Document:

Unassociated Document

    SECURITIES
      PURCHASE AGREEMENT

    

    THIS SECURITIES
      PURCHASE AGREEMENT
      (this
“Agreement”),
      dated
      as of July 29, 2008, by and among NEOMEDIA
      TECHNOLOGIES INC.,
      a
      Delaware corporation (the “Company”),
      and
      the Buyers listed on Schedule I attached hereto (individually, a
“Buyer”
or
      collectively “Buyers”).

     

    WITNESSETH

    

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

     

    WHEREAS,
      the
      parties desire that, upon the terms and subject to the conditions contained
      herein, the Company shall issue and sell to the Buyer(s), as provided herein,
      and the Buyer(s) shall purchase (i) up to $8,650,000 of secured convertible
      debentures in the form attached hereto as “Exhibit
      A”
(the
      “Convertible
      Debentures”),
      which
      shall be convertible into shares of the Company’s common stock, par value $0.01
      (the “Common
      Stock”)
      (as
      converted, the “Conversion
      Shares”),
      and
      (ii) warrants substantially in the form attached hereto as “Exhibit
      B”
(the
      “Warrants”),
      to
      acquire up to that number of additional shares of Common Stock set forth
      opposite such Buyer’s name on Schedule I (as exercised, the “Warrant
      Shares”)
      of
      which $2,325,000 shall be funded within five (5) business day following the
      date
      hereof (the “First
      Closing”),
      $2,325,000 shall be funded on or after the date 90 days after the First Closing,
      subject to the conditions set forth herein (the “Second
      Closing”),
      and
      $4,000,000 shall be funded on or after January 1, 2009, subject to the
      conditions set forth herein (the “Third
      Closing”)
      (individually referred to as a “Closing”
      collectively referred to as the “Closings”),
      for a
      total purchase price of up to $8,650,000, (the “Purchase
      Price”)
      in the
      respective amounts set forth opposite each Buyer(s) name on Schedule I (the
      “Subscription
      Amount”);

     

    WHEREAS,
      the
      Convertible Debentures are secured by a security interest in certain assets
      of
      the Company, including certain intellectual property and rights to certain
      intellectual property as evidenced by the security agreements of even date
      herewith (the “Security
      Documents”);
      

     

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

     

    WHEREAS,
      the
      Convertible Debentures, the Conversion Shares, the Warrants, and the Warrants
      Shares collectively are referred to herein as the “Securities”).
      

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    1. PURCHASE
      AND SALE OF CONVERTIBLE DEBENTURES.

     

    (a) Purchase
      of Convertible Debentures.
      Subject
      to the satisfaction (or waiver) of the terms and conditions of this Agreement,
      each Buyer agrees, severally and not jointly, to purchase at each Closing and
      the Company agrees to sell and issue to each Buyer, severally and not jointly,
      at each Closing, Convertible Debentures in amounts corresponding with the
      Subscription Amount set forth opposite each Buyer’s name on Schedule I hereto
      and the Warrants to acquire up that number of Warrant Shares as set forth
      opposite such Buyer’s name in column (5) on Schedule I. 

     

    (b) Closing
      Dates.
      The
      First Closing of the purchase and sale of the Convertible Debentures and
      Warrants shall take place at 10:00 a.m. Eastern Standard Time on the fifth
      (5th)
      business day following the date hereof, subject to notification of satisfaction
      of the conditions to the First Closing set forth herein and in Sections 6 and
      7
      below (or such other date as is mutually agreed to by the Company and the
      Buyer(s)) (the “First
      Closing Date”),
      the
      Second Closing of the purchase and sale of the Convertible Debentures shall
      take
      place at 4:00 p.m. Eastern Standard Time on the date that all the conditions
      to
      the Second Closing set forth herein have been satisfied, but no sooner than
      90
      days after the First Closing (the “Second
      Closing Date”),
      and
      the Third Closing of the purchase and sale of the Convertible Debentures shall
      take place at 4:00 p.m. Eastern Standard Time on the date that all the
      conditions to the Third Closing set forth herein have been satisfied, but no
      sooner than January 1, 2009 (the “Third
      Closing Date”)
      (collectively referred to a the “Closing
      Dates”).
      The
      Closings shall occur on the respective Closing Dates at the offices of Yorkville
      Advisors, LLC, 101 Hudson Street, Suite 3700, Jersey City, New Jersey 07302
      (or
      such other place as is mutually agreed to by the Company and the
      Buyer(s)).

     

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

     

    2. BUYER’S
      REPRESENTATIONS AND WARRANTIES.

     

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

     

    (a) Investment
      Purpose.
      Each
      Buyer is acquiring the Securities for its own account for investment only and
      not with a view towards, or for resale in connection with, the public sale
      or
      distribution thereof, except pursuant to sales registered or exempted under
      the
      Securities Act; provided, however, that by making the representations herein,
      such Buyer reserves the right to dispose of the Securities at any time in
      accordance with or pursuant to an effective registration statement covering
      such
      Securities or an available exemption under the Securities Act. Such Buyer does
      not presently have any agreement or understanding, directly or indirectly,
      with
      any Person to distribute any of the Securities. 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (g) Legends.
      Each
      Buyer agrees to the imprinting, so long as is required by this Section 2(g),
      of
      a restrictive legend in substantially the following form:

     

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

     

    Certificates
      evidencing the Conversion Shares or Warrant Shares shall not contain any legend
      (including the legend set forth above), (i) while a registration statement
      (including the Registration Statement) covering the resale of such security
      is
      effective under the Securities Act, (ii) following any sale of such Conversion
      Shares or Warrant Shares pursuant to Rule 144, (iii) if such Conversion Shares
      or Warrant Shares are eligible for sale under Rule 144, or (iv) if such legend
      is not required under applicable requirements of the Securities Act (including
      judicial interpretations and pronouncements issued by the staff of the SEC).
      The
      Company shall cause its counsel to issue a legal opinion to the Company’s
      transfer agent promptly after the effective date (the “Effective
      Date”)
      of a
      Registration Statement if required by the Company’s transfer agent to effect the
      removal of the legend hereunder. If all or any portion of the Convertible
      Debentures or Warrants are exercised by a Buyer that is not an Affiliate of
      the
      Company (a “Non-Affiliated
      Buyer”)
      at a
      time when there is an effective registration statement to cover the resale
      of
      the Conversion Shares or the Warrant Shares, such Conversion Shares or Warrant
      Shares shall be issued free of all legends. The Company agrees that following
      the Effective Date or at such time as such legend is no longer required under
      this Section 2(g), it will, no later than three (3) Trading Days following
      the
      delivery by a Non-Affiliated Buyer to the Company or the Company’s transfer
      agent of a certificate representing Conversion Shares or Warrant Shares, as
      the
      case may be, issued with a restrictive legend (such third Trading Day, the
      “Legend
      Removal Date”),
      deliver or cause to be delivered to such Non-Affiliated Buyer a certificate
      representing such shares that is free from all restrictive and other legends.
      The Company may not make any notation on its records or give instructions to
      any
      transfer agent of the Company that enlarge the restrictions on transfer set
      forth in this Section. Each Buyer acknowledges that the Company’s agreement
      hereunder to remove all legends from Conversion Shares or Warrant Shares is
      not
      an affirmative statement or representation that such Conversion Shares or
      Warrant Shares are freely tradable. Each Buyer, severally and not jointly with
      the other Buyers, agrees that the removal of the restrictive legend from
      certificates representing Securities as set forth in this Section 3(g) is
      predicated upon the Company’s reliance that the buyer will sell any Securities
      pursuant to either the registration requirements of the Securities Act,
      including any applicable prospectus delivery requirements, or an exemption
      therefrom, and that if Securities are sold pursuant to a Registration Statement,
      they will be sold in compliance with the plan of distribution set forth
      therein.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

    (i) Receipt
      of Documents.
      Each
      Buyer and his or its counsel has received and read in their entirety: (i) this
      Agreement and each representation, warranty and covenant set forth herein and
      the Transaction Documents (as defined herein); (ii) all due diligence and other
      information necessary to verify the accuracy and completeness of such
      representations, warranties and covenants; (iii) the Company’s Form 10-K for the
      fiscal year ended December 31, 2007; (iv) the Company’s Form 10-Q for the fiscal
      quarter ended March 31, 2008 and (v) answers to all questions each Buyer
      submitted to the Company regarding an investment in the Company; and each Buyer
      has relied on the information contained therein and has not been furnished
      any
      other documents, literature, memorandum or prospectus.

     

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

     

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

     

    3. REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY.

     

    Except
      as
      set forth under the corresponding section of the Disclosure Schedules which
      Disclosure Schedules shall be deemed a part hereof and to qualify any
      representation or warranty otherwise made herein to the extent of such
      disclosure, the Company hereby makes the representations and warranties set
      forth below to each Buyer: 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (a) Subsidiaries.
      All of
      the direct and indirect subsidiaries of the Company are set forth on
Schedule
      3(a).
      The
      Company owns, directly or indirectly, all of the capital stock or other equity
      interests of each subsidiary free and clear of any liens, and all the issued
      and
      outstanding shares of capital stock of each subsidiary are validly issued and
      are fully paid, non-assessable and free of preemptive and similar rights to
      subscribe for or purchase securities.

     

    (b) Organization
      and Qualification.
      The
      Company and its subsidiaries are corporations duly organized and validly
      existing in good standing under the laws of the jurisdiction in which they
      are
      incorporated, and have the requisite corporate power to own their properties
      and
      to carry on their business as now being conducted. Each of the Company and
      its
      subsidiaries is duly qualified as a foreign corporation to do business and
      is in
      good standing in every jurisdiction in which the nature of the business
      conducted by it makes such qualification necessary, except to the extent that
      the failure to be so qualified or be in good standing would not have or
      reasonably be expected to result in (i) a material adverse effect on the
      legality, validity or enforceability of any Transaction Document, (ii) a
      material adverse effect on the results of operations, assets, business or
      condition (financial or otherwise) of the Company and the subsidiaries, taken
      as
      a whole, or (iii) a material adverse effect on the Company’s ability to perform
      in any material respect on a timely basis its obligations under any Transaction
      Document (any of (i), (ii) or (iii), a “Material
      Adverse Effect”)
      and no
      proceeding has been instituted in any such jurisdiction revoking, limiting
      or
      curtailing or seeking to revoke, limit or curtail such power and authority
      or
      qualification..

     

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

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (d) Capitalization.
      The
      authorized capital stock of the Company consists of 5,000,000,000 shares of
      par
      value $0.01 Common Stock and 25,000,000 shares of Preferred Stock, par value
      $0.01 (“Preferred
      Stock”)
      of
      which 1,165,224,960 shares of Common Stock and 19,674 shares of Preferred Stock
      are issued and outstanding, respectively. All of the outstanding shares of
      capital stock of the Company are validly issued, fully paid and nonassessable,
      have been issued in compliance with all federal and state securities laws,
      and
      none of such outstanding shares was issued in violation of any preemptive rights
      or similar rights to subscribe for or purchase securities. Except as disclosed
      in Schedule 3(d): (i) none of the Company's capital stock is subject to
      preemptive rights or any other similar rights or any liens or encumbrances
      suffered or permitted by the Company; (ii) there are no outstanding options,
      warrants, scrip, rights to subscribe to, calls or commitments of any character
      whatsoever relating to, or securities or rights convertible into, or exercisable
      or exchangeable for, any capital stock of the Company or any of its
      subsidiaries, or contracts, commitments, understandings or arrangements by
      which
      the Company or any of its subsidiaries is or may become bound to issue
      additional capital stock of the Company or any of its subsidiaries or options,
      warrants, scrip, rights to subscribe to, calls or commitments of any character
      whatsoever relating to, or securities or rights convertible into, or exercisable
      or exchangeable for, any capital stock of the Company or any of its
      subsidiaries; (iii) there are no outstanding debt securities, notes, credit
      agreements, credit facilities or other agreements, documents or instruments
      evidencing indebtedness of the Company or any of its subsidiaries or by which
      the Company or any of its subsidiaries is or may become bound; (iv) there are
      no
      financing statements securing obligations in any material amounts, either singly
      or in the aggregate, filed in connection with the Company or any of its
      subsidiaries; (v) there are no outstanding securities or instruments of the
      Company or any of its subsidiaries which contain any redemption or similar
      provisions, and there are no contracts, commitments, understandings or
      arrangements by which the Company or any of its subsidiaries is or may become
      bound to redeem a security of the Company or any of its subsidiaries; (vi)
      there
      are no securities or instruments containing anti-dilution or similar provisions
      that will be triggered by the issuance of the Securities; (vii) the Company
      does
      not have any stock appreciation rights or "phantom stock" plans or agreements
      or
      any similar plan or agreement; and (viii) the Company and its subsidiaries
      have
      no liabilities or obligations required to be disclosed in the SEC Documents
      but
      not so disclosed in the SEC Documents, other than those incurred in the ordinary
      course of the Company's or its subsidiaries' respective businesses and which,
      individually or in the aggregate, do not or would not have a Material Adverse
      Effect. The Company has furnished to the Buyers true, correct and complete
      copies of the Company's Certificate of Incorporation, as amended and as in
      effect on the date hereof (the “Certificate
      of Incorporation”),
      and
      the Company's Bylaws, as amended and as in effect on the date hereof (the
“Bylaws”),
      and
      the terms of all securities convertible into, or exercisable or exchangeable
      for, shares of Common Stock and the material rights of the holders thereof
      in
      respect thereto. No further approval or authorization of any stockholder, the
      Board of Directors of the Company or others is required for the issuance and
      sale of the Securities. There are no stockholders agreements, voting agreements
      or other similar agreements with respect to the Company’s capital stock to which
      the Company is a party or, to the knowledge of the Company, between or among
      any
      of the Company’s stockholders. 

     

    (e) Issuance
      of Securities.
      The
      issuance of the Convertible Debentures and the Warrants is duly authorized
      and
      free from all taxes, liens and charges with respect to the issue thereof. Upon
      conversion in accordance with the terms of the Convertible Debentures or
      exercise in accordance with the Warrants, as the case may be, the Conversion
      Shares and Warrant Shares, respectively, when issued will be validly issued,
      fully paid and nonassessable, free from all taxes, liens and charges with
      respect to the issue thereof. The Company has reserved from its duly authorized
      capital stock the appropriate number of shares of Common Stock as set forth
      in
      this Agreement, subject to Section 4(e) of this Agreement. 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (f) No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the Company
      and the consummation by the Company of the transactions contemplated hereby
      and
      thereby (including, without limitation, the issuance of the Convertible
      Debentures and the Warrants, and reservation for issuance and issuance of the
      Conversion Shares and the Warrant Shares) will not (i) result in a violation
      of
      any certificate of incorporation, certificate of formation, any certificate
      of
      designations or other constituent documents of the Company or any of its
      subsidiaries, any capital stock of the Company or any of its subsidiaries or
      bylaws of the Company or any of its subsidiaries or (ii) conflict with, or
      constitute a default (or an event which with notice or lapse of time or both
      would become a default) in any respect under, or give to others any rights
      of
      termination, amendment, acceleration or cancellation of, any agreement,
      indenture or instrument to which the Company or any of its subsidiaries is
      a
      party, or (iii) result in a violation of any law, rule, regulation, order,
      judgment or decree (including foreign, federal and state securities laws and
      regulations and the rules and regulations of the National Association of
      Securities Dealers Inc.’s OTC Bulletin Board) applicable to the Company or any
      of its subsidiaries or by which any property or asset of the Company or any
      of
      its subsidiaries is bound or affected; except in the case of each of clauses
      (ii) and (iii), such as could
      not, individually or in the aggregate, have or reasonably be expected to result
      in a Material Adverse Effect.
      The
      business of the Company and its subsidiaries is not being conducted, and shall
      not be conducted in violation of any material law, ordinance, or regulation
      of
      any governmental entity. Except as specifically contemplated by this Agreement
      and as required under the Securities Act and any applicable state securities
      laws, the Company is not required to obtain any consent, authorization or order
      of, or make any filing or registration with, any court or governmental agency
      in
      order for it to execute, deliver or perform any of its obligations under or
      contemplated by this Agreement or the Registration Rights Agreement in
      accordance with the terms hereof or thereof. All consents, authorizations,
      orders, filings and registrations which the Company is required to obtain
      pursuant to the preceding sentence have been obtained or effected on or prior
      to
      the date hereof. The Company and its subsidiaries are unaware of any facts
      or
      circumstance, which might give rise to any of the foregoing.

     

    (g) SEC
      Documents; Financial Statements.
      The
      Company has filed all reports, schedules, forms, statements and other documents
      required to be filed by it with the SEC under the Securities Exchange Act of
      1934, as amended (the “Exchange
      Act”),
      for
      the two years preceding the date hereof (or such shorter period as the Company
      was required by law or regulation to file such material) (all of the foregoing
      filed prior to the date hereof or amended after the date hereof and all exhibits
      included therein and financial statements and schedules thereto and documents
      incorporated by reference therein, being hereinafter referred to as the
“SEC
      Documents”)
      on
      timely basis or has received a valid extension of such time of filing and has
      filed any such SEC Document prior to the expiration of any such extension.
      The
      Company has delivered to the Buyers or their representatives, or made available
      through the SEC’s website at http://www.sec.gov., true and complete copies of
      the SEC Documents. As of their respective dates, the SEC Documents complied
      in
      all material respects with the requirements of the Exchange Act and the rules
      and regulations of the SEC promulgated thereunder applicable to the SEC
      Documents, and none of the SEC Documents, at the time they were filed with
      the
      SEC, contained any untrue statement of a material fact or omitted to state
      a
      material fact required to be stated therein or necessary in order to make the
      statements therein, in the light of the circumstances under which they were
      made, not misleading. As of their respective dates, the financial statements
      of
      the Company included in the SEC Documents complied as to form in all material
      respects with applicable accounting requirements and the published rules and
      regulations of the SEC with respect thereto. Such financial statements have
      been
      prepared in accordance with generally accepted accounting principles,
      consistently applied, during the periods involved (except (i) as may be
      otherwise indicated in such financial statements or the notes thereto, or (ii)
      in the case of unaudited interim statements, to the extent they may exclude
      footnotes or may be condensed or summary statements) and fairly present in
      all
      material respects the financial position of the Company as of the dates thereof
      and the results of its operations and cash flows for the periods then ended
      (subject, in the case of unaudited statements, to normal year-end audit
      adjustments). No other information provided by or on behalf of the Company
      to
      the Buyers which is not included in the SEC Documents, including, without
      limitation, information referred to in Section 2(i) of this Agreement, contains
      any untrue statement of a material fact or omits to state any material fact
      necessary in order to make the statements therein, in the light of the
      circumstance under which they are or were made and not misleading.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (h) 10(b)-5.
      The SEC
      Documents do not include any untrue statements of material fact, nor do they
      omit to state any material fact required to be stated therein necessary to
      make
      the statements made, in light of the circumstances under which they were made,
      not misleading.

     

    (i) Absence
      of Litigation.
      There
      is no action, suit, proceeding, inquiry or investigation before or by any court,
      public board, government agency, self-regulatory organization or body pending
      against or affecting the Company, the Common Stock or any of the Company’s
      subsidiaries, wherein an unfavorable decision, ruling or finding would (i)
      have
      a Material Adverse Effect.

     

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

     

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

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    (t) No
      Material Adverse Breaches, etc.
      Neither
      the Company nor any of its subsidiaries is subject to any charter, corporate
      or
      other legal restriction, or any judgment, decree, order, rule or regulation
      which in the judgment of the Company’s officers has or is expected in the future
      to have a Material Adverse Effect on the business, properties, operations,
      financial condition, results of operations or prospects of the Company or its
      subsidiaries. Neither the Company nor any of its subsidiaries is in breach
      of
      any contract or agreement which breach, in the judgment of the Company’s
      officers, has or is expected to have a Material Adverse Effect on the business,
      properties, operations, financial condition, results of operations or prospects
      of the Company or its subsidiaries.

     

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

     

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

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

    (x) Investment
      Company.
      The
      Company is not, and is not an affiliate of, and immediately after receipt of
      payment for the Securities, will not be or be an affiliate of, an “investment
      company” within the meaning of the Investment Company Act of 1940, as amended.
      The Company shall conduct its business in a manner so that it will not become
      subject to the Investment Company Act.

     

    (y) Registration
      Rights.
      Other
      than each of the Buyers, no Person has any right to cause the Company to effect
      the registration under the Securities Act of any securities of the Company.
      There are no outstanding registration statements not yet declared effective
      and
      there are no outstanding comment letters from the SEC or any other regulatory
      agency.

     

    (z) Private
      Placement.
      Assuming the accuracy of the Buyers’ representations and warranties set forth in
      Section 2, no registration under the Securities Act is required for the offer
      and sale of the Securities by the Company to the Buyers as contemplated hereby.
      The issuance and sale of the Securities hereunder does not contravene the rules
      and regulations of the Primary Market.

     

    (aa) Listing
      and Maintenance Requirements.
      The
      Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the
      Exchange Act, and the Company has taken no action designed to terminate, or
      which to its knowledge is likely to have the effect of, terminating the
      registration of the Common Stock under the Exchange Act nor has the Company
      received any notification that the SEC is contemplating terminating such
      registration. The Company has not, in the twelve (12) months preceding the
      date
      hereof, received notice from any Primary Market on which the Common Stock is
      or
      has been listed or quoted to the effect that the Company is not in compliance
      with the listing or maintenance requirements of such Primary Market. The Company
      is, and has no reason to believe that it will not in the foreseeable future
      continue to be, in compliance with all such listing and maintenance
      requirements.

     

    (bb) Reporting
      Status. 
      With a view to making available to the Buyer the benefits of Rule 144 or any
      similar rule or regulation of the SEC that may at any time permit the Buyer
      to
      sell securities of the Company to the public without registration, and as a
      material inducement to the Buyer’s purchase of the Securities, the Company
      represents and warrants to the following: (i) the Company is, and has been
      for a
      period of at least 90 days immediately preceding the date hereof, subject to
      the
      reporting requirements of section 13 or 15(d) of the Exchange Act (ii) the
      Company has filed all required reports under section 13 or 15(d) of the
      Exchange, as applicable, during the 12 months preceding the date hereof (or
      for
      such shorter period that the Company was required to file such reports), (iii)
      the Company is not an issuer defined as a “Shell Company,” and (iv) the Company
      is not an issuer that has been at any time previously an issuer defined as
      a
“Shell Company.” For the purposes hereof, the term “Shell Company” shall mean an
      issuer that meets the description defined in paragraph (i)(1)(i) of Rule
      144.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (cc) Disclosure. 
      The Company has made available to the Buyer and its counsel all the information
      reasonably available to the Company that the Buyer or its counsel have requested
      for deciding whether to acquire the Securities.  No representation or
      warranty of the Company contained in this Agreement (as qualified by the
      Disclosure Schedule) or any of the other Transaction Documents, and no
      certificate furnished or to be furnished to the Buyer at the Closing, or any
      due
      diligence evaluation materials furnished by the Company or on behalf of the
      Company, including without limitation, due diligence questionnaires, or any
      other documents, presentations, correspondence, or information contains any
      untrue statement of a material fact or omits to state a material fact necessary
      in order to make the statements contained herein or therein not misleading
      in
      light of the circumstances under which they were made.

     

    (dd) Manipulation
      of Price. 
      The Company has not, and to its knowledge no one acting on its behalf has,
      (i)
      taken, directly or indirectly, any action designed to cause or to result in
      the
      stabilization or manipulation of the price of any security of the Company to
      facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
      purchased, or, paid any compensation for soliciting purchases of, any of the
      Securities, or (iii) paid or agreed to pay to any Person any compensation for
      soliciting another to purchase any other securities of the Company, other than,
      in the case of clauses (ii) and (iii), compensation paid to the Company’s
      placement agent in connection with the placement of the Securities.

     

    (ee) Dilutive
      Effect.
      The
      Company understands and acknowledges that the number of Conversion Shares
      issuable upon conversion of the Convertible Debentures and the Warrant Shares
      issuable upon exercise of the Warrants will increase in certain circumstances.
      The Company further acknowledges that its obligation to issue Conversion Shares
      upon conversion of the Convertible Debentures in accordance with this Agreement
      and the Convertible Debentures and its obligation to issue the Warrant Shares
      upon exercise of the Warrants in accordance with this Agreement and the
      Warrants, in each case, is absolute and unconditional regardless of the dilutive
      effect that such issuance may have on the ownership interests of other
      stockholders of the Company.

     

    4. COVENANTS.

     

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

     

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

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (c) Reporting
      Status.
      With a
      view to making available to the Buyer the benefits of Rule 144 or any similar
      rule or regulation of the SEC that may at any time permit the Buyer to sell
      securities of the Company to the public without registration, and as a material
      inducement to the Buyer’s purchase of the Securities, the Company represents,
      warrants, and covenants to the following: 

     

    (i) The
      Company is subject to the reporting requirements of section 13 or 15(d) of
      the
      Exchange Act and has filed all required reports under section 13 or 15(d) of
      the
      Exchange Act during the 12 months prior to the date hereof (or for such shorter
      period that the issuer was required to file such reports), other than Form
      8-K
      reports; 

     

    (ii) from
      the
      date hereof until all the Securities either have been sold by the Buyer, or
      may
      permanently be sold by the Buyer without any restrictions pursuant to Rule
      144,
      (the “Registration
      Period”)
      the
      Company shall file with the SEC in a timely manner all required reports under
      section 13 or 15(d) of the Exchange Act and such reports shall conform to the
      requirement of the Exchange Act and the SEC for filing thereunder; 

     

    (iii) The
      Company shall furnish to the Buyer so long as the Buyer owns Securities,
      promptly upon request, (i) a written statement by the Company that it has
      complied with the reporting requirements of Rule 144, (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 Buyers to sell such securities pursuant
      to
      Rule 144 without registration; and 

     

    (iv) During
      the Registration Period the Company shall not terminate its status as an issuer
      required to file reports under the Exchange Act even if the Exchange Act or
      the
      rules and regulations thereunder would otherwise permit such
      termination.

     

    (d) Use
      of
      Proceeds.
      The
      Company will use the proceeds from the sale of the Convertible Debentures in
      accordance with the terms of the budget attached hereto as Exhibit
      D
      (the
“Budget”)
      and
      shall not deviate from any line item of the Budget by more than ten percent
      without the written consent of the Buyer. The Company represents that the
      proceeds of the sale of the Convertible Debentures will provide sufficient
      capital for the Company to cover its cash burn rate and fully fund its current
      business plan until at least September 30, 2009. Within 90 days of the date
      hereof the Company and the Buyer shall work towards preparing an agreed upon
      reduced Budget that will fully fund the Company through December 31,
      2009.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (e) Reservation
      of Shares.
      Upon
      the written request of the Buyers, the Company shall take all action reasonably
      necessary to at all times have authorized, and reserved for the purpose of
      issuance, such number of shares of Common Stock as shall be necessary to effect
      the full conversion of the Convertible Debentures that have been issued
      hereunder and the full exercise of the Warrants issued hereunder (the
“Share
      Reserve”).
      If at
      any time the Share Reserve is insufficient to effect the full conversion of
      the
      Convertible Debentures then outstanding or the full exercise of the Warrants
      outstanding, the Company shall increase the Share Reserve accordingly. If the
      Company does not have sufficient authorized and unissued shares of Common Stock
      available to increase the Share Reserve, the Company shall call and hold a
      special meeting of the shareholders within thirty (30) days of notice from
      the
      Buyers, for the sole purpose of increasing the number of shares authorized.
      The
      Company’s management shall recommend to the shareholders to vote in favor of
      increasing the number of shares of Common Stock authorized. Management shall
      also vote all of its shares in favor of increasing the number of authorized
      shares of Common Stock. Furthermore, in the event that the par value for the
      Company’s stock is greater than the Closing Bid Price of the Common Stock for 5
      consecutive Trading Days, the Company shall promptly reduce the par value of
      its
      Common Stock to $0.0001 or less or such number as may be permitted under
      applicable law.

     

    (f) Listings
      or Quotation.
      The
      Company’s Common Stock shall be listed or quoted for trading on any of (a) the
      American Stock Exchange, (b) New York Stock Exchange, (c) the Nasdaq Global
      Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin Board
      (which does not include the Pink Sheets LLC) (“OTCBB”)
      (each,
      a “Primary
      Market”).
      The
      Company shall promptly secure the listing of all of the Registrable Securities
      (as defined in the Registration Rights Agreement) upon each national securities
      exchange and automated quotation system, if any, upon which the Common Stock
      is
      then listed (subject to official notice of issuance) and shall maintain such
      listing of all Registrable Securities from time to time issuable under the
      terms
      of the Transaction Documents. 

     

    (g) Fees
      and Expenses. 

     

    (i) The
      Company shall pay all of its costs and expenses incurred by it connection with
      the negotiation, investigation, preparation, execution and delivery of the
      Transaction Documents. 

     

    (ii) The
      Company shall place into escrow $200,000 upon the First Closing, an additional
      $200,000 upon the Second Closing, and an additional $350,000 upon the Third
      Closing directly from the proceeds of such Closing (collectively, the
“Monitoring
      Fees,”
and
      as
      deposited into escrow, the “Escrow
      Funds”)
      which
      shall be used to compensate Yorkville Advisors LLC (“Investment
      Manager”)
      for
      monitoring and managing the purchase and investment made by YA Global
      Investments, L.P. (“YA
      Global”)
      described herein, pursuant to the Investment Manager’s existing advisory
      obligations to YA Global. The Company, Investment Manager, and YA Global shall
      enter into an Escrow Agreement of even date herewith in the form attached hereto
      as Exhibit E (the “Escrow
      Agreement”)
      appointing an escrow agent (the “Escrow
      Agent”)
      to
      hold the Escrow Funds and to periodically disburse portions of such Escrow
      Funds
      to the Investment Manager from escrow in accordance with the terms of the Escrow
      Agreement. The Investment Manager shall periodically receive portions of the
      Escrow Funds in accordance with the Escrow Agreement until either: (1) the
      Escrow Funds shall have been fully disbursed pursuant the Escrow Agreement
      or
      (2) the Securities shall have been Fully Retired. “Fully Retired” shall mean
      that the Buyer shall have fully disposed of all the Securities issued or
      issuable hereunder, shall no longer have any investment in, or ownership of,
      any
      of the Securities, all amounts owed to YA Global under the Transaction Documents
      shall have been paid, and the Transaction Documents shall have been terminated.
      When the Securities are Fully Retired, the remaining Escrow Funds shall be
      returned to the Company or otherwise disbursed in accordance with the Escrow
      Agreement.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (iii) The
      Company shall pay a structuring and due diligence fee to Yorkville of $90,000,
      of which $40,000 shall be paid directly from the proceeds of the First Closing,
      $20,000 shall be paid directly from the proceeds of the Second Closing, and
      $40,000 shall be paid directly from the proceeds of the Third Closing. The
      structuring and due diligence fees paid shall be nonrefundable.

     

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

     

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    (n) Lockup
      Agreements.
      On the
      date hereof, the Company shall obtain from each officer and director a lockup
      agreement in the form attached hereto as Exhibit
      C.

     

    (o) Additional
      Registration Statements.
      Until
      the effective date of the initial Registration Statement, the Company will
      not
      file a registration statement under the Securities Act relating to securities
      that are not the Securities.

     

    (p) Review
      of Public Disclosures.
      All SEC
      filings (including, without limitation, all filings required under the Exchange
      Act, which include Forms 10-Q and 10-QSB, 10-K and 10K-SB, 8-K, etc) and other
      public disclosures made by the Company, including, without limitation, all
      press
      releases, investor relations materials, and scripts of analysts meetings and
      calls, shall be reviewed and approved for release by the Company’s attorneys
      and, if containing financial information, the Company’s independent certified
      public accountants.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (q) Disclosure
      of Transaction.
      Within
      four Business Day following the date of this Agreement, the Company shall file
      a
      Current Report on Form 8-K describing the terms of the transactions contemplated
      by the Transaction Documents in the form required by the Exchange Act and
      attaching the material Transaction Documents (including, without limitation,
      this Agreement, the form of the Convertible Debenture, the form of Warrant
      and
      the form of the Registration Rights Agreement) as exhibits to such
      filing.

     

    (r) Further
      Assurances.
      At any
      time or from time to time upon the request of the Buyer, the Company will,
      at
      its expense, promptly execute, acknowledge and deliver such further documents
      and do such other acts and things as Buyer may reasonably request in order
      to
      effect fully the purposes of the Transaction Documents, including providing
      Buyer with any information reasonably requested by it. In furtherance and not
      in
      limitation of the foregoing, the Company shall take such actions as Buyer may
      reasonably request from time to time to ensure that the obligations are secured
      by substantially all of the assets of Company.

     

    (s) Acknowledgment.
      The
      Company hereby acknowledges, confirms and agrees that as of the date hereof,
      the
      Company is indebted to YA Global under the following debt instruments: (i)
      August 24, 2006 note in the principal amount of $5,000,000, (ii) December 29,
      2006 note in the principal amount of $2,500,000, (iii) March 27, 2007 note
      in
      the principal amount of $7,458,651, (iv) August 24, 2007 note in the principal
      amount of $1,775,000, (v) April 10, 2008 note in the principal amount of
      $390,000, (vi) May 16, 2008 note in the principal amount of $500,000, (vii)
      May
      29, 2008 note in the principal amount of $790,000, and (viii) July 10, 2008
      note
      in the principal amount of $137,750, plus accrued and unpaid interest on each
      such indebtedness and such amounts are unconditionally owing by the Company
      to
      YA Global, without offset, defense or counterclaim of any kind, nature or
      description whatsoever. The Company further acknowledges, confirms and agrees
      that: YA Global has and shall continue to have valid, enforceable and perfected
      liens upon and security interests in the pledged property heretofore granted
      to
      YA Global pursuant to the Security Agreement between the Company and YA Global
      dated August 24, 2007 or otherwise granted to or held by YA Global.

     

    (t) Grant
      of Security. In
      connection with the transactions contemplated herein, the Company acknowledges
      and agrees, that to the extent not previously granted or perfected, to grant
      the
      Buyer a perfected security interest (to the extent legally possible) in all
      of
      its assets (including all intellectual property, patents and patent
      applications) and to cause Gavitec AG, its wholly owned subsidiary, to grant
      the
      Buyer a security interest in all its assets (including all intellectual
      property, patents and patent applications), to the extent legally possible.
      The
      Company expressly agrees that it shall not permit Gavitec (aside from ordinary
      course of business transactions) to sell any of its assets, including, without
      limitation, its intellectual property, or to grant any licensees to its
      intellectual property to third parties, without the express written consent
      of
      the Buyer. The Company shall, from and after the execution of this Agreement,
      execute and deliver to the Buyer, and cause Gavitec to execute and deliver
      to
      the Buyer, whatever additional documents, instruments, and agreements that
      the
      Buyer may require in order to accomplish the forgoing. 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    5. TRANSFER
      AGENT INSTRUCTIONS.

     

    (a) The
      Company shall issue the Irrevocable Transfer Agent Instructions to its transfer
      agent, and any subsequent transfer agent, irrevocably appointing David Gonzalez,
      Esq. as the Company’s agent for purpose instructing its transfer agent to issue
      certificates or credit shares to the applicable balance accounts at The
      Depository Trust Company (“DTC”),
      registered in the name of each Buyer or its respective nominee(s), for the
      Conversion Shares and the Warrant Shares issued upon conversion of the
      Convertible Debentures or exercise of the Warrants as specified from time to
      time by each Buyer to the Company upon conversion of the Convertible Debentures
      or exercise of the Warrants. The Company shall not change its transfer agent
      without the express written consent of the Buyers, which may be withheld by
      the
      Buyers in their sole discretion. The Company warrants that no instruction other
      than the Irrevocable Transfer Agent Instructions referred to in this Section
      5,
      and stop transfer instructions to give effect to Section 2(g) hereof (in the
      case of the Conversion Shares or Warrant Shares prior to registration of such
      shares under the Securities Act) will be given by the Company to its transfer
      agent, and that the Securities shall otherwise be freely transferable on the
      books and records of the Company as and to the extent provided in this Agreement
      and the other Transaction Documents. If a Buyer effects a sale, assignment
      or
      transfer of the Securities in accordance with Section 2(f), the Company shall
      promptly instruct its transfer agent to issue one or more certificates or credit
      shares to the applicable balance accounts at DTC in such name and in such
      denominations as specified by such Buyer to effect such sale, transfer or
      assignment and, with respect to any transfer, shall permit the transfer. In
      the
      event that such sale, assignment or transfer involves Conversion Shares or
      Warrant Shares sold, assigned or transferred pursuant to an effective
      registration statement or pursuant to Rule 144, the transfer agent shall issue
      such Securities to the Buyer, assignee or transferee, as the case may be,
      without any restrictive legend. Nothing in this Section 5 shall affect in any
      way the Buyer’s obligations and agreement to comply with all applicable
      securities laws upon resale of Conversion Shares. The Company acknowledges
      that
      a breach by it of its obligations hereunder will cause irreparable harm to
      the
      Buyer by vitiating the intent and purpose of the transaction contemplated
      hereby. Accordingly, the Company acknowledges that the remedy at law for a
      breach of its obligations under this Section 5 will be inadequate and agrees,
      in
      the event of a breach or threatened breach by the Company of the provisions
      of
      this Section 5, that the Buyer(s) shall be entitled, in addition to all
      other available remedies, to an injunction restraining any breach and requiring
      immediate issuance and transfer, without the necessity of showing economic
      loss
      and without any bond or other security being required.

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    (vi) The
      Company shall have provided to the Buyers a true copy of a certificate of good
      standing evidencing the formation and good standing of the Company from the
      secretary of state (or comparable office) from the jurisdiction in which the
      Company is incorporated, as of a date within 10 days of the First Closing
      Date.

     

    (vii) The
      Company shall have delivered to the Buyers a certificate, executed by the
      Secretary of the Company and dated as of the First Closing Date, as to (i)
      the
      resolutions consistent with Section 3(c) as adopted by the Company's Board
      of
      Directors in a form reasonably acceptable to such Buyer, (ii) the Certificate
      of
      Incorporation and (iii) the Bylaws, each as in effect at the First
      Closing.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    (iv) No
      event
      of default shall have occurred.

     

    (v) The
      Company shall have satisfied each of the following conditions:

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (1) The
      Company shall have completed upgrades to its NeoReader mobile phone technology
      to enable compatibility with multiple mobile platforms (including Java, Windows
      Mobile and Symbian) in compliance with Original Equipment Manufacturer
      standards, and with multiple barcode symbologies (including Data Matrix, Astec,
      QR Code and various 1D symbologies) in each case in compliance with Association
      for Automatic Identification and Mobility (AIM), and/or industry standards;
      

     

    (2) The
      Company shall have completed the development of the Neosphere base product
      and
      Application Programming Interface specifications for third party tool
      integration. 

     

    (3) The
      Company shall have begun a marketing program aimed to publicize the Company
      and
      its products and services in the marketplace and provided the Buyer with a
      report documenting its strategy and business model relating to its intellectual
      property licensing.

     

    (4) The
      Company shall have appointed one additional member to its Board of Directors
      to
      the reasonable satisfaction of the Buyer. 

     

    (vi) The
      Company shall have provided the Deposit Account Agreements as set forth in
      the
      Security Documents and shall have granted, and caused Gavitec AG to grant,
      to
      the Buyer a perfected security interest in all of its assets and all of the
      assets of Gavitec AG (including intellectual property), to the extent legally
      possible. 

     

    (vii) The
      Company shall have certified, in a certificate executed by two officers of
      the
      Company and dated as of the Second Closing Date, that all conditions to the
      Second Closing have been satisfied.

     

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

     

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

     

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

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

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

     

    (iv) No
      event
      of default shall have occurred.

     

    (v) The
      Company shall have satisfied all the conditions to the First and Second
      Closing.

     

    (vi) The
      Company shall have satisfied each of the following conditions:

     

    (1) The
      Company shall have initiated a reverse stock split to the reasonable
      satisfaction of the Buyer. 

     

    (2) The
      Company shall have successfully completed a product trial relating to its
      NeoReader product with a Tier I Telecommunications Company. 

     

    (3) The
      Company shall have completed the design, development, and manufacture of next
      generation scanning hardware and created two new next generation scanners,
      in
      each case to the reasonable satisfaction of the Buyer.

     

    (4) The
      Company shall provide a revised Budget in accordance with Section 4(d).

     

    (5) The
      Company shall have appointed a second additional member to its Board of
      Directors to the reasonable satisfaction of the Buyer.

     

    (vii) The
      Company shall have certified, in a certificate executed by two officers of
      the
      Company and dated as of the Third Closing Date, that all conditions to the
      Third
      Closing have been satisfied.

     

    8. INDEMNIFICATION.

     

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

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

    9. GOVERNING
      LAW: MISCELLANEOUS.

     

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

     

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

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    (f) Notices.
      Any
      notices, consents, waivers, or other communications required or permitted to
      be
      given under the terms of this Agreement must be in writing and will be deemed
      to
      have been delivered (i) upon receipt, when delivered personally; (ii) upon
      confirmation of receipt, when sent by facsimile; (iii) three (3) days after
      being sent by U.S. certified mail, return receipt requested, or (iv) one (1)
      day
      after deposit with a nationally recognized overnight delivery service, in each
      case properly addressed to the party to receive the same. The addresses and
      facsimile numbers for such communications shall be:

     

    
      	
              If
                to the Company, to:

            	
              NeoMedia
                Technologies Inc.

            
	 	
              Two
                Concourse Parkway, Suite 500

            
	 	
              Atlanta,
                GA 30328

            
	 	
              Attention:
                Chief Executive Officer

            
	 	
              Telephone:     678-638-0460

            
	 	
              Facsimile:       678-638-0467

            
	 	 
	
              With
                a copy to:

            	
              K&L
                Gates LLP

            
	 	
              200
                South Biscayne Boulevard – Suite 3900

            
	 	
              Miami,
                FL 33131-2399

            
	 	
              Attention:      Clayton
                E. Parker, Esq.

            
	 	
              Telephone:     (305)
                539-3300

            
	 	
              Facsimile:       (305)
                358-7095

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    (h) No
      Third Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns, and is not for the benefit of, nor may any
      provision hereof be enforced by, any other person.

     

    (i) Survival.
      Unless
      this Agreement is terminated under Section 9(l), all agreements, representations
      and warranties contained in this Agreement or made in writing by or on behalf
      of
      any party in connection with the transactions contemplated by this Agreement
      shall survive the execution and delivery of this Agreement and the
      Closing.

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (n) No
      Strict Construction.
      The
      language used in this Agreement will be deemed to be the language chosen by
      the
      parties to express their mutual intent, and no rules of strict construction
      will
      be applied against any party.

     

    

    [REMAINDER
      PAGE INTENTIONALLY LEFT BLANK]

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Securities Purchase Agreement to be duly executed as of the date first written
      above.

    

    
      	
              COMPANY:

            
	
              NEOMEDIA
                TECHNOLOGIES INC. 

            
	 	 
	
              By:

            	/s/
J.
              Scott Womble
	
              Name:

            	
              J.
                Scott Womble

            
	
              Title:

            	
              Chief
                Financial Officer

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Securities Purchase Agreement to be duly executed as of the date first written
      above.

    

    
      	
              BUYERS:

            
	
              YA
                GLOBAL INVESTMENTS, L.P. 

            
	 	 
	
              By:

            	
              Yorkville
                Advisors, LLC

            
	
              Its:

            	
              Investment
                Manager

            
	 	 
	 	 
	
              By:

            	/s/
              Mark
              Angelo
	
              Name:

            	
              Mark
                Angelo

            
	
              Its:

            	
              Portfolio
                Manager

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    SCHEDULE
      I

     

    SCHEDULE
      OF BUYERS

    

      
        	
                (1)

              	 	
                (2)

              	 	
                (3)

              	 	
                (4)

              	 	
                (5)

              	 	
                (6)

              	 	
                (7)

              	 	
                (8)

              	 
	
                Buyer 

              	 	
                Subscription Amount

              	 	
                Number of

                Warrant Shares

              	 	 	 	 	 	
                Legal Representative’s

                Address and Facsimile

                Number

              	 
	 	 	
                First Closing

              	 	
                Second Closing

              	 	
                Third Closing

              	 	
                First Closing

              	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                YA
                  Global Investments, L.P.

                 

                101
                  Hudson Street, Suite 3700

                Jersey
                  City, NJ 07302

                Attention:
                  Mark Angelo

                Telephone:
                  (201) 985-8300

                Facsimile:
                  (201) 985-8266

                Residence:
                  Cayman Islands

              	 	
                $

              	
                2,325,000

              	 	
                $

              	
                2,325,000

              	 	
                $

              	
                4,000,000

              	 	 	
                100,000,000
                  Shares

                @
                  $0.02

                
                

                100,000,000
                  Shares

                @
                  $0.04

                
                

                125,000,000
                  Shares

                @
                  $0.05

                
                

                125,000,000
                  Shares

                @
                  $0.075

              	 	 	 	 	 	 	 	
                 

              	
                David
                  Gonzalez, Esq.

                101
                  Hudson Street, Suite 3700

                Jersey
                  City, New Jersey 07302 

                Telephone:
                  (201) 985-8300 

                Facsimile:
                  (201) 985-8266

              	 

      

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    LIST
      OF EXHIBITS:

    

    Disclosure
      Schedule

    

    Exhibit
      A
– Form of Convertible Debentures

    

    Exhibit
      B
– Form of Warrant

    

    Exhibit
      C
– Form of Lockup Agreement 

    

    Exhibit
      D
      - Budget

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    DISCLOSURE
      SCHEDULE

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      C

     

    LOCKUP
      AGREEMENT

     

    The
      undersigned hereby agrees that for a period commencing on July __, 2008 and
      expiring on the date thirty (30) days after the date that all amounts owed
      to YA
      Global Investments, L.P. (the “Buyer”),
      under
      the Secured Convertible Debentures issued to the Buyer pursuant to the
      Securities Purchase Agreement between NeoMedia Technologies Inc. (the
“Company”)
      and
      the Buyer dated July __, 2008 have been paid (the “Lock-up
      Period”),
      he,
      she or it will not, directly or indirectly, without the prior written consent
      of
      the Buyer, issue, offer, agree or offer to sell, sell, grant an option for
      the
      purchase or sale of, transfer, pledge, assign, hypothecate, distribute or
      otherwise encumber or dispose of any securities of the Company, including common
      stock or options, rights, warrants or other securities underlying, convertible
      into, exchangeable or exercisable for or evidencing any right to purchase or
      subscribe for any common stock (whether or not beneficially owned by the
      undersigned), or any beneficial interest therein (collectively, the
“Securities”)
      except
      in accordance with the volume limitations set forth in Rule 144(e) of the
      General Rules and Regulations under the Securities Act of 1933, as amended,
      for
      so long as the undersigned maintains an executive, officer or director
      relationship with the Company.

     

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

     

    Dated:
      _______________, 2008

    

    
      	
              Signature

            	 
	 	 
	                                                                              	 
	
              Name:                                                                      

            	 
	
              Address:                                                                  

            	 
	
              City,
                State, Zip Code:                                                  

            	 
	 	 
	                                                                              	 
	
              Print
                Social Security Number

            	 
	
              or
                Taxpayer I.D. NumberUnassociated Document

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

     

    NEOMEDIA
      TECHNOLOGIES INC.

     

    Secured
      Convertible Debenture

     

    
      	
              Issuance
                Date: July 29, 2008

            	
              Original
                Principal Amount: $2,325,000

            
	
              No.
                NEOM-9-1

            	 

    

    

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

     

    (1) GENERAL
      TERMS

     

    (a) Payment
      of Principal.
      On the
      Maturity Date, the Company shall pay to the Holder an amount in cash
      representing all outstanding Principal, accrued and unpaid Interest. The
      "Maturity
      Date"
      shall
      be July 29, 2010 as may be extended at the option of the Holder (i) in the
      event
      that, and for so long as, an Event of Default (as defined below) shall have
      occurred and be continuing on the Maturity Date (as may be extended pursuant
      to
      this Section 1) or any event shall have occurred and be continuing on the
      Maturity Date (as may be extended pursuant to this Section 1) that with the
      passage of time and the failure to cure would result in an Event of Default.
      Other than as specifically permitted by this Debenture, the Company may not
      prepay or redeem any portion of the outstanding Principal without the prior
      written consent of the Holder.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b) Interest.
      Interest shall accrue on the outstanding principal balance hereof at an annual
      rate equal to fourteen percent (14%) (“Interest
      Rate”).
      Interest shall be calculated on the basis of a 365-day year and the actual
      number of days elapsed, to the extent permitted by applicable law. Interest
      hereunder shall be paid on the Maturity Date (or sooner as provided herein)
      to
      the Holder or its assignee in whose name this Debenture is registered on the
      records of the Company regarding registration and transfers of Debentures at
      the
      option of the Company in cash, or, provided that the Equity Conditions are
      then
      satisfied converted into Common Stock at the applicable Conversion
      Price.

     

    (c) Security.
      The
      Debenture is
      secured by (i) a security interest in all of the assets of the Company and
      of
      each of the Company's subsidiaries as evidenced by the security agreement of
      even date herewith (the “Security
      Documents”).

     

    (2) EVENTS
      OF DEFAULT. 

     

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

     

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

     

    (ii) The
      Company or any subsidiary of the Company shall commence, or there shall be
      commenced against the Company or any subsidiary of the Company under any
      applicable bankruptcy or insolvency laws as now or hereafter in effect or any
      successor thereto, or the Company or any subsidiary of the Company commences
      any
      other proceeding under any reorganization, arrangement, adjustment of debt,
      relief of debtors, dissolution, insolvency or liquidation or similar law of
      any
      jurisdiction whether now or hereafter in effect relating to the Company or
      any
      subsidiary of the Company or there is commenced against the Company or any
      subsidiary of the Company any such bankruptcy, insolvency or other proceeding
      which remains undismissed for a period of 61 days; or the Company or any
      subsidiary of the Company is adjudicated insolvent or bankrupt; or any order
      of
      relief or other order approving any such case or proceeding is entered; or
      the
      Company or any subsidiary of the Company suffers any appointment of any
      custodian, private or court appointed receiver or the like for it or any
      substantial part of its property which continues undischarged or unstayed for
      a
      period of sixty one (61) days; or the Company or any subsidiary of the Company
      makes a general assignment for the benefit of creditors; or the Company or
      any
      subsidiary of the Company shall 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;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

    (ix) any
      Event
      of Default (as defined in the Other Debentures) occurs with respect to any
      Other
      Debentures.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    (b) During
      the time that any portion of this Debenture is outstanding, if any Event of
      Default has occurred, the full unpaid Principal amount of this Debenture,
      together with interest and other amounts owing in respect thereof, to the date
      of acceleration shall become at the Holder's election, immediately due and
      payable in cash; provided however, the Holder may request (but shall have no
      obligation to request) payment of such amounts in Common Stock of the Company.
      If an Event of Default occurs and for so long as such Event of Default remains
      uncured, the Interest Rate on this Debenture shall immediately become twenty
      percent (20%) per annum and shall remain at such increased interest rate until
      the applicable Event of Default is cured. Furthermore, in addition to any other
      remedies, the Holder shall have the right (but not the obligation) to convert
      this Debenture at any time after (x) an Event of Default or (y) the Maturity
      Date at the Default Conversion Price. The Holder need not provide and the
      Company hereby waives any presentment, demand, protest or other notice of any
      kind, (other than required notice of conversion) and the Holder may immediately
      and without expiration of any grace period enforce any and all of its rights
      and
      remedies hereunder and all other remedies available to it under applicable
      law.
      Such declaration may be rescinded and annulled by Holder at any time prior
      to
      payment hereunder. No such rescission or annulment shall affect any subsequent
      Event of Default or impair any right consequent thereon. 

     

    (3) COMPANY
      REDEMPTION.
      

     

    (a) Company’s
      Cash Redemption.
      The
      Company at its option shall have the right to redeem (“Optional
      Redemption”)
      a
      portion or all amounts outstanding under this Debenture prior to the Maturity
      Date provided that as of the date of the Holder’s receipt of a Redemption Notice
      (as defined herein) (i) the Closing Bid Price is less than the Fixed Conversion
      Price and (ii) there is no Equity Conditions Failure. The Company shall pay
      an
      amount equal to the principal amount being redeemed plus a redemption premium
      (“Redemption
      Premium”)
      equal
      to 10% of the Principal amount being redeemed, and accrued Interest,
      (collectively referred to as the “Company
      Additional Redemption
      Amount”).
      In
      order to make a redemption pursuant to this Section, the Company shall first
      provide written notice to the Holder of its intention to make a redemption
      (the
“Redemption
      Notice”)
      setting forth the amount of Principal it desires to redeem. After receipt of
      the
      Redemption Notice the Holder shall have 5 Business Days to elect to convert
      all
      or any portion of this Debenture, subject to the limitations set forth in
      Section 4(c). On the 6th
      Business
      Day after the Redemption Notice, the Company shall deliver to the Holder the
      Company Additional Redemption Amount with respect to the Principal amount
      redeemed after giving effect to conversions effected during the 5 Business
      Day
      period.

     

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

     

    (ii) "Conversion
      Price"
      means,
      as of any Conversion Date (as defined below) or other date of determination
      the
      lesser of (a) $0.02 (the “Fixed
      Conversion Price”),
      subject to adjustment as provided herein, or (b) ninety five percent (95%)
      of the lowest Volume Weighted Average Price during the ten (10) Trading Days
      immediately preceding the Conversion Date (the “Market
      Conversion Price”).
      

     

    (b) Mechanics
      of Conversion.

     

    (i) Optional
      Conversion.
      To
      convert any Conversion Amount into shares of Common Stock on any date (a
      "Conversion
      Date"),
      the
      Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt
      on or
      prior to 11:59 p.m., New York Time, on such date, a copy of an executed notice
      of conversion in the form attached hereto as Exhibit
      I
      (the
      "Conversion
      Notice")
      to the
      Company and (B) if required by Section 4(b)(iv), surrender this Debenture to
      a
      nationally recognized overnight delivery service for delivery to the Company
      (or
      an indemnification undertaking reasonably satisfactory to the Company with
      respect to this Debenture in the case of its loss, theft or destruction). On
      or
      before the third Business Day following the date of receipt of a Conversion
      Notice (the "Share
      Delivery Date"),
      the
      Company shall (X) if legends are not required to be placed on certificates
      of
      Common Stock pursuant to the Securities Purchase Agreement and provided that
      the
      Transfer Agent is participating in the Depository Trust Company's ("DTC")
      Fast
      Automated Securities Transfer Program, credit such aggregate number of shares
      of
      Common Stock to which the Holder shall be entitled to the Holder's or its
      designee's balance account with DTC through its Deposit Withdrawal Agent
      Commission system or (Y) if the Transfer Agent is not participating in the
      DTC
      Fast Automated Securities Transfer Program, issue and deliver to the address
      as
      specified in the Conversion Notice, a certificate, registered in the name of
      the
      Holder or its designee, for the number of shares of Common Stock to which the
      Holder shall be entitled which certificates shall not bear any restrictive
      legends unless required pursuant to Section 2(g) of the Securities Purchase
      Agreement. If this Debenture is physically surrendered for conversion and the
      outstanding Principal of this Debenture is greater than the Principal portion
      of
      the Conversion Amount being converted, then the Company shall as soon as
      practicable and in no event later than three (3) Business Days after receipt
      of
      this Debenture and at its own expense, issue and deliver to the holder a new
      Debenture representing the outstanding Principal not converted. The Person
      or
      Persons entitled to receive the shares of Common Stock issuable upon a
      conversion of this Debenture shall be treated for all purposes as the record
      holder or holders of such shares of Common Stock upon the transmission of a
      Conversion Notice. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

     

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

     

    (c) Limitations
      on Conversions.

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    (d) Other
      Provisions.

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    (5) Adjustments
      to Conversion Price

     

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

     

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

     

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

     

    (6) REISSUANCE
      OF THIS DEBENTURE.

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	
              If
                to the Company, to:

            	
              NeoMedia
                Technologies Inc.

            
	 	
              Two
                Concourse Parkway, Suite 500

            
	 	
              Atlanta,
                GA 30328

            
	 	
              Attention:
                Chief Executive Officer

            
	 	
              Telephone: 678-638-0460

            
	 	
              Facsimile: 

            
	 	 
	
              With
                a copy to: 

            	
              Kirkpatrick
                & Lockhart Preston Gates Ellis LLP

            
	 	
              200
                South Biscayne Boulevard - Suite 3900

            
	 	
              Miami,
                FL 33131-2399

            
	 	
              Attention: Clayton
                E. Parker, Esq.

            
	 	
              Telephone: (305)
                539-3300

            
	 	
              Facsimile: (305)
                358-7095

            

    

    

    
      	
              If
                to the Holder:

            	
              YA
                Global Investments, LP

            
	 	
              101
                Hudson Street, Suite 3700

            
	 	
              Jersey
                City, NJ 07302

            
	 	
              Attention: Mark
                Angelo

            
	 	
              Telephone: (201)
                985-8300

            
	 	 
	
              With
                a copy to:

            	
              David
                Gonzalez, Esq. 

            
	 	
              101
                Hudson Street – Suite 3700

            
	 	
              Jersey
                City, NJ 07302

            
	 	
              Telephone: (201)
                985-8300

            
	 	
              Facsimile: (201)
                985-8266

            
	 	 

    

    

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

     

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

     

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

     

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

     

    (b) "Bloomberg"
      means
      Bloomberg Financial Markets.

     

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

     

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

     

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

     

    (h) “Common
      Stock”
means
      the common stock, par value $.01, of the Company and stock of any other class
      into which such shares may hereafter be changed or reclassified.

     

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    (r) “Securities
      Purchase Agreement”
means
      the Securities Purchase Agreement dated July ___, 2008 by and among the Company
      and the Buyers listed on Schedule I attached thereto. 

     

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

     

    (t) “Transaction
      Documents”
means
      the Securities Purchase Agreement or any other agreement delivered in connection
      with the Securities Purchase Agreement, including, without limitation, the
      Security Documents, the Irrevocable Transfer Agent Instructions, and the
      Registration Rights Agreement.

     

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

     

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

     

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

     

    (x) "Warrants"
      has the
      meaning ascribed to such term in the Securities Purchase Agreement, and shall
      include all warrants issued in exchange therefor or replacement
      thereof.

     

    [Signature
      Page Follows]

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

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

    

      
        	
                COMPANY:

              
	
                NEOMEDIA
                  TECHNOLOGIES INC.

              
	 	 
	
                By:

              	
                /s/
                  J. Scott Womble

              
	
                Name:

              	
                J.
                  Scott Womble

              
	
                Title:

              	
                Chief
                  Financial Officer

              

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      I

    CONVERSION
      NOTICE

     

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

    

    
      	
              TO:
                

            

    

    

    The
      undersigned hereby irrevocably elects to convert $     of
      the
      principal amount of Debenture No. NEOM 9-1 into Shares of Common Stock of
NEOMEDIA
      TECHNOLOGIES INC.,
      according to the conditions stated therein, as of the Conversion Date written
      below.

     

    

      
        	
                Conversion
                  Date:

              	 
	
                Conversion
                  Amount to be converted:

              	
                $        

              
	
                Conversion
                  Price:

              	
                $        

              
	
                Number
                  of shares of Common Stock to be issued:

              	  
	
                Amount
                  of Debenture Unconverted:

              	
                $ 

              
	 	
                  

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

              
	
                Issue
                  to:

              	 
	 	 
	
                Authorized
                  Signature:

              	 
	
                Name:

              	 
	
                Title:

              	 
	
                Broker
                  DTC Participant Code:

              	 
	
                Account
                  Number:

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