SECURITIES PURCHASE AGREEMENT
 
 
THIS SECURITIES PURCHASE AGREEMENT (“Agreement”) is made as of the 25th day of
January, 2007 by and among Long-e International, Inc., a Utah corporation
(“Company”) and the investors set forth on the signature pages affixed hereto
(each an “Investor” and collectively the “Investors”).
 
Recitals
 
A.  The Company and the Investors are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by the
provisions 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; and
 
B.  Certain of the Investors wish to purchase from the Company, and the Company
wishes to sell and issue to such Investors, upon the terms and conditions stated
in this Agreement, (i) an aggregate of $5.812 Million of convertible promissory
notes in the form attached hereto as Exhibit A (each a “Note” and together the
“Notes” and, together with certain Preferred Stock of the Company into which the
Notes may be converted, the “Convertible Security”) which Notes will be
convertible into Fourteen Million Five Hundred Thirty Thousand (14,530,000)
shares of Common Stock or Preferred Stock of the Company in accordance with the
terms of the Notes, (ii) Series A warrants to purchase an aggregate of Seven
Million Two Hundred Sixty Five Thousand (7,265,000) shares of Common Stock at an
exercise price of $0.48 per share in the form attached hereto as Exhibit A-2,
(collectively, the “Series A Warrants”) and (iii) Series B warrants to purchase
an aggregate of Seven Million Two Hundred Sixty Five Thousand (7,265,000) shares
of Common Stock at an exercise price of $0.60 per share in the form attached
hereto as Exhibit A-3, (collectively, the “Series B Warrants” and together with
the Series A Warrants, the “Warrants”), in each case, for an aggregate purchase
price of $5.812 Million (the “Purchase Price”); and
 
C.  Contemporaneous with the sale of the Notes and the Warrants, the parties
hereto will execute and deliver an Amended and Restated Registration Rights
Agreement, in the form attached hereto as Exhibit B (the “Registration Rights
Agreement”), pursuant to which the Company will agree to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder, and applicable state securities laws;
and
 
D.  The Company has retained WestPark Capital, Inc. (“WestPark”) to act as its
exclusive placement agent in connection with the sale of the securities pursuant
to this Agreement (WestPark, together with any authorized co-placement or
sub-agents thereof, the “Placement Agent”)
 

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In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
 
1. Definitions. In addition to those terms defined above and elsewhere in this
Agreement, for the purposes of this Agreement, the following terms shall have
the meanings set forth below:
 
“Affiliate” means, with respect to any Person, any other Person which directly
or indirectly through one or more intermediaries Controls, is controlled by, or
is under common control with, such Person.
 
“Business Day” means a day, other than a Saturday or Sunday, on which banks in
New York City are open for the general transaction of business.
 
“Common Stock” means the Company’s common stock, par value $0.001 per share, and
any securities into which the common stock may be reclassified.
 
“Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
 
“Company’s Knowledge” means the actual knowledge of the executive officers (as
defined in Rule 405 under the 1933 Act) of the Company, after due inquiry.
 
“Confidential Information” means trade secrets, confidential information and
know-how (including but not limited to ideas, formulae, compositions, processes,
procedures and techniques, research and development information, computer
program code, performance specifications, support documentation, drawings,
specifications, designs, business and marketing plans, and customer and supplier
lists and related information).
 
“Control” (including the terms “controlling”, “controlled by” or “under common
control with”) means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
 
“December Purchase Agreement” means that Securities Purchase Agreement dated as
of December 29, 2006 by and among the Company (formerly Inncardio, Inc.), Long-E
International Group Co., Ltd. and certain investors.
 
“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to
employees, officers or directors of the Company pursuant to any stock or option
plan or other arrangement duly adopted by the Board of Directors of the Company
established for such purpose up to an aggregate of 10% of the outstanding shares
of Common Stock outstanding immediately following the closing of the
transactions contemplated by the Purchase Agreement (after giving effect to the
conversion into Common Stock of all convertible promissory notes issued further
to the Purchase Agreement, (b) securities upon the exercise of or conversion of
any Securities issued hereunder or issued to the Placement Agent and its
designees for the transactions contemplated hereunder or further to the December
Purchase Agreement, or convertible securities, options or warrants issued and
outstanding on the date of this Agreement, provided that such securities have
not been amended since the date of this Agreement to increase the number of such
securities, and (c) debt or equity issued pursuant to strategic transactions
with an operating company in a business synergistic with the business of the
Company at the time of such issuance and in which the Company receives benefits
in addition to the investment of funds or pursuant to arms’-length acquisitions
or arms’-length equipment leases, but shall not include a transaction in which
the Company is issuing securities primarily for the purpose of raising capital
or to an entity whose primary business is investing in securities.
 
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“Intellectual Property” means all of the following: (i) patents, patent
applications, patent disclosures and inventions (whether or not patentable and
whether or not reduced to practice); (ii) trademarks, service marks, trade
dress, trade names, corporate names, logos, slogans and Internet domain names,
together with all goodwill associated with each of the foregoing; (iii)
copyrights and copyrightable works; (iv) registrations, applications and
renewals for any of the foregoing; and (v) proprietary computer software
(including but not limited to data, data bases and documentation).
 
“Material Adverse Effect” means a material adverse effect on (i) the assets,
liabilities, results of operations, condition (financial or otherwise),
business, or prospects of the Company and its Subsidiaries taken as a whole, or
(ii) the ability of the Company to perform its obligations under the Transaction
Documents.
 
“Person” means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.
 
“Preferred Stock” means shares of preferred stock of the Company with rights and
preferences set forth in the Certificate of Designations, Rights and Preferences
attached as Exhibit A to the Note.
 
“Registration Statement” has the meaning set forth in the Registration Rights
Agreement.
 
“SEC Filings” has the meaning set forth in Section 4.9
 
“Securities” means, collectively, the Notes, the Common Stock and/or Preferred
Stock issuable upon conversion of the Notes, the Warrants and the Warrant
Shares.
 
“Subsidiary” of any Person means another Person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests of which) is owned directly or indirectly by such first Person.
 
“Transaction Documents” means this Agreement, the Notes, the Warrants, the
warrants to be issued to the Placement Agent, the Escrow Agreement and the
Registration Rights Agreement.
 
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“Warrant Shares” means the shares of Common Stock issuable upon the exercise of
the Warrants.
 
“1933 Act” means the Securities Act of 1933, as amended, or any successor
statute, and the rules and regulations promulgated thereunder.
 
“1934 Act” means the Securities Exchange Act of 1934, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.
 
2. Purchase and Sale of the Notes and Warrants. Subject to the terms and
conditions of this Agreement, on the Closing Date (and by Subsequent Closing),
each of the Investors shall severally, and not jointly, purchase, and the
Company shall sell and issue to the Investors, the Notes and the Series A
Warrants and the Series B Warrants in the respective amounts set forth opposite
the Investors’ names on the signature pages attached hereto in exchange for the
Purchase Price as specified in Section 3 below.
 
3. Closing.
 
3.1 Simultaneously with the execution and delivery of this Agreement, the
Company shall deliver to the Placement Agent, in trust, the Notes, the Series A
Warrants and the Series B Warrants, registered in such name or names as the
Investors may designate, with instructions that such securities are to be held
for release to the Investors only upon payment in full of the Purchase Price to
the Company by all the Investors.
 
3.2  a) Simultaneously with the execution and delivery of this Agreement by an
Investor, such Investor shall: promptly cause a wire transfer of immediately
available funds (U.S. dollars) in an amount representing the “Purchase Price”,
as set forth on such Investor’s signature page, to be paid to an escrow account
of Escrow Agent, set forth on Schedule I affixed hereto (the aggregate amounts
being held in escrow are referred to herein as the “Escrow Amount”). Escrow
Agent shall hold the Escrow Amount in escrow in accordance with this Section 3.
 
(b) Escrow Agent shall hold the Escrow Amount in escrow in accordance with and
subject to the terms of that certain Escrow Agreement dated as of January 17,
2007, by and among the Company, the Placement Agent and the Escrow Agent.
 
(c) On the date the Company receives the Purchase Price of at least $3.4 million
in the aggregate from the Investors pursuant to the terms and conditions of this
Agreement (the “Closing Date”), the Notes, the Series A Warrants and the Series
B Warrants shall be released by the Placement Agent to the Investors (the
“Closing”). The Closing (and each Subsequent Closing) of the purchase and sale
of the Notes and Warrants shall take place at the offices of Kirkpatrick &
Lockhart Preston Gates Ellis LLP, 10100 Santa Monica, Blvd., Seventh Floor, Los
Angeles, California 90067, or at such other location and on such other date as
the Company and the Investors shall mutually agree. Immediately following the
Closing, the capitalization of the Company shall be as set forth on Exhibit C.
 
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3.3 At any time on or before February 28, 2007, the Company may sell up to an
additional $459,000 principal amount of Notes not sold as of the Closing to such
persons and in the amounts as may be approved by the Company, subject to the
limitations of the following sentence. The parties acknowledge that such sales
may be made pursuant to the exercise of rights described in Section 7.8 of the
December Purchase Agreement; to the extent that such parties decline to exercise
said rights, any such unpurchased Notes may not be reoffered by the Company to
other parties. All such purchases of Notes shall be made on the terms and
conditions set forth in this Agreement. Such purchases of Notes shall be made by
each subsequent purchaser by executing counterpart signature pages to this
Agreement and the other Transaction Documents, making such purchaser a party and
bound by the terms and conditions of this Agreement and such Transaction
Documents. Any Notes and Warrants sold pursuant to this Section 1.4 shall be
deemed to be “Notes” and “Warrants” for all purposes under this Agreement and
any purchasers thereof shall be deemed to be “Investors” under this Agreement
and each of the Transaction Documents. Each sale of additional Notes pursuant to
this Section 3.3 shall be deemed a “Subsequent Closing.” Exhibit C to this
Agreement shall be updated to reflect the Notes and Warrants purchased at each
Subsequent Closing and the parties purchasing such Notes and Warrants.
 
4. Representations and Warranties of the Company. For purposes of this Section 4
only, the Company hereby represents and warrants to the Investors and the
Placement Agent that, except as set forth in the schedules delivered herewith
(collectively, the “Disclosure Schedules”):
 
4.1 Organization, Good Standing and Qualification. Each of the Company and its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite power and
authority to carry on its business as now conducted and to own its properties.
Each of the Company and its Subsidiaries is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property makes such
qualification or leasing necessary unless the failure to so qualify has not had
and could not reasonably be expected to have a Material Adverse Effect. The
Company’s Subsidiaries are listed in the SEC Filings.
 
4.2  Authorization. The Company has full power and authority and has taken all
requisite action on the part of the Company, its officers, directors and
stockholders necessary for (i) the authorization, execution and delivery of the
Transaction Documents, (ii) the authorization of the performance of all
obligations of the Company hereunder or thereunder, and (iii) the authorization,
issuance (or reservation for issuance) and delivery of the Securities. The
Transaction Documents constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability, relating to or affecting creditors’
rights generally.
 
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4.3 Capitalization. The SEC Filings sets forth (a) the authorized capital stock
of the Company on the date hereof; (b) the number of shares of capital stock
issued and outstanding; (c) the number of shares of capital stock issuable
pursuant to the Company’s stock plans; and (d) the number of shares of capital
stock issuable and reserved for issuance pursuant to securities (other than the
Securities) exercisable for, or convertible into or exchangeable for any shares
of capital stock of the Company. All of the issued and outstanding shares of the
Company’s capital stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of pre-emptive rights and were issued in
compliance with applicable state and federal securities law and any rights of
third parties. All of the issued and outstanding shares of capital stock of each
Subsidiary have been duly authorized and validly issued and are fully paid,
nonassessable and free of pre-emptive rights, were issued in compliance with
applicable state and federal securities law and any rights of third parties and
are owned by the Company, beneficially and of record, subject to no lien,
encumbrance or other adverse claim. No Person is entitled to pre-emptive or
similar statutory or contractual rights with respect to any securities of the
Company. Except as described in the SEC Filings, there are no outstanding
warrants, options, convertible securities or other rights, agreements or
arrangements of any character under which the Company or any of its Subsidiaries
is or may be obligated to issue any equity securities of any kind and except as
contemplated by this Agreement, neither the Company nor any of its Subsidiaries
is currently in negotiations for the issuance of any equity securities of any
kind. Except as described in the SEC Filings and except for the Registration
Rights Agreement and as set forth in the December Purchase Agreement, there are
no voting agreements, buy-sell agreements, option or right of first purchase
agreements or other agreements of any kind among the Company and any of the
securityholders of the Company relating to the securities of the Company held by
them. Except as described in the SEC Filings and except as provided in the
Registration Rights Agreement, no Person has the right to require the Company to
register any securities of the Company under the 1933 Act, whether on a demand
basis or in connection with the registration of securities of the Company for
its own account or for the account of any other Person.
 
The issuance and sale of the Securities hereunder will not obligate the Company
to issue shares of Common Stock or other securities to any other Person (other
than the Investors) and will not result in the adjustment of the exercise,
conversion, exchange or reset price of any outstanding security.
 
The Company does not have outstanding stockholder purchase rights or “poison
pill” or any similar arrangement in effect giving any Person the right to
purchase any equity interest in the Company upon the occurrence of certain
events.
 
4.4 Valid Issuance. The Notes have been duly and validly authorized when issued
and paid for pursuant to this Agreement, shall be free and clear of all
encumbrances and restrictions (other than those created by the Investors),
except for restrictions on transfer set forth in the Transaction Documents or
imposed by applicable securities laws. The Warrants have been duly and validly
authorized. Upon the conversion of the Notes, the conversion of the Preferred
Stock, if issued, and due exercise of the Warrants in accordance with the terms
of the Warrants, shares of Common Stock and/or Preferred Stock issued upon
conversion of the Notes, the Warrant Shares, respectively, will be validly
issued, fully paid and non-assessable free and clear of all encumbrances and
restrictions, except for restrictions on transfer set forth in the Transaction
Documents or imposed by applicable securities laws and except for those created
by the Investors. The Company has reserved a sufficient number of shares of
Common Stock for issuance upon the conversion of the Notes (or the Preferred
Stock) and the exercise of the Warrants, free and clear of all encumbrances and
restrictions, except for restrictions on transfer set forth in the Transaction
Documents or imposed by applicable securities laws and except for those created
by the Investors. But for the stockholder approval referenced in Section 7.10
herein, the Series A Preferred Stock has been duly and validly authorized.
 
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4.5 Consents. The execution, delivery and performance by the Company of the
Transaction Documents and the offer, issuance and sale of the Securities require
no consent of, action by or in respect of, or filing with, any Person,
governmental body, agency, or official other (a) stockholder approval of the
creation of “blank check” preferred stock and (b) than filings that have been
made pursuant to applicable state securities laws and post-sale filings pursuant
to applicable state and federal securities laws which the Company undertakes to
file within the applicable time periods. Subject to the accuracy of the
representations and warranties of each Investor set forth in Section 6 hereof,
the Company has taken all action necessary to exempt (i) the issuance and sale
of the Securities, (ii) the issuance of the Warrant Shares upon due exercise of
the Warrants, and (iii) the other transactions contemplated by the Transaction
Documents from the provisions of any stockholder rights plan or other “poison
pill” arrangement, any anti-takeover, business combination or control share law
or statute binding on the Company or to which the Company or any of its assets
and properties may be subject and any provision of the Company’s Articles of
Incorporation or Bylaws that is or could reasonably be expected to become
applicable to the Investors as a result of the transactions contemplated hereby,
including without limitation, the issuance of the Securities and the ownership,
disposition or voting of the Securities by the Investors or the exercise of any
right granted to the Investors pursuant to this Agreement or the other
Transaction Documents.
 
4.6 Delivery of Memorandum and SEC Filings; Business. The Company has made
available to the Investors through the EDGAR system, true and complete copies of
the Company’s most recent Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2005 (the “10-KSB”), and all other reports filed by the Company
pursuant to the 1934 Act since the filing of the 10-KSB and prior to the date
hereof (collectively, the “SEC Filings”). The SEC Filings are the only filings
required of the Company pursuant to the 1934 Act for such period. The Company
and its Subsidiaries are engaged in all material respects only in the business
described in the SEC Filings and the SEC Filings contain a complete and accurate
description in all material respects of the business of the Company and its
Subsidiaries, taken as a whole.
 
4.7 Use of Proceeds. The net proceeds of the sale of the Notes and the Warrants
hereunder shall be used by the Company for working capital and general corporate
purposes.
 
4.8 No Material Adverse Change. Since September 30, 2006, except as identified
and described in the SEC Filings there has not been:
 
(a) any change in the consolidated assets, liabilities, financial condition or
operating results of the Company from that reflected in the financial statements
included in the SEC Filings, except for changes in the ordinary course of
business which have not had and could not reasonably be expected to have a
Material Adverse Effect, individually or in the aggregate;
 
(b) any declaration or payment of any dividend, or any authorization or payment
of any distribution, on any of the capital stock of the Company, or any
redemption or repurchase of any securities of the Company;
 
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(c) any material damage, destruction or loss, whether or not covered by
insurance to any assets or properties of the Company or its Subsidiaries;
 
(d) any waiver, not in the ordinary course of business, by the Company or any
Subsidiary of a material right or of a material debt owed to it;
 
(e) any satisfaction or discharge of any lien, claim or encumbrance or payment
of any obligation by the Company or a Subsidiary, except in the ordinary course
of business and which is not material to the assets, properties, financial
condition, operating results, business or prospects of the Company and its
Subsidiaries taken as a whole (as such business is presently conducted and as it
is proposed to be conducted);
 
(f) any change or amendment to the Company’s Articles of Incorporation or Bylaws
or other organizational documents, or material change to any material contract
or arrangement by which the Company or any Subsidiary is bound or to which any
of their respective assets or properties is subject;
 
(g) any material labor difficulties or labor union organizing activities with
respect to employees of the Company or any Subsidiary;
 
(h) any material transaction entered into by the Company or a Subsidiary other
than in the ordinary course of business;
 
(i) the loss of the services of any key employee, or material change in the
composition or duties of the senior management of the Company or any Subsidiary;
 
(j) the loss or threatened loss of any customer which has had or could
reasonably be expected to have a Material Adverse Effect; or
 
(k) any other event or condition of any character that has had or could
reasonably be expected to have a Material Adverse Effect.
 
4.9 SEC Filings. At the time of filing thereof, the SEC Filings complied as to
form in all material respects with the requirements of the 1934 Act and did not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
 
4.10 No Conflict, Breach, Violation or Default. The execution, delivery and
performance of the Transaction Documents by the Company and the issuance and
sale of the Securities will not (A) result in a violation of any of the terms
and provisions of (i) the Company’s Articles of Incorporation or the Company’s
Bylaws, both as in effect on the date hereof, or (ii) any statute, rule,
regulation or order of any governmental agency or body or any court, domestic or
foreign, having jurisdiction over the Company, any Subsidiary or any of their
respective assets or properties the violation of which, either individually or
in the aggregate, would not have a Material Adverse Effect, or (B) conflict with
or result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any agreement or instrument to which the Company or
any Subsidiary is a party or by which the Company or a Subsidiary is bound or to
which any of their respective assets or properties is subject the violation of
which, either individually or in the aggregate, would not have a Material
Adverse Effect.
 
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4.11 Tax Matters. The Company and each Subsidiary has timely prepared and filed
all tax returns required to have been filed by the Company or such Subsidiary
with all appropriate governmental agencies and timely paid all taxes shown
thereon or otherwise owed by it. The charges, accruals and reserves on the books
of the Company in respect of taxes for all fiscal periods are adequate in all
material respects, and there are no material unpaid assessments against the
Company or any Subsidiary nor, to the Company’s Knowledge, any basis for the
assessment of any additional taxes, penalties or interest for any fiscal period
or audits by any federal, state or local taxing authority except for any
assessment which is not material to the Company and its Subsidiaries, taken as a
whole. All taxes and other assessments and levies that the Company or any
Subsidiary is required to withhold or to collect for payment have been duly
withheld and collected and paid to the proper governmental entity or third party
when due. There are no tax liens or claims pending or, to the Company’s
Knowledge, threatened against the Company or any Subsidiary or any of their
respective assets or property. Except as described on Schedule 4.11, there are
no outstanding tax sharing agreements or other such arrangements between the
Company and any Subsidiary or other corporation or entity.
 
4.12 Title to Properties. Except as disclosed in the SEC Filings, the Company
and each Subsidiary has good and marketable title to all real properties and all
other properties and assets owned by it, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or currently planned to be made thereof
by them; and except as disclosed in the SEC Filings, the Company and each
Subsidiary holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.
 
4.13 Certificates, Authorities and Permits. The Company and each Subsidiary
possess adequate certificates, authorities or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business now operated
by it, and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authority or permit that, if determined adversely to the Company or such
Subsidiary, could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.
 
4.14 Labor Matters.
 
(a) Except as set forth in the SEC Filings, neither the Company nor any
Subsidiary is a party to or bound by any collective bargaining agreements or
other agreements with labor organizations. Neither the Company nor any
Subsidiary has violated in any material respect any laws, regulations, orders or
contract terms, affecting the collective bargaining rights of employees, labor
organizations or any laws, regulations or orders affecting employment
discrimination, equal opportunity employment, or employees’ health, safety,
welfare, wages and hours.
 
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(b) (i) There are no labor disputes existing, or to the Company’s Knowledge,
threatened, involving strikes, slow-downs, work stoppages, job actions,
disputes, lockouts or any other disruptions of or by the employees of the
Company or any Subsidiary, (ii) there are no unfair labor practices or petitions
for election pending or, to the Company’s Knowledge, threatened before the
National Labor Relations Board or any other federal, state or local labor
commission relating to the employees of the Company or any Subsidiary, (iii) no
demand for recognition or certification heretofore made by any labor
organization or group of employees is pending with respect to the Company or any
Subsidiary and (iv) to the Company’s Knowledge, the Company and each of its
Subsidiaries, enjoys good labor and employee relations with its employees and
labor organizations.
 
(c) The Company and each of its Subsidiaries is in compliance in all material
respects with all applicable laws respecting employment (including laws relating
to classification of employees and independent contractors) and employment
practices, terms and conditions of employment, wages and hours, and immigration
and naturalization. There are no claims pending or, to the Company’s Knowledge,
threatened against the Company or any Subsidiary before the Equal Employment
Opportunity Commission or any other administrative body or in any court
asserting any violation of Title VII of the Civil Rights Act of 1964, the Age
Discrimination Act of 1967, 42 U.S.C. §§ 1981 or 1983 or any other foreign,
federal, state or local law, statute or ordinance barring discrimination in
employment.
 
(d) Except as disclosed in the SEC Filings, neither the Company nor any
Subsidiary is not a party to, or bound by, any employment or other contract or
agreement that contains any severance, termination pay or change of control
liability or obligation, including, without limitation, any “excess parachute
payment,” as defined in Section 280(g) of the Internal Revenue Code of 1986, as
amended.
 
4.15 Intellectual Property.
 
(a) All Intellectual Property of the Company and its Subsidiaries is currently
in compliance with all material legal requirements (including timely filings,
proofs and payments of fees) and is valid and enforceable. No Intellectual
Property of the Company or its Subsidiaries which is necessary for the conduct
of Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted has been or is now involved
in any cancellation, dispute or litigation, and, to the Company’s Knowledge, no
such action is threatened. No patent of the Company or its Subsidiaries has been
or is now involved in any interference, reissue, re-examination or opposition
proceeding.
 
(b) All of the licenses and sublicenses and consent, royalty or other agreements
concerning Intellectual Property which are necessary for the conduct of the
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted to which the Company or any
Subsidiary is a party or by which any of their assets are bound (other than
generally commercially available, non custom, off the shelf software application
programs having a retail acquisition price of less than $500 per license)
(collectively, “License Agreements”) are valid and binding obligations of the
Company or its Subsidiaries that are parties thereto and, to the Company’s
Knowledge, the other parties thereto, enforceable in accordance with their
terms, except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors’ rights generally, and
there exists no event or condition which will result in a material violation or
breach of or constitute (with or without due notice or lapse of time or both) a
default by the Company or any of its Subsidiaries under any such License
Agreement.
 
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(c) The Company and its Subsidiaries own or have the valid right to use all of
the Intellectual Property that is necessary for the conduct of the Company’s and
each of its Subsidiaries’ respective businesses as currently conducted or as
currently proposed to be conducted and for the ownership, maintenance and
operation of the Company’s and its Subsidiaries’ properties and assets, free and
clear of all liens, encumbrances, adverse claims or obligations to license all
such owned Intellectual Property and Confidential Information, other than
licenses entered into in the ordinary course of the Company’s and its
Subsidiaries’ businesses. The Company and its Subsidiaries have a valid and
enforceable right to use all third party Intellectual Property and Confidential
Information used or held for use in the respective businesses of the Company and
its Subsidiaries.
 
(d) To the Company’s Knowledge, the conduct of the Company’s and its
Subsidiaries’ businesses as currently conducted does not infringe or otherwise
impair or conflict with (collectively, “Infringe”) any Intellectual Property
rights of any third party or any confidentiality obligation owed to a third
party the Intellectual Property and Confidential Information of the Company and
its Subsidiaries which are necessary for the conduct of Company’s and each of
its Subsidiaries’ respective businesses as currently conducted or as currently
proposed to be conducted are not being Infringed by any third party. There is no
litigation or order pending or outstanding or, to the Company’s Knowledge,
threatened or imminent, that seeks to limit or challenge or that concerns the
ownership, use, validity or enforceability of any Intellectual Property or
Confidential Information of the Company and its Subsidiaries and the Company’s
and its Subsidiaries’ use of any Intellectual Property or Confidential
Information owned by a third party, and, to the Company’s Knowledge, there is no
valid basis for the same.
 
(e) The consummation of the transactions contemplated hereby and by the other
Transaction Documents will not result in the alteration, loss, impairment of or
restriction on the Company’s or any of its Subsidiaries’ ownership or right to
use any of the Intellectual Property or Confidential Information which is
necessary for the conduct of Company’s and each of its Subsidiaries’ respective
businesses as currently conducted or as currently proposed to be conducted.
 
(f) The Company and its Subsidiaries have taken reasonable steps to protect the
Company’s and its Subsidiaries’ rights in their Intellectual Property and
Confidential Information.
 
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4.16 Environmental Matters. Neither the Company nor any Subsidiary is in
violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, “Environmental Laws”), owns or operates any real
property contaminated with any substance that is subject to any Environmental
Laws, is liable for any off-site disposal or contamination pursuant to any
Environmental Laws, or is subject to any claim relating to any Environmental
Laws, which violation, contamination, liability or claim has had or could
reasonably be expected to have a Material Adverse Effect, individually or in the
aggregate; and there is no pending or, to the Company’s Knowledge, threatened
investigation that might lead to such a claim.
 
4.17 Litigation. Except as described or in the SEC Filings there are no pending
actions, suits or proceedings against the Company, its Subsidiaries or any of
its or their properties; and to the Company’s Knowledge, no such actions, suits
or proceedings are threatened or contemplated.
 
4.18 Financial Statements. The financial statements included in each SEC Filing
present fairly, in all material respects, the consolidated financial position of
the Company as of the dates shown and its consolidated results of operations and
cash flows for the periods shown, and such financial statements have been
prepared in conformity with United States generally accepted accounting
principles applied on a consistent basis (“GAAP”) (except as may be disclosed
therein or in the notes thereto, and, in the case of quarterly financial
statements, as permitted by Form 10-QSB under the 1934 Act). Except as set forth
in the financial statements of the Company included in the SEC Filings filed
prior to the date hereof, neither the Company nor any of its Subsidiaries has
incurred any liabilities, contingent or otherwise, except those incurred in the
ordinary course of business, consistent (as to amount and nature) with past
practices since the date of such financial statements, none of which,
individually or in the aggregate, have had or could reasonably be expected to
have a Material Adverse Effect.
 
4.19 Insurance Coverage. The Company and each Subsidiary maintains in full force
and effect insurance coverage that is customary for comparably situated
companies for the business being conducted and properties owned or leased by the
Company and each Subsidiary, and the Company reasonably believes such insurance
coverage to be adequate against all liabilities, claims and risks against which
it is customary for comparably situated companies to insure.
 
4.20 Brokers and Finders. Except for the Placement Agent, no Person will have,
as a result of the transactions contemplated by the Transaction Documents, any
valid right, interest or claim against or upon the Company, any Subsidiary or an
Investor for any commission, fee or other compensation pursuant to any
agreement, arrangement or understanding entered into by or on behalf of the
Company.
 
4.21 No Directed Selling Efforts or General Solicitation. Neither the Company
nor any Person acting on its behalf has conducted any general solicitation or
general advertising (as those terms are used in Regulation D) in connection with
the offer or sale of any of the Securities.
 
4.22 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 Company security or solicited any offers to buy any
security, under circumstances that would adversely affect reliance by the
Company on Section 4(2) for the exemption from registration for the transactions
contemplated hereby or would require registration of the Securities under the
1933 Act.
 
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4.23 Private Placement. Subject to the accuracy of the representations and
warranties of the Investors set forth in Section 5, the offer and sale of the
Securities to the Investors as contemplated hereby is exempt from the
registration requirements of the 1933 Act.
 
4.24 Questionable Payments. Neither the Company nor any of its Subsidiaries nor,
to the Company’s Knowledge, any of their respective current or former
stockholders, directors, officers, employees, agents or other Persons acting on
behalf of the Company or any Subsidiary, has on behalf of the Company or any
Subsidiary or in connection with their respective businesses: (a) used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (b) made any direct or
indirect unlawful payments to any governmental officials or employees from
corporate funds; (c) established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; (d) made any false or fictitious entries on
the books and records of the Company or any Subsidiary; or (e) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment of
any nature.
 
4.25 Transactions with Affiliates. Except as disclosed in the SEC Filings, none
of the officers or directors of the Company and, to the Company’s Knowledge,
none of the employees of the Company is presently a party to any transaction
with the Company or any Subsidiary (other than as holders of stock options
and/or warrants, and for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the Company’s Knowledge, any entity in which
any officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
 
4.26 Internal Controls. The Company is in material compliance with the
provisions of the Sarbanes-Oxley Act of 2002 currently applicable to the
Company. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in 1934
Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure
controls and procedures to ensure that material information relating to the
Company, including the Subsidiaries, is made known to the certifying officers by
others within those entities, particularly during the period in which the
Company’s most recently filed period report under the 1934 Act, as the case may
be, is being prepared. The Company’s certifying officers have evaluated the
effectiveness of the Company’s controls and procedures as of the end of the
period covered by the most recently filed periodic report under the 1934 Act
(such date, the “Evaluation Date”). The Company presented in its most recently
filed periodic report under the 1934 Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no significant changes in the Company’s internal controls (as such
term is defined in Item 308 of Regulation S-K) or, to the Company’s Knowledge,
in other factors that could significantly affect the Company’s internal
controls. The Company maintains and will continue to maintain a standard system
of accounting established and administered in accordance with GAAP and the
applicable requirements of the 1934 Act.
 
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4.27 Disclosures. Neither the Company nor any Person acting on its behalf has
provided the Investors or their agents or counsel with any information that
constitutes or might constitute material, non-public information. The written
materials delivered to the Investors in connection with the transactions
contemplated by the Transaction Documents do not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
 
5. Representations and Warranties of the Investors. Each of the Investors hereby
severally, and not jointly, represents and warrants to the Company that:
 
5.1 Organization and Existence. To the extent indicated on the signature pages
hereto, such Investor either (i) an individual or a, (ii) corporation, (iii)
limited partnership or (iv) limited liability company validly existing under the
laws of its state of incorporation or formation, as applicable, and has, as
applicable, all requisite corporate, partnership or limited liability company
power and authority to invest in the Securities pursuant to this Agreement.
 
5.2 Authorization. The execution, delivery and performance by such Investor of
the Transaction Documents to which such Investor is a party have been duly
authorized and will each constitute the valid and legally binding obligation of
such Investor, enforceable against such Investor in accordance with their
respective terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability, relating
to or affecting creditors’ rights generally.
 
5.3 Purchase Entirely for Own Account. The Securities to be received by such
Investor hereunder will be acquired for such Investor’s own account, not as
nominee or agent, and not with a view to the resale or distribution of any part
thereof in violation of the 1933 Act, and such Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same in
violation of the 1933 Act without prejudice, subject, however, to such
Investor’s right at all times to sell or otherwise dispose of all or any part of
such Securities in compliance with applicable federal and state securities laws.
Nothing contained herein shall be deemed a representation or warranty by such
Investor to hold the Securities for any period of time. Such Investor is not a
broker-dealer registered with the SEC under the 1934 Act or an entity engaged in
a business that would require it to be so registered.
 
5.4 Investment Experience. Such Investor acknowledges that it can bear the
economic risk and complete loss of its investment in the Securities and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment contemplated hereby.
 
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5.5 Disclosure of Information. Such Investor has had an opportunity to receive
all information related to the Company requested by it and to ask questions of
and receive answers from the Company regarding the Company, its business and the
terms and conditions of the offering of the Securities. Such Investor
acknowledges receipt of copies of the SEC Filings. Neither such inquiries nor
any other due diligence investigation conducted by such Investor shall modify,
limit or otherwise affect such Investor’s right to rely on the Company’s
representations and warranties contained in this Agreement.
 
5.6 Restricted Securities. Such Investor understands that the Securities are
characterized as “restricted securities” under the U.S. federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the 1933 Act only in
certain limited circumstances.
 
5.7 Legends. It is understood that, except as provided below, certificates
evidencing the Securities may bear the following or any similar legend:
 
(a) “The securities represented hereby may not be transferred unless (i) such
securities have been registered for sale pursuant to the Securities Act of 1933,
as amended, (ii) such securities may be sold pursuant to Rule 144(k), or (iii)
the Company has received an opinion of counsel reasonably satisfactory to it
that such transfer may lawfully be made without registration under the
Securities Act of 1933 or qualification under applicable state securities laws.”
 
(b) If required by the authorities of any state in connection with the issuance
of sale of the Securities, the legend required by such state authority.
 
5.8 Accredited Investor. Such Investor is an accredited investor as defined in
Rule 501(a) of Regulation D, as amended, under the 1933 Act. The definition of
“accredited investor” is annexed hereto.
 
5.9 No General Solicitation. Such Investor did not learn of the investment in
the Securities as a result of any general solicitation or general advertising.
 
5.10 Brokers and Finders. No Person will have, as a result of the transactions
contemplated by the Transaction Documents, any valid right, interest or claim
against or upon the Company, any Subsidiary or an Investor for any commission,
fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of such Investor.
 
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5.11 Prohibited Transactions. During the last thirty (30) days prior to the date
hereof, neither such Investor nor any Affiliate of such Investor which (x) had
knowledge of the transactions contemplated hereby, (y) has or shares discretion
relating to such Investor’s investments or trading or information concerning
such Investor’s investments, including in respect of the Securities, or (z) is
subject to such Investor’s review or input concerning such Affiliate’s
investments or trading (collectively, “Trading Affiliates”) has, directly or
indirectly, effected or agreed to effect any short sale, whether or not against
the box, established any “put equivalent position” (as defined in Rule 16a-1(h)
under the 1934 Act) with respect to the Common Shares, granted any other right
(including, without limitation, any put or call option) with respect to the
Common Shares or with respect to any security that includes, relates to or
derived any significant part of its value from the Common Shares or otherwise
sought to hedge its position in the Securities (each, a “Prohibited
Transaction”). Prior to the filing by the Company of a Current Report on Form
8-K announcing the transactions contemplated hereby, such Investor shall not,
and shall cause its Trading Affiliates not to, engage, directly or indirectly,
in a Prohibited Transaction. Such Investor acknowledges that the
representations, warranties and covenants contained in this Section 6.11 are
being made for the benefit of the Investors as well as the Company and that each
of the other Investors shall have an independent right to assert any claims
against such Investor arising out of any breach or violation of the provisions
of this Section 6.11.
 
6. Conditions to Closing.
 
6.1 Conditions to the Investors’ Obligations. The obligation of each Investor to
purchase the Notes and the Warrants at Closing is subject to the fulfillment to
such Investor’s satisfaction, on or prior to the Closing Date, of the following
conditions, any of which may be waived by such Investor (as to itself only):
 
(a) The representations and warranties made by the Company in Section 4 hereof
qualified as to materiality shall be true and correct on the Closing Date,
except to the extent any such representation or warranty expressly speaks as of
an earlier date, in which case such representation or warranty shall be true and
correct as of such earlier date, and, the representations and warranties made by
the Company in Section 4 hereof not qualified as to materiality shall be true
and correct in all material respects on the Closing Date, except to the extent
any such representation or warranty expressly speaks as of an earlier date, in
which case such representation or warranty shall be true and correct in all
material respects as of such earlier date. The Company shall have performed all
obligations and covenants herein required to be performed by it on or prior to
the Closing Date, including without limitation those contained in Section 3.1
hereof.
 
(b) The Company shall have obtained any and all consents, permits, approvals,
registrations and waivers necessary or appropriate for consummation of the
purchase and sale of the Notes and the Warrants and the consummation of the
other transactions contemplated by the Transaction Documents to be consummated
on or prior to the Closing Date, all of which shall be in full force and effect.
 
(c) The Company shall have executed and delivered to the Placement Agent each of
the Transition Documents.
 
(d) No judgment, writ, order, injunction, award or decree of or by any court, or
judge, justice or magistrate, including any bankruptcy court or judge, or any
order of or by any governmental authority, shall have been issued, and no action
or proceeding shall have been instituted by any governmental authority,
enjoining or preventing the consummation of the transactions contemplated hereby
or in the other Transaction Documents.
 
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(e) The Company shall have delivered a Certificate, executed on behalf of the
Company by its Chief Executive Officer or its Chief Financial Officer, dated as
of the Closing Date, certifying to the fulfillment of the conditions specified
in subsections (a), (b) and (d) of this Section 6.1.
 
(f) The Company shall have delivered a Certificate, executed on behalf of the
Company by its Secretary, dated as of the Closing Date, certifying the
resolutions adopted by the Board of Directors of the Company approving, as
applicable, the transactions contemplated by this Agreement and the other
Transaction Documents, and the issuance of the Securities, certifying the
current versions of its Articles of Incorporation and Bylaws or other
organizational documents and certifying as to the signatures and authority of
persons signing the Transaction Documents and related documents on its behalf.
 
(g) No stop order or suspension of trading shall have been imposed by the SEC or
any other governmental or regulatory body with respect to public trading in the
Common Stock.
 
(h) The Company and the Placement Agent shall have received executed signature
pages from Investors representing purchases of the Securities of at least $3.0
million in the aggregate.
 
(i) The Notes and Warrants shall have been deposited with the Escrow Agent in
accordance with the terms of Section 3.1 hereof.
 
6.2 Conditions to Obligations of the Company. The Company’s obligation to sell
and issue the Notes and the Warrants at the Closing is subject to the
fulfillment to the satisfaction of the Company on or prior to the Closing Date
of the following conditions, any of which may be waived by the Company:
 
(a) The representations and warranties made by the Investors in Section 6
hereof, other than the representations and warranties contained in Sections 5.3,
5.4, 5.5, 5.6, 5.7, 5.8 and 5.9 (the “Investment Representations”), shall be
true and correct in all material respects when made, and shall be true and
correct in all material respects on the Closing Date with the same force and
effect as if they had been made on and as of said date. The Investment
Representations shall be true and correct in all respects when made, and shall
be true and correct in all respects on the Closing Date with the same force and
effect as if they had been made on and as of said date. The Investors shall have
performed in all material respects all obligations and covenants herein required
to be performed by them on or prior to the Closing Date.
 
(b) The Investors shall have executed and delivered the Registration Rights
Agreement.
 
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6.3 Termination of Obligations to Effect Closing; Effects.
 
(a) The outstanding obligations of the Company, on the one hand, and the
Investors, on the other hand, to effect any Closing shall terminate as follows:
 
(i) Upon the mutual written consent of the Company and the Investors;
 
(ii) By the Company if any of the conditions set forth in Section 6.2 shall have
become incapable of fulfillment, and shall not have been waived by the Company;
 
(iii) By an Investor (with respect to itself only) if any of the conditions set
forth in Section 6.1 shall have become incapable of fulfillment, and shall not
have been waived by the Investor;
 
(iv) By either the Company or any Investor (with respect to itself only) if the
Closing has not occurred on or prior to February 28, 2007; or
 
provided, however, that, except in the case of clause (i) above, the party
seeking to terminate its obligation to effect a Closing shall not then be in
breach of any of its representations, warranties, covenants or agreements
contained in this Agreement or the other Transaction Documents if such breach
has resulted in the circumstances giving rise to such party’s seeking to
terminate its obligation to effect the Closing.
 
(b) In the event of termination by any Investor of its obligations to effect a
Closing pursuant to this Section 6.3, written notice thereof shall forthwith be
given to the other Investors and the other Investors shall have the right to
terminate their obligations to effect such Closing upon written notice to the
Company and the other Investors. Nothing in this Section 6.3 shall be deemed to
release any party from any liability for any breach by such party of the terms
and provisions of this Agreement or the other Transaction Documents or to impair
the right of any party to compel specific performance by any other party of its
obligations under this Agreement or the other Transaction Documents.
 
7. Covenants and Agreements of the Company.
 
7.1 Reservation of Common Stock. The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of providing for the conversion of the Notes and/or Preferred Stock,
if any, and the exercise of the Warrants such number of shares of Common Stock
as shall from time to time equal the Warrant Shares issuable from time to time
and shares of Common Stock underlying the Notes and/or Preferred Stock, if any.
 
7.2 Reports. The Company will furnish to the Investors and/or their assignees
such information relating to the Company and its Subsidiaries as from time to
time may reasonably be requested by the Investors and/or their assignees;
provided, however, that the Company shall not disclose material, non-public
information to the Investors, or to advisors to or representatives of the
Investors, unless prior to disclosure of such information the Company identifies
such information as being material, non-public information and provides the
Investors, such advisors and representatives with the opportunity to accept or
refuse to accept such material, non-public information for review and any
Investor wishing to obtain such information enters into an appropriate
confidentiality agreement with the Company with respect thereto.
 
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7.3 No Conflicting Agreements. The Company will not take any action, enter into
any agreement or make any commitment that would conflict or interfere in any
material respect with the Company’s obligations to the Investors under the
Transaction Documents.
 
7.4 Insurance. The Company shall not materially reduce the insurance coverages
described in Section 4.19.
 
7.5 Compliance with Laws. The Company will comply in all material respects with
all applicable laws, rules, regulations, orders and decrees of all governmental
authorities.
 
7.6 Termination of Covenants. The provisions of Sections 7.2 through 7.5 shall
terminate and be of no further force and effect on the date on which the
Company’s obligations under the Registration Rights Agreement to register or
maintain the effectiveness of any registration covering the Registrable
Securities (as such term is defined in the Registration Rights Agreement) shall
terminate.
 
7.7 Removal of Legends. Upon the earlier of (i) registration for resale pursuant
to the Registration Rights Agreement or (ii) Rule 144(k) becoming available the
Company shall (A) deliver to the Company’s transfer agent for the Common Stock
(the “Transfer Agent”) irrevocable instructions that the Transfer Agent shall
reissue a certificate representing shares of Common Stock without legends upon
receipt by such Transfer Agent of the legended certificates for such shares,
together with either (1) a customary representation by the Investor that Rule
144(k) applies to the shares of Common Stock represented thereby or (2) a
statement by the Investor that such Investor has sold the shares of Common Stock
represented thereby in accordance with the Plan of Distribution contained in the
Registration Statement, and (B) cause its counsel to deliver to the Transfer
Agent one or more blanket opinions to the effect that the removal of such
legends in such circumstances may be effected under the 1933 Act. From and after
the earlier of such dates, upon an Investor’s written request, the Company shall
promptly cause certificates evidencing the Investor’s Securities to be replaced
with certificates which do not bear such restrictive legends, and Warrant Shares
or shares of Common Stock issuable upon conversion of the Notes and/or Preferred
Stock, if any subsequently issued upon due exercise of the Warrants shall not
bear such restrictive legends provided the provisions of either clause (i) or
clause (ii) above, as applicable, are satisfied with respect to such Warrant
Shares or conversion shares, as applicable. When the Company is required to
cause unlegended certificates that replace previously issued legended
certificates to be prepared by the Transfer Agent and delivered to the holders
thereof, if unlegended certificates are not delivered to an Investor within five
(5) Business Days of submission by that Investor of legended certificate(s) to
the Transfer Agent as provided above (or to the Company, in the case of the
Warrants or the Notes and/or Preferred Stock, if any), the Company shall be
liable to the Investor for liquidated damages in an amount equal to 1.5% of the
aggregate purchase price of the Securities evidenced by such certificate(s) for
each thirty (30) day period (or portion thereof) beyond such five (5) Business
Day that the unlegended certificates have not been so delivered.
 
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7.8 Participation Right. Excluding the issuance of the Securities referenced in
Section 3.3 herein or as otherwise set forth in this Section 7.8, the Investors
shall have a pro rata right to participate in any subsequent placements of debt
or equity until one (1) year after the effective date of the initial
registration statement filed further to the Registration Rights Agreement on
terms no less favorable than those obtained by the Company from an unaffiliated
third party. Each Investor must notify the Company within 20 days following
their receipt of notice from the Company of such proposed financing of its
intention to participate in the financing, the closing of which shall occur
within 30 days following the Company’s receipt of such participation notice.
This participation right shall not apply to an Exempt Issuance. In the event
that there is such a subsequent placement of debt or equity to any of the
Investors, the Placement Agent will be entitled to receive cash compensation
with respect to the amount invested by such Investors based on the cash
commission rate paid to the Placement Agent for the Securities sold hereunder.
 
7.9 Subsequent Equity Sales. From the date hereof until such time as the
Investors hold shares of Preferred Stock, Notes and/or Warrants convertible or
exercisable, as the case may be, into an aggregate of less than 3.0 million
(3,000,000) shares of the Company’s Common Stock, the Company shall be
prohibited from effecting or entering into an agreement to effect a “Variable
Rate Transaction” or an “MFN Transaction” (each as defined below). The term
“Variable Rate Transaction” shall mean a transaction in which the Company issues
or sells (i) any debt or equity securities that are convertible into,
exchangeable or exercisable for, or include the right to receive additional
shares of Common Stock either (A) at a conversion, exercise or exchange rate or
other price that is based upon and/or varies with the trading prices of or
quotations for the shares of Common Stock at any time after the initial issuance
of such debt or equity securities, or (B) with a conversion, exercise or
exchange price that is subject to being reset at some future date after the
initial issuance of such debt or equity security or upon the occurrence of
specified or contingent events directly or indirectly related to the business of
the Company or the market for the Common Stock. The term “MFN Transaction” shall
mean a transaction in which the Company issues or sells any securities in a
capital raising transaction or series of related transactions which grants to an
investor the right to receive additional shares based upon future transactions
of the Company on terms more favorable than those granted to such investor in
such offering. Any Investor shall be entitled to obtain injunctive relief
against the Company to preclude any such issuance, which remedy shall be in
additional to any right to collect damages. Notwithstanding the foregoing this
Section 7.9 shall not apply in respect of an Exempt Issuance, except that no
Variable Rate Transaction or MFN Transaction shall be an Exempt Issuance.
 
7.10 Stockholder Resolutions. At or before the next annual meeting of the
stockholders of the Company, the Board of Directors shall propose and submit to
the holders of the Common Stock for approval of the following:
 
(a) adoption of that form of Certificate of Designations of Preferences, Rights
and Limitations of Series A Convertible Preferred Stock attached hereto as
Exhibit D and filing of the same with the Secretary of State of Utah (or such
other jurisdiction upon any reincorporation of the Company further to such
stockholder solicitation); and
 
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(b) an amendment to the Company’s Articles of Incorporation that provides
substantially as follows:
 
The Company shall not effect any conversion of the Series A Convertible
Preferred Stock or any exercise of any Series A or Series B Warrants to purchase
shares of Common Stock, and no Holder shall have the right to convert any
portion of the Series A Preferred Stock or exercise any such warrant to the
extent that after such conversion or exercise, as the case may be, the Holder
would beneficially own in excess of 9.9% of the then issued and outstanding
shares of common stock. This provision may be waived or amended only with the
consent of the subject Holder and the consent of holders of a majority of the
shares of outstanding Common Stock who are not Affiliates. Solely for purposes
of the foregoing, the term “Affiliate” shall mean any person: (a) that directly,
or indirectly through one or more intermediaries, controls or is controlled by,
or is under common control with the Company or (b) who beneficially owns (i) as
an original purchaser any shares of Common Stock issued further to the December
Purchase Agreement, (ii) any shares of the Company’s Series A Convertible
Preferred Stock or (iii) any Series A or Series B Warrant(s) to purchase shares
of the Company’s Common Stock issued further to the December Purchase Agreement
or this Agreement.
 
8. Survival and Indemnification.
 
8.1 Survival. The representations, warranties, covenants and agreements
contained in this Agreement shall survive the Closing of the transactions
contemplated by this Agreement for a period of 18 months following the Closing.
 
8.2 Indemnification. The Company agree to indemnify and hold harmless each
Investor and the Placement Agent and their respective Affiliates and their
respective directors, officers, employees and agents from and against any and
all losses, claims, damages, liabilities and expenses (including without
limitation reasonable attorneys’ fees and disbursements and other expenses
incurred in connection with investigating, preparing or defending any action,
claim or proceeding, pending or threatened and the costs of enforcement thereof)
(collectively, “Losses”) to which such Person may become subject as a result of
any breach of representation, warranty, covenant or agreement made by or to be
performed on the part of the Company under the Transaction Documents, and will
reimburse any such Person for all such amounts as they are incurred by such
Person.
 
8.3 Conduct of Indemnification Proceedings. Promptly after receipt by any Person
(the “Indemnified Person”) of notice of any demand, claim or circumstances which
would or might give rise to a claim or the commencement of any action,
proceeding or investigation in respect of which indemnity may be sought pursuant
to Section 8.2, such Indemnified Person shall promptly notify the Company in
writing, and the Company shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Person, and
shall assume the payment of all fees and expenses; provided, however, that the
failure of any Indemnified Person so to notify the Company shall not relieve the
Company of its obligations hereunder except to the extent that the Company is
materially prejudiced by such failure to notify. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless: (i) the Company and the Indemnified Person shall have mutually agreed to
the retention of such counsel; or (ii) in the reasonable judgment of counsel to
such Indemnified Person representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
The Company shall not be liable for any settlement of any proceeding effected
without its written consent, which consent shall not be unreasonably withheld,
but if settled with such consent, or if there be a final judgment for the
plaintiff, the Company shall indemnify and hold harmless such Indemnified Person
from and against any loss or liability (to the extent stated above) by reason of
such settlement or judgment. Without the prior written consent of the
Indemnified Person, which consent shall not be unreasonably withheld, the
Company shall not effect any settlement of any pending or threatened proceeding
in respect of which any Indemnified Person is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such settlement includes an unconditional release of such Indemnified Person
from all liability arising out of such proceeding.
 
21

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9. Miscellaneous.
 
9.1 Successors and Assigns. This Agreement may not be assigned by a party hereto
without the prior written consent of the Company or the Investors, as
applicable; provided, however, that an Investor may assign its rights and
delegate its duties hereunder in whole or in part to an Affiliate or to a third
party acquiring some or all of its Securities in a private transaction without
the prior written consent of the Company or the other Investors, after notice
duly given by such Investor to the Company; provided further, that no such
assignment or obligation shall affect the obligations of such Investor
hereunder. The provisions of this Agreement shall inure to the benefit of and be
binding upon the respective permitted successors and assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto and the Placement Agent or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
 
9.2 Counterparts; Faxes. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may also
be executed via facsimile, which shall be deemed an original.
 
9.3 Titles and Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
 
9.4 Notices. Unless otherwise provided, any notice required or permitted under
this Agreement shall be given in writing and shall be deemed effectively given
as hereinafter described (i) if given by personal delivery, then such notice
shall be deemed given upon such delivery, (ii) if given by telex or telecopier,
then such notice shall be deemed given upon receipt of confirmation of complete
transmittal, (iii) if given by mail, then such notice shall be deemed given upon
the earlier of (A) receipt of such notice by the recipient or (B) three days
after such notice is deposited in first class mail, postage prepaid, and (iv) if
given by an internationally recognized overnight air courier, then such notice
shall be deemed given one Business Day after delivery to such carrier. All
notices shall be addressed to the party to be notified at the address as
follows, or at such other address as such party may designate by ten days’
advance written notice to the other party:
 
22

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If to the Company:
 
Long-E International Group Co., Ltd.
C-6F, Huhan Chuangxin Block, Keyuan Road,
Hi-Tech Industry Zone,
Shenzhen, 518000, Guangdong, China
Telephone: (86) 755 3396 5188
Facsimile: (86) 755 3396 5123
Attention: Chairman of the Board
 
With a copy to (which shall not constitute notice):
 
Kirkpatrick & Lockhart Preston Gates Ellis LLP
10100 Santa Monica Boulevard, Seventh Floor
Los Angeles, California 90067
Facsimile: (310) 552-5001
Attention: Thomas Poletti, Esq.
 
If to the Investors:
 
to the addresses set forth on the signature pages hereto, with copies, as it
relates to notices sent to Vision Opportunity Master Fund, Ltd. to (which shall
not constitute notice):
 
Olshan Grundman Frome Rosenzweig & Wolosky LLP
Park Avenue Tower
65 East 55th Street
New York, New York 10022
Facsimile: (212) 451-2222
Attention: Kenneth M. Silverman, Esq.
 
9.5 Expenses. The parties hereto shall pay their own costs and expenses in
connection herewith, except that the Company shall pay the reasonable fees and
expenses of Olshan Grundman Frome Rosenzweig & Wolosky LLP, counsel to Vision
Opportunity Master Fund, Ltd. All of such fees and expenses shall be deducted
from the Escrow Amount pursuant to signed written instructions of the Company
and the Placement Agent.
 
9.6 Amendments and Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors holding eighty five percent (85%)
of the principal amount of Notes issued further to this Agreement and then
outstanding. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of any Securities purchased under this
Agreement at the time outstanding, each future holder of all such Securities,
and the Company.
 
23

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9.7 Publicity. Except as set forth below, no public release or announcement
concerning the transactions contemplated hereby shall be issued by the Company
or the Investors without the prior consent of the Company (in the case of a
release or announcement by the Investors) or the Investors (in the case of a
release or announcement by the Company) (which consents shall not be
unreasonably withheld), except as such release or announcement may be required
by law or the applicable rules or regulations of any securities exchange or
securities market, in which case the Company or the Investors, as the case may
be, shall allow the Investors or the Company, as applicable, to the extent
reasonably practicable in the circumstances, reasonable time to comment on such
release or announcement in advance of such issuance. By 8:30 a.m. (New York City
time) on the trading day immediately following the Closing Date, the Company
shall issue a press release disclosing the consummation of the transactions
contemplated by this Agreement on such Closing Date. No later than the next
trading day following the Closing Date, the Company will file a Current Report
on Form 8-K attaching the press release described in the foregoing sentence as
well as copies of the Transaction Documents and any material, non-public
information that was disclosed on or prior to the Closing Date to any of the
Investors. In addition, the Company will make such other filings and notices in
the manner and time required by the SEC. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Investor, or include the
name of any Investor in any filing with the SEC (other than the Registration
Statement and any exhibits to filings made in respect of this transaction in
accordance with periodic filing requirements under the 1934 Act) or any
regulatory agency, without the prior written consent of such Investor, except to
the extent such disclosure is required by law or trading market regulations, in
which case the Company shall provide the Investors with prior notice of such
disclosure.
 
9.8 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof but shall be interpreted as if it were written so as
to be enforceable to the maximum extent permitted by applicable law, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which
renders any provision hereof prohibited or unenforceable in any respect.
 
9.9 Entire Agreement. This Agreement, including the Exhibits and the Disclosure
Schedules, and the other Transaction Documents constitute the entire agreement
among the parties hereof with respect to the subject matter hereof and thereof
and supersede all prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter hereof and thereof.
 
9.10 Further Assurances. The parties shall execute and deliver all such further
instruments and documents and take all such other actions as may reasonably be
required to carry out the transactions contemplated hereby and to evidence the
fulfillment of the agreements herein contained.
 
24

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9.11 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of New York without regard to the choice of law principles
thereof to the extent that the general application of the laws of another
jurisdiction would be required thereby. Each of the parties hereto irrevocably
submits to the exclusive jurisdiction of the courts of the State of New York
located in New York County and the United States District Court for the Southern
District of New York for the purpose of any suit, action, proceeding or judgment
relating to or arising out of this Agreement and the transactions contemplated
hereby. Service of process in connection with any such suit, action or
proceeding may be served on each party hereto anywhere in the world by the same
methods as are specified for the giving of notices under this Agreement. Each of
the parties hereto irrevocably consents to the jurisdiction of any such court in
any such suit, action or proceeding and to the laying of venue in such court.
Each party hereto irrevocably waives any objection to the laying of venue of any
such suit, action or proceeding brought in such courts and irrevocably waives
any claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY
RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS
AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS
WAIVER.
 
9.12 Independent Nature of Investors’ Obligations and Rights. The obligations of
each Investor under any Transaction Document are several and not joint with the
obligations of any other Investor, and no Investor shall be responsible in any
way for the performance of the obligations of any other Investor under any
Transaction Document. The decision of each Investor to purchase Securities
pursuant to the Transaction Documents has been made by such Investor
independently of any other Investor. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents. Each Investor shall be entitled to independently protect and enforce
its rights, including, without limitation, the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investors and not because it was required or
requested to do so by any Investor.
 
25

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IN WITNESS WHEREOF, the parties have executed this Agreement or caused their
duly authorized officers to execute this Agreement as of the date first above
written.
 

        LONG-E INTERNATIONAL, INC.  
   
   
    By:   /s/ Bu Shengfu  

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Name: Bu Shengfu   Title:   Chairman and CEO

 

26

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The Investors:
BARRON PARTNERS LP
         
By:
/s/ Andrew Barron Worden    
Name:
Andrew Barron Worden
   
Title:
Managing Partner
   
Purchase Price:
$3.4 Million
Principal Amount of Notes:
$3.4 Million
Number of Series A Warrants:
4,250,000
Number of Series B Warrants:
4,250,000
   
Address for Notice:
c/o Barron Capital Advisors LLC
730 Fifth Avenue, 9th Floor
New York, NY 10019
Telephone (212) 659-7790
Facsimile (646) 607-2223

 
 
 
 
 
[Signature page to Securities Purchase Agreement]

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The Investors:
VISION OPPORTUNITY MASTER FUND, LTD
         
By:
 /s/ Adam Benowitz    
Name:
Adam Benowitz
   
Title:
Managing Partner
   
Purchase Price:
$1.0 Million
Principal Amount of Notes:
$1.0 Million
Number of Series A Warrants:
1,250,000
Number of Series B Warrants:
1,250,000
   
Address for Notice:
c/o Vision Capital Advisors LLC
20 W. 55th Street, 5th Floor
New York, NY 10019
Telephone (212) 849-8225
Facsimile (212) 867-1416

 
 
 
 
 
[Signature page to Securities Purchase Agreement]

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The Investors:
JCAR FUNDS LTD.
         
By:
/s/ Jon Carnes
   
Name:
Jon Carnes
   
Title:
     
Purchase Price:
$400,000
Principal Amount of Notes:
$400,000
Number of Series A Warrants:
500,000
Number of Series B Warrants:
500,000
   
Address for Notice:
205-3740 Chatham Street
Richmond, BC V7E 2Z3
CANADA
Attention: Jon Carnes
Facsimile (800) 542-9862

 
 
 
[Signature page to Securities Purchase Agreement]

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The Investors:
RAY RIVERS
         
By:
 /s/ Ray Rivers    
Name:
Ray Rivers
   
Title:
     
Purchase Price:
$100,000
Principal Amount of Notes:
$100,000
Number of Series A Warrants:
125,000
Number of Series B Warrants:
125,000
   
Address for Notice:
262 Harbor Drive
Stamford, CT 06902
Attention: Ray Rivers
Facsimile (203) 569-6400

 
 
[Signature page to Securities Purchase Agreement]
 

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The Investors:
STEVE MAZUR
         
By:
 /s/ Steve Mazur    
Name:
Steve Mazur
   
Title:
     
Purchase Price:
$100,000
Principal Amount of Notes:
$100,000
Number of Series A Warrants:
125,000
Number of Series B Warrants:
125,000
   
Address for Notice:
262 Harbor Drive
Stamford, CT 06902
Attention: Ray Rivers
Facsimile (203) 569-6400

 
 
 
 
[Signature page to Securities Purchase Agreement]

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The Investors:
WILLIAM DENKIN
         
By:
 /s/ William Denkin    
Name:
William Denkin
   
Title:
     
Purchase Price:
$100,000
Principal Amount of Notes:
$100,000
Number of Series A Warrants:
125,000
Number of Series B Warrants:
125,000
   
Address for Notice:
262 Harbor Drive
Stamford, CT 06902
Attention: Ray Rivers
Facsimile (203) 569-6400

 
 
 
 
[Signature page to Securities Purchase Agreement]

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The Investors:
NUTMEG / MERCURY FUND, LLP
         
By:
/s/ Randall Goulding
   
Name:
Randall Goulding
   
Title:
     
Purchase Price:
$153,000
Principal Amount of Notes:
$153,000
Number of Series A Warrants:
191,250
Number of Series B Warrants:
191,250
   
Address for Notice:
3346 Commercial Avenue
Northbrook, IL 60062
Attention: Randall Goulding
Facsimile (847) 291-7711

 
 
 
 
 
[Signature page to Securities Purchase Agreement]

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The Investors:
RONALD AND LINDA NASH JTWROS
         
By:
/s/ Ronald Nash
   
Name:
Ronald Nash
   
Title:
     
Purchase Price:
$100,000
Principal Amount of Notes:
$100,000
Number of Series A Warrants:
125,000
Number of Series B Warrants:
125,000
   
Address for Notice:
350 Madison Avenue, 11th Floor
New York, NY 10017
Attention: Ronald Nash
Facsimile (847) 291-7711

 
 
 
 
 
[Signature page to Securities Purchase Agreement]

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Definition of “Accredited Investor”
 
Category A ___
 
The undersigned is an individual (not a partnership, corporation, etc.) whose
individual net worth, or joint net worth with his or her spouse, presently
exceeds $1,000,000.
 
Category B ___
 
The undersigned is an individual (not a partnership, corporation, etc.) who had
an income in excess of $200,000 in each of the two most recent years, or joint
income with his or her spouse in excess of $300,000 in each of those years (in
each case including foreign income, tax exempt income and full amount of capital
gains and losses but excluding any income of other family members and any
unrealized capital appreciation) and has a reasonable expectation of reaching
the same income level in the current year.
 
Category C ___
 
The undersigned is a director or executive officer of the Company which is
issuing and selling the securities.
 
Category D ___
 
The undersigned is a bank; a savings and loan association; insurance company;
registered investment company; registered business development company; licensed
small business investment company (“SBIC”); or employee benefit plan within the
meaning of Title 1 of ERISA and (a) the investment decision is made by a plan
fiduciary which is either a bank, savings and loan association, insurance
company or registered investment advisor, or (b) the plan has total assets in
excess of $5,000,000 or (c) is a self directed plan with investment decisions
made solely by persons that are accredited investors.
 
Category E ___
 
The undersigned is a private business development company as defined in section
202(a)(22) of the Investment Advisors Act of 1940.
 
Category F ___
 
The undersigned is either a corporation, partnership, Massachusetts business
trust, or non-profit organization within the meaning of Section 501(c)(3) of the
Internal Revenue Code, in each case not formed for the specific purpose of
acquiring the Securities and with total assets in excess of $5,000,000.
 
Category G ___
 
The undersigned is a trust with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the Securities, where the purchase is
directed by a “sophisticated investor” as defined in Regulation 506(b)(2)(ii)
under the Act.
 
Category H ___
 
The undersigned is an entity (other than a trust) in which all of the equity
owners are “accredited investors” within one or more of the above categories. If
relying upon this Category alone, each equity owner must complete a separate
copy of this Agreement.
 

--------------------------------------------------------------------------------

SCHEDULE I
 
Wire Instructions:
 

 
Bank:
Wells Fargo Bank
1801 Avenue of the Stars
Los Angeles, CA 90067
             
ABA No.:
121000248
 
Account Name:
Subscription Escrow Account #3
 
Account No.:
5763556601
 
Reference:
Law Offices of David L. Kagel, A Professional Corporation

 

 

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EXHIBIT A-1
 
Form of Convertible Note
 
[See attached]
 
 
 

 

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EXHIBIT A-2
 
Form of Series A Warrant
 
[See attached.]
 
 
 

 

--------------------------------------------------------------------------------

EXHIBIT A-3
 
Form of Series B Warrant
 
[See attached.]
 
 
 

 

--------------------------------------------------------------------------------

EXHIBIT B
 
Form of Amended and Restated Registration Rights Agreement
 
[See attached.]
 
 
 

 

--------------------------------------------------------------------------------

EXHIBIT C
 
Post-Closing Capitalization
 
[See attached.]
 
 
 

 

--------------------------------------------------------------------------------

 
EXHIBIT D
 
Form of Certificate of Designations of Preferences,
 
Rights and Limitations of Series A Convertible Preferred Stock
 
[See attached.]
 
 

 
 

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