EXHIBIT 10.12


 


SECURITIES PURCHASE
AGREEMENT


 


LV ADMINISTRATIVE SERVICES,
INC.,

as Administrative and Collateral Agent


 


THE PURCHASERS

From Time to Time Party Hereto


 


and


 


MICRO COMPONENT TECHNOLOGY,
INC.


 


Dated: July 31, 2008


 

















 


TABLE OF
CONTENTS


 


	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
  AGREEMENT TO SELL AND PURCHASE

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  FEES AND WARRANT

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  CLOSING, DELIVERY AND PAYMENT

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  3.1

  	
  Closing

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  3.2

  	
  Delivery

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  REPRESENTATIONS AND WARRANTIES OF THE
  COMPANY

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  4.1

  	
  Organization, Good Standing and Qualification

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  4.2

  	
  Subsidiaries

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  4.3

  	
  Capitalization; Voting Rights

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  4.4

  	
  Authorization; Binding Obligations

  	
   

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
  4.5

  	
  Liabilities; Solvency

  	
   

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
  4.6

  	
  Agreements; Action

  	
   

  	
  5

  
	
   

  	
   

  	
   

  	
   

  
	
  4.7

  	
  Obligations to Related Parties

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
  4.8

  	
  Changes

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
  4.9

  	
  Title to Properties and Assets; Liens, Etc

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
  4.10

  	
  Intellectual Property

  	
   

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
  4.11

  	
  Compliance with Other Instruments

  	
   

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
  4.12

  	
  Litigation

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  4.13

  	
  Tax Returns and Payments

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  4.14

  	
  Employees

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  4.15

  	
  Registration Rights and Voting Rights

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
  4.16

  	
  Compliance with Laws; Permits

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
  4.17

  	
  Environmental and Safety Laws

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
  4.18

  	
  Valid Offering

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  4.19

  	
  Full Disclosure

  	
   

  	
  11

  



 


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  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  4.20

  	
  Insurance

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  4.21

  	
  SEC Reports

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  4.22

  	
  Listing

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  4.23

  	
  No Integrated Offering

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  4.24

  	
  Stop Transfer

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  4.25

  	
  Dilution

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  4.26

  	
  Patriot Act

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
  4.27

  	
  ERISA

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
  4.28

  	
  Projections

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  REPRESENTATIONS AND WARRANTIES OF EACH
  PURCHASER

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
  5.1

  	
  No Shorting

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
  5.2

  	
  Requisite Power and Authority

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
  5.3

  	
  Investment Representations

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
  5.4

  	
  The Purchaser Bears Economic Risk

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
  5.5

  	
  Acquisition for Own Account

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  5.6

  	
  The Purchaser Can Protect Its Interest

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  5.7

  	
  Accredited Investor

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  5.8

  	
  Legends

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  COVENANTS OF THE COMPANY

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  6.1

  	
  Stop-Orders

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  6.2

  	
  Listing

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  6.3

  	
  Market Regulations

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  6.4

  	
  Reporting Requirements

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  6.5

  	
  Use of Funds

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
  6.6

  	
  Access to Facilities

  	
   

  	
  17

  



 


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  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  6.7

  	
  Taxes

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  6.8

  	
  Insurance

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  6.9

  	
  Intellectual Property

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  6.10

  	
  Properties

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  6.11

  	
  Confidentiality

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  6.12

  	
  Required Approvals

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  6.13

  	
  Reissuance of Securities

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  6.14

  	
  Opinion

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  6.15

  	
  Margin Stock

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  6.16

  	
  FIRPTA

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  6.17

  	
  Financing Right of First Refusal

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  6.18

  	
  Authorization and Reservation of Shares

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  6.19

  	
  Investor Relations/Public Relations

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  6.20

  	
  Intentionally Omitted

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.21

  	
  Board Observation Rights

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
  6.22

  	
  Additional Warrants

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
  6.23

  	
  Compliance with Budget

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  COVENANTS OF THE PURCHASERS

  	
   

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  7.1

  	
  Confidentiality

  	
   

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  7.2

  	
  Non-Public Information

  	
   

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  7.3

  	
  Limitation on Acquisition of Common Stock of the Company

  	
   

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  COVENANTS
  OF THE COMPANY AND THE PURCHASERS REGARDING INDEMNIFICATION

  	
   

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  8.1

  	
  Company Indemnification

  	
   

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
  8.2

  	
  Purchaser Indemnification

  	
   

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  INTENTIONALLY OMITTED

  	
   

  	
   

  
					



 


iii

















 


	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  REGISTRATION RIGHTS

  	
   

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
  10.1

  	
  Registration Rights Granted

  	
   

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
  10.2

  	
  Offering Restrictions

  	
   

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  MISCELLANEOUS

  	
   

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
  11.1

  	
  Governing Law, Jurisdiction and Waiver of Jury Trial

  	
   

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
  11.2

  	
  Severability

  	
   

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
  11.3

  	
  Survival

  	
   

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
  11.4

  	
  Successors

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
  11.5

  	
  Entire Agreement; Maximum Interest

  	
   

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  11.6

  	
  Amendment and Waiver

  	
   

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  11.7

  	
  Delays or Omissions

  	
   

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  11.8

  	
  Notices

  	
   

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  11.9

  	
  Attorneys’ Fees

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  11.10

  	
  Titles and Subtitles

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  11.11

  	
  Signatures; Counterparts

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  11.12

  	
  Broker’s Fees

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  11.13

  	
  Construction

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  11.14

  	
  Agency

  	
   

  	
  32

  



 


iv

















 


LIST OF EXHIBITS


 


	
  Form of Term Note

  	
   

  	
  Exhibit A

  
	
  Form of Warrant

  	
   

  	
  Exhibit B

  
	
  Form of Opinion

  	
   

  	
  Exhibit C

  
	
  Form of Escrow Agreement

  	
   

  	
  Exhibit D

  



 


LIST OF SCHEDULES


 


	
  Schedule 1

  	
  Purchaser Commitments

  
	
  Schedule 2

  	
  Warrant Holders and Warrant Shares

  
	
  Schedule 4.2

  	
  Subsidiaries

  
	
  Schedule 4.3

  	
  Capitalization

  
	
  Schedule 4.6

  	
  Extraordinary Agreements

  
	
  Schedule 4.7

  	
  Obligations to Related Parties

  
	
  Schedule 4.9

  	
  Title to Properties; Liens

  
	
  Schedule 4.10

  	
  IP Registration

  
	
  Schedule 4.12

  	
  Litigation

  
	
  Schedule 4.13

  	
  Taxes

  
	
  Schedule 4.14

  	
  Employees

  
	
  Schedule 4.15

  	
  Registration and Voting Rights

  
	
  Schedule 4.21

  	
  SEC Reports

  
	
  Schedule 6.12(e)

  	
  Indebtedness

  
	
  Schedule 11.12

  	
  Brokers

  



 


v

















 


SECURITIES PURCHASE
AGREEMENT


 


THIS SECURITIES PURCHASE
AGREEMENT (this “Agreement”) is made and entered into as of July 31,
2008, among MICRO COMPONENT TECHNOLOGY, INC., a corporation organized under the
laws of the State of Minnesota (“the Company”), the purchasers from time
to time a party hereto (each a “Purchaser” and collectively, the “Purchasers”),
LV Administrative Services, Inc., a Delaware corporation, as
administrative and collateral agent for each Purchaser, (the “Agent” and
together with the Purchasers, the “Creditor Parties”).


 


RECITALS


 


WHEREAS, the Company has
authorized the sale to each Purchaser of a Secured Term Note in the form of Exhibit A
hereto in the principal amount set forth opposite such Purchaser’s name on Schedule
1 hereto (each as amended, restated, modified and/or supplemented from time
to time, a “Note” and, collectively, the “Notes”);


 


WHEREAS, the Company
wishes to issue to each Purchaser a warrant in the form of Exhibit B
hereto (each as amended, restated, modified and/or supplemented from time to
time, a “Warrant” and, collectively the “Warrants”) to purchase
up to the number of shares of the Company’s common stock, $0.01 par value per
share (the “Common Stock”), set forth opposite such Purchaser’s name on Schedule
2 (subject to adjustment as set forth therein) in connection with such
Purchaser’s purchase of the applicable Note;


 


WHEREAS, each Purchaser
desires to purchase the applicable Note and Warrant on the terms and conditions
set forth herein; and


 


WHEREAS, the Company
desires to issue and sell the applicable Note and Warrant to each Purchaser on
the terms and conditions set forth herein.


 


AGREEMENT


 


NOW, THEREFORE, in
consideration of the foregoing recitals and the mutual promises,
representations, warranties and covenants hereinafter set forth and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:


 


Agreement to Sell
and Purchase.  Pursuant to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined in Section 3),
the Company shall sell to each Purchaser, and each Purchaser shall purchase
from the Company, the applicable Note. 
The sale of the Notes on the Closing Date shall be known as the “Offering.”  The Notes will mature on the Maturity Date
(as defined in the Note).  Collectively,
the Notes and Warrants and Common Stock issuable upon exercise of the Warrants
are referred to as the “Securities.”


 


Fees and Warrant. 
On the Closing Date:


 


The Company will
issue and deliver to each Purchaser a Warrant to purchase up to the number of
shares of Common Stock set forth opposite its name on Schedule 2
(subject to adjustment as set forth therein) in connection with the Offering
pursuant to Section 1 hereof.  All
the representations, covenants, warranties, undertakings, and indemnification,


 

















 


and other rights
made or granted to or for the benefit of each Creditor Party by the Company are
hereby also made and granted for the benefit of the holder of the related
Warrant and shares of the Common Stock issuable upon exercise of such Warrant
(the “Warrant Shares”).


 


Subject to the
terms of Section 2(c) below, the Company shall pay to Valens Capital
Management, LLC, the investment manager of the Purchasers (“VCM”), a
non-refundable payment in an amount equal to $70,000.00; (ii) to the
Purchasers, a non-refundable payment in an amount equal to $35,000.00; (iii) to
the Purchasers, an advance prepayment discount deposit equal to $35,000.00; and
(iv) to VCM, a non-refundable structuring payment in an amount equal to
$30,000.00.  Each of the foregoing
payments in clauses (i), (ii) and (iv) shall be deemed fully earned
on the Closing Date and shall not be subject to rebate or proration for any
reason.


 


The payments and
the expenses referred to in the preceding clause (b) (net of deposits
previously paid by the Company) shall be paid at closing out of funds held
pursuant to the Escrow Agreement (as defined below) and a disbursement letter
(the “Disbursement Letter”).


 


Closing, Delivery
and Payment.


 


Closing. 
Subject to the terms and conditions herein, the closing of the
transactions contemplated hereby (the “Closing”), shall take place on
the date hereof, at such time or place as the Company and the Agent may
mutually agree (such date is hereinafter referred to as the “Closing Date”).


 


Delivery. 
Pursuant to the Escrow Agreement, at the Closing on the Closing Date,
the Company will deliver to each Purchaser, among other things, the applicable
Note and Warrant and such Purchaser will deliver to the Company, among other
things, the amounts set forth opposite its name in the Disbursement Letter by
certified funds or wire transfer (it being understood that $2,303,500.00 of the
proceeds of the Notes shall be placed in the Restricted Account (as defined in
the Restricted Account Agreement referred to below). The Company hereby
acknowledges and agrees that each Purchaser’s obligation to purchase the
applicable Note from the Company on the Closing Date shall be contingent upon
the satisfaction (or waiver by the Agent in its sole discretion) of the items
and matters set forth in the closing checklist provided by the Agent to the
Company on or prior to the Closing Date.


 


Representations
and Warranties of the Company.  The Company
hereby represents and warrants to each Creditor Party as follows:


 


Organization, Good
Standing and Qualification.  The Company
and each of its Subsidiaries is a corporation, partnership or limited liability
company, as the case may be, duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization.  The Company and each of its Subsidiaries has
the corporate, limited liability company or partnership, as the case may be,
power and authority to own and operate its properties and assets and, insofar
as it is or shall be a party thereto, to (1) execute and deliver (i) this
Agreement, (ii) the Notes and the Warrants to be issued in connection with
this Agreement, (iii) the Master Security Agreement dated as of the date
hereof among the Company, certain Subsidiaries of the Company and the Agent (as
amended, restated, modified and/or supplemented from time to time, the “Master
Security Agreement”), (iv) the Subsidiary Guaranty dated as of the
date hereof made by certain Subsidiaries of the Company (as amended, restated,
modified and/or supplemented from time to time, the “Subsidiary Guaranty”),
(v) the Stock Pledge Agreement dated as of the date hereof among the
Company, certain Subsidiaries of the Company and the Purchaser (as amended,


 


2

















 


restated, modified and/or
or supplemented from time to time, the “Stock Pledge Agreement”), (vi) the
Restricted Account Agreement dated as of the date hereof among the Company, the
Agent and Capital One, N.A. (as amended, modified and/or supplemented from time
to time, the “Restricted Account Agreement”), (vii) the Restricted
Account Side Letter dated as of the date hereof between the Company and the
Agent (as amended, modified and/or supplemented from time to time, the “Restricted
Account Side Letter”), (viii) the Funds Escrow Agreement dated as of
the date hereof among the Company, the Purchasers and the escrow agent referred
to therein, substantially in the form of Exhibit D hereto (as
amended, restated, modified and/or supplemented from time to time, the “Escrow
Agreement”) and (ix) all other documents, instruments and agreements
entered into in connection with the transactions contemplated hereby and
thereby (the preceding clauses (ii) through (ix), collectively, the “Related
Agreements”); (2) issue and sell the Notes; (3) issue and sell
the Warrants and the Warrant Shares; and (4) carry out the provisions of
this Agreement and the Related Agreements and to carry on its business as
presently conducted.  Each of the Company
and each of its Subsidiaries is duly qualified and is authorized to do business
and is in good standing as a foreign corporation, partnership or limited
liability company, as the case may be, in all jurisdictions in which the nature
or location of its activities and of its properties (both owned and leased)
makes such qualification necessary, except for those jurisdictions in which
failure to do so has not, or could not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the business,
assets, liabilities, condition (financial or otherwise), properties, operations
or prospects of the Company and its Subsidiaries, taken individually and as a
whole (a “Material Adverse Effect”).


 


Subsidiaries. 
Each direct and indirect Subsidiary of the Company, the direct owner of
such Subsidiary and its percentage ownership thereof, is set forth on Schedule
4.2.  For the purpose of this
Agreement, a “Subsidiary” of any person or entity means (i) a
corporation or other entity whose shares of stock or other ownership interests
having ordinary voting power (other than stock or other ownership interests
having such power only by reason of the happening of a contingency) to elect a
majority of the directors of such corporation, or other persons or entities performing
similar functions for such person or entity, are owned, directly or indirectly,
by such person or entity or (ii) a corporation or other entity in which
such person or entity owns, directly or indirectly, more than 50% of the equity
interests at such time.


 


Capitalization;
Voting Rights.


 


The authorized
capital stock of the Company, as of the date hereof consists of 101,000,000
shares, of which 100,000,000 are shares of Common Stock, par value $0.01 per
share, 37,876,889 shares of which are issued and outstanding, and 1,000,000 are
shares of preferred stock, par value $0.01 per share none of which shares of
preferred stock are issued and outstanding. 
The authorized, issued and outstanding capital stock of each Subsidiary
of the Company is set forth on Schedule 4.3.


 


Except as
disclosed on Schedule 4.3, other than: 
(i) the shares reserved for issuance under the Company’s stock
option plans; and (ii) shares which may be granted pursuant to this
Agreement and the Related Agreements, there are no outstanding options,
warrants, rights (including conversion or preemptive rights and rights of first
refusal), proxy or stockholder agreements, or arrangements or agreements of any
kind for the purchase or acquisition from the Company of any of its securities.  Except as disclosed on Schedule 4.3,
neither the offer, issuance or sale of any of the Notes or the Warrants, or the
issuance of any of Warrant Shares, nor the consummation of any transaction contemplated
hereby will result


 


3

















 


in a change in the
price or number of any securities of the Company outstanding, under
anti-dilution or other similar provisions contained in or affecting any such
securities.  All issued and outstanding
shares of the Company’s Common Stock:  (i) have
been duly authorized and validly issued and are fully paid and non-assessable;
and (ii) were issued in compliance with all applicable state and federal
laws concerning the issuance of securities. 
The rights, preferences, privileges and restrictions of the shares of
the Common Stock are as stated in the Company’s Certificate of Incorporation
(the “Charter”).  The Warrant
Shares have been duly and validly reserved for issuance.  When issued in compliance with the provisions
of this Agreement and the Company’s Charter, the Securities will be validly
issued, fully paid and non-assessable, and will be free of any liens or
encumbrances; provided, however, that the Securities may be subject to
restrictions on transfer under state and/or federal securities laws as set
forth herein or as otherwise required by such laws at the time a transfer is
proposed.


 


Authorization;
Binding Obligations.  All corporate, partnership or limited
liability company, as the case may be, action on the part of the Company and
each of its Subsidiaries (including their respective officers and directors)
necessary for the authorization of this Agreement and the Related Agreements,
the performance of all obligations of the Company and its Subsidiaries
hereunder and under the other Related Agreements at the Closing and, the
authorization, sale, issuance and delivery of the Notes and Warrants has been
taken or will be taken prior to the Closing. 
This Agreement and the Related Agreements, when executed and delivered
and to the extent it is a party thereto, will be valid and binding obligations
of the Company and each of its Subsidiaries, enforceable against each such
person or entity in accordance with their terms, except:


 


as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors’ rights; and general
principles of equity that restrict the availability of equitable or legal
remedies.


 


The
sale of the Notes are not and will not be subject to any preemptive rights or
rights of first refusal that have not been properly waived or complied
with.  The issuance of the Warrants and
the subsequent exercise of the Warrants for Warrant Shares are not and will not
be subject to any preemptive rights or rights of first refusal that have not
been properly waived or complied with.


 


Liabilities;
Solvency.


 


Neither the
Company nor any of its Subsidiaries has any liabilities, except current
liabilities incurred in the ordinary course of business and liabilities disclosed
in any of the Company’s filings under the Securities Exchange Act of 1934 (“Exchange
Act”) made prior to the date of this Agreement (collectively, the “Exchange
Act Filings”), copies of which have been provided to the Agent.


 


Both before and
after (assuming the Company obtains the approval of its shareholders to
increase the number of authorized shares of Common Stock) giving effect to (a) the
transactions contemplated hereby that are to be consummated on the Closing
Date, (b) the disbursement of the proceeds of, or the assumption of the
liability in respect of, the Notes pursuant to the instructions or agreement of
the Company and (c) the payment and accrual of all transaction costs in
connection with the foregoing, the Company and each Subsidiary of the Company,
is and will be, Solvent.  For purposes of
this Section 4.5(b), “Solvent” means, with respect to any Person (as
hereinafter defined) on a particular date, that on


 


4

















 


such date such
Person does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person’s ability to pay as such debts and liabilities
mature.  The amount of contingent
liabilities (such as litigation, guaranties and pension plan liabilities) at any
time shall be computed as the amount that, in light of all the facts and
circumstances existing at the time, represents the amount that can reasonably
be expected to become an actual or matured liability.


 


Agreements; Action. 
Except as set forth on Schedule 4.6 or as disclosed in any
Exchange Act Filings:


 


there are no
agreements, understandings, instruments, contracts, proposed transactions,
judgments, orders, writs or decrees to which the Company or any of its
Subsidiaries is a party or by which it is bound which may involve: (i) obligations
(contingent or otherwise) of, or payments to, the Company or any of its
Subsidiaries in excess of $50,000 (other than obligations of, or payments to,
the Company or any of its Subsidiaries arising from purchase or sale agreements
entered into in the ordinary course of business); or (ii) the transfer or
license of any patent, copyright, trade secret or other proprietary right to or
from the Company or any of its Subsidiaries (other than licenses arising from
the purchase of “off the shelf” or other standard products); or (iii) provisions
restricting the development, manufacture or distribution of the Company’s or
any of its Subsidiaries products or services; or (iv) indemnification by
the Company or any of its Subsidiaries with respect to infringements of
proprietary rights.


 


Since December 31,
2007 (the “Balance Sheet Date”), neither the Company nor any of its
Subsidiaries has:  (i) declared or
paid any dividends, or authorized or made any distribution upon or with respect
to any class or series of its capital stock; (ii) incurred any
indebtedness for money borrowed or any other liabilities (other than ordinary
course obligations) individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000, in excess of
$100,000 in the aggregate; (iii) made any loans or advances to any person
or entity not in excess, individually or in the aggregate, of $100,000, other
than ordinary course advances for travel expenses; or (iv) sold, exchanged
or otherwise disposed of any of its assets or rights, other than the sale of
its inventory in the ordinary course of business.


 


For the purposes
of subsections (a) and (b) above, all indebtedness, liabilities,
agreements, understandings, instruments, contracts and proposed transactions
involving the same person or entity (including persons or entities the Company
or any Subsidiary of the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual
minimum dollar amounts of such subsections.


 


The Company
maintains disclosure controls and procedures (“Disclosure Controls”)
designed to ensure that information required to be disclosed by the Company in
the reports that it files or submits under the Exchange Act is recorded,
processed, summarized, and reported, within the time periods specified in the rules and
forms of the Securities and Exchange Commission (“SEC”).


 


The Company makes
and keep books, records, and accounts, that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the Company’s
assets.  The Company maintains internal
control over financial reporting (“Financial Reporting Controls”)
designed by, or under the supervision of, the Company’s principal executive and
principal financial officers, and effected by the Company’s board of directors,


 


5

















 


management, and
other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles (“GAAP”),
including that:


 


transactions are
executed in accordance with management’s general or specific authorization; unauthorized
acquisition, use, or disposition of the Company’s assets that could have a
material effect on the financial statements are prevented or timely detected;


 


transactions are
recorded as necessary to permit preparation of financial statements in accordance
with GAAP, and that the Company’s receipts and expenditures are being made only
in accordance with authorizations of the Company’s management and board of
directors;


 


transactions are
recorded as necessary to maintain accountability for assets; and the recorded
accountability for assets is compared with the existing assets at reasonable
intervals, and appropriate action is taken with respect to any differences.


 


There is no
weakness in any of the Company’s Disclosure Controls or Financial Reporting Controls
that is required to be disclosed in any of the Exchange Act Filings, except as
so disclosed.


 


Obligations to
Related Parties.  Except as set forth on Schedule 4.7,
there are no obligations of the Company or any of its Subsidiaries to officers,
directors, stockholders or employees of the Company or any of its Subsidiaries
other than:


 


for payment of
salary for services rendered and for bonus payments;


 


reimbursement for
reasonable expenses incurred on behalf of the Company and its Subsidiaries;


 


for other standard
employee benefits made generally available to all employees (including stock
option agreements outstanding under any stock option plan approved by the Board
of Directors of the Company and each Subsidiary of the Company, as applicable);
and obligations listed in the Company’s and each of its Subsidiary’s financial
statements or disclosed in any of the Company’s Exchange Act Filings.


 


Except
as described above or set forth on Schedule 4.7, none of the officers,
directors or, to the best of the Company’s knowledge, key employees or
stockholders of the Company or any of its Subsidiaries or any members of their
immediate families, are indebted to the Company or any of its Subsidiaries,
individually or in the aggregate, in excess of $50,000 or have any direct or
indirect ownership interest in any firm or corporation with which the Company
or any of its Subsidiaries is affiliated or with which the Company or any of
its Subsidiaries has a business relationship, or any firm or corporation which
competes with the Company or any of its Subsidiaries, other than passive
investments in publicly traded companies (representing less than one percent
(1%) of such company) which may compete with the Company or any of its
Subsidiaries.  Except as described above,
no officer, director or stockholder of the Company or any of its Subsidiaries,
or any member of their immediate families, is, directly or indirectly,
interested in any material contract with the Company or any of its Subsidiaries
and no agreements, understandings or proposed transactions are contemplated
between the Company or any of its Subsidiaries and any such person.  Except as set forth on Schedule 4.7,
neither the Company nor any of its Subsidiaries is a guarantor or indemnitor of
any indebtedness of any other person or entity.


 


6
















 


Changes. 
Since the Balance Sheet Date, except as disclosed in any Exchange Act
Filing or in any Schedule to this Agreement or to any of the Related
Agreements, there has not been:


 


any change in the
business, assets, liabilities, condition (financial or otherwise), properties,
operations or prospects of the Company or any of its Subsidiaries, which
individually or in the aggregate has had, or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect;


 


any resignation or
termination of any officer, key employee or group of employees of the Company
or any of its Subsidiaries;


 


any material
change, except in the ordinary course of business, in the contingent
obligations of the Company or any of its Subsidiaries by way of guaranty,
endorsement, indemnity, warranty or otherwise;


 


any damage,
destruction or loss, whether or not covered by insurance, which has had, or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;


 


any waiver by the
Company or any of its Subsidiaries of a valuable right or of a material debt
owed to it;


 


any direct or
indirect loans made by the Company or any of its Subsidiaries to any
stockholder, employee, officer or director of the Company or any of its Subsidiaries,
other than advances made in the ordinary course of business;


 


any material
change in any compensation arrangement or agreement with any employee, officer,
director or stockholder of the Company or any of its Subsidiaries;


 


any declaration or
payment of any dividend or other distribution of the assets of the Company or
any of its Subsidiaries;


 


any labor
organization activity related to the Company or any of its Subsidiaries;


 


any debt,
obligation or liability incurred, assumed or guaranteed by the Company or any
of its Subsidiaries, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;


 


any sale,
assignment, transfer, abandonment or other disposition of any patents,
trademarks, copyrights, trade secrets or other intangible assets owned by the
Company or any of its Subsidiaries;


 


any change in any
material agreement to which the Company or any of its Subsidiaries is a party
or by which either the Company or any of its Subsidiaries is bound which either
individually or in the aggregate has had, or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect;


 


any other event or
condition of any character that, either individually or in the aggregate, has
had, or could reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect; or


 


any arrangement or
commitment by the Company or any of its Subsidiaries to do any of the acts
described in subsection (a) through (m) above.


 


Title to
Properties and Assets; Liens, Etc.  Except as set
forth on Schedule 4.9, the Company and each of its Subsidiaries has good
and marketable title to its properties and assets, and good title to its
leasehold interests, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge (each for the foregoing, a “Lien”) , other than
the following (each a “Permitted Encumbrance”):


 


those in favor of
the Agent, for the ratable benefit of the Creditor Parties;


 


7

















 


those resulting
from taxes which have not yet become delinquent;


 


minor Liens which
do not materially detract from the value of the property subject thereto or
materially impair the operations of the Company or any of its Subsidiaries, so long
as in each such case, such Liens have no effect on the Lien priority of the
Agent, for the ratable benefit of the Creditor Parties, in such property; and


 


those that have
otherwise arisen in the ordinary course of business, so long as they have no
effect on the Lien priority of the Purchaser therein.


 


All
facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used.  Except as set
forth on Schedule 4.9, the Company and its Subsidiaries are in
compliance with all material terms of each lease to which it is a party or is
otherwise bound.


 


Intellectual Property.


 


Each of the Company and each of its Subsidiaries owns
or possesses sufficient legal rights to all patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes necessary for its business as now conducted
and, to the Company’s knowledge, as presently proposed to be conducted (the “Intellectual
Property”), without any known infringement of the rights of others.  There are no outstanding options, licenses or
agreements of any kind relating to the foregoing proprietary rights, nor is the
Company or any of its Subsidiaries bound by or a party to any options, licenses
or agreements of any kind with respect to the patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes of any other person or entity other than such
licenses or agreements arising from the purchase of “off the shelf” or standard
products.


 


Neither the Company nor any of its Subsidiaries has received
any communications alleging that the Company or any of its Subsidiaries has
violated any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity, nor
is the Company or any of its Subsidiaries aware of any basis therefor.


 


The Company does not believe it is or will be
necessary to utilize any inventions, trade secrets or proprietary information
of any of its employees made prior to their employment by the Company or any of
its Subsidiaries, except for inventions, trade secrets or proprietary
information that have been rightfully assigned to the Company or any of its
Subsidiaries.


 


Compliance with
Other Instruments.  Neither the Company nor any of its
Subsidiaries is in violation or default of (x) any term of its Charter or
Bylaws, or (y) any provision of any indebtedness, mortgage, indenture,
contract, agreement or instrument to which it is party or by which it is bound
or of any judgment, decree, order or writ, which violation or default, in the
case of this clause (y), has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect.  The execution, delivery and performance of
and compliance with this Agreement and the Related Agreements to which it is a
party, and the issuance and sale of the Notes by the Company and the other
Securities by the Company each pursuant hereto and thereto, will not, with or
without the passage of time or giving of notice, result in any such material
violation, or be in conflict with or constitute a default under any such


 


8

















 


term or provision, or
result in the creation of any Lien upon any of the properties or assets of the
Company or any of its Subsidiaries or the suspension, revocation, impairment,
forfeiture or non-renewal of any permit, license, authorization or approval
applicable to the Company, its business or operations or any of its assets or
properties.


 


Litigation. 
Except as set forth on Schedule 4.12 hereto, there is no action,
suit, proceeding or investigation pending or, to the Company’s knowledge,
currently threatened against the Company or any of its Subsidiaries that
prevents the Company or any of its Subsidiaries from entering into this
Agreement or the other Related Agreements, or from consummating the
transactions contemplated hereby or thereby, or which has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect or any change in the current equity ownership of the
Company or any of its Subsidiaries, nor is the Company aware that there is any
basis to assert any of the foregoing. 
Neither the Company nor any of its Subsidiaries is a party to or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. 
There is no action, suit, proceeding or investigation by the Company or
any of its Subsidiaries currently pending or which the Company or any of its
Subsidiaries intends to initiate.


 


Tax Returns and
Payments.  The Company and each of its Subsidiaries has
timely filed all tax returns (federal, state and local) required to be filed by
it.  All taxes shown to be due and
payable on such returns, any assessments imposed, and all other taxes due and
payable by the Company or any of its Subsidiaries on or before the Closing,
have been paid or will be paid prior to the time they become delinquent.  Except as set forth on Schedule 4.13,
neither the Company nor any of its Subsidiaries has been advised:


 


that any of its
returns, federal, state or other, have been or are being audited as of the date
hereof; or


 


of any adjustment,
deficiency, assessment or court decision in respect of its federal, state or
other taxes.


 


The Company has no
knowledge of any liability for any tax to be imposed upon its properties or
assets as of the date of this Agreement that is not adequately provided for.


 


Employees. 
Except as set forth on Schedule 4.14, neither the Company nor any
of its Subsidiaries has any collective bargaining agreements with any of its
employees.  There is no labor union
organizing activity pending or, to the Company’s knowledge, threatened with
respect to the Company or any of its Subsidiaries.  Except as disclosed in the Exchange Act
Filings or on Schedule 4.14, neither the Company nor any of its
Subsidiaries is a party to or bound by any currently effective employment
contract, deferred compensation arrangement, bonus plan, incentive plan, profit
sharing plan, retirement agreement or other employee compensation plan or
agreement.  To the Company’s knowledge,
no employee of the Company or any of its Subsidiaries, nor any consultant with
whom the Company or any of its Subsidiaries has contracted, is in violation of
any term of any employment contract, proprietary information agreement or any
other agreement relating to the right of any such individual to be employed by,
or to contract with, the Company or any of its Subsidiaries because of the
nature of the business to be conducted by the Company or any of its
Subsidiaries; and to the Company’s knowledge the continued employment by the
Company and its Subsidiaries of their present employees, and the performance of
the Company’s and its Subsidiaries’ contracts with its independent contractors,
will not result in any such violation. 
Neither the Company nor any of its Subsidiaries is aware 


 


9

















 


that any of its employees
is obligated under any contract (including licenses, covenants or commitments
of any nature) or other agreement, or subject to any judgment, decree or order
of any court or administrative agency that would interfere with their duties to
the Company or any of its Subsidiaries. 
Neither the Company nor any of its Subsidiaries has received any notice
alleging that any such violation has occurred. 
Except for employees who have a current effective employment agreement
with the Company or any of its Subsidiaries, no employee of the Company or any
of its Subsidiaries has been granted the right to continued employment by the
Company or any of its Subsidiaries or to any material compensation following
termination of employment with the Company or any of its Subsidiaries.  Except as set forth on Schedule 4.14,
the Company is not aware that any officer, key employee or group of employees
intends to terminate his, her or their employment with the Company or any of
its Subsidiaries, nor does the Company or any of its Subsidiaries have a
present intention to terminate the employment of any officer, key employee or
group of employees.


 


Registration
Rights and Voting Rights.  Except as set forth on Schedule
4.15 and except as disclosed in Exchange Act Filings, neither the Company
nor any of its Subsidiaries is presently under any obligation, and neither the
Company nor any of its Subsidiaries has granted any rights, to register any of
the Company’s or its Subsidiaries’ presently outstanding securities or any of
its securities that may hereafter be issued. 
Except as set forth on Schedule 4.15 and except as disclosed in
Exchange Act Filings, to the Company’s knowledge, no stockholder of the Company
or any of its Subsidiaries has entered into any agreement with respect to the
voting of equity securities of the Company or any of its Subsidiaries.


 


Compliance with
Laws; Permits.  Neither the Company nor any of its
Subsidiaries is in violation of any provision of the Sarbanes-Oxley Act of 2002
or any SEC related regulation or rule or any rule of the Principal
Market (as hereafter defined) promulgated thereunder or any other applicable
statute, rule, regulation, order or restriction of any domestic or foreign
government or any instrumentality or agency thereof in respect of the conduct
of its business or the ownership of its properties which has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.  No governmental
orders, permissions, consents, approvals or authorizations are required to be
obtained and no registrations or declarations are required to be filed in
connection with the execution and delivery of this Agreement or any other
Related Agreement and the issuance of any of the Securities, except such as
have been duly and validly obtained or filed, or with respect to any filings
that must be made after the Closing, as will be filed in a timely manner.  The Company and its Subsidiaries has all
material franchises, permits, licenses and any similar authority necessary for
the conduct of its business as now being conducted by it, the lack of which
could, either individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect.


 


Environmental and
Safety Laws.  There are no pending actions, suits or
proceedings by or before any arbitrator or Governmental Authority pending, or
to the knowledge of Company threatened against the Company or any of its
Subsidiaries under Environmental Law. 
The Company and its Subsidiaries (i) are and have been in full
compliance with Environmental Law and have no knowledge or any material
expenditure that will be required to maintain such compliance in the future; (ii) have
not received any notice or claim alleging that they are not in full compliance
with or otherwise have liability under Environmental Law; and (iii) have
not knowledge of any facts or circumstances that could reasonably be expected
to form the basis of any such claim.  No
Hazardous Materials are present or are used or have been used, stored, or
released by the


 


10

















 


Company or its
Subsidiaries, or to their knowledge by any other Person, at any property
currently or formerly owned, leased or operated by the Company or its
Subsidiaries or disposed of at any other location by the Company or its
Subsidiaries except (i) in compliance with Environmental Law; and (2) in
quantities and under circumstances that would not require investigation or
remediation by the Company or its Subsidiaries. 
The Company and its Subsidiaries have not assumed by contract or by
operation of law the liabilities arising under Environmental Law of any other
Person.  The Company and its Subsidiaries
have provided to the Agent all material report, audits and assessments in their
possession or control regarding the environmental condition of any property
currently or formerly owned or operated by the Company or any Subsidiary.  “Environmental Law” means all laws,
rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions,
notices or binding agreements issued, promulgated or entered into by any
Governmental Authority, relating in any way to pollution or the environment ,
preservation or reclamation of natural resources, the management, generation,
use, handling, treatment, transportation, storage, disposal or release or
threatened release of or exposure to Hazardous Materials, or occupational
health and safety.  “Governmental
Authority” means any nation or government, any state or other political
subdivision thereof, and any agency, department or other entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.  “Hazardous
Materials” means materials, wastes or pollutants listed or defined as “hazardous
substances”, “hazardous wastes” ,”toxic substances” or by words of similar
import or any other substance or waste otherwise regulated by applicable
Environmental Law, including nuclear materials and radioactive substances or
wastes, petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes,
and toxic mold.  “Person” means
any individual, sole proprietorship, partnership, limited liability
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, institution, public benefit
corporation, entity or government (whether federal, state, county, city,
municipal or otherwise, including any instrumentality, division, agency, body
or department thereof), and shall include such Person’s successors and assigns.


 


Valid Offering. 
Assuming the accuracy of the representations and warranties of the
Purchasers contained in this Agreement, the offer, sale and issuance of the
Securities will be exempt from the registration requirements of the Securities
Act of 1933, as amended (the “Securities Act”), and will have been
registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.


 


Full Disclosure. 
The Company and each of its Subsidiaries has provided the Purchasers
with all information requested by the Purchasers in connection with the
Purchasers’ decision to purchase the Notes and Warrants, including all
information the Company and its Subsidiaries believe is reasonably necessary to
make such investment decision.  Neither
this Agreement, the Related Agreements, the exhibits and schedules hereto and
thereto nor any other document including, without limitation, the responses
contained in any questionnaire provided to the Company by the Agent, delivered
by the Company or any of its Subsidiaries to Purchasers or their attorneys or
agents in connection herewith or therewith or with the transactions
contemplated hereby or thereby, contain any untrue statement of a material fact
nor omit to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances in which they are
made, not misleading.  Any financial
projections and other estimates provided to the Purchasers by the Company or
any of its Subsidiaries were based on the Company’s and its


 


11

















 


Subsidiaries’ experience
in the industry and on assumptions of fact and opinion as to future events
which the Company or any of its Subsidiaries, at the date of the issuance of
such projections or estimates, believed to be reasonable.


 


Insurance. 
The Company and each of its Subsidiaries has general commercial, product
liability, fire and casualty insurance policies with coverages which the
Company and each of its Subsidiaries believe are customary for companies
similarly situated to the Company and its Subsidiaries in the same or similar
business.


 


SEC Reports. 
Except as set forth on Schedule 4.21, the Company has filed all
proxy statements, reports and other documents required to be filed by it under
the Exchange Act.  The Company has
furnished the Agent copies of:  (i) its
Annual Reports on Form 10-KSB for its fiscal year ended December 31,
2007; and (ii) its Quarterly Reports on Form 10-QSB for its fiscal
quarter ended March 29, 2008, and the Form 8-K filings which it has
made during the fiscal years 2007 and 2008 to date (collectively, the “SEC
Reports”).  Except as set forth on Schedule
4.21, each SEC Report was, at the time of its filing, in substantial
compliance with the requirements of its respective form and none of the SEC
Reports, nor the financial statements (and the notes thereto) included in the
SEC Reports, as of their respective filing dates, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.


 


Listing. 
The Common Stock is listed or quoted, as applicable, on a Principal
Market (as hereafter defined) and satisfies and at all times hereafter will
satisfy, all requirements for the continuation of such listing or quotation, as
applicable.  The Company has not received
any notice that its Common Stock will be delisted from, or no longer quoted on,
as applicable, the Principal Market or that its Common Stock does not meet all
requirements for such listing or quotation, as applicable.  For purposes hereof, the term “Principal
Market” means the NASD Over The Counter Bulletin Board, NASDAQ Capital
Market, NASDAQ National Markets System, American Stock Exchange or New York
Stock Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock).


 


No Integrated
Offering.  Neither the Company, nor any of its
Subsidiaries or affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited
any offers to buy any security under circumstances that would cause the
offering of the Securities pursuant to this Agreement or any of the Related
Agreements to be integrated with prior offerings by the Company for purposes of
the Securities Act which would prevent the Company from selling the Securities
pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions, nor will the Company or any
of its affiliates or Subsidiaries take any action or steps that would cause the
offering of the Securities to be integrated with other offerings.


 


Stop Transfer. 
The Securities are restricted securities as of the date of this
Agreement.  Neither the Company nor any
of its Subsidiaries will issue any stop transfer order or other order impeding
the sale and delivery of any of the Securities at such time as the Securities
are registered for public sale or an exemption from registration is available,
except as required by state and federal securities laws.


 


Dilution. 
The Company specifically acknowledges that its obligation to issue the
shares of Common Stock upon exercise of the Warrants is binding upon the
Company and enforceable 


 


12

















 


regardless of the
dilution such issuance may have on the ownership interests of other
shareholders of the Company.


 


Patriot Act. 
The Company certifies that, to the best of Company’s knowledge, neither
the Company nor any of its Subsidiaries has been designated, nor is or shall be
owned or controlled, by a “suspected terrorist” as defined in Executive Order
13224.  The Company hereby acknowledges
that each of the Creditor Parties seeks to comply with all applicable laws
concerning money laundering and related activities.  In furtherance of those efforts, the Company
hereby represents, warrants and covenants that: 
(i) none of the cash or property that the Company or any of its
Subsidiaries will pay or will contribute to any Creditor Party has been or
shall be derived from, or related to, any activity that is deemed criminal
under United States law; and (ii) no contribution or payment by the
Company or any of its Subsidiaries to any Creditor Party, to the extent that
they are within the Company’s and/or its Subsidiaries’ control shall cause any
Creditor Party to be in violation of the United States Bank Secrecy Act, the
United States International Money Laundering Control Act of 1986 or the United
States International Money Laundering Abatement and Anti-Terrorist Financing
Act of 2001.  The Company shall promptly
notify the Agent if any of these representations, warranties or covenants
ceases to be true and accurate regarding the Company or any of its
Subsidiaries.  The Company shall provide
any Creditor Party all additional information regarding the Company or any of
its Subsidiaries that such Creditor Party deems necessary or convenient to
ensure compliance with all applicable laws concerning money laundering and
similar activities.  The Company
understands and agrees that if at any time it is discovered that any of the
foregoing representations, warranties or covenants are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
or similar activities, the Creditor Parties may undertake appropriate actions
to ensure compliance with applicable law or regulation, including but not
limited to segregation and/or redemption of any Purchaser’s investment in the
Company.  The Company further understands
that the Creditor Parties may release confidential information about the Company
and its Subsidiaries and, if applicable, any underlying beneficial owners, to
proper authorities if such Creditor Party, in its sole discretion, determines
that it is in the best interests of such Creditor Party in light of relevant rules and
regulations under the laws set forth in subsection (ii) above.


 


ERISA. 
Based upon the Employee Retirement Income Security Act of 1974 (“ERISA”),
and the regulations and published interpretations thereunder:  (i) neither the Company nor any of its
Subsidiaries has engaged in any Prohibited Transactions (as defined in Section 406
of ERISA and Section 4975 of the Internal Revenue Code of 1986, as amended
(the “Code”)); (ii) each of the Company and each of its Subsidiaries has
met all applicable minimum funding requirements under Section 302 of ERISA
in respect of its plans; (iii) neither the Company nor any of its
Subsidiaries has any knowledge of any event or occurrence which would cause the
Pension Benefit Guaranty Corporation to institute proceedings under Title IV of
ERISA to terminate any employee benefit plan(s); (iv) neither the Company
nor any of its Subsidiaries has any fiduciary responsibility for investments
with respect to any plan existing for the benefit of persons other than the
Company’s or such Subsidiary’s employees; and (v) neither the Company nor
any of its Subsidiaries has withdrawn, completely or partially, from any
multi-employer pension plan so as to incur liability under the Multiemployer
Pension Plan Amendments Act of 1980.


 


Projections. 
The projections provided by the Company and its Subsidiaries to the
Creditor Parties (“Projections”) as of the date hereof delivered to the
Creditor Parties prior to the date hereof have been prepared in good faith and
were based on assumptions reasonable at the time of


 


13

















 


the preparation thereof
(and which assumptions remain reasonable on the date hereof).  On the date hereof, the Company believes that
the Projections are reasonable and attainable, it being recognized by the
Creditor Parties, however, that projections as to future events are not to be
viewed as facts and that the actual results during the period or periods
covered by the Projections may differ from the projected results.


 


Representations
and Warranties of each Purchaser.  Each
Purchaser hereby represents and warrants, severally and not jointly, to the
Company as follows (such representations and warranties do not lessen or
obviate the representations and warranties of the Company set forth in this Agreement):


 


No Shorting. 
Neither such Purchaser nor any of its affiliates and investment partners
has, nor will cause any person or entity, to directly engage in “short sales”
of the Common Stock as long as any Note shall be outstanding.


 


Requisite Power and
Authority.  Such Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions.  All corporate action on such Purchaser’s part
required for the lawful execution and delivery of this Agreement and the
Related Agreements have been or will be effectively taken prior to the
Closing.  Upon their execution and
delivery, this Agreement and the Related Agreements will be valid and binding obligations
of such Purchaser, enforceable in accordance with their terms, except:


 


as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors’ rights; and


 


as limited by
general principles of equity that restrict the availability of equitable and
legal remedies.


 


Investment
Representations.  Such Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from
registration contained in the Securities Act based in part upon such Purchaser’s
representations contained in this Agreement, including, without limitation,
that such Purchaser is an “accredited investor” within the meaning of
Regulation D under the Securities Act. 
Such Purchaser confirms that it has received or has had full access to
all the information it considers necessary or appropriate to make an informed
investment decision with respect to the applicable Note and Warrant to be
purchased by it under this Agreement and the Warrant Shares acquired by it upon
the exercise of such Warrant, respectively. 
Such Purchaser further confirms that it has had an opportunity to ask
questions and receive answers from the Company regarding the Company’s and its
Subsidiaries’ business, management and financial affairs and the terms and
conditions of the Offering, the Notes, the Warrants and the Securities and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to such Purchaser or to which
such Purchaser had access.


 


The Purchaser
Bears Economic Risk.  Such Purchaser has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect its
own interests.  Such Purchaser must bear
the economic risk of this investment until the Securities are sold pursuant to:
(i) an effective registration statement under the Securities Act; or (ii) an
exemption from registration is available with respect to such sale.


 


14

















 


Acquisition for Own
Account.  Such Purchaser is acquiring the applicable
Note and Warrant and the Warrant Shares for such Purchaser’s own account for
investment only, and not as a nominee or agent and not with a view towards or
for resale in connection with their distribution.


 


The Purchaser Can
Protect Its Interest.  Such Purchaser represents that by reason of
its, or of its management’s, business and financial experience, such Purchaser
has the capacity to evaluate the merits and risks of its investment in the
applicable Note, the Warrant and the Securities and to protect its own
interests in connection with the transactions contemplated in this Agreement
and the Related Agreements.  Further,
such Purchaser is aware of no publication of any advertisement in connection
with the transactions contemplated in the Agreement or the Related Agreements.


 


Accredited
Investor.  Such Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities
Act.


 


Legends.


 


The applicable
Note shall bear substantially the following legend:


 


“THIS NOTE HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS.  THIS NOTE MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR (B) AN EXEMPTION FROM SUCH REGISTRATION.”


 


The applicable
Warrant Shares, if not issued by DWAC system (as hereinafter defined), shall
bear a legend which shall be in substantially the following form until such
shares are covered by an effective registration statement filed with the SEC:


 


“THE SHARES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.  THESE SHARES MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR (B) AN
EXEMPTION FROM SUCH REGISTRATION.”


 


The applicable
Warrant shall bear substantially the following legend:


 


“THIS WARRANT AND
THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS.  THIS WARRANT AND
THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR 


 


15

















 


THE UNDERLYING
SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR (B) AN
EXEMPTION FROM SUCH REGISTRATION.”


 


Covenants of the
Company.  The Company covenants and agrees with each
Creditor Party as follows:


 


Stop-Orders. 
The Company will, by written notice, advise the Agent, promptly after it
receives notice of issuance by the SEC, any state securities commission or any
other regulatory authority of any stop order or of any order preventing or
suspending any offering of any securities of the Company, or of the suspension
of the qualification of the Common Stock of the Company for offering or sale in
any jurisdiction, or the initiation of any proceeding for any such purpose.


 


Listing. 
The Company shall promptly secure the listing or quotation, as
applicable, of the shares of Common Stock issuable upon the exercise of the
Warrants on the Principal Market upon which shares of Common Stock are listed
or quoted for trading, as applicable (subject to official notice of issuance)
and shall maintain such listing or quotation, as applicable, so long as any
other shares of Common Stock shall be so listed or quoted, as applicable.  The Company will maintain the listing or quotation,
as applicable, of its Common Stock on the Principal Market, and will comply in
all material respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the National Association of
Securities Dealers (“NASD”) and such exchanges, as applicable.


 


Market Regulations. 
The Company shall notify the SEC, NASD and applicable state authorities,
in accordance with their requirements, of the transactions contemplated by this
Agreement, and shall take all other necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation, for the
legal and valid issuance of the applicable Securities to each Purchaser and
promptly provide copies thereof to such Purchaser.


 


Reporting
Requirements.  The Company will deliver, or cause to be delivered,
to the Agent each of the following, which shall be in form and detail
acceptable to the Agent:


 


As soon as
available, and in any event within ninety (90) days after the end of each
fiscal year of the Company, the Company’s and each of its Subsidiaries’ audited
financial statements with a report of independent certified public accountants
of recognized standing selected by the Company and acceptable to the Agent (the
“Accountants”), which annual financial statements shall be without
qualification and shall include the Company’s and each of its Subsidiaries’
balance sheet as at the end of such fiscal year and the related statements of
the Company’s and each of its Subsidiaries’ income, retained earnings and cash
flows for the fiscal year then ended, prepared on a consolidating and
consolidated basis to include the Company, each Subsidiary of the Company and
each of their respective affiliates, all in reasonable detail and prepared in
accordance with GAAP, together with (i) if and when available, copies of
any management letters prepared by the Accountants; and (ii) a certificate
of the Company’s President, Chief Executive Officer or Chief Financial Officer
stating that such financial statements have been prepared in accordance with
GAAP and whether or not such officer has knowledge of the occurrence of any
Event of Default (as defined in each Note) and, if so, stating in reasonable
detail the facts with respect thereto;


 


As soon as
available and in any event within forty five (45) days after the end of each
fiscal quarter of the Company, an unaudited/internal balance sheet and
statements of income, retained earnings and cash flows of the Company and each
of its Subsidiaries as at the end


 


16

















 


of and for such
quarter and for the year to date period then ended, prepared on a consolidating
and consolidated basis to include all the Company, each Subsidiary of the
Company and each of their respective affiliates, in reasonable detail and
stating in comparative form the figures for the corresponding date and periods
in the previous year, all prepared in accordance with GAAP, subject to year-end
adjustments and accompanied by a certificate of the Company’s President, Chief
Executive Officer or Chief Financial Officer, stating (i) that such
financial statements have been prepared in accordance with GAAP, subject to
year-end audit adjustments, and (ii) whether or not such officer has
knowledge of the occurrence of any Event of Default (as defined in each Note)
not theretofore reported and remedied and, if so, stating in reasonable detail
the facts with respect thereto;


 


As soon as
available and in any event within twenty-five (25) days after the end of each
calendar month, an unaudited/internal balance sheet and statements of income,
retained earnings and cash flows of the Company and its Subsidiaries as at the
end of and for such month and for the year to date period then ended, prepared
on a consolidating and consolidated basis to include the Company, each
Subsidiary of the Company and each of their respective affiliates, in
reasonable detail and stating in comparative form the figures for the
corresponding date and periods in the previous year, all prepared in accordance
with GAAP, subject to quarterly and year-end adjustments and accompanied by a
certificate of the Company’s President, Chief Executive Officer or Chief
Financial Officer, stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit adjustments, and (ii) whether
or not such officer has knowledge of the occurrence of any Event of Default (as
defined in each Note) not theretofore reported and remedied and, if so, stating
in reasonable detail the facts with respect thereto;


 


The Company shall
timely file with the SEC all reports required to be filed pursuant to the
Exchange Act and refrain from terminating its status as an issuer required by
the Exchange Act to file reports thereunder even if the Exchange Act or the rules or
regulations thereunder would permit such termination.  Promptly after (i) the filing thereof,
copies of the Company’s most recent registration statements and annual,
quarterly, monthly or other regular reports which the Company files with the
SEC, and (ii) the issuance thereof, copies of such financial statements,
reports and proxy statements as the Company shall send to its stockholders; and


 


The Company shall
deliver, or cause the applicable Subsidiary of the Company to deliver, such
other information as any Creditor Party shall reasonably request.


 


Use of Funds. 
The Company shall use the proceeds of the sale of the Notes and the
Warrants for general working capital purposes only (it being understood that
$2,303,500.00 of the proceeds of the notes will be deposited in the Restricted
Account on the Closing Date and shall be subject to the terms and conditions of
the Restricted Account Agreement and the Restricted Account Side Letter).


 


Access to
Facilities.  The Company and each of its Subsidiaries will
permit any representatives designated by the Agent (or any successor of the
Agent), upon reasonable notice and during normal business hours, at such person’s
expense and accompanied by a representative of the Company or any Subsidiary
(provided that no such prior notice shall be required to be given and no such
representative of the Company or any Subsidiary shall be required to accompany
the Agent in the event the Agent believes such access is necessary to preserve
or protect the


 


17

















 


Collateral (as defined in
the Master Security Agreement) or following the occurrence and during the
continuance of an Event of Default (as defined in each Note)), to:


 


visit and inspect
any of the properties of the Company or any of its Subsidiaries;


 


examine the corporate
and financial records of the Company or any of its Subsidiaries (unless such
examination is not permitted by federal, state or local law or by contract) and
make copies thereof or extracts therefrom; and


 


discuss the
affairs, finances and accounts of the Company or any of its Subsidiaries with
the directors, officers and independent accountants of the Company or any of
its Subsidiaries.


 


Notwithstanding
the foregoing, neither the Company nor any of its Subsidiaries will provide any
material, non-public information to any Creditor Party unless such Creditor
Party signs a confidentiality agreement and otherwise complies with Regulation
FD, under the federal securities laws.


 


18
















 


Taxes.


 


The
Company and each of its Subsidiaries will promptly pay and discharge, or cause
to be paid and discharged, when due and payable, all taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company and its Subsidiaries; provided, however, that any such
tax, assessment, charge or levy need not be paid currently if (i) the
validity thereof shall currently and diligently be contested in good faith by
appropriate proceedings, (ii) such tax, assessment, charge or levy shall
have no effect on the lien priority of the Agent in any property of the Company
or any of its Subsidiaries and (iii) if the Company and/or such Subsidiary
shall have set aside on its books adequate reserves with respect thereto in
accordance with GAAP; and provided, further, that the Company and its
Subsidiaries will pay all such taxes, assessments, charges or levies forthwith
upon the commencement of proceedings to foreclose any lien which may have
attached as security therefor.


 


All
payments made by the Company under this Agreement or any Note shall be made
free and clear of, and without deduction or withholding for or on account of,
any present or future Taxes (as defined below) now or hereafter imposed,
levied, collected, withheld or assessed by any Governmental Authority, other
than Excluded Taxes (as defined below). 
If any Non-Excluded Taxes (as defined below) or Other Taxes (as defined
below) are required to be withheld from any amounts payable to any Creditor
Party under this Agreement or any Note, the amounts so payable to such Creditor
Party shall be increased to the extent necessary to yield to such Creditor
Party (after payment of all Non-Excluded Taxes and Other Taxes, including those
imposed on payments made pursuant to this paragraph (b) of this Section 6.7
or any such other amounts payable in this Agreement or any Note at the rates or
in the amounts specified herein or therein), an amount equal to the sum it
would have received had no such withholding or deductions been made provided,
however, that no Company shall be required to increase any such amounts payable
to any Creditor Party with respect to any Non-Excluded Taxes that are directly
attributable to such Creditor Party’s failure to comply with the requirements
of paragraph (e) of this Section 6.7. 
In addition, the Company shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.


 


Whenever
any Non-Excluded Taxes or Other Taxes are payable by the Company, as promptly
as possible thereafter the Company shall send to the Agent for its own account
or for the account of the relevant Lender, as the case may be, a certified copy
of an original official receipt received by the Company showing payment thereof
(or such other evidence reasonably satisfactory to the Agent).  If the Company fails to pay any Non-Excluded
Taxes or Other Taxes when due to the appropriate taxing authority or fails to
remit to the Agent the required receipts or other required documentary
evidence, the Company shall indemnify the Creditor Parties for any incremental
taxes, interest or penalties that may become payable by any Creditor Party as a
result of any such failure.


 


Each
Purchaser (or its assignee) that is not a “United States Person” as defined in Section 7701(a)(30)
of the Code (a “Non-U.S. Purchaser”) shall deliver to the Company and
the Agent two completed originals of an appropriate U.S. Internal Revenue
Service Form W-8, as applicable, or any subsequent versions thereof or
successors thereto, properly completed and duly executed by such Non-U.S.
Purchaser.  Such forms shall be delivered
by each Non-U.S. Purchaser on or before the date it becomes a party to this
Agreement.  In


 


19

















 


addition,
each Non-U.S. Purchaser shall deliver such forms promptly upon the obsolescence
or invalidity of any form previously delivered by such Non-U.S. Purchaser.  Each Non-U.S. Purchaser shall promptly notify
the Company at any time it determines that it is no longer in a position to
provide any previously delivered certificate to the Company (or any other form
of certification adopted by the U.S. taxing authorities for such purpose).  Notwithstanding any other provision of this
paragraph (e), a Non-U.S. Purchaser shall not be required to deliver any form
pursuant to this paragraph that such Non-U.S. Purchaser is not legally able to
deliver.


 


The
agreements in the preceding paragraphs (b), (c), (d), (e) and this
paragraph (f) shall survive the termination of this Agreement and the
payment of the Notes and all other amounts payable hereunder or thereunder or
under any other Related Agreement.


 


As used in this Section 6.7, the following terms
shall have the following meanings (such meanings to be equally applicable to both
the singular and plural forms of the terms defined):


 


“Excluded Taxes” means, with respect to any
Creditor Party, taxes imposed on or measured by its overall net income and
franchise taxes imposed on it in lieu of net income taxes, by the jurisdiction
(or any political subdivision thereof) under the laws of which such Creditor
Party is incorporated or organized or by the jurisdiction (or any political
subdivision thereof) in which the principal place of management or applicable
lending office of such Creditor Party is located.


 


“Non-Excluded Taxes” means all Taxes other than
(i) Excluded Taxes and (ii) Other Taxes.


 


“Other Taxes” means any and all present or
future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies arising from any payment made hereunder or from the
execution, delivery or enforcement of, or otherwise with respect to, this
Agreement or any other Related Agreement.


 


“Taxes” means any and all present or future
taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or
similar charges, and all liabilities with respect thereto.


 


Insurance.  (A)  The
Company shall bear the full risk of loss from any loss of any nature whatsoever
with respect to the Collateral (as defined in each of the Master Security
Agreement, the Stock Pledge Agreement and each other security agreement entered
into by the Company and/or any of its Subsidiaries for the benefit of the
Creditor Parties) and the Company and each of its Subsidiaries will, jointly
and severally, bear the full risk of loss from any loss of any nature
whatsoever with respect to the assets pledged to the Agent, for the ratable
benefit of the Creditor Parties, as security for the Obligations (as defined in
the Master Security Agreement). 


 


Furthermore, the Company will insure or cause the
Collateral to be insured in the Agent’s name as an additional insured and
lender loss payee, with an appropriate loss payable endorsement in form and
substance satisfactory to the Agent, against loss or damage by fire, flood,
sprinkler leakage, theft, burglary, pilferage, loss in transit and other risks
customarily insured against by companies in similar business similarly situated
as the Company and its Subsidiaries including but not limited to workers compensation,
public and product liability and business interruption, and such other hazards
as the Agent shall specify in amounts and under insurance policies and


 


20

















 


bonds
by insurers acceptable to the Agent and all premiums thereon shall be paid by
the Company and the policies delivered to the Agent.  If the Company or any of its Subsidiaries
fails to obtain the insurance and in such amounts of coverage as otherwise
required pursuant to this Section 6.8, the Agent may procure such
insurance and the cost thereof shall be promptly reimbursed by the Company and
shall constitute Obligations.


 


The Company’s insurance coverage shall not be impaired
or invalidated by any act or neglect of the Company or any of its Subsidiaries
and the insurer will provide the Agent with no less than thirty (30) days
notice prior of cancellation;


 


The Agent, in connection with its status as a lender
loss payee, will be assigned at all times to a first lien position until such
time as all the Obligations have been indefeasibly satisfied in full.


 


Intellectual
Property.


 


The
Company and each of its Subsidiaries shall maintain in full force and effect
its existence, rights and franchises and all licenses and other rights to own
or use Intellectual Property including registrations and applications
therefore, that are necessary to the conduct of its business, as now conducted
or as presently proposed to be conducted, and shall not do any act or omit to
do any act whereby any of such Intellectual Property may lapse, or become
abandoned, dedicated to the public, or unenforceable, or the Lien therein in
favor of the Agent, for the ratable benefit of the Creditor Parties, would be
adversely affected,


 


The
Company shall report to the Agent (i) the filing by the Company or any of
its Subsidiaries of any application to register a Copyright no later than ten (10) days
after such filing occurs (ii) the filing of any application to register
any other Intellectual Property with any other Intellectual Property registry,
and the issuance thereof, no later than thirty (30) days after such filing or
issuance occurs and, in each case, shall, simultaneously with such report,
deliver to the Agent fully-executed documents required to acknowledge, confirm,
register, record or perfect the Lien in such Intellectual Property.


 


The
Company shall, and shall cause each of its Subsidiaries to, promptly upon the
reasonable request of the Agent, execute and deliver to the Agent any document
or instrument required to acknowledge, confirm, register, record, or perfect
the Lien of the Agent in any part of the Intellectual Property owned by the
Company and its Subsidiaries. The Company shall, and shall cause of each of its
Subsidiaries to, not sell, assign, transfer, license, grant any option, or
create or suffer to exist any Lien upon or with respect to Intellectual
Property, except for the Permitted Encumbrances.


 


Properties. 
The Company and each of its Subsidiaries will keep its properties in
good repair, working order and condition, reasonable wear and tear excepted,
and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; and each of the Company and
each of its Subsidiaries will at all times comply with each provision of all
leases to which it is a party or under which it occupies property if the breach
of such provision could, either individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.


 


Confidentiality. 
The Company will not, and will not permit any of its Subsidiaries to,
disclose, and will not include in any public announcement, the name of any
Creditor Party, unless expressly agreed to by such Creditor Party or unless and
until such disclosure is required by law or applicable regulation, and then
only to the extent of such requirement. 
Notwithstanding the foregoing, (i) the Company may disclose any
Creditor Party’s identity and the terms of this


 


21

















 


Agreement
and the Related Agreements to its current and prospective debt and equity
financing sources, and (ii) the Company (and each employee,
representative, or other agent of the Company) may disclose to any and all
Persons, without limitation of any kind, the tax treatment and any facts that
may be relevant to the tax structure of the transactions contemplated by this
Agreement and the Related Agreements and the agreements referred to therein;
provided, however, that the Company (and no employee, representative or other
agent of the Company) disclose pursuant to this clause (ii) any other
information that is not relevant to understanding the tax treatment or tax
structure of such transactions (including the identity of any party or any
information that could lead another to determine the identity of any party);
and, provided, further, that the Company will not, and will not permit any of
its Subsidiaries to, disclose any information to the extent that such
disclosure could reasonably be expected to result in a violation of any U.S. federal
or state securities law or similar law of another jurisdiction.  Each Creditor Party shall be permitted to
discuss, distribute or otherwise transfer any non-public information of the
Company and its Subsidiaries in such Creditor Party’s possession now or in the
future to potential or actual (i) direct or indirect investors in such
Creditor Party and (ii) third party assignees or transferees of all or a
portion of the obligations of the Company and/or any of its Subsidiaries
hereunder and under the Related Agreements, to the extent that such investor or
transferee enters into a confidentiality agreement for the benefit of the
Company in such form as may be necessary to address the Company’s Regulation FD
requirements.


 


Required
Approvals.  (I) For so long as twenty-five percent
(25% of the aggregate principal amount of the note is outstanding, the Company,
without the prior written consent of the Agent, shall not, and shall not permit
any of its Subsidiaries to:


 


(i) directly
or indirectly declare or pay any dividends, other than dividends paid to the
Company or any of its wholly-owned Subsidiaries, (ii) issue any preferred
stock that is mandatorily redeemable prior to the one year anniversary of the
Maturity Date (as defined in each Note) or (iii) redeem any of its
preferred stock or other equity interests; liquidate, dissolve or effect a
material reorganization (it being understood that in no event shall the Company
or any of its Subsidiaries dissolve, liquidate or merge with any other person
or entity (unless, in the case of such a merger, the Company or, in the case of
merger not involving the Company, such Subsidiary, as applicable, is the
surviving entity); become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by its terms
would (under any circumstances) restrict the Company’s or any of its
Subsidiaries, right to perform the provisions of this Agreement, any Related
Agreement or any of the agreements contemplated hereby or thereby; materially
alter or change the scope of the business of the Company and its Subsidiaries
taken as a whole; or


 


(i) create,
incur, assume or suffer to exist any indebtedness (exclusive of trade debt and
debt incurred to finance the purchase of equipment (not in excess of five
percent (5%) of the fair market value of the Company’s and its Subsidiaries’
assets)) whether secured or unsecured other than (x) the Company’s
obligations owed to each Purchaser, (y) indebtedness set forth on Schedule
6.12(e) attached hereto and made a part hereof and any refinancings or
replacements thereof on terms no less favorable to the Purchasers than the
indebtedness being refinanced or replaced, and (z) any indebtedness
incurred in connection with the purchase of assets (other than equipment) in
the ordinary course of business, or


 


22

















 


any
refinancings or replacements thereof on terms no less favorable to the
Purchasers than the indebtedness being refinanced or replaced, so long as any
lien relating thereto shall only encumber the fixed assets so purchased and no
other assets of the Company or any of its Subsidiaries; (ii) cancel any
indebtedness owing to it in excess of $50,000 in the aggregate during any
twelve (12) month period; (iii) assume, guarantee, endorse or otherwise
become directly or contingently liable in connection with any obligations of
any other person or entity, except the endorsement of negotiable instruments by
the Company or any Subsidiary thereof for deposit or collection or similar
transactions in the ordinary course of business or guarantees of indebtedness
otherwise permitted to be outstanding pursuant to this clause (e); and (iv) make
any optional payment or prepayment on or redemption (including, without limitation,
by making payments to a sinking fund or analogous fund) or repurchase of any
indebtedness for borrowed money other than indebtedness pursuant to this
Agreement; and


 


(II) The Company, without the prior written
consent of the Agent, shall not, and shall not permit any of its Subsidiaries
to, create or acquire any Subsidiary after the date hereof unless (i) such
Subsidiary is a wholly-owned Subsidiary of the Company and (ii) such
Subsidiary becomes a party to (A) the Master Security Agreement, and the
Stock Pledge Agreement (either by executing a counterpart thereof or an
assumption or joinder agreement in respect thereof); (B) a Subsidiary
Guaranty in favor of the Purchasers in form and substance satisfactory to the
Agent and (c) to the extent required by the Agent, satisfies each
condition of this Agreement and the Related Agreements as if such Subsidiary
were a Subsidiary on the Closing Date.  Reissuance
of Securities.  The Company agrees to
reissue certificates representing the Securities without the legends set forth
in Section 5.8 above at such time as: the holder thereof is
permitted to dispose of such Securities pursuant to Rule 144(k) under
the Securities Act; or upon resale subject to an effective registration
statement after such Securities are registered under the Securities Act.


 


The
Company agrees to cooperate with the Purchasers in connection with all resales
pursuant to Rule 144(d) and Rule 144(k) and provide legal
opinions necessary to allow such resales provided the Company and its counsel
receive reasonably requested representations from the applicable Purchasers and
broker, if any.


 


Opinion. 
On the Closing Date, the Company will deliver to the Creditor Parties
substantially in the form of Exhibit C hereto an opinion acceptable
to the Agent from the Company’s external legal counsel.  The Company will provide, at the Company’s
expense, such other legal opinions in the future as are deemed reasonably
necessary by the Agent (and acceptable to the Agent) in connection with the
conversion of any Note and exercise of the any Warrant.


 


Margin
Stock.  The Company will not permit any of the
proceeds of the Notes or the Warrants to be used directly or indirectly to “purchase”
or “carry” “margin stock” or to repay indebtedness incurred to “purchase” or “carry”
“margin stock” within the respective meanings of each of the quoted terms under
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect.


 


FIRPTA. 
Neither the Company, nor any of its Subsidiaries, is a “United States
real property holding corporation” as such term is defined in Section 897(c)(2) of
the Code and Treasury Regulation Section 1.897-2 promulgated thereunder
and neither the Company nor any of its


 


23

















 


Subsidiaries
shall at any time take any action or otherwise acquire any interest in any
asset or property to the extent the effect of which shall cause the Company
and/or such Subsidiary, as the case may be, to be a “United States real
property holding corporation” as such term is defined in Section 897(c)(2) of
the Code and Treasury Regulation Section 1.897-2 promulgated thereunder.


 


Financing
Right of First Refusal.


 


The
Company hereby grants to the Purchasers a right of first refusal to provide any
Additional Financing (as defined below) to be issued by the Company and/or any
of its Subsidiaries, subject to the following terms and conditions.  From and after the date hereof, prior to the
incurrence of any additional indebtedness and/or the sale or issuance of any
equity interests of the Company or any of its Subsidiaries (an “Additional
Financing”), the Company and/or any Subsidiary of the Company, as the case
may be, shall notify the Agent of its intention to enter into such Additional
Financing.  In connection therewith, the
Company and/or the applicable Subsidiary thereof shall submit a fully executed
term sheet (a “Proposed Term Sheet”) to the Agent setting forth the
terms, conditions and pricing of any such Additional Financing (such financing
to be negotiated on “arm’s length” terms and the terms thereof to be negotiated
in good faith) proposed to be entered into by the Company and/or such
Subsidiary.  The Agent shall have the
right, but not the obligation, to deliver its own proposed term sheet (the “Purchaser
Term Sheet”) setting forth the terms and conditions upon which the
Purchasers would be willing to provide such Additional Financing to the Company
and/or such Subsidiary.  The Purchaser
Term Sheet shall contain terms no less favorable to the Company and/or such
Subsidiary than those outlined in Proposed Term Sheet.  The Agent shall deliver such Purchaser Term
Sheet within ten (10) business days of receipt of each such Proposed Term
Sheet.  If the provisions of the Purchaser
Term Sheet are at least as favorable to the Company and/or such Subsidiary, as
the case may be, as the provisions of the Proposed Term Sheet, the Company
and/or such Subsidiary shall enter into and consummate the Additional Financing
transaction outlined in the Purchaser Term Sheet.


 


The
Company will not, and will not permit its Subsidiaries to, agree, directly or
indirectly, to any restriction with any person or entity which limits the
ability of the Purchasers to consummate an Additional Financing with the
Company or any of its Subsidiaries.


 


Authorization
and Reservation of Shares.  The Company shall at all times
have authorized and reserved a sufficient number of shares of Common Stock to
provide for exercise of the Warrants.  


 


Investor
Relations/Public Relations.  The Company
hereby agrees to incorporate into its annual budget an amount of funds
necessary to maintain a comprehensive investor relations and public relations
program (an “IR/PR Program”), which IR/PR Program shall incorporate elements customarily
utilized by companies of similar size and in a similar industry as the Company
and its Subsidiaries.


 


2.2           Workout
Consultant.  Company hereby covenants
and agrees that, on or prior to Closing, Company shall enter into an
agreement to retain a consultant or “restructuring advisor” selected
by Company from a list of consultants or “restructuring advisors”
acceptable to Company and Agent.  At all
times following the initial retention of a consultant or “restructuring advisor”
referred to above, Company shall continue to retain a consultant or “restructuring
advisor” acceptable to Company and Agent. 
Company shall fully cooperate with the consultant or “restructuring
advisor” so retained and shall authorize the consultant or “restructuring
advisor” to provide such information and reports from time to time with respect
to Company and its


 


24

















 


financial condition, business, assets, liabilities and
prospects, as Agent shall from time to time request.  All fees and expenses of the consultant or “restructuring
advisor” shall be solely the responsibility of Company and in no event
shall Agent and/or any Lender have any liability or responsibility
for the payment of any such fees or expenses, nor shall Agent and/or any Lender
have any obligation or liability to Company or any other person by reason
of any acts or omissions of the consultant or “restructuring advisor”.  Further, the Company agrees that consultant
or “crisis manager” shall be an independent contractor of Company and in no
case shall consultant or “crisis manager” act (or be deemed to be acting) in a
manner, express or implied, or on behalf of or as an agent of Agent, any Lender
or any of their respective affiliates.


 


2.3           Board
Observation Rights.  Until such time
as all Obligations (as defined in the Master Security Agreement) have been
indefeasibly paid in full, the Purchasers will be entitled to the following
board observation rights (“Board Observation Rights”):  the Company shall permit one representative
of the Purchasers to attend all meetings of the board of directors of the
Company (the “Board of Directors”) in a non-voting observer capacity,
which observation right shall include the ability to observe discussions of the
Board of Directors, and shall provide such representative with copies of all
notices, minutes, written consents, and other materials that it provides to
members of the Board of Directors, at the time it provides them to such
members. The observation right may be exercised in person or via telephone or
videophone participation. Each Purchaser agrees, on behalf of itself and any
representative exercising the observation rights set forth herein, that so long
as it shall exercise its observation right (i) it shall hold in strict
confidence pursuant to a confidentiality and non-disclosure agreement (in form
and substance satisfactory to each Purchaser) all information and materials
that it may receive or be given access to in connection with meetings of the
Board of Directors and to act in a fiduciary manner with respect to all
information so provided (provided that this shall not limit its ability to
discuss such matters with its officers, directors or legal counsel, as
necessary), and (ii) the Board of Directors may withhold from it certain
information or material furnished or made available to the Board of Directors
or exclude it from certain confidential “closed
sessions” of the Board of Directors if the furnishing or
availability of such information or material or its presence at such “closed sessions” would jeopardize such
Company’s attorney-client privilege or if the Board of Directors otherwise
reasonably so requires.  The Board
Observation Rights set forth in this Section shall automatically terminate
and be of no further force or effect upon the indefeasible payment in full of
all Obligations (as defined in the Master Security Agreement).


 


2.4           Additional
Warrants.  The Company hereby agrees
to use its commercially reasonable best efforts to (i) obtain the approval
by no later than November 30, 2008 of its shareholders to increase the
number of authorized shares of Common Stock of the Company sufficient to issue
no less than 146,143,792 additional shares of Common Stock, and (ii) duly
authorize and issue to the Purchasers by no later than November 30, 2008,
common stock purchase warrants exercisable into an aggregate of 146,143,792
shares of Common Stock of the Company, with an exercise price of $0.01 per
share, in forms and in amounts (subject to the aggregate share limitation stated
above) acceptable to such Purchasers as determined in their sole discretion.


 


2.5           Compliance
with Budget.  The Company shall comply with the terms and
conditions of the budget provided by the Company and its Subsidiaries to the
Creditor Parties as of the date hereof (the “Budget”) in all respects; provided, however,
that (a) a variance of less than ten (10%) percent with respect to
operating expenses, excluding non-cash share-based compensation and
amortization expense, set forth in the Budget shall be permitted on a monthly
basis, (b) during the second half of the 2008 fiscal year, a variance of
less than twenty-five (25%) percent with respect to any of the Summary Income
Statement, Summary Balance Sheet and Summary Cash Flow line items, excluding
non-cash share-based


 


25

















 


compensation and non-cash
amortization expense, on a quarterly basis set forth in the Budget shall be
permitted, (c) during the 2009 fiscal year and the 2010 fiscal year, a
variance of less than fifteen (15%) percent with respect to the aggregate of
the Summary Income Statement, Summary Balance Sheet and Summary Cash Flow line
items, excluding non-cash share-based compensation and non-cash amortization
expense, on a quarterly basis set forth in the Budget shall be permitted, and (d) 
at the end of the second quarter of the 2009 fiscal year, a variance of less
than fifteen (15%) percent with respect to any of the Summary Income Statement,
Summary Balance Sheet and Summary Cash Flow line items, excluding non-cash
share-based compensation and non-cash amortization expense, tested at the end
of the second quarter of the 2009 fiscal year for the cumulative period
commencing with the fiscal quarter ending September 27, 2008 as set forth
in the Budget shall be permitted.


 


Covenants
of the Purchasers.  Each Purchaser covenants and agrees with the
Company as follows:


 


Confidentiality.  No Purchaser
will disclose, nor will it include in any public announcement, the name of the
Company, unless expressly agreed to by the Company or unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement.


 


Non-Public
Information.  No Purchaser will effect any sales in the
shares of the Common Stock while in possession of material, non-public
information regarding the Company if such sales would violate applicable
securities law.


 


Limitation
on Acquisition of Common Stock of the Company. 
Notwithstanding anything to the contrary contained in this Agreement,
any Related Agreement or any document, instrument or agreement entered into in
connection with any other transactions entered into by a Purchaser and the
Company (and/or Subsidiaries or Affiliates of the Company), such Purchaser
(and/or Subsidiaries or Affiliates of such Purchaser) shall not acquire stock
in the Company (including, without limitation, pursuant to a contract to
purchase, by exercising an option or warrant, by converting any other security
or instrument, by acquiring or exercising any other right to acquire, shares of
stock or other security convertible into shares of stock in the Company, or
otherwise, and such contracts, options, warrants, conversion or other rights
shall not be enforceable or exercisable) to the extent such stock acquisition
would cause any interest (including any original issue discount) payable by the
Company to a Non-U.S. Purchaser not to qualify as “portfolio interest” within
the meaning of Section 871(h)(2) or Section 881(c)(2) of
the Code, by reason of Section 871(h)(3) or Section 881(c)(3)(B) of
the Code, as applicable, taking into account the constructive ownership rules under
Section 871(h)(3)(C) of the Code (the “Stock Acquisition
Limitation”).  The Stock Acquisition
Limitation shall automatically become null and void with respect to a
Purchaser, without any notice to the Company, on and after the first date upon
which such Purchaser and each of its Affiliates which qualify as a Non-U.S.
Purchaser no longer owns any indebtedness (including, without limitation, principal,
interest, fees and charges) of the Company.


 


26

















 


Covenants
of the Company and the Purchasers Regarding Indemnification.


 


Company
Indemnification.  The Company agrees to indemnify, hold
harmless, reimburse and defend each Creditor Party, each of such Creditor Party’s
officers, directors, agents, affiliates, control persons, and principal
shareholders, against all claims, costs, expenses, liabilities, obligations,
losses or damages (including reasonable legal fees) of any nature, incurred by
or imposed upon such Creditor Party which result, arise out of or are based
upon: (i) any misrepresentation by the Company or any of its Subsidiaries
or breach of any warranty by the Company or any of its Subsidiaries in this
Agreement, any other Related Agreement or in any exhibits or schedules attached
hereto or thereto; or (ii) any breach or default in performance by Company
or any of its Subsidiaries of any covenant or undertaking to be performed by
Company or any of its Subsidiaries hereunder, under any other Related Agreement
or any other agreement entered into by the Company and/or any of its
Subsidiaries and such Creditor Party relating hereto or thereto.


 


Purchaser
Indemnification.  Each Purchaser Party agrees to indemnify,
hold harmless, reimburse and defend the Company and each of the Company’s
officers, directors, agents, affiliates, control persons and principal
shareholders, at all times against any claims, costs, expenses, liabilities,
obligations, losses or damages (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company which result, arise out of or are based
upon:  (i) any misrepresentation by
such Purchaser or breach of any warranty by such Purchaser in this Agreement or
in any exhibits or schedules attached hereto or any Related Agreement; or (ii) any
breach or default in performance by such Purchaser of any covenant or
undertaking to be performed by such Purchaser hereunder, or any other agreement
entered into by the Company and such Purchaser relating hereto.


 


Intentionally
Omitted.


 


Offering
Restrictions.


 


Offering
Restrictions.  Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company (these exceptions hereinafter referred to
as the “Excepted Issuances”), neither the Company nor any of its
Subsidiaries will, prior to the full repayment of the Notes (together with all
accrued and unpaid interest and fees related thereto) and the full exercise by
the Purchasers of the Warrants, (x) enter into any equity line of credit
agreement or similar agreement or (y) issue, or enter into any agreement
to issue, any securities with a variable/floating conversion and/or pricing
feature which are or could be (by conversion or registration) free-trading
securities (i.e.  common stock subject to
a registration statement).


 


Miscellaneous.


 


Governing
Law, Jurisdiction and Waiver of Jury Trial.


 


THIS
AGREEMENT AND THE OTHER RELATED AGREEMENTS SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.


 


THE
COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE AND/OR FEDERAL COURTS LOCATED
IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION
TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY, ON THE ONE
HAND, AND ANY CREDITOR PARTY, ON THE OTHER HAND, PERTAINING TO THIS


 


27

















 


AGREEMENT
OR ANY OF THE RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO
THIS AGREEMENT OR ANY OF THE OTHER RELATED AGREEMENTS; PROVIDED, THAT
EACH CREDITOR PARTY AND THE COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE
COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF
NEW YORK, STATE OF NEW YORK; AND FURTHER  PROVIDED, THAT, NOTHING
IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE ANY CREDITOR PARTY
FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO
COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL (AS DEFINED IN THE MASTER
SECURITY AGREEMENT) OR ANY OTHER SECURITY FOR THE OBLIGATIONS (AS DEFINED IN
THE MASTER SECURITY AGREEMENT), OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER
IN FAVOR OF ANY CREDITOR PARTY.  THE
COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE COMPANY HEREBY WAIVES ANY
OBJECTION THAT IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS. 
THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR
CERTIFIED MAIL ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN SECTION 11.9
AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE
COMPANY’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE
U.S. MAILS, PROPER POSTAGE PREPAID.


 


THE
PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS.  THEREFORE, TO ACHIEVE
THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND/OR OF ARBITRATION,
THE PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT,
OR OTHERWISE BETWEEN ANY CREDITOR PARTY AND/OR THE COMPANY ARISING OUT OF,
CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN
THEM IN CONNECTION WITH THIS AGREEMENT, ANY OTHER RELATED AGREEMENT OR THE
TRANSACTIONS RELATED HERETO OR THERETO.


 


Severability. 
Wherever possible each provision of this Agreement and the Related
Agreements shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement or any Related
Agreement shall be prohibited by or invalid or illegal under applicable law
such provision shall be ineffective to the extent of such prohibition or
invalidity or illegality, without invalidating the remainder of such provision
or the remaining provisions thereof which shall not in any way be affected or
impaired thereby.


 


Survival. 
The representations, warranties, covenants and agreements made herein
shall survive any investigation made by any Creditor Party and the closing of
the transactions contemplated


 


28

















 


hereby
to the extent provided therein.  All statements
as to factual matters contained in any certificate or other instrument
delivered by or on behalf of the Company pursuant hereto in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such certificate
or instrument.  All indemnities set forth
herein shall survive the execution, delivery and termination of this Agreement
and the Notes and the making and repayment of the obligations arising hereunder,
under the Notes and under the other Related Agreements.


 


Successors.


 


Except
as otherwise expressly provided herein, the provisions hereof shall inure to
the benefit of, and be binding upon, the successors, heirs, executors and
administrators of the parties hereto and shall inure to the benefit of and be
enforceable by each person or entity which shall be a holder of the Securities
from time to time, other than the holders of Common Stock which has been sold
by any Purchaser pursuant to Rule 144 or an effective registration
statement.  Each Purchaser may assign any
or all of the Obligations to any Person and, subject to acceptance and
recordation thereof by the Agent pursuant to Section 11.4(b) and
receipt by the Agent of a copy of the agreement or instrument pursuant to which
such assignment is made (each such agreement or instrument, an “Assignment
Agreement”), any such assignee shall succeed to all of such Purchaser’s rights
with respect thereto.  Upon such
assignment, such Purchaser shall be released from all responsibility for the
Collateral (as defined in the Master Security Agreement, the Stock Pledge
Agreement and each other security agreement, mortgage, cash collateral deposit
letter, pledge and other agreements which are executed by the Company or any of
its Subsidiaries in favor of any Creditor Party) to the extent same is assigned
to any transferee.  Each Purchaser may
from time to time sell or otherwise grant participations in any of the
Obligations (as defined in the Master Security Agreement) and the holder of any
such participation shall, subject to the terms of any agreement between such
Purchaser and such holder, be entitled to the same benefits as such Purchaser
with respect to any security for the Obligations (as defined in the Master Security
Agreement) in which such holder is a participant.  The Company agrees that each such holder may
exercise any and all rights of banker’s lien, set-off and counterclaim with
respect to its participation in the Obligations (as defined in the Master Security
Agreement) as fully as though the Company were directly indebted to such holder
in the amount of such participation.  The
Company may not assign any of its rights or obligations hereunder without the
prior written consent of the Agent.  All
of the terms, conditions, promises, covenants, provisions and warranties of
this Agreement shall inure to the benefit of each of the undersigned, and shall
bind the representatives, successors and permitted assigns of the Company.


 


The
Agent shall maintain, or cause to be maintained, for this purpose only as agent
of the Company, (i) a copy of each Assignment Agreement delivered to it
and (ii) a book entry system, within the meaning of U.S. Treasury
Regulation Sections 15f.103-1(c) and 1.871-14(c) (the “Register”),
in which it will register the name and address of each Purchase and the name
and address of each assignee of each Purchaser under this Agreement, and the
principal amount of, and stated interest on, the Notes owing to each such
Purchaser and assignee pursuant to the terms hereof and each Assignment
Agreement.  The right, title and interest
of the Purchasers and their assignees in and to such Notes shall be
transferable only upon notation of such transfer in the Register, and no
assignment thereof shall be


 


29

















 


effective
until recorded therein.  The Company and
each Creditor Party shall treat each Person whose name is recorded in the
Register as a Purchaser pursuant to the terms hereof as a Purchaser and owner
of an interest in the Obligations hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary or any notation of ownership or other
writing or any Note.  The Register shall
be available for inspection by the Company or any Purchaser, at any reasonable
time and from time to time, upon reasonable prior notice.


 


Entire
Agreement; Maximum Interest.  This
Agreement, the Related Agreements, the exhibits and schedules hereto and
thereto and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and no party shall be liable or bound to any other in any
manner by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein. 
Nothing contained in this Agreement, any Related Agreement or in any
document referred to herein or delivered in connection herewith shall be deemed
to establish or require the payment of a rate of interest or other charges in
excess of the maximum rate permitted by applicable law.  In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
rate permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to the Purchasers and thus refunded to the
Company.


 


Amendment
and Waiver.


 


This
Agreement may be amended or modified only upon the written consent of the
Company and the Agent.


 


The
obligations of the Company and the rights of the Creditor Parties under this
Agreement may be waived only with the written consent of the Agent. The
obligations of the Creditor Parties and the rights of the Company under this
Agreement may be waived only with the written consent of the Company.


 


Delays
or Omissions.  It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring.  All remedies,
either under this Agreement or the Related Agreements, by law or otherwise
afforded to any party, shall be cumulative and not alternative.


 


Notices. 
All notices required or permitted hereunder shall be in writing and
shall be deemed effectively given:


 


upon
personal delivery to the party to be notified; when sent by confirmed facsimile
if sent during normal business hours of the recipient, if not, then on the next
business day; three (3) business days after having been sent by registered
or certified mail, return receipt requested, postage prepaid; or one (1) day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt.


 


30
















 


All
communications shall be sent as follows:


 


	
  If to the Company, to:

  	
   

  	
  Micro Component Technology, Inc.

  2340 West County Road C,

  St. Paul, Minnesota 55113-2528

  Attention: Chief Financial Officer

  Facsimile No.: (651) 697-4200

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  Best & Flanagan, LLP

  225 South Sixth St., Suite 4000,

  Minneapolis, Minnesota 55402

  Attention: James C. Diracles, Esq.

  Facsimile No.: (612) 339-5897

  
	
   

  	
   

  	
   

  
	
  If to the Agent, to:

  	
   

  	
  LV Administrative Services, Inc.

  c/o Laurus Capital Management, LLC

  335 Madison Avenue, 10th Floor

  New York, NY 10017

  Facsimile No.:212-581-5037

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  Loeb & Loeb, LLP

  345 Park Avenue

  New York, NY 10154

  Attention:Scott J. Giordano, Esq.

  Facsimile No.:212-407-4990

  
	
   

  	
   

  	
   

  
	
  If to a Purchaser:

  	
   

  	
  To the address indicated under its signature on the
  signature pages hereto

  



 


or at
such other address as the Company or the applicable Creditor Party may
designate by written notice to the other parties hereto given in accordance
herewith.


 


31

















 


Attorneys’
Fees.  In the event that any suit or action is
instituted to enforce any provision in this Agreement or any Related Agreement,
the prevailing party in such dispute shall be entitled to recover from the
losing party all fees, costs and expenses of enforcing any right of such
prevailing party under or with respect to this Agreement and/or such Related
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals. 


 


Titles
and Subtitles.  The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement. 


 


Signatures;
Counterparts.  This Agreement may be executed by facsimile
or electronic signatures and in any number of counterparts, each of which shall
be an original, but all of which together shall constitute one agreement.


 


Broker’s
Fees.  Except as set forth on Schedule 11.12
hereof, each party hereto represents and warrants that no agent, broker,
investment banker, person or firm acting on behalf of or under the authority of
such party hereto is or will be entitled to any broker’s or finder’s fee or any
other commission directly or indirectly in connection with the transactions
contemplated herein.  Each party hereto
further agrees to indemnify each other party for any claims, losses or expenses
incurred by such other party as a result of the representation in this Section 11.12
being untrue. 


 


Construction. 
Each party acknowledges that its legal counsel participated in the
preparation of this Agreement and the Related Agreements and, therefore,
stipulates that the rule of construction that ambiguities are to be
resolved against the drafting party shall not be applied in the interpretation
of this Agreement or any Related Agreement to favor any party against the
other. 


 


Agency. 
Each Purchaser has pursuant to an Administrative and Collateral Agency
Agreement designated and appointed the Agent as the administrative and
collateral agent of such Purchaser under this Agreement and the Related
Agreements.


 


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IS INTENTIONALLY LEFT BLANK]


 


32

















EXHIBIT
10.12


 


IN WITNESS WHEREOF, the parties hereto have executed
the SECURITIES PURCHASE AGREEMENT as of the date set forth in the first
paragraph hereof.


 


	
  COMPANY:

  	
  PURCHASER:

  
	
   

  	
   

  
	
   

  	
   

  
	
  MICRO COMPONENT TECHNOLOGY,

  INC.

  	
  VALENS
  U.S. SPV I, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:   Valens Capital Management, its

  
	
   

  	
  Name:   Roger E. Gower 

  	
     investment
  manager 

  
	
   

  	
  Title:     Chief Executive Officer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  AGENT:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  LV ADMINISTRATIVE
  SERVICES, INC.,

  as Agent

  	
  VALENS OFFSHORE SPV I,
  LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:   Valens Capital Management, its

  
	
   

  	
  Name:

  	
     investment manager 

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: 

  
	
   

  	
   

  	
  Title:

  



 


 


SIGNATURE PAGE TO


SECURITIES PURCHASE
AGREEMENT


 

















 


SCHEDULE I


 


PURCHASER COMMITMENTS


 


Secured Term Note


 


	
  Purchaser

  	
   

  	
  Amount

  	
   

  
	
  Valens U.S. SPV
  I, LLC

  	
   

  	
  $

  	
  525,000.00

  	
   

  
	
  Valens Offshore
  SPV I, LTD.

  	
   

  	
  $

  	
  2,975,000.00

  	
   

  



 

















 


EXHIBIT A


 


FORM OF TERM NOTE


 

















 


EXHIBIT B


 


FORM OF WARRANT


 

















 


EXHIBIT C


 


FORM OF OPINION


 


11.           The
Company and each of its Subsidiaries is a corporation duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
formation and has all requisite corporate power and authority to own, operate
and lease its properties and to carry on its business as it is now being
conducted.


 


12.           The
Company and each of its Subsidiaries has the requisite corporate power and
authority to execute, deliver and perform its obligations under the Agreement
and the Related Agreements.  All
corporate action on the part of the Company and each of its Subsidiaries and
its officers, directors and stockholders necessary has been taken for:  (i) the authorization of the Agreement
and the Related Agreements and the performance of all obligations of the
Company and each of its Subsidiaries thereunder; and (ii) the
authorization, sale, issuance and delivery of the Securities pursuant to the
Agreement and the Related Agreements. 
The Warrant Shares, when issued pursuant to and in accordance with the
terms of the Agreement and the Related Agreements and upon delivery shall be
validly issued and outstanding, fully paid and non assessable.


 


13.           The
execution, delivery and performance by the Company and each of its Subsidiaries
of the Agreement and the Related Agreements (to which it is a party) and the
consummation of the transactions on its part contemplated by any thereof, will
not, with or without the giving of notice or the passage of time or both:


 


a.             Violate
the provisions of their respective Charter or bylaws; or


 


b.             Violate
any judgment, decree, order or award of any court binding upon the Company or
any of its Subsidiaries; or


 


c.             Violate
any [insert jurisdictions in which counsel is qualified] or federal law


 


14.           The
Agreement and the Related Agreements will constitute, valid and legally binding
obligations of the Company and each of its Subsidiaries (to the extent such
entity is a party thereto), and are enforceable against the Company and each of
its Subsidiaries party thereto in accordance with their respective terms,
except:


 


a.             as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors’ rights;
and


 


b.             general
principles of equity that restrict the availability of equitable or legal
remedies.


 


15.           To
such counsel’s knowledge, the sale of the Notes are not subject to any
preemptive rights or rights of first refusal that have not been properly waived
or complied with.  


 


C - 1

















 


To such counsel’s knowledge, the sale of the Warrants
and the subsequent exercise of the Warrants for Warrant Shares are not subject
to any preemptive rights or, to such counsel’s knowledge, rights of first
refusal that have not been properly waived or complied with.


 


16.           Assuming
the accuracy of the representations and warranties of each Purchaser contained
in the Agreement, the offer, sale and issuance of the Securities on the Closing
Date will be exempt from the registration requirements of the Securities
Act.  To such counsel’s knowledge,
neither the Company, nor any of its affiliates, nor any person acting on its or
their behalf, has directly or indirectly made any offers or sales of any
security or solicited any offers to buy and security under circumstances that
would cause the offering of the Securities pursuant to the Agreement or any Related
Agreement to be integrated with prior offerings by the Company for purposes of
the Securities Act which would prevent the Company from selling the Securities
pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions.


 


17.           There
is no action, suit, proceeding or investigation pending or, to such counsel’s
knowledge, currently threatened against the Company or any of its Subsidiaries
that prevents the right of the Company or any of its Subsidiaries to enter into
this Agreement or any Related Agreement, or to consummate the transactions
contemplated thereby.  To such counsel’s
knowledge, the Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency
or instrumentality; nor is there any action, suit, proceeding or investigation
by the Company currently pending or which the Company intends to initiate.


 


18.           The
terms and provisions of the Master Security Agreement and the Stock Pledge
Agreement create a valid security interest in favor of the Agent, in the
respective rights, title and interests of the Company and its Subsidiaries in
and to the Collateral (as defined in each of the Master Security Agreement and
the Stock Pledge Agreement).  Each UCC-1
Financing Statement naming the Company or any Subsidiary thereof as debtor and
the Agent as secured party are in proper form for filing and assuming that such
UCC-1 Financing Statements have been filed with the Secretary of State of
Minnesota, the security interest created under the Master Security Agreement
will constitute a perfected security interest under the Uniform Commercial Code
in favor of the Agent in respect of the Collateral that can be perfected by
filing a financing statement.  After
giving effect to the delivery to the Agent of the stock certificates
representing the ownership interests of each Subsidiary of the Company
(together with effective endorsements) and assuming the continued possession by
the Agent of such stock certificates in the State of New York, the security
interest created in favor of the Agent under the Stock Pledge Agreement
constitutes a valid and enforceable first perfected security interest in such
ownership interests (and the proceeds thereof) in favor of the Agent, subject
to no other security interest.  No
filings, registrations or recordings are required in order to perfect (or
maintain the perfection or priority of) the security interest created under the
Stock Pledge Agreement in respect of such ownership interests.


 


19.           Assuming
that Capital One, N.A. is a “bank” (as such term is defined in Section 9-102(a)(8) of
the UCC), and that the Restricted Account (as defined in the Restricted Account
Agreement) constitutes a “deposit account” (as such term is defined in Section 9-102(a)(29)
of the UCC), under the Uniform Commercial Code, the due execution and delivery
of the Restricted Account Agreement perfects the Purchaser’s security interest
in the Restricted Account.


 


C - 2

















 


EXHIBIT D


 


FORM OF ESCROW
AGREEMENT