Contract
THIS
NOTE AND THE SECURITIES
ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE SECURITIES
ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT
UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE BORROWER
THAT SUCH REGISTRATION IS NOT REQUIRED.
A
SECURITIES PURCHASE, SETTLEMENT AND RELEASE AGREEMENT DATED AS OF DECEMBER
31,
2007 (THE “PURCHASE AGREEMENT”), A COPY OF WHICH MAY BE OBTAINED FROM THE
COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL
AGREEMENTS BETWEEN THE PARTIES WITH RESPECT TO THIS NOTE.
CONVERTIBLE
NOTE
|
Date
of Issuance:
|
As
of December 31, 2007
|
|
Principal
Amount:
|
$[__________]
|
|
Location:
|
FOR
VALUE
RECEIVED, LONG-E INTERNATIONAL, INC., a Utah corporation (hereinafter called
“Borrower”),
hereby
promises to pay to ______________________ (the “Holder”),
or its
order, the sum of ____________________
($___________) (“Principal”),
without interest, on December 31, 2017 (the “Maturity
Date”),
but
the maturity of this Note is automatically extended on a month by month basis.
ARTICLE
I
GENERAL
PROVISIONS
1.1 Securities
Purchase Agreement. This Convertible Note (“Note”) is one of a Series of Notes
issued pursuant to that certain Securities Purchase, Settlement and Release
Agreement dated as of December 31, 2007 by and among Borrower, Holder and other
purchasers named therein (the “Purchase Agreement”) and is subject to the terms
and conditions of that agreement.
1.2 No
Interest. This Note shall not bear interest other than pursuant to the terms
of
Section 1.3 herein.
1.3 Payment
Grace Period. The Borrower shall have a ten (10) day grace period to pay any
monetary amounts due under this Note, after which grace period a default
interest rate of ten percent (10%) per annum shall apply to the amounts owed
hereunder.
ARTICLE
II
CONVERSION
RIGHTS
The
Holder shall have the right or obligation to convert the Principal of this
Note
into shares of the Borrower’s Common Stock as set forth below.
2.1. Conversion
into Borrower’s Stock.
(a) Subject
to the provisions of Section 2.3 herein, the Holder shall have the right,
exercisable
at any time from the date of issuance of this Note until this Note is fully
paid, to convert the entire outstanding and unpaid Principal of this Note,
in
whole or in part, upon
delivery of a Notice of Conversion in the form attached hereto (the
date
of giving of such Notice
of
Conversion
being
the “Conversion
Date”)
into
fully paid and nonassessable shares of Borrower’s Common Stock
(par
value $0.001 per share) at the Conversion Price (defined below).
Borrower
shall issue and deliver to the Holder, within three (3) trading days from the
Conversion Date (“Delivery Date”), that number of shares of Common Stock that
equals the Principal divided by the Conversion Price. Upon partial conversion
of
the Note, a new Note containing the same date and provisions of this Note shall
be issued by the Borrower to the Holder for the principal balance of this Note
which shall not have been converted or paid. Upon full conversion of this Note,
the Note shall be cancelled and the Holder shall deliver the Note to the
Borrower.
(b) Subject
to clause (c) below, the “Conversion
Price”
per
share of Borrower’s stock shall be $0.17.
(c) The
character and amount of securities or other property issuable upon conversion
of
this Note and the Conversion Price are subject to adjustment upon the occurrence
of the following events, and all such adjustments shall be
cumulative:
(i) The
Conversion Price of this Note and the number of shares of Common
Stock
issuable
upon conversion of this Note shall be proportionally adjusted to reflect any
stock dividend, stock split, combination of shares, reclassification,
recapitalization or other similar event affecting the number of outstanding
shares of stock or securities.
(ii) In
case
of any consolidation or merger of the Company with or into any other
corporation, entity or person, or any other corporate reorganization, in which
the Company shall not be the continuing or surviving entity of such
consolidation, merger or reorganization (any such transaction being hereinafter
referred to as a “Reorganization”),
then, in
each case, the Holder, on conversion hereof at any time after the consummation
or effective date of such Reorganization (the “Effective
Date”),
shall
receive, in lieu of the shares of Borrower’s stock at any time issuable upon the
conversion of the Note prior to the Effective Date, the stock and other
securities and property (including cash) to which such Holder would have been
entitled upon the Effective Date if such Holder had converted this Note
immediately prior thereto.
2
(d) In
case
of any adjustment or readjustment in the price or kind of securities issuable
on
the conversion of this Note
pursuant
to clause (c) above,
the
Company will promptly give written notice thereof to the Holder in the form
of a
certificate, certified and confirmed by an
officer
of the
Company, setting forth such adjustment or readjustment and showing in reasonable
detail the facts upon which such adjustment or readjustment is
based.
(e) Borrower
covenants
and agrees to
reserve
out
of
its
authorized and unissued Common Stock
that
number of shares of capital stock into which this Note may be converted.
Borrower represents that upon issuance, such shares will be duly and validly
issued, fully paid and non-assessable. Borrower agrees that its issuance of
this
Note shall constitute full authority to its officers, agents, and transfer
agents who are charged with the duty of executing and issuing stock certificates
to execute and issue the necessary certificates for shares upon the conversion
of this Note.
2.2 Method
of
Conversion. This Note may be converted by the Holder in whole
or
in
part.
2.3 Maximum
Exercise.
(a) The
Holder
shall not be entitled to convert this Note,
into such number of shares of Common Stock which, when added to the number
of
shares of Common Stock “beneficially
owned”
(defined below)
by the
Holder and its Affiliates immediately prior to conversion of the Note, would
result in “beneficial
ownership”
by the
Holder and its Affiliates of more than 9.9% of the outstanding shares of Common
Stock on the Conversion Date. For the purposes of the immediately preceding
sentence, “beneficial
ownership”
shall be
determined in accordance with Section 13(d) of the Securities Exchange Act
of
1934, as amended, and Rule 13d-3 thereunder.
(b) This
Section 2.3 may be waived or amended only with the consent of the Holder and
the
consent of holders of a majority of the shares of outstanding Common Stock
of
the Company 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 that Securities Purchase
Agreement dated as of December 29, 2006 (the “December Purchase Agreement”) by
and among the Company (formerly Inncardio, Inc.), Long-E International Group
Co., Ltd. and certain investors, (ii) as an original purchaser any shares of
Common Stock issued further to that Securities Purchase Agreement dated as
of
January 25, 2007 (the “January Purchase Agreement”) by and among the Company and
certain investors, (iii) any shares of the Company’s Series A Convertible
Preferred Stock or (iv) 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 the January Purchase Agreement.
3
ARTICLE
III
EVENT
OF
DEFAULT
The
occurrence of any of the following events of default (“Event
of
Default”)
shall,
at the option of the Holder hereof, make all sums of Principal then remaining
unpaid hereon and all other amounts payable hereunder immediately due and
payable, upon demand, without presentment, all of which hereby are expressly
waived, except as set forth below:
3.1 Failure
to Pay Principal. The Borrower fails to pay the Principal or other sum due
under
this Note when due as set forth in Section 1.3 herein.
3.2 Receiver
or Trustee. The Borrower shall make an assignment for the benefit of creditors,
or apply for or consent to the appointment of a receiver or trustee for it
or
for a substantial part of its property or business; or such a receiver or
trustee shall otherwise be appointed.
3.3 Bankruptcy.
Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings or relief under any bankruptcy law or any law, or the issuance
of
any notice in relation to such event, for the relief of debtors shall be
instituted by or against the Borrower and if instituted against Borrower are
not
dismissed within 45 days of initiation.
ARTICLE
IV
MISCELLANEOUS
4.1 Failure
or Indulgence Not Waiver. No failure or delay on the part of Holder hereof
in
the exercise of any power, right or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege. All rights and remedies existing hereunder are
cumulative to, and not exclusive of, any rights or remedies otherwise
available.
4.2 Notices.
All notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be delivered in the manner and to the address specified
in the Purchase Agreement.
4.3 Amendment
Provision. The term “Note”
and all
reference thereto, as used throughout this instrument, shall mean this
instrument as originally executed, or if later amended or supplemented, then
as
so amended or supplemented. The term of this Note and all other Notes issued
further to the Purchase Agreement may be amended only with the consent of the
Company and holders of at least eighty-five percent (85%) of the outstanding
principal amount of Notes issued further to the Purchase Agreement then
outstanding.
4.4 Assignability.
The
Borrower may not assign its rights and obligations hereunder without the
Holder’s prior written consent, which may be withheld in its sole discretion.
This
Note
shall be binding upon the Borrower and its successors and permitted
assigns,
and shall inure to the benefit of the Holder and its successors and
assigns.
4
4.5 Cost of Collection. If default is made in the payment of this Note, Borrower shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys’ fees.
4.6 Governing
Law. This Note shall be governed by and construed in accordance with the 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. Any action brought by either party against the other
concerning the transactions contemplated by this Note shall be brought only
in
the state courts of New York or in the federal courts located in the State
of
New York, County of New York. The Borrower and the Holder agree to submit to
the
jurisdiction of such courts. If any action is brought between the parties with
respect to this Note or otherwise, by way of a claim or counterclaim, the
parties irrevocably waive their right to a trial by jury in any such action
and
on all issues. The prevailing party shall be entitled to recover from the other
party its reasonable attorney’s fees and costs.
4.7 Shareholder
Status. The Holder shall not have rights as a shareholder of the Borrower prior
to conversion of this Note. However, after the Conversion Date, the Holder
will
have the right of a shareholder of the Borrower with respect to the shares
of
Common Stock to be received upon conversion of this Note.
IN
WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by
an
authorized officer as of this 31st
day of
December, 2007.
By:
Title:
5
NOTICE
OF
CONVERSION
(To
be
executed by the Registered Holder in order to convert the Note)
The
undersigned hereby elects to convert the principal of the Note issued by LONG-E
INTERNATIONAL, INC. on ____________ __, 20__ into____________
shares
of
Common Stock of LONG-E INTERNATIONAL, INC. (the “Borrower”)
according to the terms
set
forth in such Note, as of the date written below.
The
undersigned hereby represents to the Borrower that its representations and
warranties in the Purchase Agreement remain true and correct as if made as
of
the date hereof.
Date
of
Conversion: ____________, 20__
Shares
To
Be Delivered: ____________
shares
of Common Stock
| Signature: | ||
|
Print
Name:
|
||
| Address: | ||
|
Tax
ID:
|
6
