SECURITIES PURCHASE, SETTLEMENT AND RELEASE AGREEMENT
 
THIS SECURITIES PURCHASE, SETTLEMENT AND RELEASE AGREEMENT (the “Agreement”) is
made as of the 31st day of December, 2007 by and among Long-e International,
Inc., a Utah corporation (the “Company”) and the investors set forth on the
signature pages affixed hereto (each an “Investor” and collectively the
“Investors”).
 
Recitals
 
A.  The Company completed a placement of its shares of Common Stock and warrants
to purchase its shares of Common Stock with certain purchasers in December 2006
(the “2006 Placement”) and a placement of notes convertible into shares of its
capital stock and warrants to purchase shares of its Common Stock with certain
purchasers in January 2007 (the “2007 Placement,” and together with the 2006
Placement, the “Prior Placements”); and
 
B.  Each of the Investors is party to that certain Amended and Restated
Registration Rights Agreement with the Company dated January 25, 2007 (the
“Senior Agreement”), pursuant to Section 7(f) of which the Company owes the
Investors liquidated damages payable in cash as set forth on Schedule I hereto
(the “Damages”) for its failure to file a registration statement on Form SB-2 by
the specified event date of April 30, 2007, registering certain of the
securities purchased in the Prior Placements; and
 
C.  The Company has provided notice to the Investors and other purchasers of its
securities in the Prior Placements that it desires to convert the liquidated
damages owed through December 31, 2007 pursuant to the Senior Agreement into
notes convertible into shares of the Company’s Common Stock in the form attached
hereto as Exhibit A (each a “Note” and together the “Notes,” and, together with
certain Common Stock of the Company into which the Notes may be converted, the
“Securities”) on certain terms and under specified conditions (the
“Conversion”); and
 
D.  The Investors have notified the Company of their desire to participate in
the Conversion upon the terms and conditions stated in this Agreement, whereby
the Investors will receive Notes in the principal amounts set forth on Schedule
I hereto; and
 
E.  The Investors in aggregate hold (i) a majority of registrable securities
subject to the Senior Agreement, allowing for waiver or amendment of terms of
the Senior Agreement pursuant to Section 7(g) thereof; and (ii) a majority of
the shares of the Company’s capital stock issuable upon exercise of the Series A
and Series B warrants to purchase shares of the Company’s Common Stock issued in
the Prior Placements (the “Series A and B Warrants”), allowing for waiver or
amendment of terms of the Series A and B Warrants pursuant to Section 10
thereof; and
 
F.  Contemporaneous with the conversion of the Damages into the Notes, the
parties hereto will execute and deliver a 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 (collectively, the “1933 Act”), and applicable state
securities laws, subordinate to the rights provided by the Senior Agreement; and
 
G.  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 1933 Act.
 
 
 

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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.
 
“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.
 
 
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“Registration Statement” has the meaning set forth in the Registration Rights
Agreement.
 
“SEC Filings” has the meaning set forth in Section 5.6.
 
“Securities” means, collectively, the Notes and the Common Stock issuable upon
conversion of the Notes.
 
“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 and the Registration
Rights Agreement.
 
“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 any Subsequent
Closing), each of the Investors shall severally, and not jointly, purchase, and
the Company shall sell and issue to the Investors, the Notes in the respective
amounts set forth opposite the Investors’ names on the signature pages and
Schedule I attached hereto in satisfaction of the equal amount of Damages owed
as specified in Sections 3 and 4 below.
 
3. Closing.
 
3.1 The “Closing Date” shall be the later of December 31, 2007 or the date the
Company receives the executed signatures pages to this Agreement from the
Investors pursuant to the terms and conditions of this Agreement. Within three
(3) business days of the execution and delivery of this Agreement, the Company
shall deliver to the Investors the Notes, registered in such name or names as
the Investors may designate, issued as of the Closing Date. The Closing (and
each Subsequent Closing) of the purchase and sale of the Notes 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.
 
3.2 At any time on or before January 11, 2008, the Company may issue up to an
additional $57,656.67 principal amount of Notes not converted and sold as of the
Closing to purchasers in the Prior Placement who did not elect to participate in
the initial Closing of the Conversion, as set forth on Schedule I hereto and
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 8.8 of the securities purchase agreement affecting the 2006 Placement
and Section 7.8 of the securities purchase agreement affecting the 2007
Placement; 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
sold pursuant to this Section 3.2 shall be deemed to be “Notes” 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 3.2 shall be deemed a
“Subsequent Closing.” Exhibit C to this Agreement shall be updated to reflect
the Notes purchased at each Subsequent Closing and the parties purchasing such
Notes.
 
 
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4. Settlement of Damages; Waiver of Anti-Dilution; Release of Claims.
 
4.1 Settlement of Damages. The Company and each of the Investors hereby mutually
agree to convert the Damages owed to such Investor through December 31, 2007
pursuant to Section 7(f) of the Senior Agreement into the Notes as described
herein in lieu of cash payment for and in full satisfaction of the Damages,
contingent upon and subject to the satisfaction of the covenants contained
herein. Each Investor (on its own behalf) agrees that upon Closing of the
transaction contemplated hereby, the Company will no longer owe the Investor any
cash payment with respect to the Damages accrued or incurred from April 30, 2007
through December 31, 2007. The Company hereby acknowledges that this transaction
does not affect or alter the rights of each Investor to enforce its rights to
any liquidated damages accruing pursuant to Section 7(f) of the Senior Agreement
from January 1, 2008 onward.
 
4.2 Waiver of Anti-Dilution Rights. In further consideration of the Company’s
willingness to issue the Notes and the Investors’ willingness to accept the
Notes in satisfaction of the Damages, and in acknowledgement of the detrimental
effect enforcement of such rights could have on the Company, its capitalization
and the value of its outstanding securities, each of the Investors, individually
and collectively, waive the adjustment provisions of Section 4 of the Series A
and B Warrants with respect to the issuance of the Notes in the Conversion and
agree that upon Closing (including any Subsequent Closing) no adjustment will be
made to the Series A and/or B Warrants held by such Investor at that time or
upon the issuance of the shares of Common Stock issuable upon conversion of the
Notes. The Company acknowledges and agrees that the waiver provided in this
Section 4.2 is applicable and effective solely with regards to the issuance of
the Notes hereunder and the issuance of the shares of Common Stock issuable upon
conversion of such Notes.
 
4.3 Non-Admission Of Liability. Each Investor acknowledges that, beyond those
facts and circumstances giving rise to the Damages, i.e., those “Events” as
defined in Section 7(f) of the Senior Agreement applicable to the Company as of
the date hereof, the Company denies any wrongdoing whatsoever under the Senior
Agreement and acknowledges that the Conversion and this Agreement are solely for
the purpose of providing for settlement of the negotiated Damages and waiving
potential claims and avoiding the time and expense of litigation related to the
Senior Agreement. It is expressly understood and agreed by each of the Investors
that nothing contained in this Agreement shall constitute or be treated as an
admission of any wrongdoing or liability on the part of any of the Parties.
 
4.4 No Filing Of Claims. Each of the Investors represents and warrants that it
does not presently have on file, and further represents and agrees to the
fullest extent permitted by law that it will not hereafter file, any claims,
charges, grievances, actions, appeals or complaints against any other Party in
or with any administrative, state, federal or governmental entity, agency, board
or court, or before any other tribunal or panel of arbitrators, public or
private, based upon any actions by the other occurring in connection with the
Damages, its rights pursuant to the Senior Agreement, or otherwise related to
the Company’s securities.
 
 
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4.5 Release Of Certain Claims. In further consideration for the issuance by the
Company of the Notes, each Investor, for itself and its affiliates, successors
and assigns, respectively, does hereby waive, release, acquit and forever
discharge the Company, from any and all claims, actions, charges, complaints,
grievances and causes of action (hereinafter collectively referred to as
“claims”), of whatever nature, whether known or unknown, which exist as of the
date of this Agreements as it relates to (i) the Damages, (ii) the Company’s
lack of timely filing of certain required reports with the SEC, and (iii) other
than in relation to the further accrual of liquidated damages pursuant to
Section 7(f) of the Senior Agreement, the Company’s failure to file a
registration statement pursuant to the Senior Agreement, including but not
limited to, any and all exclusive agency rights, rights to compensation
(including but not limited to cash, non-cash, residual and fee tail
compensation), statutory claims, all claims for injunctive relief, compensatory
damages, consequential damages, incidental damages, punitive damages interest,
costs, expenses, attorneys’ fees and/or any other type of damages or monetary
relief cognizable in law or equity, and any and all claims arising under any
federal, state, city and/or other governmental statute, law, regulation or
ordinance relating to corporate governance responsibilities or securities;
provided, however, that nothing in this Agreement shall waive, compromise or
otherwise negate the rights, privileges and claims directly provided under this
Agreement. It is further understood and agreed by each of the Investors, that as
a condition of this Agreement, each of the Investors hereby expressly waives and
relinquishes any and all claims, rights or benefits that it may have but of
which it does not know or suspect to exist in its favor at the time of executing
this Agreement relating solely to the items set forth in this Section
4.5(1)(i)-(iii), which if known by it must have materially affected its
settlement by such Investor, and further, in connection with such waiver and
relinquishment, the Investor hereby acknowledges that it or its attorneys may
hereafter discover claims or facts in addition to, or different from, those
which it now knows or believes to exist, but that it expressly agrees to fully,
finally and forever settle and release any and all claims, known or unknown,
suspected or unsuspected, which exist or may exist on its behalf against the
other at the time of execution of this Agreement. . Each Investor further
acknowledges, understands and agrees that this representation and commitment is
essential to the Company and the other Investors, and that this Agreement would
not have been entered into were it not for this representation and commitment.
 
4.6 Ownership Of Claims. Each of the Investors represents and warrants that it
is the sole and lawful owner of all rights, title and interest in and to all
released matters, claims and demands referred to herein, and further represents
and warrants that there has been no assignment or other transfer of any interest
in any such matters, claims or demands which such Investor may have against the
Company.
 
4.7 No Other Benefits Due. Each of the investors understands and agrees that
this Agreement is intended to and does bar all claims such Investor has or may
have for losses, damages, costs, expenses, penalties, attorneys’ fees or any
similar claims that such Investor could possibly have against the Company for
the Damages and that such Investor is not entitled to receive and will not claim
any right, benefit, or consideration other than what is set forth above in
Section 1, above.
 
5. Representations and Warranties of the Company. For purposes of this Section 5
only, the Company hereby represents and warrants to the Investors that, except
as set forth in the schedules delivered herewith (collectively, the “Disclosure
Schedules”):
 
5.1 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.
 
 
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5.2 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.
 
5.3 Capitalization. Exhibit C hereto 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 Senior Agreement
and the Registration Rights Agreement and as set forth in the securities
purchase agreements for the Prior Placements, 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 Senior Agreement and
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.
 
5.4 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. Upon the conversion of the Notes, the
shares of Common Stock issued upon conversion of the Notes 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.
 
 
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5.5 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 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.
 
5.6 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/A for the fiscal year
ended December 31, 2006 (the “10-KSB”), and all other Current Reports filed by
the Company pursuant to the 1934 Act since January 1, 2007 and prior to the date
hereof (collectively, the “SEC Filings”). Other than the Company’s Quarterly
Reports on Form 10-QSB, which the Company has not filed as of the date hereof,
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.
 
5.7 No Material Adverse Change. Since December 31, 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;
 
(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 as contemplated by the
Transaction Documents or 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;
 
 
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(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.
 
5.8 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.
 
5.9 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.
 
5.10 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. There are no outstanding tax sharing agreements
or other such arrangements between the Company and any Subsidiary or other
corporation or entity.
 
5.11 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.
 
 
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5.12 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.
 
5.13 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.
 
(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 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.
 
5.14 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.
 
 
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(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.
 
(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 and 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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5.15 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.
 
5.16 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, except for requests for payment
of Damages received from Investors prior to the notification of the proposed
Conversion.
 
5.17 Financial Statements. The financial statements included in the Company’s
Annual report of Form 10-KSB/A filed December 26, 2007 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”), and, except as set forth in the financial statements
of the Company included in the Form 10-KSB/A or otherwise disclosed in the SEC
Filings, 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.
 
5.18 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.
 
5.19 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 the Company.
 
5.20 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.
 
5.21 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.
 
5.22 Private Placement. Subject to the accuracy of the representations and
warranties of the Investors set forth in Section 6, the offer and sale of the
Securities to the Investors as contemplated hereby is exempt from the
registration requirements of the 1933 Act.
 
 
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5.23 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.
 
5.24 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.
 
5.25 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.
 
5.26 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.
 
 
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6. Representations and Warranties of the Investors. Each of the Investors hereby
severally, and not jointly, represents and warrants to the Company that:
 
6.1 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.
 
6.2 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.
 
6.3 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.
 
6.4 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.
 
6.5 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.
 
6.6 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.
 
6.7 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 (the “Securities Act”), (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 or qualification under applicable state securities
laws.”
 
 
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(b) If required by the authorities of any state in connection with the issuance
or sale of the Securities, the legend required by such state authority.
 
6.8 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.
 
6.9 No General Solicitation. Such Investor did not learn of the investment in
the Securities as a result of any general solicitation or general advertising.
 
6.10 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.
 
6.11 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 shares of Common Stock, granted any
other right (including, without limitation, any put or call option) with respect
to the shares of Common Stock or with respect to any security that includes,
relates to or derived any significant part of its value from the shares of
Common Stock 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.
 
7. Conditions to Closing.
 
7.1 Conditions to the Investors’ Obligations. The obligation of each Investor to
accept the Notes in satisfaction of the Damages and pursuant to Section 4
hereof, 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 5 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 5 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.
 
 
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(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 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) 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.
 
(d) 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 (c) of this Section 7.1.
 
(e) 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.
 
(f) 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.
 
7.2 Conditions to Obligations of the Company. The Company’s obligation to sell
and issue the Notes 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 6.3,
6.4, 6.5, 6.6, 6.7, 6.8 and 6.9 (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.
 
7.3 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;
 
 
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(ii) By the Company if any of the conditions set forth in Section 7.2 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 7.1 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 January 11, 2008; 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 7.3, 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 7.3 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.
 
8. Covenants and Agreements of the Company.
 
8.1 Reservation of Common Stock. In conjunction with the Company’s pending
amendment of its Articles of Incorporation pursuant to the terms of the 2007
Placement, the Company shall authorize additional shares of its Common Stock
such that at the time of the effectiveness of such amendment and at all times
thereafter the Company is able to, and shall, reserve and keep available out of
its authorized but unissued shares of Common Stock, sufficient shares solely for
the purpose of providing for the conversion of the Notes.
 
8.2 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.
 
8.3 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.
 
 
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8.4 Insurance. The Company shall not materially reduce the insurance coverages
described in Section 5.18.
 
8.5 Compliance with Laws. The Company will comply in all material respects with
all applicable laws, rules, regulations, orders and decrees of all governmental
authorities; provided, however, the Investors acknowledge that the Company is
not current in its Quarterly Reports on Form 10-QSB.
 
8.6 Termination of Covenants. The provisions of Sections 8.2 through 8.5 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.
 
8.7 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.
 
9. Survival and Indemnification.
 
9.1 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.
 
9.2 Indemnification. The Company agrees to indemnify and hold harmless each
Investor 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.
 
 
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9.3 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 9.2, 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.
 
10. Miscellaneous.
 
10.1 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 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.
 
10.2 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.
 
10.3 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.
 
10.4 Notices. Any notice, demand, request, waiver or other communication
required or permitted to be given hereunder shall be in writing and shall be
effective (a) upon hand delivery, telecopy, e-mail or facsimile at the address
or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
 
If to the Company:
 
Long-E International, Inc.
C-6F, Huhan Chuangxin Block, Keyuan Road,
Hi-Tech Industry Zone,
Shenzhen, 518000, Guangdong, China
Telephone: (86) 755 3396 5188
Attention: Chairman of the Board
Fax: 86-755-3396-5123

 
 
18

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with copies (which shall not constitute notice) to:
 
Kirkpatrick & Lockhart Preston Gates Ellis LLP
10100 Santa Monica Boulevard, Seventh Floor
Los Angeles, California 90067
Attention: Shoshannah D. Katz, Esq.
E-mail: shoshannah.katz@klgates.com
Fax: (310) 552-5001
     
If to any Purchaser:
 
At the address of such Purchaser set forth on Schedule I to this Agreement, with
copies to Purchaser’s counsel as set forth on Schedule I or as specified in
writing by such:

Any party hereto may from time to time change its address for notices by giving
at least ten (10) days written notice of such changed address to the other party
hereto.
 
10.5 Expenses. The parties hereto shall pay their own costs and expenses in
connection herewith.
 
10.6 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.
 
10.7 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 second 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 fourth 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; the Investors acknowledge that the Schedules and
Signature Pages to this Agreement are required to be filed by the Company with
the SEC.
 
 
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10.8 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.
 
10.9 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.
 
10.10 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.
 
10.11 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.
 
10.12 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.
 
 
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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                                                                        
  Name: Bu Shengfu                                               
                    Title: President and Chief Executive
Officer                       

 
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The Investors:
BARRON PARTNERS LP
         
By:
/s/ Andrew Worden
   
Name:
Andrew Barron Worden
   
Title:
Managing Partner
   
Damages Owed as of December 31, 2007: $555,333.33
 
Principal Amount of Notes: $555,333.33
     
Address for Notice:
730 Fifth Avenue, 25th Floor
New York, NY 10019
E-mail Address: abw@barronpartners.com

 
 
[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:
Director
   
Damages Owed as of December 31, 2007: $310,333.33
 
Principal Amount of Notes: $310,333.33
     
Address for Notice:
20 W. 55th Street, 5th Floor
New York, NY 10019
Attn: Antti Uusiheimala
E-mail Address: antti@visicap.com

 
 
[Signature page to Securities Purchase Agreement]

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The Investors:
JCAR FUNDS LTD.
         
By:
/s/ Jon Carnes
   
Name:
Jon Carnes
   
Title:
President
   
Damages Owed as of December 31, 2007: $65,333.33
 
Principal Amount of Notes: $65,333.33
     
Address for Notice:
2560 Highvale Dr.
Las Vegas, NV 89134
Attention: Jon Carnes
E-mail Address: jcarnes@eosfunds.com

 
 
[Signature page to Securities Purchase Agreement]

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The Investors:
RAY RIVERS
         
By:
/s/ Ray Rivers
   
Name:
Ray Rivers
   
Title:
     
Damages Owed as of December 31, 2007: $16,333.33
 
Principal Amount of Notes: $16,333.33
     
Address for Notice:
89 Mayo Ave.
Greenwich, CT 06830
E-mail Address: rrivers@gmail.com

 
 
[Signature page to Securities Purchase Agreement]

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The Investors:
STEVE MAZUR
         
By:
/s/ Steve Mazur
   
Name:
Steve Mazur
   
Title:
     
Damages Owed as of December 31, 2007: $16,333.33
 
Principal Amount of Notes: $16,333.33
     
Address for Notice:
200 Broad Street #2321
Stamford, CT 06901
E-mail Address: smazur@crtllc.com

 
 
[Signature page to Securities Purchase Agreement]

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The Investors:
WILLIAM DENKIN
         
By:
/s/ William Denkin
   
Name:
William Denkin
   
Title:
     
Damages Owed as of December 31, 2007: $16,333.33
 
Principal Amount of Notes: $16,333.33
     
Address for Notice:
14 Sandpiper Rd.
Westport, CT 06880
bdenkin@crtllc.com

 
 
[Signature page to Securities Purchase Agreement]

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The Investors:
RONALD NASH
         
By:
/s/ Ronald Nash
   
Name:
Ronald Nash
   
Title:
     
Damages Owed as of December 31, 2007: $16,333.33
 
Principal Amount of Notes: $16,333.33
     
Address for Notice:
134 Essex Drive3
Tenafly, NJ 07670
E-mail Address: ron@nashkaplove.com

 
 
[Signature page to Securities Purchase Agreement]

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The Investors:
KAGEL FAMILY TRUST
         
By:
/s/ David L. Kagel, Trustee
   
Name:
David L. Kagel
   
Title:
Trustee
   
Damages Owed as of December 31, 2007: $8,166.67
 
Principal Amount of Notes: $8,166.67
     
Address for Notice:
1801 Century Park East #2500
Los Angeles, CA 90067
Attention: David L. Kagel
E-mail Address: dkagel@earthlink.com

 
 
[Signature page to Securities Purchase Agreement]

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The Investors:
WestPark Capital Financial Services, LLC
         
By:
/s/ R. Rappaport
   
Name:
Richard Rappaport
   
Title:
CEO
   
Damages Owed as of December 31, 2007: $40,833.33
 
Principal Amount of Notes: $40,833.33
     
Address for Notice:
1900 Avenue of the Stars, Suite 310
Los Angeles, CA 90067
Attention: Richard Rappaport
E-mail Address: r@wpcapital.com

 
 
[Signature page to Securities Purchase Agreement]

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The Investors:
MidSouth Investor Fund LP
         
By:
/s/ Lyman O. Heidtke, G.P.
   
Name:
Lyman O. Heidtke
   
Title:
General Partner
   
Damages Owed as of December 31, 2007: $81,666.67
 
Principal Amount of Notes: $81,666.67
     
Address for Notice:
201 4th Ave. North
Suite 1950
Nashville, TN 37219
Attention: Lyman O. Heidtke (“Buzz”)
E-mail Address: buzz@msifund.com

 
 
[Signature page to Securities Purchase Agreement]

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SCHEDULE I

 
Amount Invested in Prior Placements
 
Damages Owed Through December 31, 2007
 
Principal Amount of Notes Issuable
Initial Investors:
         
Kagel Family Trust
$50,000
 
$8,166.67
 
$8,166.67
WestPark Capital Financial Services, LLC
$250,000
 
$40,833.33
 
$40,833.33
Barron Partners, LP
$3,400,000
 
$555,333.33
 
$555,333.33
Vision Opportunity Master Fund, Ltd.
$1,900,000
 
$310,333.33
 
$310,333.33
JCAR Funds Ltd.
$400,000
 
$65,333.33
 
$65,333.33
Ray Rivers
$100,000
 
$16,333.33
 
$16,333.33
Steve Mazur
$100,000
 
$16,333.33
 
$16,333.33
William Denkin
$100,000
 
$16,333.33
 
$16,333.33
Ronald Nash
$100,000
 
$16,333.33
 
$16,333.33
MidSouth Investor Fund LP
$500,000
 
$81,666.67
 
$81,667.67
     
$1,126,999.98
 
$1,126,999.98
                       
Possible Subsequent Investors:
         
Professional Offshore Opportunity Fund
$150,000
 
$24,500.00
 
$24,500.00
Nutmeg Group/Mercury Fund
$203,000
 
$33,156.67
 
$33,156.67
     
$57,656.67
 
$57,656.67

 
 

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EXHIBIT A
 
Form of Convertible Note
 
[See attached]
 
 
 

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

 
 
EXHIBIT B

 
Form of Registration Rights Agreement
 
[See attached.]
 
 
 

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EXHIBIT C

 
Capitalization Pre- and Post-Closing
 
Authorized share capital:50,000,000 shares of common stock, par value $0.001 per
share*
 
Security
Pre-Closing
Post-Initial Closing
Post-Subsequent Closing
Shares of Common Stock Outstanding
31,259,714
31,259,714
31,259,714
Shares of Common Stock Issuable upon the Conversion of Outstanding Convertible
Notes
13,382,500
20,011,908
20,351,064
Shares of Common Stock Issuable upon the Exercise of Outstanding Warrants
20,314,641
20,314,641
20,314,641
Total
64,956,855
71,586,263
71,925,419

 
* The Company’s planned amendment of its Articles to authorize Series A
Preferred Stock pursuant to the terms of the 2007 Placement is pending; the
shares of Series A Preferred Stock underlying outstanding instruments convert on
a 1:1 basis to the Company’s Common Stock, and such shares of Common Stock are
reflected in the totals above; such amendment also includes an increase of the
authorized number of shares of the Company’s Common Stock. The Company’s
adoption of an equity-based incentive plan is also pending, and thus no shares
of Common Stock have been reserved for issuance pursuant to such plan nor are
any options or other equity-based incentives outstanding at this time. The
pending Company actions cannot be completed and made effective until the Company
is current in its Quarterly Report filings, it re-files its pending preliminary
Information Statement on Schedule 14C, it files its definitive Information
Statement on Schedule 14C upon conclusion of the SEC waiting period or comment
process, as applicable, and 20 calendar days have passed from the mailing date
of the Information Statement to the Company’s shareholders.
 
 
 

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