Document:

SECURITY
        AGREEMENT

       

      THIS
        SECURITY AGREEMENT
        (the
“Agreement”), is
        entered into and made effective as of August 24, 2007, by and between
NEOMEDIA
        TECHNOLOGIES, INC., a
        Delaware corporation with its principal place of business located at 2201
        Second
        Street, Suite 600, Fort Myers, Florida 33901 (the “Parent”),
        and
        the each subsidiary of the Parent listed on Schedule I attached hereto (each
        a
“Subsidiary,”
and
        collectively and together with the Parent, the “Company”),
        in
        favor of the BUYER(S)
        (the
“Secured
        Party”)
        listed
        on Schedule I attached to the Securities Purchase Agreement (the “Securities
        Purchase Agreement”)
        dated
        the date hereof between the Company and the Secured Party.

       

      WHEREAS,
        The
        Parent shall issue and sell to the Secured Party, as provided in the Securities
        Purchase Agreement, and the Secured Party shall purchase secured convertible
        debentures (the “Convertible
        Debentures”),
        which
        shall be convertible into shares of the Parent’s common stock, par value $0.01,
        in the respective amounts set forth opposite each Buyer(s) name on
        Schedule I attached to the Securities Purchase Agreement;

       

      WHEREAS,
        to
        induce
        the Secured Party to enter into the transaction contemplated by the Securities
        Purchase Agreement, the Convertible Debentures, the Registration Rights
        Agreement of even date herewith between the Parent and the Secured Party
        (the
“Registration
        Rights Agreement”),
        the
        Irrevocable Transfer Agent Instructions among the Parent, the Secured Party,
        the
        Parent’s transfer agent, and David Gonzalez, Esq. (the “Transfer
        Agent Instructions”),
        the
        Security Agreement (Patent) of even date herewith between the Parent, the
        Subsidiaries and the Secured Party (the “Patent
        Security Agreement”),
        a
        warrant to purchase 75,000,000 shares of the Parent’s common stock, par value
        $0.01 per share (the “Warrant”),
        and
        the letter agreement, dated as of the date hereof between the Parent and
        the
        Secured Party, repricing the conversion price of previously issued Parent
        convertible debentures to the Secured Party and repricing the exercise price
        of
        previously issued Parent warrants to the Secured Party (collectively referred
        to
        as the “Transaction
        Documents”),
        each
        Company hereby grants to the Secured Party a security interest, and in the
        case
        of the Parent, grants and extends all previously granted security interests,
        in
        and to the pledged property of each Company identified on Exhibit
        A
        hereto
        (collectively referred to as the “Pledged
        Property”)
        to
        secure all of the Obligations (as defined below).

       

      NOW,
        THEREFORE, in
        consideration of the promises and the mutual covenants herein contained,
        and for
        other good and valuable consideration, the adequacy and receipt of which
        are
        hereby acknowledged, the parties hereto hereby agree as follows:

       

      ARTICLE
        1.

      DEFINITIONS
        AND INTERPRETATIONS

       

      Section
        1.1. Recitals.
        

       

      The
        above
        recitals are true and correct and are incorporated herein, in their entirety,
        by
        this reference.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Section
        1.2. Interpretations.
        

       

      Nothing
        herein expressed or implied is intended or shall be construed to confer upon
        any
        person other than the Secured Party any right, remedy or claim under or by
        reason hereof.

       

      Section
        1.3. Obligations
        Secured.

       

      The
        security interest created hereby in the Pledged Property constitutes continuing
        collateral security for all of the obligations of the Parent now existing
        or
        hereinafter incurred to the Buyers, whether oral or written and whether arising
        before, on or after the date hereof including, without limitation following
        obligations (collectively, the “Obligations”):

      

      (a)
        for
        so long as any Convertible Debentures are outstanding, the payment by the
        Parent, as and when due and payable (by scheduled maturity, acceleration,
        demand
        or otherwise), of all amounts from time to time owing by it in respect of
        the
        Securities Purchase Agreement, the Convertible Debentures, the other Transaction
        Documents, and any other related documents in connection with the Convertible
        Debentures; and

       

      (b)
        for
        so long as any Convertible Debentures are outstanding, the due performance
        and
        observance by the Parent of all of its other obligations from time to time
        existing in respect of any of the Transaction Documents and any other related
        documents in connection with the Convertible Debentures, including without
        limitation, the Parent’s obligations with respect to any conversion or
        redemption rights of the Secured Party under the Convertible
        Debentures.

      

      ARTICLE
        2.

      PLEDGED
        PROPERTY; EVENT OF DEFAULT

       

      Section
        2.1. Pledged
        Property.

       

      (a) As
        collateral security for all of the Obligations, the Company hereby pledges
        to
        the Secured Party, and creates in the Secured Party for its benefit, a
        continuing security interest in and to all of the Pledged Property whether
        now
        owned or hereafter acquired.

       

      (b) Simultaneously
        with the execution and delivery of this Agreement, the Company shall make,
        execute, acknowledge, file, record and deliver to the Secured Party any
        documents reasonably requested by the Secured Party to perfect its security
        interest in the Pledged Property. Simultaneously with the execution and delivery
        of this Agreement, the Company shall make, execute, acknowledge and deliver
        to
        the Secured Party such documents and instruments, including, without limitation,
        financing statements, certificates, affidavits and forms as may, in the Secured
        Party’s reasonable judgment, be necessary to effectuate, complete or perfect, or
        to continue and preserve, the security interest of the Secured Party in the
        Pledged Property, and the Secured Party shall hold such documents and
        instruments as secured party, subject to the terms and conditions contained
        herein.

       

      
        
          
          

        

        
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      Section
        2.2. Event
        of Default

       

      An
        “Event
        of Default”
shall
        be deemed to have occurred under this Agreement upon an Event of Default
        under
        and as defined in the Convertible Debentures.

       

      ARTICLE
        3.

      ATTORNEY-IN-FACT;
        PERFORMANCE

       

      Section
        3.1. Secured
        Party Appointed Attorney-In-Fact.

       

      Upon
        the
        occurrence and during the continuance of an Event of Default: (a) the Company
        hereby appoints the Secured Party as its attorney-in-fact, with full authority
        in the place and stead of the Company and in the name of the Company or
        otherwise, from time to time in the Secured Party’s discretion to take any
        action and to execute any instrument which the Secured Party may reasonably
        deem
        necessary to accomplish the purposes of this Agreement, including, without
        limitation, to receive and collect all instruments made payable to the Company
        representing any payments in respect of the Pledged Property or any part
        thereof
        and to give full discharge for the same; (b) the Secured Party may demand,
        collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
        realize
        on the Pledged Property as and when the Secured Party may determine, and
        (c) to
        facilitate collection, the Secured Party may notify account debtors and obligors
        on any Pledged Property to make payments directly to the Secured
        Party.

       

      Section
        3.2. Secured
        Party May Perform.

       

      If
        the
        Company fails to perform any agreement contained herein, the Secured Party,
        at
        its option, may itself perform, or cause performance of, such agreement,
        and the
        expenses of the Secured Party incurred in connection therewith shall be included
        in the Obligations secured hereby and payable by the Company under
        Section 8.3.

       

      ARTICLE
        4.

      REPRESENTATIONS
        AND WARRANTIES

       

      Section
        4.1. Authorization;
        Enforceability.

       

      Each
        of
        the parties hereto represents and warrants that it has taken all action
        necessary to authorize the execution, delivery and performance of this Agreement
        and the transactions contemplated hereby; and upon execution and delivery,
        this
        Agreement shall constitute a valid and binding obligation of the respective
        party, subject to applicable bankruptcy, insolvency, reorganization, moratorium
        and similar laws affecting creditors’ rights or by the principles governing the
        availability of equitable remedies.

       

      
        
          
          

        

        
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      Section
        4.2. Ownership
        of Pledged Property.

       

      The
        Company represents and warrants that, except for any prior security interests
        granted to the Secured Party, it is the legal and beneficial owner of the
        Pledged Property free and clear of any lien, security interest, option or
        other
        charge or encumbrance (each, a “Lien”)
        except
        for the security
        interest created by this Agreement and other Permitted Liens. For purposes
        of
        this Agreement, “Permitted Liens” means: (1) the security interest created by
        this Agreement, (2) existing Liens disclosed by the Company to the Secured
        Party; (3) inchoate Liens for taxes, assessments or governmental charges
        or
        levies not yet due, as to which the grace period, if any, related thereto
        has
        not yet expired, or being contested in good faith and by appropriate proceedings
        for which adequate reserves have been established in accordance with GAAP;
        (4)
        Liens of carriers, materialmen, warehousemen, mechanics and landlords and
        other
        similar Liens which secure amounts which are not yet overdue by more than
        60
        days or which are being contested in good faith by appropriate proceedings;
        (5)
        licenses, sublicenses, leases or subleases granted to other Persons not
        materially interfering with the conduct of the business of the Company; (6)
        Liens securing capitalized lease obligations and purchase money indebtedness
        incurred solely for the purpose of financing an acquisition or lease; (7)
        easements, rights-of-way, restrictions, encroachments, municipal zoning
        ordinances and other similar charges or encumbrances, and minor title
        deficiencies, in each case not securing debt and not materially interfering
        with
        the conduct of the business of the Company and not materially detracting
        from
        the value of the property subject thereto; (8) Liens arising out of the
        existence of judgments or awards which judgments or awards do not constitute
        an
        Event of Default; (9) Liens incurred in the ordinary course of business in
        connection with workers compensation claims, unemployment insurance, pension
        liabilities and social security benefits and Liens securing the performance
        of
        bids, tenders, leases and contracts in the ordinary course of business,
        statutory obligations, surety bonds, performance bonds and other obligations
        of
        a like nature (other than appeal bonds) incurred in the ordinary course of
        business (exclusive of obligations in respect of the payment for borrowed
        money); (10) Liens in favor of a banking institution arising by operation
        of law
        encumbering deposits (including the right of set-off) and contractual set-off
        rights held by such banking institution and which are within the general
        parameters customary in the banking industry and only burdening deposit accounts
        or other funds maintained with a creditor depository institution; (11) usual
        and
        customary set-off rights in leases and other contracts; and (12) escrows
        in
        connection with acquisitions and dispositions.

       

      ARTICLE
        5.

      DEFAULT;
        REMEDIES; SUBSTITUTE COLLATERAL

       

      Section
        5.1 Method
        of Realizing Upon the Pledged Property: Other Remedies.

       

      If
        any
        Event of Default shall have occurred and be continuing:

       

      (a) The
        Secured Party may exercise in respect of the Pledged Property, in addition
        to
        any other rights and remedies provided for herein or otherwise available
        to it,
        all of the rights and remedies of a secured party upon default under the
        Uniform
        Commercial Code (whether or not the Uniform Commercial Code applies to the
        affected Pledged Property), and also may (i) take absolute control of the
        Pledged Property, including, without limitation, transfer into the Secured
        Party's name or into the name of its nominee or nominees (to the extent the
        Secured Party has not theretofore done so) and thereafter receive, for the
        benefit of the Secured Party, all payments made thereon, give all consents,
        waivers and ratifications in respect thereof and otherwise act with respect
        thereto as though it were the outright owner thereof, (ii) require the
        Company to assemble all or part of the Pledged Property as directed by the
        Secured Party and make it available to the Secured Party at a place or places
        to
        be designated by the Secured Party that is reasonably
        convenient to both parties, and the Secured Party may enter into and occupy
        any
        premises owned or leased by the Company where the Pledged Property or any
        part
        thereof is located or assembled for a reasonable period in order to effectuate
        the Secured Party's rights and remedies hereunder or under law, without
        obligation to the Company in respect of such occupation, and (iii) without
        notice except as specified below and without any obligation to prepare or
        process the Pledged Property for sale, (A) sell the Pledged Property or any
        part thereof in one or more parcels at public or private sale, at any of
        the
        Secured Party's offices or elsewhere, for cash, on credit or for future
        delivery, and at such price or prices and upon such other terms as the Secured
        Party may deem commercially reasonable and/or (B) lease, license or dispose
        of the Pledged Property or any part thereof upon such terms as the Secured
        Party
        may deem commercially reasonable. The Company agrees that, to the extent
        notice
        of sale or any other disposition of the Pledged Property shall be required
        by
        law, at least ten (10) days' notice to the Company of the time and place
        of any
        public sale or the time after which any private sale or other disposition
        of the
        Pledged Property is to be made shall constitute reasonable notification.
        The
        Secured Party shall not be obligated to make any sale or other disposition
        of
        any Pledged Property regardless of notice of sale having been given. The
        Secured
        Party may adjourn any public or private sale from time to time by announcement
        at the time and place fixed therefor, and such sale may, without further
        notice,
        be made at the time and place to which it was so adjourned. The Company hereby
        waives any claims against the Secured Party arising by reason of the fact
        that
        the price at which the Pledged Property may have been sold at a private sale
        was
        less than the price which might have been obtained at a public sale or was
        less
        than the aggregate amount of the Obligations, even if the Secured Party accepts
        the first offer received and does not offer such Pledged Property to more
        than
        one offeree, and waives all rights that the Company may have to require that
        all
        or any part of such Pledged Property be marshaled upon any sale (public or
        private) thereof. The Company hereby acknowledges that (i) any such sale of
        the Pledged Property by the Secured Party may be made without warranty,
        (ii) the Secured Party may specifically disclaim any warranties of title,
        possession, quiet enjoyment or the like, and (iii) such actions set forth
        in clauses (i) and (ii) above shall not adversely affect the commercial
        reasonableness of any such sale of Pledged Property. 

       

      
        
          
          

        

        
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      (b) Any
        cash
        held by the Secured Party as Pledged Property and all cash proceeds received
        by
        the Secured Party in respect of any sale of or collection from, or other
        realization upon, all or any part of the Pledged Property shall be applied
        (after payment of any amounts payable to the Secured Party pursuant to Section
        8.3 hereof) by the Secured Party against, all or any part of the Obligations
        in
        such order as the Secured Party shall elect, consistent with the provisions
        of
        the Securities Purchase Agreement. Any surplus of such cash or cash proceeds
        held by the Secured Party and remaining after the indefeasible payment in
        full
        in cash of all of the Obligations shall be paid over to whomsoever shall
        be
        lawfully entitled to receive the same or as a court of competent jurisdiction
        shall direct.

       

      (c) In
        the
        event that the proceeds of any such sale, collection or realization are
        insufficient to pay all amounts to which the Secured Party is legally entitled,
        the Company shall be liable for the deficiency, together with interest thereon
        at the rate specified in the Convertible Debentures for interest on overdue
        principal thereof or such other rate as shall be fixed by applicable law,
        together with the costs of collection and the reasonable fees, costs, expenses
        and other client charges of any attorneys employed by the Secured Party to
        collect such deficiency.

       

      
        
          
          

        

        
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      (d) The
        Company hereby acknowledges that if the Secured Party complies with any
        applicable state, provincial, or federal law requirements in connection with
        a
        disposition of the Pledged Property, such compliance will not adversely affect
        the commercial reasonableness of any sale or other disposition of the Pledged
        Property.

       

      (e) The
        Secured Party shall not be required to marshal any present or future collateral
        security (including, but not limited to, this Agreement and the Pledged
        Property) for, or other assurances of payment of, the Obligations or any
        of them
        or to resort to such collateral security or other assurances of payment in
        any
        particular order, and all of the Secured Party's rights hereunder and in
        respect
        of such collateral security and other assurances of payment shall be cumulative
        and in addition to all other rights, however existing or arising. To the
        extent
        that the Company lawfully may, the Company hereby agrees that it will not
        invoke
        any law relating to the marshaling of collateral which might cause delay
        in or
        impede the enforcement of the Secured Party's rights under this Agreement
        or
        under any other instrument creating or evidencing any of the Obligations
        or
        under which any of the Obligations is outstanding or by which any of the
        Obligations is secured or payment thereof is otherwise assured, and, to the
        extent that it lawfully may, the Company hereby irrevocably waives the benefits
        of all such laws.

       

      Section
        5.2 Duties
        Regarding Pledged Property.

       

      The
        Secured Party shall have no duty as to the collection or protection of the
        Pledged Property or any income thereon or as to the preservation of any rights
        pertaining thereto, beyond the safe custody and reasonable care of any of
        the
        Pledged Property actually in the Secured Party’s possession.

       

      ARTICLE
        6.

      AFFIRMATIVE
        COVENANTS

       

      The
        Company covenants and agrees that, from the date hereof and until the
        Obligations have been fully paid and satisfied or the Convertible Debentures
        have been fully converted, unless the Secured Party shall consent otherwise
        in
        writing (as provided in Section 8.4 hereof):

       

      Section
        6.1. Existence,
        Properties, Etc.

       

      (a) The
        Company shall do, or cause to be done, all things, or proceed with due diligence
        with any actions or courses of action, that may be reasonably necessary
        (i) to maintain Company’s due organization, valid existence and good
        standing under the laws of its state of incorporation, and (ii) to preserve
        and keep in full force and effect all qualifications, licenses and registrations
        in those jurisdictions in which the failure to do so could have a Material
        Adverse Effect (as defined below); and (b) the Company shall not do, or
        cause to be done, any act impairing the Company’s corporate power or authority
        (i) to carry on the Company’s business as now conducted, and (ii) to
        execute or deliver this Agreement or any other document delivered in connection
        herewith, including, without limitation, any UCC-1 Financing Statements required
        by the Secured Party (which other loan instruments collectively shall be
        referred to as the “Loan
        Instruments”) to
        which it is or will be a party, or perform any of its obligations hereunder
        or
        thereunder. For purpose of this Agreement, the term “Material
        Adverse Effect”
shall
        mean any material and adverse affect as determined by Secured Party in its
        reasonable discretion, whether individually
        or in the aggregate, upon (a) the Company’s assets, business, operations,
        properties or condition, financial or otherwise; (b) the Company’s ability
        to make payment as and when due of all or any part of the Obligations; or
        (c) the Pledged Property.

       

      
        
          
          

        

        
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      Section
        6.2. Financial
        Statements and Reports.

       

      The
        Company shall furnish to the Secured Party within a reasonable time such
        financial data as the Secured Party may reasonably request.

       

      Section
        6.3. Accounts
        and Reports.

       

      The
        Company shall maintain a standard system of accounting in accordance with
        generally accepted accounting principles consistently applied (“GAAP”) and
        provide, at its sole expense, to the Secured Party the following:

       

      (a) as
        soon
        as available, a copy of any notice or other communication alleging any
        nonpayment or other material breach or default, or any foreclosure or other
        action respecting any material portion of its assets and properties, received
        respecting any of the indebtedness of the Company in excess of $500,000 (other
        than the Obligations), or any demand or other request for payment under any
        guaranty, assumption, purchase agreement or similar agreement or arrangement
        respecting the indebtedness or obligations of others in excess of $500,000;
        and

       

      (b) within
        fifteen (15) days after the making of each submission or filing, a copy of
        any report, financial statement, notice or other document, whether periodic
        or
        otherwise, submitted to the shareholders of the Company, or submitted to
        or
        filed by the Company with any governmental authority involving or affecting
        (i)
        the Company that could reasonably be expected to have a Material Adverse
        Effect;
        (ii) the Obligations; (iii) any part of the Pledged Property; or
        (iv) any of the transactions contemplated in this Agreement or the Loan
        Instruments (except, in each case, to the extent any such submission, filing,
        report, financial statement, notice or other document is posted on EDGAR
        Online).

       

      Section
        6.4. Maintenance
        of Books and Records; Inspection.

       

      The
        Company shall maintain its books, accounts and records in accordance with
        GAAP,
        and permit the Secured Party, its officers and employees and any professionals
        designated by the Secured Party in writing, at any time during normal business
        hours and upon reasonable notice to visit and inspect any of its properties
        (including but not limited to the collateral security described in the
        Transaction Documents and/or the Loan Instruments), corporate books and
        financial records, and to discuss its accounts, affairs and finances with
        any
        employee, officer or director thereof (it being agreed that, unless an Event
        of
        Default shall have occurred and be continuing, there shall be no more than
        two
        (2) such visits and inspections in any Fiscal Year).

       

      Section
        6.5. Maintenance
        and Insurance.

       

      (a) The
        Company shall maintain or cause to be maintained, at its own expense, all
        of its
        material assets and properties in good working order and condition, ordinary
        wear and tear excepted, making all necessary repairs thereto and renewals
        and
        replacements thereof.

       

      
        
          
          

        

        
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      (b) The
        Company shall maintain or cause to be maintained, at its own expense, insurance
        in form, substance and amounts (including deductibles), which the Company
        deems
        reasonably necessary to the Company’s business, (i) adequate to insure all
        assets and properties of the Company of a character usually insured by persons
        engaged in the same or similar business against loss or damage resulting
        from
        fire or other risks included in an extended coverage policy; (ii) against
        public liability and other tort claims that may be incurred by the Company;
        (iii) as may be required by the Transaction Documents and/or applicable law
        and (iv) as may be reasonably requested by Secured Party, all with financially
        sound and reputable insurers.

       

      Section
        6.6. Contracts
        and Other Collateral.

       

      The
        Company shall perform all of its obligations under or with respect to each
        instrument, receivable, contract and other intangible included in the Pledged
        Property to which the Company is now or hereafter will be party on a timely
        basis and in the manner therein required, including, without limitation,
        this
        Agreement, except to the extent the failure to so perform such obligations
        would
        not reasonably be expected to have a Material Adverse Effect.

       

      Section
        6.7. Defense
        of Collateral, Etc.

       

      The
        Company shall defend and enforce its right, title and interest in and to
        any
        part of: (a) the Pledged Property; and (b) if not included within the
        Pledged Property, those assets and properties whose loss would reasonably
        be
        expected to have a Material Adverse Effect, each against all manner of claims
        and demands on a timely basis to the full extent permitted by applicable
        law
        (other than any such claims and demands by holders of Permitted
        Liens).

       

      Section
        6.8. Taxes
        and Assessments.

       

      The
        Company shall (a) file all material tax returns and appropriate schedules
        thereto that are required to be filed under applicable law, prior to the
        date of
        delinquency (taking into account any extensions of the original due date),
        (b) pay and discharge all material taxes, assessments and governmental
        charges or levies imposed upon the Company, upon its income and profits or
        upon
        any properties belonging to it, prior to the date on which penalties attach
        thereto, and (c) pay all material taxes, assessments and governmental
        charges or levies that, if unpaid, might become a lien or charge upon any
        of its
        properties; provided,
        however,
        that
        the Company in good faith may contest any such tax, assessment, governmental
        charge or levy described in the foregoing clauses (b) and (c) so long as
        appropriate reserves are maintained with respect thereto if and to the extent
        required by GAAP. 

       

      Section
        6.9. Compliance
        with Law and Other Agreements.
        

       

      The
        Company shall maintain its business operations and property owned or used
        in
        connection therewith in compliance with (a) all applicable federal, state
        and local laws, regulations and ordinances governing such business operations
        and the use and ownership of such property, and (b) all agreements,
        licenses, franchises, indentures and mortgages to which the Company is a
        party
        or by which the Company or any of its properties is bound, except where the
        failure to so comply would not reasonably be expected to have a Material
        Adverse
        Effect.

       

      
        
          
          

        

        
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      Section
        6.10. Notice
        of Default.
        

       

      The
        Company shall give written notice to the Secured Party of the occurrence
        of any
        Event of Default.

       

      Section
        6.11. Notice
        of Litigation.

       

      The
        Company shall give notice, in writing, to the Secured Party of (a) any
        actions, suits or proceedings wherein the amount at issue is in excess of
        $250,000, instituted by any persons against the Company, or affecting any
        of the
        assets of the Company, and (b) any dispute, not resolved within fifteen
        (15) days of the commencement thereof, between the Company on the one hand
        and
        any governmental or regulatory body on the other hand, which might reasonably
        be
        expected to have a Material Adverse Effect on the business operations or
        financial condition of the Company.

       

      Section
        6.13. Future
        Subsidiaries.

       

      If
        the
        Company shall hereafter create or acquire any subsidiary, simultaneously
        with
        the creation or acquisition of such subsidiary, the Company shall cause such
        subsidiary to grant to the Secured Party a security interest of the same
        tenor
        as created under this Agreement. 

       

      Section
        6.14. Sale
        of Assets.  

       

      If
        any
        Company sells any of the Pledged Property, outside of its normal course of
        business, or sells any subsidiaries or any portion of a company or entity
        it
        owns, such Company shall (i) obtain the prior written consent of the Secured
        Party for the transaction and (ii) promptly pay to the Secured Party at least
        50% of the gross proceeds of each such transaction to be applied by the Secured
        Party towards the repayment of the obligations under the Convertible Debentures.
        The Secured Party shall have the sole right to allocate any such payments
        among
        the outstanding principal, accrued and unpaid interest, or other outstanding
        charges among the Convertible Debentures in any order it sees fit. The Secured
        Party shall release its lien on any Pledged Property sold in compliance with
        the
        terms of this section. 

       

      ARTICLE
        7.

      NEGATIVE
        COVENANTS

       

      The
        Company covenants and agrees that, from the date hereof until the Obligations
        have been fully paid and satisfied, the Company shall not, unless the Secured
        Party shall consent otherwise in writing:

       

      Section
        7.1. Liens
        and Encumbrances.

       

      Directly
        or indirectly make, create, incur, assume or permit to exist any Lien in,
        to or
        against any part of the Pledged Property other than Permitted
        Liens.

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

    

    Section
      7.2. Restriction
      on Redemption and Cash Dividends

     

    Directly
      or indirectly, redeem, repurchase or declare or pay any cash dividend or
      distribution on its capital stock without the prior express written consent
      of
      the Secured Party.

     

    Section
      7.3. Incurrence
      of Indebtedness.

     

    Directly
      or indirectly, incur or guarantee, assume or suffer to exist any indebtedness,
      other than the indebtedness evidenced by the Convertible Debentures and other
      Permitted Indebtedness. “Permitted
      Indebtedness”
means:
      (i) indebtedness evidenced by Convertible Debentures; (ii) indebtedness
      described on the Disclosure Schedule to the Securities Purchase Agreement;
      (iii)
      indebtedness incurred solely for the purpose of financing the acquisition or
      lease of any equipment by the Company, including capital lease obligations
      with
      no recourse other than to such equipment; (iv) indebtedness (A) the repayment
      of
      which has been subordinated to the payment of the Convertible Debentures on
      terms and conditions acceptable to the Secured Party, including with regard
      to
      interest payments and repayment of principal, (B) which does not mature or
      otherwise require or permit redemption or repayment prior to or on the
      91st
      day
      after the maturity date of any Convertible Debentures then outstanding; and
      (C)
      which is not secured by any assets of the Company; (v) indebtedness solely
      between the Company and/or one of its domestic subsidiaries, on the one hand,
      and the Company and/or one of its domestic subsidiaries, on the other which
      indebtedness is not secured by any assets of the Company or any of its
      subsidiaries, provided that (x) in each case a majority of the equity of any
      such domestic subsidiary is directly or indirectly owned by the Company, such
      domestic subsidiary is controlled by the Company and such domestic subsidiary
      has executed a security agreement in the form of this Agreement and (y) any
      such
      loan shall be evidenced by an intercompany note that is pledged by the Company
      or its subsidiary, as applicable, as collateral pursuant to this Agreement;
      (vi)
      reimbursement obligations in respect of letters of credit issued for the account
      of the Company or any of its subsidiaries for the purpose of securing
      performance obligations of the Company or its subsidiaries incurred in the
      ordinary course of business so long as the aggregate face amount of all such
      letters of credit does not exceed $500,000 at any one time; and (vii) renewals,
      extensions and refinancing of any indebtedness described in clauses (i) or
      (iii)
      of this subsection.

     

    Section
      7.4. Places
      of Business.

     

    Change
      the location of its chief place of business, chief executive office or any
      place
      of business disclosed to the Secured Party, unless such change in location
      is to
      a different location within the United States and the Company provides notice
      to
      the Secured Party of new location within 10 days’ of such change in
      location.

     

    Section
      7.5. Inactive
      Subsidiaries.
      In
      addition to the subsidiaries of the Parent listed on Schedule I, the Parent
      also
      owns significant interests in certain inactive subsidiaries (the “Inactive
      Subsidiaries”)
      as
      disclosed on the Schedule 3(a) to the Securities Purchase Agreement. The Company
      shall not cause such Inactive Subsidiaries to become active, commence any
      material operations, or acquire any material assets, without first causing
      such
      Inactive Subsidiary to grant a security interest to the Secured Party of the
      same tenor as provided for in this Agreement.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      8.

    MISCELLANEOUS

     

    Section
      8.1. Notices.

     

    All
      notices or other communications required or permitted to be given pursuant
      to
      this Agreement shall be in writing and shall be considered as duly given on:
      (a) the date of delivery, if delivered in person or by nationally
      recognized overnight delivery service or (b) five (5) days after
      mailing if mailed from within the continental United States by certified mail,
      return receipt requested to the party entitled to receive the same:

     

    

      
        	
                If
                  to the Secured Party:

              	
                YA
                  Global Investments, LP

              
	 	
                101
                  Hudson Street-Suite 3700 

              
	 	
                Jersey
                  City, New Jersey 07302 

              
	 	
                Attention:

              	
                Mark
                  Angelo

              
	 	 	
                Portfolio
                  Manager

              
	 	
                Telephone:

              	
                (201)
                  986-8300

              
	 	
                Facsimile:

              	
                (201)
                  985-8266

              
	 	 
	
                With
                  a copy to:

              	
                David
                  Gonzalez, Esq.

              
	 	
                101
                  Hudson Street, Suite 3700

              
	 	Jersey
                City, NJ 07302
	 	
                Telephone:

              	
                (201)
                  985-8300

              
	 	
                Facsimile:

              	
                (201)
                  985-8266

              
	 	 
	
                And
                  if to the Company:

              	
                Neomedia
                  Technologies, Inc.

              
	 	
                2201
                  Second Street, Suite #600

              
	 	
                Fort
                  Myers, FL 33901

              
	 	
                Attention:
                  

              	
                Charles
                  T. Jensen, President

              
	 	
                Telephone:

              	
                (239)
                  337-3434

              
	 	
                Facsimile:

              	
                (239)
                  337-3668

              
	 	 
	
                With
                  a copy to:

              	
                Kirkpatrick
                  & Lockhart Preston Gates Ellis LLP

              
	 	
                201
                  South Biscayne Boulevard – Suite 2000

              
	 	
                Miami,
                  FL 33131-2399

              
	 	
                Attention:

              	
                Clayton
                  E. Parker, Esq.

              
	 	
                Telephone:

              	
                (305)
                  539-3300

              
	 	
                Facsimile:

              	
                (305)
                  358-7095

              

      

    

    

    Any
      party
      may change its address by giving notice to the other party stating its new
      address. Commencing on the tenth (10th) day after the giving of
      such notice, such newly designated address shall be such party’s address for the
      purpose of all notices or other communications required or permitted to be
      given
      pursuant to this Agreement.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    Section
      8.2. Severability.

     

    If
      any
      provision of this Agreement shall be held invalid or unenforceable, such
      invalidity or unenforceability shall attach only to such provision and shall
      not
      in any manner affect or render invalid or unenforceable any other severable
      provision of this Agreement, and this Agreement shall be carried out as if
      any
      such invalid or unenforceable provision were not contained herein.

     

    Section
      8.3. Expenses.

     

    In
      the
      event of an Event of Default, the Company will pay to the Secured Party the
      amount of any and all reasonable out-of-pocket expenses, including the
      reasonable fees and expenses of its counsel, which the Secured Party may incur
      in connection with: (i) the custody or preservation of, or the sale,
      collection from, or other realization upon, any of the Pledged Property;
      (ii) the exercise or enforcement of any of the rights of the Secured Party
      hereunder or (iii) the failure by the Company to perform or observe any of
      the provisions hereof.

     

    Section
      8.4. Waivers,
      Amendments, Etc.

     

    The
      Secured Party’s delay or failure at any time or times hereafter to require
      strict performance by Company of any undertakings, agreements or covenants
      shall
      not waive, affect, or diminish any right of the Secured Party under this
      Agreement to demand strict compliance and performance herewith. Any waiver
      by
      the Secured Party of any Event of Default shall not waive or affect any other
      Event of Default, whether such Event of Default is prior or subsequent thereto
      and whether of the same or a different type. None of the undertakings,
      agreements and covenants of the Company contained in this Agreement, and no
      Event of Default, shall be deemed to have been waived by the Secured Party,
      nor
      may this Agreement be amended, changed or modified, unless such waiver,
      amendment, change or modification is evidenced by an instrument in writing
      specifying such waiver, amendment, change or modification and signed by the
      Secured Party in the case of any such waiver, and signed by the Secured Party
      and the Company in the case of any such amendment, change or
      modification.

     

    Section
      8.5. Continuing
      Security Interest; Partial Release.

     

    (a)
      This
      Agreement shall create a continuing security interest in the Pledged Property
      and shall: (i) remain in full force and effect until payment or conversion
      in full of the Convertible Debentures; (ii) be binding upon the Company and
      its successors and assigns; and (iii) inure to the benefit of the Secured
      Party and its successors and assigns. Upon the payment or satisfaction in full
      or conversion in full of the Convertible Debentures, this Agreement and the
      security interest created hereby shall terminate, and, in connection therewith,
      the Company shall be entitled to the return, at its expense, of such of the
      Pledged Property as shall not have been sold in accordance with Section 5.2
      hereof or otherwise applied pursuant to the terms hereof and the Secured Party
      shall deliver to the Company such documents as the Company shall reasonably
      request to evidence such termination.

     

    (b) Effective
      upon the closing of a disposition of any Pledged Property, provided the Secured
      Party consents in writing prior to such disposition or such disposition is
      made
      in the ordinary course of business, the security interest granted hereunder
      in
      the Pledged Property so disposed
      of shall terminate and the Secured Party shall deliver such documents as the
      Company shall reasonably request to evidence such termination; provided,
      however, the security interest granted hereunder in all remaining Pledged
      Property shall remain in full force and effect.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    Section
      8.6. Independent
      Representation.

     

    Each
      party hereto acknowledges and agrees that it has received or has had the
      opportunity to receive independent legal counsel of its own choice and that
      it
      has been sufficiently apprised of its rights and responsibilities with regard
      to
      the substance of this Agreement.

     

    Section
      8.7. Applicable
      Law: Jurisdiction.

     

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

     

    Section
      8.8. Waiver
      of Jury Trial.

     

    AS
      A
      FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND TO
      MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES
      ANY
      RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS
      AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.

     

    Section
      8.9. Entire
      Agreement.

     

    This
      Agreement constitutes the entire agreement among the parties and supersedes
      any
      prior agreement or understanding among them with respect to the subject matter
      hereof.

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

    

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

    

    
      	 	COMPANY:
	 	NEOMEDIA
              TECHNOLOGIES, INC.
	 	 	 
	 	By:
              	
              /s/
                Scott Womble

            
	 	Name:	
              Scott
                Womble

            
	 	Title: 	
              Interim
                Chief Financial Officer

            

    

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

    

    
      	 	COMPANY:
	 	NEOMEDIA
              MIGRATION, INC.
	 	 	 
	 	By:
              	
              /s/
                William J. Hoffman

            
	 	Name:	
              William
                J. Hoffman

            
	 	Title:	
              Chief
                Executive Officer

            

    

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written. 

     

    
      	 	COMPANY:
	 	NEOMEDIA
              MICRO PAINT REPAIR, INC. 
	 	 
	 	By:
              	
              /s/
                William J. Hoffman

            
	 	Name:	
              William
                J. Hoffman

            
	 	Title: 	
              
                Chief
                  Executive Officer

              

            

    

    

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

    

    
      	 	COMPANY:
	 	NEOMEDIA
              TELECOM SERVICES, INC.

    

     

    
      	 	By:	
               /s/
                William
                J. Hoffman

            
	 	Name: 	
              
                William
                  J. Hoffman

              

            
	 	Title:	
              
                Chief
                  Executive Officer

              

            

    

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

    

    
      	 	SECURED
              PARTY:
	 	CORNELL
              CAPITAL PARTNERS, L.P.
	 	 	 
	 	By: 	
              Yorkville
                Advisors, LLC

            
	 	Its:	
              Investment
                Manager

            
	 	 	 
	 	By:
              	
              /s/
                Mark Angelo

            
	 	Name:	
              Mark
                Angelo

            
	 	Title: 	
              Portfolio
                Manager

            
	 	 	 

    

    

    
      
        
        

      

      
        18SECURITY
      AGREEMENT

     

    (Patent)

     

    THIS
      SECURITY AGREEMENT (PATENT)
      (“Agreement”),
      is
      entered into and made effective as of August 24, 2007, by and between
NEOMEDIA
      TECHNOLOGIES, INC., a
      Delaware corporation with its principal place of business located at 2201 Second
      Street, Suite 600, Fort Myers, Florida 33901 (the “Parent”),
      and
      the each subsidiary of the Parent listed on Schedule I attached hereto (each
      a
“Subsidiary,”
and
      collectively and together with the Parent, the “Company”),
      in
      favor of the YA
      GLOBAL INVESTMENTS, L.P. (the
      “Secured
      Party”).

     

    WITNESETH:

     

    WHEREAS,
      the
      Parent shall issue and sell to the Secured Party, as provided in the Securities
      Purchase Agreement between the Parent and the Secured Party dated as of
      August 24, 2007 (together with all amendments, supplements,
      restatements and other modifications, if any, from time to time made thereto,
      the “Securities
      Purchase Agreement”),
      and
      the Secured Party shall purchase secured convertible debentures in the principal
      amount equal to $1,775,000 (the “Convertible
      Debentures”);

     

    WHEREAS,
      to
      induce
      the Secured Party to enter into the transactions contemplated by the Securities
      Purchase Agreement and the Convertible Debentures, Registration Rights Agreement
      of even date herewith between the Parent and the Secured Party (the
“Registration
      Rights Agreement”),
      the
      Irrevocable Transfer Agent Instructions among the Parent, the Secured Party,
      the
      Parent’s transfer agent, and David Gonzalez, Esq. (the “Transfer
      Agent Instructions”),
      a
      warrant, dated as of the date hereof, to purchase 75,000,000 shares of the
      Parent’s common stock, par value $0.01 per share (the “Warrant”),
      and
      the letter agreement, dated as of the date hereof, between the Parent and the
      Secured Party, repricing the exercise price of previously issued Parent warrants
      to the Secured Party and repricing the conversion price of previously issued
      Parent convertible debentures to the Secured Party (the “Lender
      Agreement”) (collectively
      referred to as the “Transaction
      Documents”),
      each
      Company hereby grants to the Secured Party a security interest, and in the
      case
      of the Parent, grants and extends all previously granted security interests,
      in
      and to the Patent Collateral (as defined below) to secure all of the
      Obligations (as defined below);

     

    WHEREAS,
      in
      connection with the Securities Purchase Agreement, each Company has agreed
      to
      provide the Secured Party a general security interest in Pledged Property (as
      this term is defined in the Security Agreement by and between each Company
      and
      the Secured Party, dated August 23, 2006 (together with all amendments,
      supplements, restatements and other modifications, if any, from time to time
      made thereto, the “Security
      Agreement”),and
      the
      UCC-1 financing statement filed with the Delaware Secretary of State on
      August 25, 2006 Initial Filing No. 62970861 and amended on
      November 14, 2006 Amendment No. 6396311 3 and UCC-1 financing
      statement filed with the Florida Secretary of State on August 25, 2006
      Initial Filing No. 200603546313 and amended on November 14, 2006 Amendment
      No. 200604142828;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    WHEREAS,
      the
      Company has duly authorized the execution, delivery and performance of this
      Agreement;

     

    NOW
      THEREFORE,
      for
      good and valuable consideration, the receipt of which is hereby acknowledged,
      the Company agrees as follows:

     

    SECTION
      1. Definitions.
      Unless
      otherwise defined herein otherwise requires, terms used in this Agreement,
      including its preamble and recitals, have the meanings provided in the
      Securities Purchase Agreement. 

     

    (a) “Obligations”
shall
      have the meaning assigned to it in the Security Agreement.

     

    SECTION
      2. Grant
      of Security Interest.
      For
      good and valuable consideration, the receipt and sufficiency of which are hereby
      acknowledged, to secure the payment and performance of all of the Obligations
      of
      the Company, the Company does hereby mortgage, pledge and hypothecate to the
      Secured Party and grant to the Secured Party a security interest in all of
      the
      following property (the “Patent
      Collateral”),
      now
      owned and existing:

     

    (a) all
      letters patent and applications for letters patent throughout the world,
      including all patent applications in preparation for filing anywhere in the
      world and including each patent and patent application referred to in
Schedule
      “A”
      hereto;

     

    (b) all
      reissues, divisions, continuations, continuations-in-part, extensions, renewals
      and reexaminations of any of the items described in clause (a);

     

    (c) all
      patent licenses and other agreements providing the Company with the right to
      use
      any of the items of the type referred to in clauses (a) and (b), including
      each
      patent license referred to in Schedule
      “A”
      hereto;

     

    (d) the
      right
      to sue third parties for past, present or future infringements of any Patent
      Collateral described in clauses (a) and (b) and, to the extent applicable,
      clause (c); and

     

    (e) all
      proceeds of, and rights associated with, the foregoing, (including license
      royalties and proceeds of infringement suits), and all rights corresponding
      thereto throughout the world.

     

    SECTION
      3. Security
      Agreement.
      This
      Agreement has been executed and delivered by each Company for the purpose of
      recording the security interest of the Secured Party in the Patent Collateral
      relating to patents referred to in Schedule
      “A”
      with the
      United States Patent and Trade Marks Office, to the extent it may be so
      registered therein. The security interest granted hereby has been granted as
      a
      supplement to, and not in limitation of, the security interest granted to the
      Secured Party under the Security Agreement. The Security Agreement (and all
      rights and remedies of the Secured Party thereunder) shall remain in full force
      and effect in accordance with its terms.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    SECTION
      4. Release
      of Security Interest.
      Upon
      payment in full of all Obligations the Secured Party shall, at the Company’s
      expense, execute and deliver to the Company all instruments and other documents
      as may be necessary or proper to release the lien on any security interest
      in
      the Patent Collateral which has been granted hereunder.

     

    SECTION
      5. Acknowledgement.
      The
      Company does hereby further acknowledge and affirm that the rights and remedies
      of the Secured Party with respect to the security interest in the Patent
      Collateral granted hereby are more fully set forth in the Security Agreement,
      the terms and provisions of which (including the remedies provided for therein)
      are incorporated by references herein as if fully set forth herein.

     

    SECTION
      6. Securities
      Purchase Agreement.
      Notwithstanding any other term or provision hereof, in the event that any
      provisions hereof contradict and are incapable of being construed in conjunction
      with the provisions of the Securities Purchase Agreement, the provisions of
      the
      Securities Purchase Agreement shall take precedence over those contained herein
      and, in particular, if any act of the Company is expressly permitted under
      the
      Securities Purchase Agreement but is prohibited hereunder, any such act shall
      be
      permitted hereunder and any encumbrance expressly permitted under the Securities
      Purchase Agreement to exist or to remain outstanding shall be permitted
      hereunder and thereunder. This instrument, document or agreement may be sold,
      assigned or transferred by the Agent in accordance with the terms of the
      Securities Purchase Agreement.

     

    SECTION
      7. Counterparts.
      This
      Agreement may be executed by the parties hereto in several counterparts, each
      of
      which shall be deemed to be an original and all of which shall constitute
      together but one and the same agreement.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

     

    
      
        	 	COMPANY:
	 	NEOMEDIA
                TECHNOLOGIES, INC.
	 	 	 
	 	By:	
                /s/
                  Scott Womble

              
	 	Name: 
                Scott Womble 
	 	Title:   
                Interim Chief Financial Officer

      

    

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

     

    
      	 	COMPANY:
	 	NEOMEDIA
              MIGRATION, INC.
	 	 	 
	 	By:
              	
              /s/
                William
                J. Hoffman

            
	 	Name: 
              William
              J. Hoffman 
	 	Title:   
              Chief Executive Officer

    

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

     

    
      	 	COMPANY:
	 	NEOMEDIA
              MICRO PAINT REPAIR, INC.
	 	 	 
	 	By:	
              /s/
                William J. Hoffman

            
	 	Name: 
              William
              J. Hoffman 
	 	Title:   
              Chief
              Executive Officer

    

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

     

    
      	 	COMPANY:
	 	NEOMEDIA
              TELECOM SERVICES, INC.
	 	 	 
	 	By:	
              /s/
                William J. Hoffman

            
	 	Name: 
              William
              J. Hoffman 
	 	Title:   
              Chief
              Executive Officer

    

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

     

    
      	 	SECURED
              PARTY:
	 	YA
              GLOBAL INVESTMENTS, L.P.
	 	 	 
	 	By:      
              Yorkville
              Advisors, LLC
	 	Its:      
              Investment
              Manager
	 	 	 
	 	By:	
              /s/
                Mark Angelo

            
	 	Name: 
              Mark
              Angelo
	 	Title:   
              Investment
              Manager

    

    

    
      
        
        

      

      
        8

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