  shall  not be  exclusive  of any other
remedies at law or in equity),  the Company will pay as liquidated  damages (the
"Liquidated  Damages")  to the holder,  at the  holder's  option,  either a cash
amount or shares of the Company's  Common Stock equal to one percent (1%) of the
Liquidation  Amount (as defined in the  Certificate  of  Designation of Series C
Convertible  Preferred Shares) outstanding as Liquidated Damages for each thirty
(30) day period or any part thereof after the Scheduled  Filing  Deadline or the
Scheduled  Effective  Deadline as the case may be provided  however  such amount
shall not exceed One Million  Two Hundred  Thousand  Dollars  ($1,200,000).  Any
Liquidated  Damages payable hereunder shall not limit,  prohibit or preclude the
Investors from seeking any other remedy  available to it under contract,  at law
or in equity.  The Company shall pay the Investors the Liquidated Damages within
three (3) business days of the Investors making written demand.

                                     - 2 -
<PAGE>

            (e)  Liquidated  Damages.  The  Company  and  the  Investors  hereto
acknowledge  and agree that the sums payable under  subsection  2(c) above shall
constitute liquidated damages and not penalties and are in addition to all other
rights of the  Investors,  including  the right to call a default.  The  parties
further acknowledge that (i) the amount of loss or damages likely to be incurred
is incapable or is difficult to precisely  estimate,  (ii) the amounts specified
in such  subsections  bear a reasonable  relationship to, and are not plainly or
grossly  disproportionate  to  the  probable  loss  likely  to  be  incurred  in
connection   with  any  failure  by  the  Company  to  obtain  or  maintain  the
effectiveness  of a  Registration  Statement,  (iii) one of the  reasons for the
Company and the  Investors  reaching  an  agreement  as to such  amounts was the
uncertainty and cost of litigation regarding the question of actual damages, and
(iv) the Company and the Investors are  sophisticated  business parties and have
been  represented by  sophisticated  and able legal counsel and negotiated  this
Agreement at arm's length.

            (f) Insufficient  Number of Registered Shares. In the event that the
number of registered shares is insufficient to effectuate full conversion of the
Series C Preferred  Shares into Common Stock of the Company,  the Company  shall
within  thirty (30)  calendar  days of the  issuance  of all of the  Registrable
Securities  (the  "Subsequent  Scheduled  Filing  Deadline")  the Company  shall
prepare and file with the SEC a registration  statement on Form S-1 or SB-2 (or,
if the  Company  is  then  eligible,  on Form  S-3)  under  the  1933  Act  (the
"Subsequent  Registration Statement") for the registration for the resale by the
Investors  of the  shares  of the  Company's  Common  Stock  to be  issued  upon
conversion of the Series C Preferred  Shares issued  pursuant to the  Investment
Agreement  an  amount  equal to three  (3)  times  the  number  of Shares of the
Company's  Common  Stock  necessary  to  effectuate   conversions  of  the  then
outstanding and unconverted  Series C Preferred Shares.  The Company shall cause
the  Registration  Statement to remain  effective  until all of the  Registrable
Securities  have been sold.  The Company  shall use its best efforts (i) to have
the  Registration  Statement  declared  effective  by the SEC no later  than one
hundred  eighty (180) days after the filing thereof (the  "Subsequent  Scheduled
Effective Deadline") and (ii) to insure that the Registration  Statement and any
Subsequent Registration Statement remains in effect until all of the Registrable
Securities  have  been  sold,  subject  to the  terms  and  conditions  of  this
Agreement.  It  shall  be an  event of  default  hereunder  if the  Registration
Statement or any Subsequent  Registration Statement is not declared effective by
the SEC within one hundred eighty (180) days after filing thereof.

      3.    RELATED OBLIGATIONS.

            (a) The  Company  shall keep the  Registration  Statement  effective
pursuant  to Rule 415 at all times until the date on which the  Investors  shall
have sold all the Registrable  Securities covered by such Registration Statement
(the  "Registration  Period"),   which  Registration  Statement  (including  any
amendments or supplements thereto and prospectuses  contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein,  or necessary to make the statements  therein, in
light of the circumstances in which they were made, not misleading.

            (b) The Company shall prepare and file with the SEC such  amendments
(including   post-effective   amendments)  and  supplements  to  a  Registration
Statement  and  the  prospectus  used  in  connection  with  such   Registration
Statement,  which  prospectus  is to be filed  pursuant to Rule 424  promulgated
under the 1933 Act,  as may be  necessary  to keep such  Registration  Statement

                                     - 3 -
<PAGE>

effective at all times during the Registration  Period, and, during such period,
comply with the  provisions of the 1933 Act with respect to the  disposition  of
all Registrable Securities of the Company covered by such Registration Statement
until such time as all of such  Registrable  Securities shall have been disposed
of in  accordance  with the  intended  methods of  disposition  by the seller or
sellers  thereof  as set forth in such  Registration  Statement.  In the case of
amendments and supplements to a Registration  Statement which are required to be
filed  pursuant to this Agreement  (including  pursuant to this Section 3(b)) by
reason of the Company's filing a report on Form 10-KSB,  Form 10-QSB or Form 8-K
or any analogous  report under the  Securities  Exchange Act of 1934, as amended
(the "1934 Act"),  the Company shall  incorporate  such report by reference into
the  Registration  Statement,  if applicable,  or shall file such  amendments or
supplements  with the SEC on the same day on which the 1934 Act  report is filed
which  created  the  requirement  for the  Company  to amend or  supplement  the
Registration Statement.

            (c) The Company  shall furnish to the  Investors  whose  Registrable
Securities are included in any Registration  Statement,  without charge,  (i) at
least one (1) copy of such Registration  Statement as declared  effective by the
SEC and any amendment(s) thereto,  including financial statements and schedules,
all  documents  incorporated  therein  by  reference,   all  exhibits  and  each
preliminary prospectus, (ii) ten (10) copies of the final prospectus included in
such Registration  Statement and all amendments and supplements thereto (or such
other number of copies as such Investors may reasonably  request) and (iii) such
other  documents as the  Investors may  reasonably  request from time to time in
order to facilitate the disposition of the Registrable  Securities owned by such
the Investors.

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

            (e) As promptly as practicable after becoming aware of such event or
development,  the Company shall notify each Investor in writing of the happening
of any event as a result  of which the  prospectus  included  in a  Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated  therein or necessary to

                                     - 4 -
<PAGE>

make the statements therein, in light of the circumstances under which they were
made,  not  misleading  (provided that in no event shall such notice contain any
material, nonpublic information), and promptly prepare a supplement or amendment
to such Registration Statement to correct such untrue statement or omission, and
deliver ten (10) copies of such  supplement or amendment to each  Investor.  The
Company  shall  also  promptly  notify  each  Investor  in  writing  (i)  when a
prospectus or any  prospectus  supplement or  post-effective  amendment has been
filed,  and when a Registration  Statement or any  post-effective  amendment has
become effective  (notification of such effectiveness shall be delivered to each
Investor  by  facsimile  on the  same  day of such  effectiveness),  (ii) of any
request by the SEC for amendments or supplements to a Registration  Statement or
related prospectus or related information, and (iii) of the Company's reasonable
determination that a post-effective  amendment to a Registration Statement would
be appropriate.

            (f) The Company  shall use its best  efforts to prevent the issuance
of any  stop  order or  other  suspension  of  effectiveness  of a  Registration
Statement,  or the  suspension of the  qualification  of any of the  Registrable
Securities for sale in any jurisdiction within the United States of America and,
if such an order or suspension is issued, to obtain the withdrawal of such order
or suspension at the earliest  possible  moment and to notify each Investors who
holds  Registrable  Securities  being sold of the issuance of such order and the
resolution  thereof or its receipt of actual notice of the  initiation or threat
of any proceeding for such purpose.

            (g) At the  reasonable  request of any  Investor,  the Company shall
furnish to such Investor,  on the date of the  effectiveness of the Registration
Statement  and  thereafter  from time to time on such dates as an  Investor  may
reasonably request (i) a letter, dated such date, from the Company's independent
certified  public  accountants in form and substance as is customarily  given by
independent  certified  public  accountants to  underwriters  in an underwritten
public  offering,  and  (ii) an  opinion,  dated  as of such  date,  of  counsel
representing the Company for purposes of such Registration  Statement,  in form,
scope and substance as is customarily given in an underwritten  public offering,
addressed to the Investors.

            (h) Upon five (5) days prior written notice by the Investors,  which
notice  shall not be given  more  than one (1) time per  calendar  quarter,  the
Company shall make available for inspection by (i) any Investor and (ii) one (1)
firm of accountants or other agents retained by the Investors (collectively, the
"Inspectors") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively,  the "Records"), as shall
be  reasonably  deemed  necessary  by each  Inspector,  and cause the  Company's
officers,  directors and employees to supply all information which any Inspector
may reasonably request; provided,  however, that each Inspector shall agree, and
each Investor hereby agrees, to hold in strict confidence and shall not make any
disclosure  (except to an Investor) or use any Record or other information which
the  Company  determines  in  good  faith  to  be  confidential,  and  of  which
determination the Inspectors are so notified,  unless (a) the disclosure of such
Records is  necessary  to avoid or correct a  misstatement  or  omission  in any
Registration  Statement  or is  otherwise  required  under the 1933 Act, (b) the
release of such Records is ordered pursuant to a final,  non-appealable subpoena
or order from a court or government body of competent  jurisdiction,  or (c) the
information  in such  Records has been made  generally  available  to the public
other than by  disclosure  in violation of this or any other  agreement of which
the Inspector and the Investors  have  knowledge.  Each Investor  agrees that it
shall,  upon learning that disclosure of such Records is sought in or by a court
or  governmental  body of competent  jurisdiction  or through other means,  give
prompt notice to the Company and allow the Company, at its expense, to undertake
appropriate  action to prevent  disclosure  of, or to obtain a protective  order
for, the Records deemed confidential.

                                     - 5 -
<PAGE>

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

            (j) The Company  shall use its best efforts  either to cause all the
Registrable  Securities covered by a Registration  Statement (i) to be listed on
each securities  exchange on which securities of the same class or series issued
by the Company  are then  listed,  if any,  if the  listing of such  Registrable
Securities  is then  permitted  under  the  rules of such  exchange  or (ii) the
inclusion for quotation on the National Association of Securities Dealers,  Inc.
OTC Bulletin Board for such  Registrable  Securities.  The Company shall pay all
fees and  expenses in  connection  with  satisfying  its  obligation  under this
Section 3(j).

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

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

            (m) The  Company  shall make  generally  available  to its  security
holders  as soon as  practical,  but not later than  ninety  (90) days after the
close of the period covered  thereby,  an earnings  statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering a twelve (12) month
period  beginning not later than the first day of the Company's  fiscal  quarter
next following the effective date of the Registration Statement.

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

                                     - 6 -
<PAGE>

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

            (p) The Company shall take all other reasonable actions necessary to
expedite and facilitate  disposition by the Investors of Registrable  Securities
pursuant to a Registration Statement.

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

      5.    EXPENSES OF REGISTRATION.  All expenses  incurred in connection with
registrations,   filings  or  qualifications  pursuant  to  Sections  2  and  3,
including,  without  limitation,  all registration,  listing and  qualifications
fees, printers, legal and accounting fees shall be paid by the Company.

      6.    INDEMNIFICATION.  With respect to Registrable  Securities  which are
included in a Registration Statement under this Agreement:

            (a) To the fullest  extent  permitted by law, the Company will,  and
hereby does, indemnify, hold harmless and defend each Investor, their respective
general  partners,  the  directors,   officers,  partners,   employees,  agents,
representatives  of, and each Person,  if any, who controls any Investor  within
the  meaning of the 1933 Act or the 1934 Act (each,  an  "Indemnified  Person"),
against any losses, claims, damages,  liabilities,  judgments, fines, penalties,
charges,  costs,  reasonable  attorneys'  fees,  amounts paid in  settlement  or
expenses,  joint or several (collectively,  "Claims") incurred in investigating,
preparing  or  defending  any  action,   claim,   suit,   inquiry,   proceeding,
investigation  or appeal  taken  from the  foregoing  by or before  any court or
governmental,  administrative  or  other  regulatory  agency,  body or the  SEC,
whether pending or threatened,  whether or not an indemnified party is or may be
a party thereto ("Indemnified Damages"), to which any of them may become subject
insofar  as such  Claims  (or  actions  or  proceedings,  whether  commenced  or
threatened,  in respect  thereof) arise out of or are based upon: (i) any untrue
statement  or alleged  untrue  statement  of a material  fact in a  Registration
Statement  or any  post-effective  amendment  thereto or in any  filing  made in
connection with the  qualification of the offering under the securities or other
"blue sky" laws of any jurisdiction in which Registrable  Securities are offered

                                     - 7 -
<PAGE>

("Blue Sky  Filing"),  or the  omission or alleged  omission to state a material
fact required to be stated therein or necessary to make the  statements  therein
not  misleading;  (ii) any untrue  statement  or alleged  untrue  statement of a
material fact contained in any final prospectus (as amended or supplemented,  if
the Company files any amendment  thereof or supplement  thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein,  in light of the circumstances under which the
statements therein were made, not misleading;  or (iii) any violation or alleged
violation  by the  Company  of the  1933  Act,  the 1934  Act,  any  other  law,
including,  without  limitation,  any  state  securities  law,  or any  rule  or
regulation  there  under  relating  to the  offer  or  sale  of the  Registrable
Securities  pursuant to a  Registration  Statement (the matters in the foregoing
clauses (i) through (iii) being, collectively,  "Violations"). The Company shall
reimburse  the  Investors  and each such  controlling  person  promptly  as such
expenses  are  incurred  and  are  due  and  payable,  for  any  legal  fees  or
disbursements or other reasonable  expenses  incurred by them in connection with
investigating  or  defending  any such  Claim.  Notwithstanding  anything to the
contrary  contained  herein,  the  indemnification  agreement  contained in this
Section 6(a):  (x) shall not apply to a Claim by an  Indemnified  Person arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information  furnished in writing to the Company by such Indemnified Person
expressly  for  use in  connection  with  the  preparation  of the  Registration
Statement or any such amendment thereof or supplement thereto;  (y) shall not be
available  to the extent  such Claim is based on a failure of the  Investors  to
deliver  or to  cause to be  delivered  the  prospectus  made  available  by the
Company, if such prospectus was timely made available by the Company pursuant to
Section 3(c); and (z) shall not apply to amounts paid in settlement of any Claim
if such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably  withheld.  Notwithstanding  anything to
the contrary herein or in any other  agreement  entered into between the Company
and the  Investors,  the  Company  acknowledges  and  agrees  that it is  solely
responsible and shall indemnify each Indemnified  Person for the contents of any
registration  statement,  prospectus  or  other  filing  made  with  the  SEC or
otherwise  used in the  offering  of the  Company's  securities  (except as such
disclosure relates solely to the Investors and then only to the extent that such
disclosure  conforms with  information  furnished in writing by the Investors to
the Company),  even if the Investors or their agents as an  accommodation to the
Company participate or assist in the preparation of such registration statement,
prospectus  or other SEC filing.  The Company shall retain its own legal counsel
to review,  edit,  confirm and do all things such  counsel  deems  necessary  or
desirable  to such  registration  statement,  prospectus  or other SEC filing to
ensure that it does not contain an untrue  statement or alleged untrue statement
of material  fact or omit or alleged to omit a material  fact  necessary to make
the  statements  made  therein,  in light of the  circumstances  under which the
statements were made, not misleading.  Such indemnity shall remain in full force
and  effect  regardless  of  any  investigation  made  by or on  behalf  of  the
Indemnified Person and shall survive the transfer of the Registrable  Securities
by the Investors.

            (b) In  connection  with a  Registration  Statement,  each  Investor
agrees to severally and not jointly indemnify,  hold harmless and defend, to the
same extent and in the same manner as is set forth in Section 6(a), the Company,
each of its  directors,  each of its officers,  employees,  representatives,  or
agents and each Person,  if any, who controls the Company  within the meaning of
the 1933 Act or the 1934 Act (each an "Indemnified Party"), against any Claim or
Indemnified Damages to which any of them may become subject, under the 1933 Act,

                                     - 8 -
<PAGE>

the 1934 Act or otherwise,  insofar as such Claim or  Indemnified  Damages arise
out of or is based upon any Violation,  in each case to the extent,  and only to
the extent,  that such Violation  occurs in reliance upon and in conformity with
written information  furnished to the Company by such Investor expressly for use
in connection with such  Registration  Statement;  and, subject to Section 6(d),
such Investor will reimburse any legal or other expenses  reasonably incurred by
them in connection  with  investigating  or defending any such Claim;  provided,
however,  that the  indemnity  agreement  contained in this Section 6(b) and the
agreement with respect to contribution contained in Section 7 shall not apply to
amounts paid in settlement of any Claim if such  settlement is effected  without
the  prior  written  consent  of  such  Investor,  which  consent  shall  not be
unreasonably withheld;  provided,  further, however, that the Investors shall be
liable under this  Section  6(b) for only that amount of a Claim or  Indemnified
Damages as does not exceed the net proceeds to such  Investor as a result of the
sale of Registrable  Securities  pursuant to such Registration  Statement.  Such
indemnity shall remain in full force and effect  regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the  Registrable  Securities by the Investor .  Notwithstanding  anything to the
contrary  contained  herein,  the  indemnification  agreement  contained in this
Section  6(b) with respect to any  prospectus  shall not inure to the benefit of
any  Indemnified  Party if the untrue  statement  or omission  of material  fact
contained in the  prospectus was corrected and such new prospectus was delivered
to each Investor  prior to such  Investor's  use of the  prospectus to which the
Claim relates.

            (c) Promptly after receipt by an  Indemnified  Person or Indemnified
Party  under  this  Section  6 of notice of the  commencement  of any  action or
proceeding  (including any governmental action or proceeding) involving a Claim,
such  Indemnified  Person or  Indemnified  Party  shall,  if a Claim in  respect
thereof is to be made  against  any  indemnifying  party  under this  Section 6,
deliver to the indemnifying party a written notice of the commencement  thereof,
and the  indemnifying  party shall have the right to participate in, and, to the
extent the indemnifying  party so desires,  jointly with any other  indemnifying
party similarly  noticed,  to assume control of the defense thereof with counsel
mutually  satisfactory to the indemnifying  party and the Indemnified  Person or
the  Indemnified  Party,  as  the  case  may  be;  provided,  however,  that  an
Indemnified  Person or Indemnified  Party shall have the right to retain its own
counsel  with the fees and  expenses  of not more than one (1)  counsel for such
Indemnified  Person or Indemnified  Party to be paid by the indemnifying  party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation  by such counsel of the Indemnified  Person or Indemnified  Party
and the  indemnifying  party would be  inappropriate  due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party  represented  by such counsel in such  proceeding.  The  Indemnified
Party or Indemnified Person shall cooperate fully with the indemnifying party in
connection  with any  negotiation  or defense of any such action or claim by the
indemnifying  party and shall furnish to the indemnifying  party all information
reasonably  available  to the  Indemnified  Party or  Indemnified  Person  which
relates  to such  action  or  claim.  The  indemnifying  party  shall  keep  the
Indemnified  Party or  Indemnified  Person fully apprised at all times as to the
status of the defense or any settlement  negotiations  with respect thereto.  No
indemnifying  party shall be liable for any  settlement of any action,  claim or
proceeding effected without its prior written consent;  provided,  however, that
the indemnifying party shall not unreasonably  withhold,  delay or condition its
consent.  No indemnifying party shall,  without the prior written consent of the
Indemnified  Party or  Indemnified  Person,  consent to entry of any judgment or
enter into any  settlement  or other  compromise  which  does not  include as an

                                     - 9 -
<PAGE>

unconditional  term  thereof  the giving by the  claimant or  plaintiff  to such
Indemnified  Party or  Indemnified  Person of a release  from all  liability  in
respect to such claim or litigation.  Following  indemnification as provided for
hereunder,  the  indemnifying  party  shall be  subrogated  to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations  relating to the matter for which indemnification has been made.
The  failure  to  deliver  written  notice to the  indemnifying  party  within a
reasonable  time of the  commencement  of any such action shall not relieve such
indemnifying  party of any liability to the  Indemnified  Person or  Indemnified
Party under this Section 6, except to the extent that the indemnifying  party is
prejudiced in its ability to defend such action.

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

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

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

      8.    REPORTS UNDER THE 1934 ACT.  With a view to making  available to the
Investors the benefits of Rule 144 promulgated under the 1933 Act or any similar
rule or  regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public  without  registration  ("Rule 144") the
Company agrees to:

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

            (b) file  with the SEC in a timely  manner  all  reports  and  other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company  remains  subject to such  requirements  (it being  understood  that
nothing herein shall limit the Company's  obligations  under Section 4(c) of the
Investment  Agreement) and the filing of such reports and other documents as are
required by the applicable provisions of Rule 144; and

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

                                     - 10 -
<PAGE>

      9.    AMENDMENT  OF  INVESTOR  REGISTRATION  RIGHTS.  Provisions  of  this
Agreement  may be  amended  and the  observance  thereof  may be waived  (either
generally   or  in  a   particular   instance   and  either   retroactively   or
prospectively),  only with the written  consent of the Company and the Investors
who then  hold at least  two-thirds  (2/3) of the  Registrable  Securities.  Any
amendment or waiver  effected in accordance with this Section 9 shall be binding
upon each Investor and the Company.  No such amendment shall be effective to the
extent  that it  applies to fewer  than all of the  holders  of the  Registrable
Securities.  No consideration shall be offered or paid to any Person to amend or
consent to a waiver or  modification  of any provision of any of this  Agreement
unless the same  consideration  also is  offered  to all of the  parties to this
Agreement.

      10.   MISCELLANEOUS.

            (a) A Person  is deemed  to be a holder  of  Registrable  Securities
whenever  such  Person  owns or is  deemed  to own of  record  such  Registrable
Securities.  If  the  Company  receives  conflicting  instructions,  notices  or
elections  from two (2) or more  Persons  with  respect to the same  Registrable
Securities,  the  Company  shall act upon the basis of  instructions,  notice or
election received from the registered owner of such Registrable Securities.

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

If to the Company, to:           Neomedia Technologies Inc.
                                 2201 2nd Floor - Suite 402
                                 Fort Myers, FL  33901
                                 Attention: Charles T. Jensen
                                 Telephone: (239) 337-3434
                                 Facsimile: (239) 337-3668

                                 Kirkpatrick & Lockhart Nicholson Graham LLP
With Copy to:                    201 South Biscayne Boulevard - Suite 2000
                                 Miami, FL  33131-2399
                                 Attention: Clayton E. Parker, Esq.
                                 Telephone: (305) 539-3300
                                 Facsimile: (305) 358-7095

                                     - 11 -
<PAGE>

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

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

            (d) The laws of the  State  of  Delaware  shall  govern  all  issues
concerning  the  relative  rights  of  the  Company  and  the  Investors  as its
stockholders.  All  other  questions  concerning  the  construction,   validity,
enforcement  and  interpretation  of this  Agreement  shall be  governed  by the
internal laws of the State of New Jersey, without giving effect to any choice of
law or conflict of law  provision or rule (whether of the State of New Jersey or
any other  jurisdiction)  that would  cause the  application  of the laws of any
jurisdiction  other than the State of New Jersey.  Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the Superior Courts of the State of
New Jersey,  sitting in Hudson  County,  New Jersey and  federal  courts for the
District of New Jersey sitting Newark,  New Jersey,  for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein,  and hereby  irrevocably  waives,  and agrees not to
assert in any suit,  action or  proceeding,  any claim that it is not personally
subject  to the  jurisdiction  of any such  court,  that  such  suit,  action or
proceeding is brought in an  inconvenient  forum or that the venue of such suit,
action or proceeding is improper.  Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or  proceeding  by mailing a copy  thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient  service of process and notice  thereof.  Nothing  contained
herein  shall be deemed to limit in any way any  right to serve  process  in any
manner  permitted by law. 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.  EACH PARTY HEREBY  IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST,  A JURY TRIAL FOR THE ADJUDICATION
OF ANY  DISPUTE  HEREUNDER  OR IN  CONNECTION  HEREWITH  OR ARISING  OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

                                     - 12 -
<PAGE>

            (e) This Agreement, the Irrevocable Transfer Agent Instructions, the
Investment  Agreement and related documents of even date hereof by and among the
Company,  the Investors constitute the entire agreement among the parties hereto
with  respect  to  the  subject   matter  hereof  and  thereof.   There  are  no
restrictions,  promises, warranties or undertakings,  other than those set forth
or referred to herein and therein.  This  Agreement,  the  Irrevocable  Transfer
Agent Instructions, the Investment Agreement and related documents supersede all
prior agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.

            (f) This Agreement shall inure to the benefit of and be binding upon
the permitted successors and assigns of each of the parties hereto.

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

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

            (i)  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.

            (j) 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.

            (k) 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.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                     - 13 -
<PAGE>

      IN WITNESS  WHEREOF,  the parties have caused this  Investor  Registration
Rights Agreement to be duly executed as of day and year first above written.

                                   COMPANY:
                                   NEOMEDIA TECHNOLOGIES INC.

                                   By: /s/ Charles T. Jensen
                                      ------------------------------------------
                                      Name:  Charles T. Jensen
                                      Title: President & Chief Executive Officer

                                   INVESTORS:

                                   CORNELL CAPITAL PARTNERS, LP
                                   By:    Yorkville Advisors, LLC
                                   Its:   General Partner

                                   By: /s/ Mark A. Angelo
                                       -----------------------------------------
                                       Name:  Mark A. Angelo
                                       Its:   President and Portfolio Manager

                                     - 14 -
<PAGE>

                              SCHEDULE OF INVESTORS

                                                   ADDRESS/FACSIMILE
                 NAME                              NUMBER OF INVESTOR
---------------------------------------   ---------------------------------
Cornell Capital Partners, LP              101 Hudson Street - Suite 3700
                                          Jersey City, NJ  07303
                                          Attention: Mark Angelo
                                          Facsimile: (201) 985-8266

With a copy to:   David Gonzalez, Esq.    101 Hudson Street - Suite 3700
                                          Jersey City, NJ 07302
                                          Facsimile: (201) 985-8266

                                     - 15 -
<PAGE>

                                                                       EXHIBIT A

                         FORM OF NOTICE OF EFFECTIVENESS
                            OF REGISTRATION STATEMENT

INSERT

Attention:

      Re:   NEOMEDIA TECHNOLOGIES INC.

Ladies and Gentlemen:

      We are counsel to Neomedia  Technologies Inc., a corporation organized and
existing  under  the laws of the State of  Delaware  (the  "Company"),  and have
represented  the Company in connection  with that certain  Investment  Agreement
(the  "Investment  Agreement")  entered  into by and among the  Company  and the
Investors named therein  (collectively,  the "Investors")  pursuant to which the
Company issued to the Investors  shares of its Series ___ Preferred  Shares,  no
par value  per share  (the  "Series  ___  Preferred  Shares").  Pursuant  to the
Investment Agreement,  the Company also has entered into a Investor Registration
Rights  Agreement  with  the  Investors  (the  "Investor   Registration   Rights
Agreement")  pursuant  to which the  Company  agreed,  among  other  things,  to
register the  Registrable  Securities  (as defined in the Investor  Registration
Rights Agreement) under the Securities Act of 1933, as amended (the "1933 Act").
In connection  with the Company's  obligations  under the Investor  Registration
Rights  Agreement,  on  ____________  ____,  the  Company  filed a  Registration
Statement  on Form  ________  (File No.  333-_____________)  (the  "Registration
Statement")  with the  Securities  and Exchange SEC (the "SEC")  relating to the
Registrable   Securities  which  names  each  of  the  Investors  as  a  selling
stockholder there under.

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

                                          Very truly yours,

                                          [COMPANY COUNSEL]

                                          By:
                                            ------------------------------------

cc:   [LIST NAMES OF INVESTORS]

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