Document:

Unassociated Document

    SECURITIES PURCHASE
AGREEMENT

    

    THIS SECURITIES PURCHASE AGREEMENT
(this “Agreement”), dated as
of May 27, 2010, by and among NEOMEDIA TECHNOLOGIES INC., a
Delaware corporation (the “Company”), and the YA
Global Investments, L.P. (the “Buyer”) and/or
collectively the “Parties”.

     

    WITNESSETH

    

    WHEREAS, the Company and the
Buyer 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, as provided herein, and the Buyer shall
purchase (i) a $2,006,137.04 secured convertible debentures in the form attached
hereto as “Exhibit
A” (the “Convertible
Debenture”), which shall be convertible into shares of the Company’s
common stock, par value $0.001 (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 5,000,000 additional shares of Common Stock (as exercised, the
“Warrant
Shares”) which shall be funded within five business day following the
date hereof (the “Closing”) for a total
purchase price of $2,006,137.04, (the “Purchase
Price”);

     

    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 Ratification Agreement of even date herewith (the
“Ratification
Agreement”);

     

    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 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, the Buyer agrees to purchase at the
Closing and the Company agrees to sell and issue to the Buyer at the Closing the
Convertible Debenture and Warrants to acquire the Warrant
Shares.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (b)           Closing.  The
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 same business day as
the date hereof, subject to notification of satisfaction of the conditions to
the 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) (the “Closing
Date”).  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).

     

    (c)           Form of
Payment.  Subject to the satisfaction of the terms and
conditions of this Agreement, on the Closing Date, (i) the Buyer shall deliver
to the Company such aggregate proceeds for the Convertible Debenture and
Warrants to be issued and sold to such Buyer at the Closing, minus the fees to
be paid directly from the proceeds of the Closing as set forth herein and all
principal and accrued interest on the Promissory Note issued by the Buyer to the
Company on April 1, 2010 in the principal amount of $500,000 (the “April 2010 Note”),
and (ii) the Company shall deliver to the Buyer the Convertible Debenture
and Warrants duly executed on behalf of the Company.

     

    2.      BUYER’S REPRESENTATIONS AND
WARRANTIES.

     

    The Buyer
represents and warrants that:

     

    (a)           Investment
Purpose.  The 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, the 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.  The 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.  The Buyer is an “Accredited Investor”
as that term is defined in Rule 501(a)(3) of Regulation D.

     

    (c)           Reliance on
Exemptions.  The 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 the
Buyer’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.

     

    (d)           Information.  The
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
the Buyer.  The 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 the Buyer or its advisors, if any, or its
representatives shall modify, amend or affect the Buyer’s right to rely on the
Company’s representations and warranties contained in Section 3
below.  The Buyer understands that its investment in the Securities
involves a high degree of risk.  The 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.  The 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.  The 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.  The 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) the 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)
the 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.  The
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 the Buyer while the Buyer 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
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.  The 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.  The Buyer
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 the Buyer and is a valid and
binding agreement of the 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.  The 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, 2009 and
(iv) answers to all questions the Buyer submitted to the Company regarding an
investment in the Company; and the 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
Buyer.  The Buyer is an exempted limited partnership and has
been formed and validly exists under the laws of the Cayman Islands 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.  The 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.  The 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 the 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
Ratification Agreement, 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 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
Common Stock par value $0.001 and 25,000,000 shares of Preferred Stock, par
value $0.01 (“Preferred Stock”) of
which 22,707,093 shares of Common Stock are issued and 22,675,678 shares of
Common Stock are outstanding, respectively. The Company’s Preferred Stock
outstanding includes  8,642 shares of its Series C Convertible
Preferred Stock and 25,000 shares of its Series D Convertible Preferred Stock
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)
other than as disclosed in the SEC Documents, as
defined herein,  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 Buyer 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 Financial
Industry Regulatory Authority’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 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 (as defined
herein); Financial Statements.  The Company has filed all SEC
Documents, including 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 herein defined to be 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 Buyer or its
representatives, or made available through the SEC’s website at 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 Buyer which is not
included in the SEC Documents, including, without limitation, information
referred to in this Section 2(g) 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.  Except as disclosed in the SEC Documents, 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 have a
Material Adverse Effect.

     

    (j)           Acknowledgment Regarding
Buyer’s Purchase of the Convertible Debentures.  The Company
acknowledges and agrees that the 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 the 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 the Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to the Buyer’s purchase of the
Securities.  The Company further represents to the Buyer that the
Company’s decision to enter into this Agreement has been based solely on the
independent evaluation by the Company and its representatives.

     

    (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.  Except as disclosed in the SEC Documents, 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 independent
contractors, 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.  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 Buyer’s 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 Buyer 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 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
the 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 Buyer 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 Buyer 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 covenants to the following:

     

    (i)           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;

     

    (ii)      
   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 Buyer to sell such securities pursuant to
Rule 144 without registration; and

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (iii)         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 first, to pay all principal and accrued interest on
the April 2010 Note and then, for the general corporate purposes of the Company
and its subsidiaries including, without limitation, NeoMedia Europe
AG.

     

    (e)           Reservation of
Shares.  Upon the written request of the Buyer, 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 seek to increase
the Share Reserve accordingly.  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 seek to reduce
the par value of its Common Stock to $0.0001 or less or such number as may be
permitted under applicable law. If the Company is required to seek an increase
in its authorized and unissued shares of Common Stock available to increase the
Share Reserve, or reduce the par value of the company’s Common Stock, the
Company shall call and hold a special meeting of the shareholders within sixty
days of notice from the Buyer, for the sole purpose of increasing the number of
shares authorized and/or reducing the par value.  The Company’s
management shall recommend to the shareholders to vote in favor of increasing
the number of shares of Common Stock authorized and/or reducing the par value.
Management shall also vote all of its shares in favor of increasing the number
of authorized shares of Common Stock and/or reducing the par value.

     

    (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 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 (i) the Conversion Shares issuable upon conversion of the Convertible
Debentures, (ii) the Warrant Shares issued or issuable upon exercise of the
Warrants, (iii) any additional shares issuable in connection with any
anti-dilution provisions in the Warrants or the Convertible Debentures (without
giving effect to any limitations on exercise set forth in the Warrants or
Convertible Debentures) and (iv) any shares of Common Stock issued or issuable
with respect to the Conversion Shares, the Convertible Debentures, the Warrant
Shares, or the Warrants as a result of any stock split, dividend or other
distribution, recapitalization or similar event or otherwise, without regard to
any limitations on the conversion of the Convertible Debentures or exercise of
the Warrants (the “Registrable
Securities”) 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 pay a structuring and due diligence  fee to Yorkville
Advisors, LLC, the Buyer’s investment manager, of $90,000 which shall be paid
directly from the proceeds of the 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 the 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 years,
stockholders who beneficially own five percent 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 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 or more equity
interest in that person or entity, (ii) has ten percent 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 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, (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)           Short
Position.  Neither the Buyer nor any of its affiliates have an
open short position in the Common Stock of the Company, and the Buyer 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 Buyer 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 Buyer shall have
ten 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.  Within fifteen (15) days 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.  During the Registration Period, 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, 10-K and
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 Days 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.

     

    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 the 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 the 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 Buyer, which may be withheld by the Buyer in its
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 the 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 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 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)           The
Buyer shall have executed the Transaction Documents and delivered them to the
Company.

     

    (b)           The
Buyer shall have delivered to the Company the Purchase Price for the Convertible
Debentures and Warrants 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 shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date), and the Buyer 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 at or
prior to the Closing Date.

     

    7.      CONDITIONS TO THE BUYER’S
OBLIGATION TO PURCHASE.  The obligation of the Buyer hereunder
to purchase the Convertible Debentures at the Closing is subject to the
satisfaction, at or before the 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:

     

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

     

    (b)           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.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

     

    (d)           The
Company shall have executed and delivered to the Buyer the Convertible Debenture
and Warrants.

     

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

     

    (f)           The
Company shall have provided to the Buyer 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 Closing
Date.

     

    (g)           The
Company shall have delivered to the Buyer a certificate, executed by the
Secretary of the Company and dated as of the 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
Closing.

     

    (h)           The
Company and its subsidiaries shall have executed and delivered to the Buyer the
Ratification Agreement and all conditions to effectiveness thereof shall have
been satisfied as determined by the Buyer in its sole and exclusive
discretion.

     

    (i)       
    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.

     

    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 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
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 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 the
Buyer may be unenforceable for any reason, the 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.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (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, 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 days after being
sent by U.S. certified mail, return receipt requested, or (iv) one 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 or Chief Financial Officer

              
	 
      	
                Telephone:      
      678-638-0460 (X132)

              
	 
      	
                Facsimile:    
           678-638-0466

              
	 
      	 
      
	
                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
      the Buyer, to:

              	
                YA
      Global Investments, LP

              
	 
      	
                101
      Hudson Street, Suite 3700

              
	 
      	
                Jersey
      City, NJ 07302

              
	 
      	
                Attention:   
          Mark Angelo

              
	 
      	
                Telephone:   
        (201) 985-8300

              
	 
      	
                Facsimile:       
      (201) 985-8117

              
	 
      	 
      
	
                With
      a copy to:

              	
                YA
      Global Investments, LP

              
	 
      	
                101
      Hudson Street, Suite 3700

              
	 
      	
                Jersey
      City, NJ 07302

              
	 
      	
                Attention:   
          David Gonzalez

              
	 
      	
                Telephone:    
       (201) 985-8300

              
	 
      	
                Facsimile:        (201)
      985-8117

              
	 
      	 
      

      

    

    Each
party shall provide five 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 the 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 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, 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 in connection with any such press release or
other public disclosure prior to its release and Buyer 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 Closing shall not have occurred on or before five 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 for the fees and expenses of Yorkville Advisors, LLC
described in Section 4(g) above.

     

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

     

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

    

    [REMAINDER
PAGE INTENTIONALLY LEFT BLANK]

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    IN WITNESS WHEREOF, the 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/
      Michael W. Zima

                
	
                  Name:    Michael
      W. Zima

                
	
                  Title:      Chief
      Financial Officer

                

        

      

    

    

    
      
        
          
            
              
                
                  	
                          BUYER:

                        
	
                          YA
      GLOBAL INVESTMENTS, L.P.

                        
	 
      	 
      
	
                          By:

                        	
                          Yorkville
      Advisors, LLC

                        
	
                          Its:

                        	
                          Investment
      Manager

                        
	 
      	 
      
	
                          By:

                        	

                          /s/ Gerald
      Eicke  

                        
	
                          Name:   

                        	
                          Gerald
      Eicke

                        
	

                          Its:

                        	

                          Managing
      Member

                        
	
                        

                

              

            

          

        

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    LIST OF
EXHIBITS:

    

    Disclosure
Schedule

    

    Exhibit A
– Form of Convertible Debenture

    

    Exhibit B
– Form of Warrant

    

    Exhibit C
– Form of Lockup Agreement

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    DISCLOSURE
SCHEDULE

     

    Please
refer to the Officers’ Statement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
C

     

    LOCKUP
AGREEMENT

     

    The
undersigned hereby agrees that for a period commencing on May __, 2010 and
expiring on the date thirty 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 May __, 2010 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:
_______________, 2010

     

    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:  May 27, 2010

                	
                  Original
      Principal Amount:     $2,006,137.04

                
	
                  No.
      NEOM-10-1

                	 
      

        

      

    

    

    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 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 dated May 27, 2010 (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, 2012 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 a security interest in all of the assets of the Company
and of each of the Company’s subsidiaries as evidenced by the Ratification
Agreement of even date herewith (the “Ratification
Agreement”).

     

    (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, including any
Mandatory Redemption Amounts, or amounts hereunder) or any agreement between the
Company and/or any of its subsidiaries and the Holder, including without
limitation, the Transaction Documents;

     

    (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 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 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;

     

    (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 Trading Days of such
delisting: (a) the NYSE Amex, (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 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 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; or

     

    (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 the lesser of 20% per annum and the maximum interest rate
allowable by law 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)           REDEMPTION.

     

    (a)           Optional 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 an Optional Redemption,
the Company shall first provide written notice to the Holder of its intention to
make a redemption (the “Optional Redemption
Notice”) setting forth the amount of Principal it desires to
redeem.  After receipt of the Optional Redemption Notice the Holder
shall have 45 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 46th
Business Day after the Optional 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
45 Business Day period.

     

    (b)           Mandatory Cash
Redemption.  At any time after August 26, 2010, the Holder
shall have the right to require the Company to redeem (a “Mandatory
Redemption”) a portion or all amounts outstanding under this Debenture
prior the Maturity Date.  In order to require a Mandatory Redemption,
the Holder shall first notify the Company in writing (the “Mandatory Redemption
Notice”) that it is exercising its right to require a Mandatory
Redemption.  Upon thirty (30) Business Days (such date, the “Redemption Date”)
following receipt by the Company of the Mandatory Redemption Notice, the Company
must deliver to the Holder an amount in cash equal to the Mandatory Redemption
Amount. The “Mandatory
Redemption Amount” shall be an amount in cash equal to the greater of (i)
the Principal amount to be redeemed plus accrued Interest through the Redemption
Date and (ii) the lesser of (A) the product  obtained by multiplying
(x) the Conversion Rate (as defined below) based on a Conversion Amount (as
defined below) equal to the Principal amount to be redeemed plus accrued
Interest through the Redemption Date by (y) lowest Volume Weighted Average Price
during the 60 Trading Days immediately preceding the Redemption Date and (B)
149% of the Principal amount to be redeemed less any interest that has been
prepaid on such Principal amount in the calendar year in which such Redemption
Date occurs.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (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), any Redemption Date or
other date of determination the lesser of (a) $0.30 (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 60
Trading Days immediately preceding the Conversion Date, Redemption Date or other
date of determination (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 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 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 9.99% 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 9.99% 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.

     

    (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. In the event that the Company has  less than the
full number of such shares of Common Stock reserved and kept available for
issuance upon conversion, then only upon the written request of the Holder shall
the Company be required to promptly reserve and keep available a sufficient
number of shares of  Common Stock to comply with such requirement,
including, without limitation, calling and holding a meeting of the stockholders
of the Company within sixty (60) calendar days of such written request for the
sole purpose of increasing the number of authorized shares of Common Stock, and
the Board of Directors of the Company shall recommend to the stockholders a vote
in favor of such proposal and shall vote all shares held by them, in proxy or
otherwise, in favor of the proposal.  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 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 5 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 or Chief Financial Officer

                  
	 
      	
                    Telephone:

                  	
                    678-638-0460
      (x132)

                  
	 
      	
                    Facsimile:

                  	
                    678-638-0466

                  
	 
      	 
      
	
                    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 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 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 $.001, 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 sixty (60) 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 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) an Underlying Shares Registration Statement 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)           “Fundamental
Transaction”
means any of the following: (1) the Company effects any merger or
consolidation of the Company with or into another Person and the Company is the
non-surviving company (other than a merger or consolidation with a wholly owned
subsidiary of the Company for the purpose of redomiciling the Company), (2) the
Company effects any sale of all or substantially all of its assets in one or a
series of related transactions, (3) any tender offer or exchange offer (whether
by the Company or another Person) is completed pursuant to which holders of
Common Stock are permitted to tender or exchange their shares for other
securities, cash or property, or (4) the Company effects any reclassification of
the Common Stock or any compulsory share exchange pursuant to which the Common
Stock is effectively converted into or exchanged for other securities, cash or
property.

     

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

     

    (p)           “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.

     

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

     

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

     

    (s)           “Securities Purchase
Agreement” means the Securities Purchase Agreement dated May 27, 2010 by
and among the Company and the Holder, and any amendments and supplements
thereto.

     

    (t)  
         “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.

     

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

     

    (v)           “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.

     

    (w)          “Underlying Shares
Registration Statement” means a registration statement covering among
other things the resale of the Underlying Shares and naming the Holder as a
“selling stockholder” thereunder.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (x)           “Volume Weighted Average
Price” means, for any security as of any date, the daily dollar
volume-weighted average price of such security for such date on the Principal
Market as reported by Bloomberg, LP (based on a Trading Day from 9:30 a.m. (New
York City time) to 4:00 p.m. (New York City time) 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.

     

    (y)           “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/
      Michael W. Zima

                
	 
      	
                  Name:  Michael
      W. Zima

                
	 
      	
                  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 10-1 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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