**EXHIBIT 10.12**

 

**SECURITIES PURCHASEAGREEMENT**

** **

**LV ADMINISTRATIVE SERVICES,INC.,as Administrative and Collateral Agent**

** **

**THE PURCHASERSFrom Time to Time Party Hereto**

** **

**and**

** **

**MICRO COMPONENT TECHNOLOGY,INC.**

** **

**Dated: July 31, 2008**

 

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**TABLE OFCONTENTS**

 
| ** ** | ** **                                         | ** ** | **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**     |

 

i

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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**     |

 

ii

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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

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| ** ** | ** **                                               | ** ** | **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

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**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

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** **

**SECURITIES PURCHASEAGREEMENT**

** **

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

 

**RECITALS**

** **

WHEREAS, the Company hasauthorized the sale to each Purchaser of a Secured Term Note in the form of Exhibit Ahereto in the principal amount set forth opposite such Purchaser’s name on Schedule1 hereto (each as amended, restated, modified and/or supplemented from timeto time, a “Note” and, collectively, the “Notes”);

 

WHEREAS, the Companywishes to issue to each Purchaser a warrant in the form of Exhibit Bhereto (each as amended, restated, modified and/or supplemented from time totime, a “Warrant” and, collectively the “Warrants”) to purchaseup to the number of shares of the Company’s common stock, $0.01 par value pershare (the “Common Stock”), set forth opposite such Purchaser’s name on Schedule2 (subject to adjustment as set forth therein) in connection with suchPurchaser’s purchase of the applicable Note;

 

WHEREAS, each Purchaserdesires to purchase the applicable Note and Warrant on the terms and conditionsset forth herein; and

 

WHEREAS, the Companydesires to issue and sell the applicable Note and Warrant to each Purchaser onthe terms and conditions set forth herein.

 

**AGREEMENT**

** **

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

 

# Agreement to Selland Purchase.  Pursuant to the terms and conditions setforth in this Agreement, on the Closing Date (as defined in Section 3),the Company shall sell to each Purchaser, and each Purchaser shall purchasefrom 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 Warrantsare referred to as the “Securities.”

#  

# Fees and Warrant. On the Closing Date:

#  

### **The Company willissue and deliver to each Purchaser a Warrant to purchase up to the number ofshares of Common Stock set forth opposite its name on Schedule 2(subject to adjustment as set forth therein) in connection with the Offeringpursuant to Section 1 hereof.  Allthe representations, covenants, warranties, undertakings, and indemnification,**

 

----

 

### **and other rightsmade or granted to or for the benefit of each Creditor Party by the Company arehereby also made and granted for the benefit of the holder of the relatedWarrant and shares of the Common Stock issuable upon exercise of such Warrant(the “Warrant Shares”).**

### ** **

### **Subject to theterms of Section 2(c) below, the Company shall pay to Valens CapitalManagement, LLC, the investment manager of the Purchasers (“VCM”), anon-refundable payment in an amount equal to $70,000.00; (ii) to thePurchasers, a non-refundable payment in an amount equal to $35,000.00; (iii) tothe 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 foregoingpayments in clauses (i), (ii) and (iv) shall be deemed fully earnedon the Closing Date and shall not be subject to rebate or proration for anyreason.**

### ** **

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

### ** **

# Closing, Deliveryand Payment.

#  

## Closing. Subject to the terms and conditions herein, the closing of thetransactions contemplated hereby (the “Closing”), shall take place onthe date hereof, at such time or place as the Company and the Agent maymutually 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 applicableNote and Warrant and such Purchaser will deliver to the Company, among otherthings, the amounts set forth opposite its name in the Disbursement Letter bycertified funds or wire transfer (it being understood that $2,303,500.00 of theproceeds of the Notes shall be placed in the Restricted Account (as defined inthe Restricted Account Agreement referred to below). The Company herebyacknowledges and agrees that each Purchaser’s obligation to purchase theapplicable Note from the Company on the Closing Date shall be contingent uponthe satisfaction (or waiver by the Agent in its sole discretion) of the itemsand matters set forth in the closing checklist provided by the Agent to theCompany on or prior to the Closing Date.

##  

# Representationsand Warranties of the Company.  The Companyhereby represents and warrants to each Creditor Party as follows:

#  

## Organization, GoodStanding and Qualification.  The Companyand each of its Subsidiaries is a corporation, partnership or limited liabilitycompany, as the case may be, duly organized, validly existing and in goodstanding under the laws of its jurisdiction of organization.  The Company and each of its Subsidiaries hasthe corporate, limited liability company or partnership, as the case may be,power and authority to own and operate its properties and assets and, insofaras it is or shall be a party thereto, to (1) execute and deliver (i) thisAgreement, (ii) the Notes and the Warrants to be issued in connection withthis Agreement, (iii) the Master Security Agreement dated as of the datehereof among the Company, certain Subsidiaries of the Company and the Agent (asamended, restated, modified and/or supplemented from time to time, the “MasterSecurity Agreement”), (iv) the Subsidiary Guaranty dated as of thedate 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 theCompany, certain Subsidiaries of the Company and the Purchaser (as amended,

 

2

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## restated, modified and/oror supplemented from time to time, the “Stock Pledge Agreement”), (vi) theRestricted Account Agreement dated as of the date hereof among the Company, theAgent and Capital One, N.A. (as amended, modified and/or supplemented from timeto time, the “Restricted Account Agreement”), (vii) the RestrictedAccount Side Letter dated as of the date hereof between the Company and theAgent (as amended, modified and/or supplemented from time to time, the “RestrictedAccount Side Letter”), (viii) the Funds Escrow Agreement dated as ofthe date hereof among the Company, the Purchasers and the escrow agent referredto therein, substantially in the form of Exhibit D hereto (asamended, restated, modified and/or supplemented from time to time, the “EscrowAgreement”) and (ix) all other documents, instruments and agreementsentered into in connection with the transactions contemplated hereby andthereby (the preceding clauses (ii) through (ix), collectively, the “RelatedAgreements”); (2) issue and sell the Notes; (3) issue and sellthe Warrants and the Warrant Shares; and (4) carry out the provisions ofthis Agreement and the Related Agreements and to carry on its business aspresently conducted.  Each of the Companyand each of its Subsidiaries is duly qualified and is authorized to do businessand is in good standing as a foreign corporation, partnership or limitedliability company, as the case may be, in all jurisdictions in which the natureor location of its activities and of its properties (both owned and leased)makes such qualification necessary, except for those jurisdictions in whichfailure 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, operationsor prospects of the Company and its Subsidiaries, taken individually and as awhole (a “Material Adverse Effect”).

##  

## Subsidiaries. Each direct and indirect Subsidiary of the Company, the direct owner ofsuch Subsidiary and its percentage ownership thereof, is set forth on Schedule4.2.  For the purpose of thisAgreement, a “Subsidiary” of any person or entity means (i) acorporation or other entity whose shares of stock or other ownership interestshaving ordinary voting power (other than stock or other ownership interestshaving such power only by reason of the happening of a contingency) to elect amajority of the directors of such corporation, or other persons or entities performingsimilar functions for such person or entity, are owned, directly or indirectly,by such person or entity or (ii) a corporation or other entity in whichsuch person or entity owns, directly or indirectly, more than 50% of the equityinterests at such time.

##  

## Capitalization;Voting Rights.

##  

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

### ** **

### **Except asdisclosed on Schedule 4.3, other than: (i) the shares reserved for issuance under the Company’s stockoption plans; and (ii) shares which may be granted pursuant to thisAgreement and the Related Agreements, there are no outstanding options,warrants, rights (including conversion or preemptive rights and rights of firstrefusal), proxy or stockholder agreements, or arrangements or agreements of anykind 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 theissuance of any of Warrant Shares, nor the consummation of any transaction contemplatedhereby will result**

 

3

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### **in a change in theprice or number of any securities of the Company outstanding, underanti-dilution or other similar provisions contained in or affecting any suchsecurities.  All issued and outstandingshares of the Company’s Common Stock:  (i) havebeen duly authorized and validly issued and are fully paid and non-assessable;and (ii) were issued in compliance with all applicable state and federallaws concerning the issuance of securities. The rights, preferences, privileges and restrictions of the shares ofthe Common Stock are as stated in the Company’s Certificate of Incorporation(the “Charter”).  The WarrantShares have been duly and validly reserved for issuance.  When issued in compliance with the provisionsof this Agreement and the Company’s Charter, the Securities will be validlyissued, fully paid and non-assessable, and will be free of any liens orencumbrances; provided, however, that the Securities may be subject torestrictions on transfer under state and/or federal securities laws as setforth herein or as otherwise required by such laws at the time a transfer isproposed.**

### ** **

## Authorization;Binding Obligations.  All corporate, partnership or limitedliability company, as the case may be, action on the part of the Company andeach 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 Subsidiarieshereunder and under the other Related Agreements at the Closing and, theauthorization, sale, issuance and delivery of the Notes and Warrants has beentaken or will be taken prior to the Closing. This Agreement and the Related Agreements, when executed and deliveredand to the extent it is a party thereto, will be valid and binding obligationsof the Company and each of its Subsidiaries, enforceable against each suchperson or entity in accordance with their terms, except:

##  

### **as limited byapplicable bankruptcy, insolvency, reorganization, moratorium or other laws ofgeneral application affecting enforcement of creditors’ rights; and generalprinciples of equity that restrict the availability of equitable or legalremedies.**

### ** **

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

 

## Liabilities;Solvency.

##  

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

### ** **

### **Both before andafter (assuming the Company obtains the approval of its shareholders toincrease the number of authorized shares of Common Stock) giving effect to (a) thetransactions contemplated hereby that are to be consummated on the ClosingDate, (b) the disbursement of the proceeds of, or the assumption of theliability in respect of, the Notes pursuant to the instructions or agreement ofthe Company and (c) the payment and accrual of all transaction costs inconnection with the foregoing, the Company and each Subsidiary of the Company,is and will be, Solvent.  For purposes ofthis Section 4.5(b), “Solvent” means, with respect to any Person (ashereinafter defined) on a particular date, that on**

 

4

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### **such date suchPerson does not intend to, and does not believe that it will, incur debts orliabilities beyond such Person’s ability to pay as such debts and liabilitiesmature.  The amount of contingentliabilities (such as litigation, guaranties and pension plan liabilities) at anytime shall be computed as the amount that, in light of all the facts andcircumstances existing at the time, represents the amount that can reasonablybe expected to become an actual or matured liability.**

### ** **

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

##  

### **there are noagreements, understandings, instruments, contracts, proposed transactions,judgments, orders, writs or decrees to which the Company or any of itsSubsidiaries 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 itsSubsidiaries in excess of $50,000 (other than obligations of, or payments to,the Company or any of its Subsidiaries arising from purchase or sale agreementsentered into in the ordinary course of business); or (ii) the transfer orlicense of any patent, copyright, trade secret or other proprietary right to orfrom the Company or any of its Subsidiaries (other than licenses arising fromthe purchase of “off the shelf” or other standard products); or (iii) provisionsrestricting the development, manufacture or distribution of the Company’s orany of its Subsidiaries products or services; or (iv) indemnification bythe Company or any of its Subsidiaries with respect to infringements ofproprietary rights.**

### ** **

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

### ** **

### **For the purposesof subsections (a) and (b) above, all indebtedness, liabilities,agreements, understandings, instruments, contracts and proposed transactionsinvolving the same person or entity (including persons or entities the Companyor any Subsidiary of the Company has reason to believe are affiliatedtherewith) shall be aggregated for the purpose of meeting the individualminimum dollar amounts of such subsections.**

### ** **

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

### ** **

### **The Company makesand keep books, records, and accounts, that, in reasonable detail, accuratelyand fairly reflect the transactions and dispositions of the Company’sassets.  The Company maintains internalcontrol over financial reporting (“Financial Reporting Controls”)designed by, or under the supervision of, the Company’s principal executive andprincipal financial officers, and effected by the Company’s board of directors,**

 

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

### ** **

#### transactions areexecuted in accordance with management’s general or specific authorization; unauthorizedacquisition, use, or disposition of the Company’s assets that could have amaterial effect on the financial statements are prevented or timely detected;

####  

#### transactions arerecorded as necessary to permit preparation of financial statements in accordancewith GAAP, and that the Company’s receipts and expenditures are being made onlyin accordance with authorizations of the Company’s management and board ofdirectors;

####  

#### transactions arerecorded as necessary to maintain accountability for assets; and the recordedaccountability for assets is compared with the existing assets at reasonableintervals, and appropriate action is taken with respect to any differences.

####  

### **There is noweakness in any of the Company’s Disclosure Controls or Financial Reporting Controlsthat is required to be disclosed in any of the Exchange Act Filings, except asso disclosed.**

### ** **

## Obligations toRelated 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 Subsidiariesother than:

 

### **for payment ofsalary for services rendered and for bonus payments;**

 

### **reimbursement forreasonable expenses incurred on behalf of the Company and its Subsidiaries;**

 

### **for other standardemployee benefits made generally available to all employees (including stockoption agreements outstanding under any stock option plan approved by the Boardof 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 financialstatements or disclosed in any of the Company’s Exchange Act Filings.**

 

Exceptas 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 orstockholders of the Company or any of its Subsidiaries or any members of theirimmediate 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 orindirect ownership interest in any firm or corporation with which the Companyor any of its Subsidiaries is affiliated or with which the Company or any ofits Subsidiaries has a business relationship, or any firm or corporation whichcompetes with the Company or any of its Subsidiaries, other than passiveinvestments in publicly traded companies (representing less than one percent(1%) of such company) which may compete with the Company or any of itsSubsidiaries.  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 Subsidiariesand no agreements, understandings or proposed transactions are contemplatedbetween 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 ofany indebtedness of any other person or entity.

 

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##  

## Changes. Since the Balance Sheet Date, except as disclosed in any Exchange ActFiling or in any Schedule to this Agreement or to any of the RelatedAgreements, there has not been:

##  

### **any change in thebusiness, assets, liabilities, condition (financial or otherwise), properties,operations or prospects of the Company or any of its Subsidiaries, whichindividually or in the aggregate has had, or could reasonably be expected tohave, individually or in the aggregate, a Material Adverse Effect;**

### ** **

### **any resignation ortermination of any officer, key employee or group of employees of the Companyor any of its Subsidiaries;**

### ** **

### **any materialchange, except in the ordinary course of business, in the contingentobligations 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, orcould reasonably be expected to have, individually or in the aggregate, aMaterial Adverse Effect;**

### ** **

### **any waiver by theCompany or any of its Subsidiaries of a valuable right or of a material debtowed to it;**

### ** **

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

### ** **

### **any materialchange in any compensation arrangement or agreement with any employee, officer,director or stockholder of the Company or any of its Subsidiaries;**

### ** **

### **any declaration orpayment of any dividend or other distribution of the assets of the Company orany of its Subsidiaries;**

### ** **

### **any labororganization activity related to the Company or any of its Subsidiaries;**

### ** **

### **any debt,obligation or liability incurred, assumed or guaranteed by the Company or anyof its Subsidiaries, except those for immaterial amounts and for currentliabilities 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 theCompany or any of its Subsidiaries;**

### ** **

### **any change in anymaterial agreement to which the Company or any of its Subsidiaries is a partyor by which either the Company or any of its Subsidiaries is bound which eitherindividually or in the aggregate has had, or could reasonably be expected tohave, individually or in the aggregate, a Material Adverse Effect;**

### ** **

### **any other event orcondition of any character that, either individually or in the aggregate, hashad, or could reasonably be expected to have, individually or in the aggregate,a Material Adverse Effect; or**

### ** **

### **any arrangement orcommitment by the Company or any of its Subsidiaries to do any of the actsdescribed in subsection (a) through (m) above.**

### ** **

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

##  

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

 

7

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### **those resultingfrom taxes which have not yet become delinquent;**

### ** **

### **minor Liens whichdo not materially detract from the value of the property subject thereto ormaterially impair the operations of the Company or any of its Subsidiaries, so longas in each such case, such Liens have no effect on the Lien priority of theAgent, for the ratable benefit of the Creditor Parties, in such property; and**

### ** **

### **those that haveotherwise arisen in the ordinary course of business, so long as they have noeffect on the Lien priority of the Purchaser therein.**

### ** **

Allfacilities, machinery, equipment, fixtures, vehicles and other propertiesowned, leased or used by the Company and its Subsidiaries are in good operatingcondition and repair and are reasonably fit and usable for the purposes forwhich they are being used.  Except as setforth on Schedule 4.9, the Company and its Subsidiaries are incompliance with all material terms of each lease to which it is a party or isotherwise bound.

 

## Intellectual Property.

##  

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

### ** **

### **Neither the Company nor any of its Subsidiaries has receivedany communications alleging that the Company or any of its Subsidiaries hasviolated any of the patents, trademarks, service marks, trade names, copyrightsor trade secrets or other proprietary rights of any other person or entity, noris the Company or any of its Subsidiaries aware of any basis therefor.**

### ** **

### **The Company does not believe it is or will benecessary to utilize any inventions, trade secrets or proprietary informationof any of its employees made prior to their employment by the Company or any ofits Subsidiaries, except for inventions, trade secrets or proprietaryinformation that have been rightfully assigned to the Company or any of itsSubsidiaries.**

### ** **

## Compliance withOther Instruments.  Neither the Company nor any of itsSubsidiaries is in violation or default of (x) any term of its Charter orBylaws, or (y) any provision of any indebtedness, mortgage, indenture,contract, agreement or instrument to which it is party or by which it is boundor of any judgment, decree, order or writ, which violation or default, in thecase 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 ofand compliance with this Agreement and the Related Agreements to which it is aparty, and the issuance and sale of the Notes by the Company and the otherSecurities by the Company each pursuant hereto and thereto, will not, with orwithout the passage of time or giving of notice, result in any such materialviolation, or be in conflict with or constitute a default under any such

 

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## term or provision, orresult in the creation of any Lien upon any of the properties or assets of theCompany or any of its Subsidiaries or the suspension, revocation, impairment,forfeiture or non-renewal of any permit, license, authorization or approvalapplicable to the Company, its business or operations or any of its assets orproperties.

##  

## 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 thatprevents the Company or any of its Subsidiaries from entering into thisAgreement or the other Related Agreements, or from consummating thetransactions contemplated hereby or thereby, or which has had, or couldreasonably be expected to have, either individually or in the aggregate, aMaterial Adverse Effect or any change in the current equity ownership of theCompany or any of its Subsidiaries, nor is the Company aware that there is anybasis to assert any of the foregoing. Neither the Company nor any of its Subsidiaries is a party to or subjectto the provisions of any order, writ, injunction, judgment or decree of anycourt or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company orany of its Subsidiaries currently pending or which the Company or any of itsSubsidiaries intends to initiate.

##  

## Tax Returns andPayments.  The Company and each of its Subsidiaries hastimely filed all tax returns (federal, state and local) required to be filed byit.  All taxes shown to be due andpayable on such returns, any assessments imposed, and all other taxes due andpayable 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 itsreturns, federal, state or other, have been or are being audited as of the datehereof; or**

### ** **

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

### ** **

The Company has noknowledge of any liability for any tax to be imposed upon its properties orassets 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 anyof its Subsidiaries has any collective bargaining agreements with any of itsemployees.  There is no labor unionorganizing activity pending or, to the Company’s knowledge, threatened withrespect to the Company or any of its Subsidiaries.  Except as disclosed in the Exchange ActFilings or on Schedule 4.14, neither the Company nor any of itsSubsidiaries is a party to or bound by any currently effective employmentcontract, deferred compensation arrangement, bonus plan, incentive plan, profitsharing plan, retirement agreement or other employee compensation plan oragreement.  To the Company’s knowledge,no employee of the Company or any of its Subsidiaries, nor any consultant withwhom the Company or any of its Subsidiaries has contracted, is in violation ofany term of any employment contract, proprietary information agreement or anyother 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 thenature of the business to be conducted by the Company or any of itsSubsidiaries; and to the Company’s knowledge the continued employment by theCompany and its Subsidiaries of their present employees, and the performance ofthe 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

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## that any of its employeesis obligated under any contract (including licenses, covenants or commitmentsof any nature) or other agreement, or subject to any judgment, decree or orderof any court or administrative agency that would interfere with their duties tothe Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has received any noticealleging that any such violation has occurred. Except for employees who have a current effective employment agreementwith the Company or any of its Subsidiaries, no employee of the Company or anyof its Subsidiaries has been granted the right to continued employment by theCompany or any of its Subsidiaries or to any material compensation followingtermination 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 employeesintends to terminate his, her or their employment with the Company or any ofits Subsidiaries, nor does the Company or any of its Subsidiaries have apresent intention to terminate the employment of any officer, key employee orgroup of employees.

##  

## RegistrationRights and Voting Rights.  Except as set forth on Schedule4.15 and except as disclosed in Exchange Act Filings, neither the Companynor any of its Subsidiaries is presently under any obligation, and neither theCompany nor any of its Subsidiaries has granted any rights, to register any ofthe Company’s or its Subsidiaries’ presently outstanding securities or any ofits securities that may hereafter be issued. Except as set forth on Schedule 4.15 and except as disclosed inExchange Act Filings, to the Company’s knowledge, no stockholder of the Companyor any of its Subsidiaries has entered into any agreement with respect to thevoting of equity securities of the Company or any of its Subsidiaries.

##  

## Compliance withLaws; Permits.  Neither the Company nor any of itsSubsidiaries is in violation of any provision of the Sarbanes-Oxley Act of 2002or any SEC related regulation or rule or any rule of the PrincipalMarket (as hereafter defined) promulgated thereunder or any other applicablestatute, rule, regulation, order or restriction of any domestic or foreigngovernment or any instrumentality or agency thereof in respect of the conductof its business or the ownership of its properties which has had, or couldreasonably be expected to have, either individually or in the aggregate, aMaterial Adverse Effect.  No governmentalorders, permissions, consents, approvals or authorizations are required to beobtained and no registrations or declarations are required to be filed inconnection with the execution and delivery of this Agreement or any otherRelated Agreement and the issuance of any of the Securities, except such ashave been duly and validly obtained or filed, or with respect to any filingsthat must be made after the Closing, as will be filed in a timely manner.  The Company and its Subsidiaries has allmaterial franchises, permits, licenses and any similar authority necessary forthe conduct of its business as now being conducted by it, the lack of whichcould, either individually or in the aggregate, reasonably be expected to havea Material Adverse Effect.

##  

## Environmental andSafety Laws.  There are no pending actions, suits orproceedings by or before any arbitrator or Governmental Authority pending, orto the knowledge of Company threatened against the Company or any of itsSubsidiaries under Environmental Law. The Company and its Subsidiaries (i) are and have been in fullcompliance with Environmental Law and have no knowledge or any materialexpenditure that will be required to maintain such compliance in the future; (ii) havenot received any notice or claim alleging that they are not in full compliancewith or otherwise have liability under Environmental Law; and (iii) havenot knowledge of any facts or circumstances that could reasonably be expectedto form the basis of any such claim.  NoHazardous Materials are present or are used or have been used, stored, orreleased by the

 

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## Company or itsSubsidiaries, or to their knowledge by any other Person, at any propertycurrently or formerly owned, leased or operated by the Company or itsSubsidiaries or disposed of at any other location by the Company or itsSubsidiaries except (i) in compliance with Environmental Law; and (2) inquantities and under circumstances that would not require investigation orremediation by the Company or its Subsidiaries. The Company and its Subsidiaries have not assumed by contract or byoperation of law the liabilities arising under Environmental Law of any otherPerson.  The Company and its Subsidiarieshave provided to the Agent all material report, audits and assessments in theirpossession or control regarding the environmental condition of any propertycurrently 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 anyGovernmental 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 orthreatened release of or exposure to Hazardous Materials, or occupationalhealth and safety.  “GovernmentalAuthority” means any nation or government, any state or other politicalsubdivision thereof, and any agency, department or other entity exercisingexecutive, legislative, judicial, regulatory or administrative functions of orpertaining to government.  “HazardousMaterials” means materials, wastes or pollutants listed or defined as “hazardoussubstances”, “hazardous wastes” ,”toxic substances” or by words of similarimport or any other substance or waste otherwise regulated by applicableEnvironmental Law, including nuclear materials and radioactive substances orwastes, petroleum or petroleum distillates, asbestos or asbestos containingmaterials, polychlorinated biphenyls, radon gas, infectious or medical wastes,and toxic mold.  “Person” meansany individual, sole proprietorship, partnership, limited liabilitypartnership, joint venture, trust, unincorporated organization, association,corporation, limited liability company, institution, public benefitcorporation, entity or government (whether federal, state, county, city,municipal or otherwise, including any instrumentality, division, agency, bodyor department thereof), and shall include such Person’s successors and assigns.

##  

## Valid Offering. Assuming the accuracy of the representations and warranties of thePurchasers contained in this Agreement, the offer, sale and issuance of theSecurities will be exempt from the registration requirements of the SecuritiesAct of 1933, as amended (the “Securities Act”), and will have beenregistered or qualified (or are exempt from registration and qualification)under the registration, permit or qualification requirements of all applicablestate securities laws.

##  

## Full Disclosure. The Company and each of its Subsidiaries has provided the Purchaserswith all information requested by the Purchasers in connection with thePurchasers’ decision to purchase the Notes and Warrants, including allinformation the Company and its Subsidiaries believe is reasonably necessary tomake such investment decision.  Neitherthis Agreement, the Related Agreements, the exhibits and schedules hereto andthereto nor any other document including, without limitation, the responsescontained in any questionnaire provided to the Company by the Agent, deliveredby the Company or any of its Subsidiaries to Purchasers or their attorneys oragents in connection herewith or therewith or with the transactionscontemplated hereby or thereby, contain any untrue statement of a material factnor omit to state a material fact necessary in order to make the statementscontained herein or therein, in light of the circumstances in which they aremade, not misleading.  Any financialprojections and other estimates provided to the Purchasers by the Company orany of its Subsidiaries were based on the Company’s and its

 

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## Subsidiaries’ experiencein the industry and on assumptions of fact and opinion as to future eventswhich the Company or any of its Subsidiaries, at the date of the issuance ofsuch projections or estimates, believed to be reasonable.

##  

## Insurance. The Company and each of its Subsidiaries has general commercial, productliability, fire and casualty insurance policies with coverages which theCompany and each of its Subsidiaries believe are customary for companiessimilarly situated to the Company and its Subsidiaries in the same or similarbusiness.

##  

## SEC Reports. Except as set forth on Schedule 4.21, the Company has filed allproxy statements, reports and other documents required to be filed by it underthe Exchange Act.  The Company hasfurnished the Agent copies of:  (i) itsAnnual Reports on Form 10-KSB for its fiscal year ended December 31,2007; and (ii) its Quarterly Reports on Form 10-QSB for its fiscalquarter ended March 29, 2008, and the Form 8-K filings which it hasmade during the fiscal years 2007 and 2008 to date (collectively, the “SECReports”).  Except as set forth on Schedule4.21, each SEC Report was, at the time of its filing, in substantialcompliance with the requirements of its respective form and none of the SECReports, nor the financial statements (and the notes thereto) included in theSEC Reports, as of their respective filing dates, contained any untruestatement of a material fact or omitted to state a material fact required to bestated therein or necessary to make the statements therein, in light of thecircumstances under which they were made, not misleading.

##  

## Listing. The Common Stock is listed or quoted, as applicable, on a PrincipalMarket (as hereafter defined) and satisfies and at all times hereafter willsatisfy, all requirements for the continuation of such listing or quotation, asapplicable.  The Company has not receivedany 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 allrequirements for such listing or quotation, as applicable.  For purposes hereof, the term “PrincipalMarket” means the NASD Over The Counter Bulletin Board, NASDAQ CapitalMarket, NASDAQ National Markets System, American Stock Exchange or New YorkStock Exchange (whichever of the foregoing is at the time the principal tradingexchange or market for the Common Stock).

##  

## No IntegratedOffering.  Neither the Company, nor any of itsSubsidiaries or affiliates, nor any person acting on its or their behalf, hasdirectly or indirectly made any offers or sales of any security or solicitedany offers to buy any security under circumstances that would cause theoffering of the Securities pursuant to this Agreement or any of the RelatedAgreements to be integrated with prior offerings by the Company for purposes ofthe Securities Act which would prevent the Company from selling the Securitiespursuant to Rule 506 under the Securities Act, or any applicableexchange-related stockholder approval provisions, nor will the Company or anyof its affiliates or Subsidiaries take any action or steps that would cause theoffering of the Securities to be integrated with other offerings.

##  

## Stop Transfer. The Securities are restricted securities as of the date of thisAgreement.  Neither the Company nor anyof its Subsidiaries will issue any stop transfer order or other order impedingthe sale and delivery of any of the Securities at such time as the Securitiesare 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 theshares of Common Stock upon exercise of the Warrants is binding upon theCompany and enforceable 

 

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## regardless of thedilution such issuance may have on the ownership interests of othershareholders of the Company.

##  

## Patriot Act. The Company certifies that, to the best of Company’s knowledge, neitherthe Company nor any of its Subsidiaries has been designated, nor is or shall beowned or controlled, by a “suspected terrorist” as defined in Executive Order13224.  The Company hereby acknowledgesthat each of the Creditor Parties seeks to comply with all applicable lawsconcerning money laundering and related activities.  In furtherance of those efforts, the Companyhereby represents, warrants and covenants that: (i) none of the cash or property that the Company or any of itsSubsidiaries will pay or will contribute to any Creditor Party has been orshall be derived from, or related to, any activity that is deemed criminalunder United States law; and (ii) no contribution or payment by theCompany or any of its Subsidiaries to any Creditor Party, to the extent thatthey are within the Company’s and/or its Subsidiaries’ control shall cause anyCreditor Party to be in violation of the United States Bank Secrecy Act, theUnited States International Money Laundering Control Act of 1986 or the UnitedStates International Money Laundering Abatement and Anti-Terrorist FinancingAct of 2001.  The Company shall promptlynotify the Agent if any of these representations, warranties or covenantsceases to be true and accurate regarding the Company or any of itsSubsidiaries.  The Company shall provideany Creditor Party all additional information regarding the Company or any ofits Subsidiaries that such Creditor Party deems necessary or convenient toensure compliance with all applicable laws concerning money laundering andsimilar activities.  The Companyunderstands and agrees that if at any time it is discovered that any of theforegoing representations, warranties or covenants are incorrect, or ifotherwise required by applicable law or regulation related to money launderingor similar activities, the Creditor Parties may undertake appropriate actionsto ensure compliance with applicable law or regulation, including but notlimited to segregation and/or redemption of any Purchaser’s investment in theCompany.  The Company further understandsthat the Creditor Parties may release confidential information about the Companyand its Subsidiaries and, if applicable, any underlying beneficial owners, toproper authorities if such Creditor Party, in its sole discretion, determinesthat it is in the best interests of such Creditor Party in light of relevant rules andregulations 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 itsSubsidiaries has engaged in any Prohibited Transactions (as defined in Section 406of 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 hasmet all applicable minimum funding requirements under Section 302 of ERISAin respect of its plans; (iii) neither the Company nor any of itsSubsidiaries has any knowledge of any event or occurrence which would cause thePension Benefit Guaranty Corporation to institute proceedings under Title IV ofERISA to terminate any employee benefit plan(s); (iv) neither the Companynor any of its Subsidiaries has any fiduciary responsibility for investmentswith respect to any plan existing for the benefit of persons other than theCompany’s or such Subsidiary’s employees; and (v) neither the Company norany of its Subsidiaries has withdrawn, completely or partially, from anymulti-employer pension plan so as to incur liability under the MultiemployerPension Plan Amendments Act of 1980.

##  

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

 

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

##  

# Representationsand Warranties of each Purchaser.  EachPurchaser hereby represents and warrants, severally and not jointly, to theCompany as follows (such representations and warranties do not lessen orobviate the representations and warranties of the Company set forth in this Agreement):

#  

## No Shorting. Neither such Purchaser nor any of its affiliates and investment partnershas, 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 andAuthority.  Such Purchaser has all necessary power andauthority under all applicable provisions of law to execute and deliver thisAgreement and the Related Agreements and to carry out their provisions.  All corporate action on such Purchaser’s partrequired for the lawful execution and delivery of this Agreement and theRelated Agreements have been or will be effectively taken prior to theClosing.  Upon their execution anddelivery, this Agreement and the Related Agreements will be valid and binding obligationsof such Purchaser, enforceable in accordance with their terms, except:

##  

### **as limited byapplicable bankruptcy, insolvency, reorganization, moratorium or other laws ofgeneral application affecting enforcement of creditors’ rights; and**

### ** **

### **as limited bygeneral principles of equity that restrict the availability of equitable andlegal remedies.**

### ** **

## InvestmentRepresentations.  Such Purchaser understands that theSecurities are being offered and sold pursuant to an exemption fromregistration contained in the Securities Act based in part upon such Purchaser’srepresentations contained in this Agreement, including, without limitation,that such Purchaser is an “accredited investor” within the meaning ofRegulation D under the Securities Act. Such Purchaser confirms that it has received or has had full access toall the information it considers necessary or appropriate to make an informedinvestment decision with respect to the applicable Note and Warrant to bepurchased by it under this Agreement and the Warrant Shares acquired by it uponthe exercise of such Warrant, respectively. Such Purchaser further confirms that it has had an opportunity to askquestions and receive answers from the Company regarding the Company’s and itsSubsidiaries’ business, management and financial affairs and the terms andconditions of the Offering, the Notes, the Warrants and the Securities and toobtain additional information (to the extent the Company possessed suchinformation or could acquire it without unreasonable effort or expense)necessary to verify any information furnished to such Purchaser or to whichsuch Purchaser had access.

##  

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

 

14

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## Acquisition for OwnAccount.  Such Purchaser is acquiring the applicableNote and Warrant and the Warrant Shares for such Purchaser’s own account forinvestment only, and not as a nominee or agent and not with a view towards orfor resale in connection with their distribution.

##  

## The Purchaser CanProtect Its Interest.  Such Purchaser represents that by reason ofits, or of its management’s, business and financial experience, such Purchaserhas the capacity to evaluate the merits and risks of its investment in theapplicable Note, the Warrant and the Securities and to protect its owninterests in connection with the transactions contemplated in this Agreementand the Related Agreements.  Further,such Purchaser is aware of no publication of any advertisement in connectionwith the transactions contemplated in the Agreement or the Related Agreements.

##  

## AccreditedInvestor.  Such Purchaser represents that it is anaccredited investor within the meaning of Regulation D under the SecuritiesAct.

##  

## Legends.

##  

### **The applicableNote shall bear substantially the following legend:**

### ** **

“THIS NOTE HAS NOTBEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLESTATE SECURITIES LAWS.  THIS NOTE MAY NOTBE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF (A) ANEFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT AND APPLICABLESTATE SECURITIES LAWS OR (B) AN EXEMPTION FROM SUCH REGISTRATION.”

 

### **The applicableWarrant Shares, if not issued by DWAC system (as hereinafter defined), shallbear a legend which shall be in substantially the following form until suchshares are covered by an effective registration statement filed with the SEC:**

### ** **

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

 

### **The applicableWarrant shall bear substantially the following legend:**

### ** **

“THIS WARRANT ANDTHE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEENREGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLESTATE SECURITIES LAWS.  THIS WARRANT ANDTHE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF (A) ANEFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR 

 

15

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THE UNDERLYINGSHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR (B) ANEXEMPTION FROM SUCH REGISTRATION.”

 

# Covenants of theCompany.  The Company covenants and agrees with eachCreditor Party as follows:

#  

## Stop-Orders. The Company will, by written notice, advise the Agent, promptly after itreceives notice of issuance by the SEC, any state securities commission or anyother regulatory authority of any stop order or of any order preventing orsuspending any offering of any securities of the Company, or of the suspensionof the qualification of the Common Stock of the Company for offering or sale inany jurisdiction, or the initiation of any proceeding for any such purpose.

##  

## Listing. The Company shall promptly secure the listing or quotation, asapplicable, of the shares of Common Stock issuable upon the exercise of theWarrants on the Principal Market upon which shares of Common Stock are listedor quoted for trading, as applicable (subject to official notice of issuance)and shall maintain such listing or quotation, as applicable, so long as anyother 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 inall material respects with the Company’s reporting, filing and otherobligations under the bylaws or rules of the National Association ofSecurities 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 thisAgreement, and shall take all other necessary action and proceedings as may berequired and permitted by applicable law, rule and regulation, for thelegal and valid issuance of the applicable Securities to each Purchaser andpromptly provide copies thereof to such Purchaser.

##  

## ReportingRequirements.  The Company will deliver, or cause to be delivered,to the Agent each of the following, which shall be in form and detailacceptable to the Agent:

##  

### **As soon asavailable, and in any event within ninety (90) days after the end of eachfiscal year of the Company, the Company’s and each of its Subsidiaries’ auditedfinancial statements with a report of independent certified public accountantsof recognized standing selected by the Company and acceptable to the Agent (the“Accountants”), which annual financial statements shall be withoutqualification 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 ofthe Company’s and each of its Subsidiaries’ income, retained earnings and cashflows for the fiscal year then ended, prepared on a consolidating andconsolidated basis to include the Company, each Subsidiary of the Company andeach of their respective affiliates, all in reasonable detail and prepared inaccordance with GAAP, together with (i) if and when available, copies ofany management letters prepared by the Accountants; and (ii) a certificateof the Company’s President, Chief Executive Officer or Chief Financial Officerstating that such financial statements have been prepared in accordance withGAAP and whether or not such officer has knowledge of the occurrence of anyEvent of Default (as defined in each Note) and, if so, stating in reasonabledetail the facts with respect thereto;**

### ** **

### **As soon asavailable and in any event within forty five (45) days after the end of eachfiscal quarter of the Company, an unaudited/internal balance sheet andstatements of income, retained earnings and cash flows of the Company and eachof its Subsidiaries as at the end**

 

16

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### **of and for suchquarter and for the year to date period then ended, prepared on a consolidatingand consolidated basis to include all the Company, each Subsidiary of theCompany and each of their respective affiliates, in reasonable detail andstating in comparative form the figures for the corresponding date and periodsin the previous year, all prepared in accordance with GAAP, subject to year-endadjustments and accompanied by a certificate of the Company’s President, ChiefExecutive Officer or Chief Financial Officer, stating (i) that suchfinancial statements have been prepared in accordance with GAAP, subject toyear-end audit adjustments, and (ii) whether or not such officer hasknowledge of the occurrence of any Event of Default (as defined in each Note)not theretofore reported and remedied and, if so, stating in reasonable detailthe facts with respect thereto;**

### ** **

### **As soon asavailable and in any event within twenty-five (25) days after the end of eachcalendar month, an unaudited/internal balance sheet and statements of income,retained earnings and cash flows of the Company and its Subsidiaries as at theend of and for such month and for the year to date period then ended, preparedon a consolidating and consolidated basis to include the Company, eachSubsidiary of the Company and each of their respective affiliates, inreasonable detail and stating in comparative form the figures for thecorresponding date and periods in the previous year, all prepared in accordancewith GAAP, subject to quarterly and year-end adjustments and accompanied by acertificate of the Company’s President, Chief Executive Officer or ChiefFinancial Officer, stating (i) that such financial statements have beenprepared in accordance with GAAP, subject to year-end audit adjustments, and (ii) whetheror not such officer has knowledge of the occurrence of any Event of Default (asdefined in each Note) not theretofore reported and remedied and, if so, statingin reasonable detail the facts with respect thereto;**

### ** **

### **The Company shalltimely file with the SEC all reports required to be filed pursuant to theExchange Act and refrain from terminating its status as an issuer required bythe Exchange Act to file reports thereunder even if the Exchange Act or the rules orregulations 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 theSEC, 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 shalldeliver, or cause the applicable Subsidiary of the Company to deliver, suchother information as any Creditor Party shall reasonably request.**

### ** **

## Use of Funds. The Company shall use the proceeds of the sale of the Notes and theWarrants 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 RestrictedAccount on the Closing Date and shall be subject to the terms and conditions ofthe Restricted Account Agreement and the Restricted Account Side Letter).

##  

## Access toFacilities.  The Company and each of its Subsidiaries willpermit any representatives designated by the Agent (or any successor of theAgent), upon reasonable notice and during normal business hours, at such person’sexpense 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 suchrepresentative of the Company or any Subsidiary shall be required to accompanythe Agent in the event the Agent believes such access is necessary to preserveor protect the

 

17

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##  

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

##  

### **visit and inspectany of the properties of the Company or any of its Subsidiaries;**

### ** **

### **examine the corporateand financial records of the Company or any of its Subsidiaries (unless suchexamination is not permitted by federal, state or local law or by contract) andmake copies thereof or extracts therefrom; and**

### ** **

### **discuss theaffairs, finances and accounts of the Company or any of its Subsidiaries withthe directors, officers and independent accountants of the Company or any ofits Subsidiaries.**

### ** **

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

 

18

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Taxes.

 

### **TheCompany and each of its Subsidiaries will promptly pay and discharge, or causeto be paid and discharged, when due and payable, all taxes, assessments andgovernmental charges or levies imposed upon the income, profits, property orbusiness of the Company and its Subsidiaries; provided, however, that any suchtax, assessment, charge or levy need not be paid currently if (i) thevalidity thereof shall currently and diligently be contested in good faith byappropriate proceedings, (ii) such tax, assessment, charge or levy shallhave no effect on the lien priority of the Agent in any property of the Companyor any of its Subsidiaries and (iii) if the Company and/or such Subsidiaryshall have set aside on its books adequate reserves with respect thereto inaccordance with GAAP; and provided, further, that the Company and itsSubsidiaries will pay all such taxes, assessments, charges or levies forthwithupon the commencement of proceedings to foreclose any lien which may haveattached as security therefor.**

### ** **

### **Allpayments made by the Company under this Agreement or any Note shall be madefree 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, otherthan Excluded Taxes (as defined below). If any Non-Excluded Taxes (as defined below) or Other Taxes (as definedbelow) are required to be withheld from any amounts payable to any CreditorParty under this Agreement or any Note, the amounts so payable to such CreditorParty shall be increased to the extent necessary to yield to such CreditorParty (after payment of all Non-Excluded Taxes and Other Taxes, including thoseimposed on payments made pursuant to this paragraph (b) of this Section 6.7or any such other amounts payable in this Agreement or any Note at the rates orin the amounts specified herein or therein), an amount equal to the sum itwould have received had no such withholding or deductions been made provided,however, that no Company shall be required to increase any such amounts payableto any Creditor Party with respect to any Non-Excluded Taxes that are directlyattributable to such Creditor Party’s failure to comply with the requirementsof paragraph (e) of this Section 6.7. In addition, the Company shall pay any Other Taxes to the relevantGovernmental Authority in accordance with applicable law.**

### ** **

### **Wheneverany Non-Excluded Taxes or Other Taxes are payable by the Company, as promptlyas possible thereafter the Company shall send to the Agent for its own accountor for the account of the relevant Lender, as the case may be, a certified copyof 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-ExcludedTaxes or Other Taxes when due to the appropriate taxing authority or fails toremit to the Agent the required receipts or other required documentaryevidence, the Company shall indemnify the Creditor Parties for any incrementaltaxes, interest or penalties that may become payable by any Creditor Party as aresult of any such failure.**

### ** **

### **EachPurchaser (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 andthe Agent two completed originals of an appropriate U.S. Internal RevenueService Form W-8, as applicable, or any subsequent versions thereof orsuccessors thereto, properly completed and duly executed by such Non-U.S.Purchaser.  Such forms shall be deliveredby each Non-U.S. Purchaser on or before the date it becomes a party to thisAgreement.  In**

 

19

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

### ** **

### **Theagreements in the preceding paragraphs (b), (c), (d), (e) and thisparagraph (f) shall survive the termination of this Agreement and thepayment of the Notes and all other amounts payable hereunder or thereunder orunder any other Related Agreement.**

### ** **

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

 

“Excluded Taxes” means, with respect to anyCreditor Party, taxes imposed on or measured by its overall net income andfranchise taxes imposed on it in lieu of net income taxes, by the jurisdiction(or any political subdivision thereof) under the laws of which such CreditorParty is incorporated or organized or by the jurisdiction (or any politicalsubdivision thereof) in which the principal place of management or applicablelending 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 orfuture stamp or documentary taxes or any other excise or property taxes,charges or similar levies arising from any payment made hereunder or from theexecution, delivery or enforcement of, or otherwise with respect to, thisAgreement or any other Related Agreement.

 

### **“Taxes” means any and all present or futuretaxes, duties, levies, imposts, deductions, assessments, fees, withholdings orsimilar charges, and all liabilities with respect thereto.**

### ** **

## Insurance.  (A)  TheCompany shall bear the full risk of loss from any loss of any nature whatsoeverwith respect to the Collateral (as defined in each of the Master SecurityAgreement, the Stock Pledge Agreement and each other security agreement enteredinto by the Company and/or any of its Subsidiaries for the benefit of theCreditor Parties) and the Company and each of its Subsidiaries will, jointlyand severally, bear the full risk of loss from any loss of any naturewhatsoever with respect to the assets pledged to the Agent, for the ratablebenefit of the Creditor Parties, as security for the Obligations (as defined inthe Master Security Agreement). 

##  

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

 

20

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##  

## bondsby insurers acceptable to the Agent and all premiums thereon shall be paid bythe Company and the policies delivered to the Agent.  If the Company or any of its Subsidiariesfails to obtain the insurance and in such amounts of coverage as otherwiserequired pursuant to this Section 6.8, the Agent may procure suchinsurance and the cost thereof shall be promptly reimbursed by the Company andshall constitute Obligations.

##  

#### The Company’s insurance coverage shall not be impairedor invalidated by any act or neglect of the Company or any of its Subsidiariesand the insurer will provide the Agent with no less than thirty (30) daysnotice prior of cancellation;

####  

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

####  

## IntellectualProperty.

##  

### **TheCompany and each of its Subsidiaries shall maintain in full force and effectits existence, rights and franchises and all licenses and other rights to ownor use Intellectual Property including registrations and applicationstherefore, that are necessary to the conduct of its business, as now conductedor as presently proposed to be conducted, and shall not do any act or omit todo any act whereby any of such Intellectual Property may lapse, or becomeabandoned, dedicated to the public, or unenforceable, or the Lien therein infavor of the Agent, for the ratable benefit of the Creditor Parties, would beadversely affected,**

### ** **

### **TheCompany shall report to the Agent (i) the filing by the Company or any ofits Subsidiaries of any application to register a Copyright no later than ten (10) daysafter such filing occurs (ii) the filing of any application to registerany other Intellectual Property with any other Intellectual Property registry,and the issuance thereof, no later than thirty (30) days after such filing orissuance 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.**

### ** **

### **TheCompany shall, and shall cause each of its Subsidiaries to, promptly upon thereasonable request of the Agent, execute and deliver to the Agent any documentor instrument required to acknowledge, confirm, register, record, or perfectthe Lien of the Agent in any part of the Intellectual Property owned by theCompany and its Subsidiaries. The Company shall, and shall cause of each of itsSubsidiaries to, not sell, assign, transfer, license, grant any option, orcreate or suffer to exist any Lien upon or with respect to IntellectualProperty, except for the Permitted Encumbrances.**

### ** **

## Properties. The Company and each of its Subsidiaries will keep its properties ingood 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 andeach of its Subsidiaries will at all times comply with each provision of allleases to which it is a party or under which it occupies property if the breachof such provision could, either individually or in the aggregate, reasonably beexpected 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 anyCreditor Party, unless expressly agreed to by such Creditor Party or unless anduntil such disclosure is required by law or applicable regulation, and thenonly to the extent of such requirement. Notwithstanding the foregoing, (i) the Company may disclose anyCreditor Party’s identity and the terms of this

 

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## Agreementand the Related Agreements to its current and prospective debt and equityfinancing sources, and (ii) the Company (and each employee,representative, or other agent of the Company) may disclose to any and allPersons, without limitation of any kind, the tax treatment and any facts thatmay be relevant to the tax structure of the transactions contemplated by thisAgreement and the Related Agreements and the agreements referred to therein;provided, however, that the Company (and no employee, representative or otheragent of the Company) disclose pursuant to this clause (ii) any otherinformation that is not relevant to understanding the tax treatment or taxstructure of such transactions (including the identity of any party or anyinformation that could lead another to determine the identity of any party);and, provided, further, that the Company will not, and will not permit any ofits Subsidiaries to, disclose any information to the extent that suchdisclosure could reasonably be expected to result in a violation of any U.S. federalor state securities law or similar law of another jurisdiction.  Each Creditor Party shall be permitted todiscuss, distribute or otherwise transfer any non-public information of theCompany and its Subsidiaries in such Creditor Party’s possession now or in thefuture to potential or actual (i) direct or indirect investors in suchCreditor Party and (ii) third party assignees or transferees of all or aportion of the obligations of the Company and/or any of its Subsidiarieshereunder and under the Related Agreements, to the extent that such investor ortransferee enters into a confidentiality agreement for the benefit of theCompany in such form as may be necessary to address the Company’s Regulation FDrequirements.

##  

## RequiredApprovals.  (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 permitany of its Subsidiaries to:

##  

### **(i) directlyor indirectly declare or pay any dividends, other than dividends paid to theCompany or any of its wholly-owned Subsidiaries, (ii) issue any preferredstock that is mandatorily redeemable prior to the one year anniversary of theMaturity Date (as defined in each Note) or (iii) redeem any of itspreferred stock or other equity interests; liquidate, dissolve or effect amaterial reorganization (it being understood that in no event shall the Companyor any of its Subsidiaries dissolve, liquidate or merge with any other personor entity (unless, in the case of such a merger, the Company or, in the case ofmerger not involving the Company, such Subsidiary, as applicable, is thesurviving entity); become subject to (including, without limitation, by way ofamendment to or modification of) any agreement or instrument which by its termswould (under any circumstances) restrict the Company’s or any of itsSubsidiaries, right to perform the provisions of this Agreement, any RelatedAgreement or any of the agreements contemplated hereby or thereby; materiallyalter or change the scope of the business of the Company and its Subsidiariestaken as a whole; or**

### ** **

### **(i) create,incur, assume or suffer to exist any indebtedness (exclusive of trade debt anddebt incurred to finance the purchase of equipment (not in excess of fivepercent (5%) of the fair market value of the Company’s and its Subsidiaries’assets)) whether secured or unsecured other than (x) the Company’sobligations owed to each Purchaser, (y) indebtedness set forth on Schedule6.12(e) attached hereto and made a part hereof and any refinancings orreplacements thereof on terms no less favorable to the Purchasers than theindebtedness being refinanced or replaced, and (z) any indebtednessincurred in connection with the purchase of assets (other than equipment) inthe ordinary course of business, or**

 

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

### ** **

(II) The Company, without the prior writtenconsent of the Agent, shall not, and shall not permit any of its Subsidiariesto, create or acquire any Subsidiary after the date hereof unless (i) suchSubsidiary is a wholly-owned Subsidiary of the Company and (ii) suchSubsidiary becomes a party to (A) the Master Security Agreement, and theStock Pledge Agreement (either by executing a counterpart thereof or anassumption or joinder agreement in respect thereof); (B) a SubsidiaryGuaranty in favor of the Purchasers in form and substance satisfactory to theAgent and (c) to the extent required by the Agent, satisfies eachcondition of this Agreement and the Related Agreements as if such Subsidiarywere a Subsidiary on the Closing Date.  Reissuanceof Securities.  The Company agrees toreissue certificates representing the Securities without the legends set forthin Section 5.8 above at such time as: **the holder thereof ispermitted to dispose of such Securities pursuant to Rule 144(k) underthe Securities Act; or upon resale subject to an effective registrationstatement after such Securities are registered under the Securities Act.**

### ** **

TheCompany agrees to cooperate with the Purchasers in connection with all resalespursuant to Rule 144(d) and Rule 144(k) and provide legalopinions necessary to allow such resales provided the Company and its counselreceive reasonably requested representations from the applicable Purchasers andbroker, if any.

##  

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

##  

## MarginStock.  The Company will not permit any of theproceeds 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 underRegulation U of the Board of Governors of the Federal Reserve System as now andfrom time to time hereafter in effect.

##  

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

 

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

##  

## FinancingRight of First Refusal.

##  

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

### ** **

### **TheCompany will not, and will not permit its Subsidiaries to, agree, directly orindirectly, to any restriction with any person or entity which limits theability of the Purchasers to consummate an Additional Financing with theCompany or any of its Subsidiaries.**

### ** **

## Authorizationand Reservation of Shares.  The Company shall at all timeshave authorized and reserved a sufficient number of shares of Common Stock toprovide for exercise of the Warrants.  

##  

## InvestorRelations/Public Relations.  The Companyhereby agrees to incorporate into its annual budget an amount of fundsnecessary to maintain a comprehensive investor relations and public relationsprogram (an “IR/PR Program”), which IR/PR Program shall incorporate elements customarilyutilized by companies of similar size and in a similar industry as the Companyand its Subsidiaries.

##  

## 2.2           WorkoutConsultant.  Company hereby covenantsand agrees that, on or prior to Closing, Company shall enter into anagreement to retain a consultant or “restructuring advisor” selectedby Company from a list of consultants or “restructuring advisors”acceptable to Company and Agent.  At alltimes following the initial retention of a consultant or “restructuring advisor”referred to above, Company shall continue to retain a consultant or “restructuringadvisor” acceptable to Company and Agent. Company shall fully cooperate with the consultant or “restructuringadvisor” so retained and shall authorize the consultant or “restructuringadvisor” to provide such information and reports from time to time with respectto Company and its

 

24

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## financial condition, business, assets, liabilities andprospects, as Agent shall from time to time request.  All fees and expenses of the consultant or “restructuringadvisor” shall be solely the responsibility of Company and in no eventshall Agent and/or any Lender have any liability or responsibilityfor the payment of any such fees or expenses, nor shall Agent and/or any Lenderhave any obligation or liability to Company or any other person by reasonof any acts or omissions of the consultant or “restructuring advisor”.  Further, the Company agrees that consultantor “crisis manager” shall be an independent contractor of Company and in nocase shall consultant or “crisis manager” act (or be deemed to be acting) in amanner, express or implied, or on behalf of or as an agent of Agent, any Lenderor any of their respective affiliates.

##  

## 2.3           BoardObservation Rights.  Until such timeas all Obligations (as defined in the Master Security Agreement) have beenindefeasibly paid in full, the Purchasers will be entitled to the followingboard observation rights (“Board Observation Rights”):  the Company shall permit one representativeof the Purchasers to attend all meetings of the board of directors of theCompany (the “Board of Directors”) in a non-voting observer capacity,which observation right shall include the ability to observe discussions of theBoard of Directors, and shall provide such representative with copies of allnotices, minutes, written consents, and other materials that it provides tomembers of the Board of Directors, at the time it provides them to suchmembers. The observation right may be exercised in person or via telephone orvideophone participation. Each Purchaser agrees, on behalf of itself and anyrepresentative exercising the observation rights set forth herein, that so longas it shall exercise its observation right (i) it shall hold in strictconfidence pursuant to a confidentiality and non-disclosure agreement (in formand substance satisfactory to each Purchaser) all information and materialsthat it may receive or be given access to in connection with meetings of theBoard of Directors and to act in a fiduciary manner with respect to allinformation so provided (provided that this shall not limit its ability todiscuss such matters with its officers, directors or legal counsel, asnecessary), and (ii) the Board of Directors may withhold from it certaininformation or material furnished or made available to the Board of Directorsor exclude it from certain confidential *“closedsessions”* of the Board of Directors if the furnishing oravailability of such information or material or its presence at such *“closed sessions”* would jeopardize suchCompany’s attorney-client privilege or if the Board of Directors otherwisereasonably so requires.  The BoardObservation Rights set forth in this Section shall automatically terminateand be of no further force or effect upon the indefeasible payment in full ofall Obligations (as defined in the Master Security Agreement).

##  

## 2.4           AdditionalWarrants.  The Company hereby agreesto use its commercially reasonable best efforts to (i) obtain the approvalby no later than November 30, 2008 of its shareholders to increase thenumber of authorized shares of Common Stock of the Company sufficient to issueno less than 146,143,792 additional shares of Common Stock, and (ii) dulyauthorize and issue to the Purchasers by no later than November 30, 2008,common stock purchase warrants exercisable into an aggregate of 146,143,792shares of Common Stock of the Company, with an exercise price of $0.01 pershare, in forms and in amounts (subject to the aggregate share limitation statedabove) acceptable to such Purchasers as determined in their sole discretion.

##  

## 2.5           Compliancewith Budget.  The Company shall comply with the terms andconditions of the budget provided by the Company and its Subsidiaries to theCreditor 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 tooperating expenses, excluding non-cash share-based compensation andamortization expense, set forth in the Budget shall be permitted on a monthlybasis, (b) during the second half of the 2008 fiscal year, a variance ofless than twenty-five (25%) percent with respect to any of the Summary IncomeStatement, Summary Balance Sheet and Summary Cash Flow line items, excludingnon-cash share-based

 

25

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## compensation and non-cashamortization expense, on a quarterly basis set forth in the Budget shall bepermitted, (c) during the 2009 fiscal year and the 2010 fiscal year, avariance of less than fifteen (15%) percent with respect to the aggregate ofthe Summary Income Statement, Summary Balance Sheet and Summary Cash Flow lineitems, excluding non-cash share-based compensation and non-cash amortizationexpense, 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 lessthan fifteen (15%) percent with respect to any of the Summary Income Statement,Summary Balance Sheet and Summary Cash Flow line items, excluding non-cashshare-based compensation and non-cash amortization expense, tested at the endof the second quarter of the 2009 fiscal year for the cumulative periodcommencing with the fiscal quarter ending September 27, 2008 as set forthin the Budget shall be permitted.

##  

# Covenantsof the Purchasers.  Each Purchaser covenants and agrees with theCompany as follows:

#  

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

##  

## Non-PublicInformation.  No Purchaser will effect any sales in theshares of the Common Stock while in possession of material, non-publicinformation regarding the Company if such sales would violate applicablesecurities law.

##  

## Limitationon 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 inconnection with any other transactions entered into by a Purchaser and theCompany (and/or Subsidiaries or Affiliates of the Company), such Purchaser(and/or Subsidiaries or Affiliates of such Purchaser) shall not acquire stockin the Company (including, without limitation, pursuant to a contract topurchase, by exercising an option or warrant, by converting any other securityor instrument, by acquiring or exercising any other right to acquire, shares ofstock or other security convertible into shares of stock in the Company, orotherwise, and such contracts, options, warrants, conversion or other rightsshall not be enforceable or exercisable) to the extent such stock acquisitionwould cause any interest (including any original issue discount) payable by theCompany to a Non-U.S. Purchaser not to qualify as “portfolio interest” withinthe meaning of Section 871(h)(2) or Section 881(c)(2) ofthe Code, by reason of Section 871(h)(3) or Section 881(c)(3)(B) ofthe Code, as applicable, taking into account the constructive ownership rules underSection 871(h)(3)(C) of the Code (the “Stock AcquisitionLimitation”).  The Stock AcquisitionLimitation shall automatically become null and void with respect to aPurchaser, without any notice to the Company, on and after the first date uponwhich 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

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# Covenantsof the Company and the Purchasers Regarding Indemnification.

 

## CompanyIndemnification.  The Company agrees to indemnify, holdharmless, reimburse and defend each Creditor Party, each of such Creditor Party’sofficers, directors, agents, affiliates, control persons, and principalshareholders, against all claims, costs, expenses, liabilities, obligations,losses or damages (including reasonable legal fees) of any nature, incurred byor imposed upon such Creditor Party which result, arise out of or are basedupon: (i) any misrepresentation by the Company or any of its Subsidiariesor breach of any warranty by the Company or any of its Subsidiaries in thisAgreement, any other Related Agreement or in any exhibits or schedules attachedhereto or thereto; or (ii) any breach or default in performance by Companyor any of its Subsidiaries of any covenant or undertaking to be performed byCompany or any of its Subsidiaries hereunder, under any other Related Agreementor any other agreement entered into by the Company and/or any of itsSubsidiaries and such Creditor Party relating hereto or thereto.

##  

## PurchaserIndemnification.  Each Purchaser Party agrees to indemnify,hold harmless, reimburse and defend the Company and each of the Company’sofficers, directors, agents, affiliates, control persons and principalshareholders, 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 basedupon:  (i) any misrepresentation bysuch Purchaser or breach of any warranty by such Purchaser in this Agreement orin any exhibits or schedules attached hereto or any Related Agreement; or (ii) anybreach or default in performance by such Purchaser of any covenant orundertaking to be performed by such Purchaser hereunder, or any other agreemententered into by the Company and such Purchaser relating hereto.

##  

# IntentionallyOmitted.

#  

# OfferingRestrictions.

#  

## OfferingRestrictions.  Except as previously disclosed in the SECReports or in the Exchange Act Filings, or stock or stock options granted toemployees or directors of the Company (these exceptions hereinafter referred toas the “Excepted Issuances”), neither the Company nor any of itsSubsidiaries will, prior to the full repayment of the Notes (together with allaccrued and unpaid interest and fees related thereto) and the full exercise bythe Purchasers of the Warrants, (x) enter into any equity line of creditagreement or similar agreement or (y) issue, or enter into any agreementto issue, any securities with a variable/floating conversion and/or pricingfeature which are or could be (by conversion or registration) free-tradingsecurities (i.e.  common stock subject toa registration statement).

##  

# Miscellaneous.

#  

## GoverningLaw, Jurisdiction and Waiver of Jury Trial.

##  

### **THISAGREEMENT AND THE OTHER RELATED AGREEMENTS SHALL BE GOVERNED BY AND CONSTRUEDAND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TOCONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OFCONFLICTS OF LAWS.**

### ** **

### **THECOMPANY HEREBY CONSENTS AND AGREES THAT THE STATE AND/OR FEDERAL COURTS LOCATEDIN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTIONTO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY, ON THE ONEHAND, AND ANY CREDITOR PARTY, ON THE OTHER HAND, PERTAINING TO THIS**

 

27

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### **AGREEMENTOR ANY OF THE RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TOTHIS AGREEMENT OR ANY OF THE OTHER RELATED AGREEMENTS; PROVIDED, THATEACH CREDITOR PARTY AND THE COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSECOURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OFNEW YORK, STATE OF NEW YORK; AND FURTHERPROVIDED, THAT, NOTHINGIN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE ANY CREDITOR PARTYFROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TOCOLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL (AS DEFINED IN THE MASTERSECURITY AGREEMENT) OR ANY OTHER SECURITY FOR THE OBLIGATIONS (AS DEFINED INTHE MASTER SECURITY AGREEMENT), OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDERIN FAVOR OF ANY CREDITOR PARTY.  THECOMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANYACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE COMPANY HEREBY WAIVES ANYOBJECTION 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 ANDOTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCHSUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED ORCERTIFIED MAIL ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN SECTION 11.9AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THECOMPANY’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THEU.S. MAILS, PROPER POSTAGE PREPAID.**

### ** **

### **THEPARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCHAPPLICABLE LAWS.  THEREFORE, TO ACHIEVETHE 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, ORPROCEEDING 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 BETWEENTHEM IN CONNECTION WITH THIS AGREEMENT, ANY OTHER RELATED AGREEMENT OR THETRANSACTIONS RELATED HERETO OR THERETO.**

### ** **

## Severability. Wherever possible each provision of this Agreement and the RelatedAgreements shall be interpreted in such manner as to be effective and validunder applicable law, but if any provision of this Agreement or any RelatedAgreement shall be prohibited by or invalid or illegal under applicable lawsuch provision shall be ineffective to the extent of such prohibition orinvalidity or illegality, without invalidating the remainder of such provisionor the remaining provisions thereof which shall not in any way be affected orimpaired thereby.

##  

## Survival. The representations, warranties, covenants and agreements made hereinshall survive any investigation made by any Creditor Party and the closing ofthe transactions contemplated

 

28

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## herebyto the extent provided therein.  All statementsas to factual matters contained in any certificate or other instrumentdelivered by or on behalf of the Company pursuant hereto in connection with thetransactions contemplated hereby shall be deemed to be representations andwarranties by the Company hereunder solely as of the date of such certificateor instrument.  All indemnities set forthherein shall survive the execution, delivery and termination of this Agreementand the Notes and the making and repayment of the obligations arising hereunder,under the Notes and under the other Related Agreements.

##  

## Successors.

##  

### **Exceptas otherwise expressly provided herein, the provisions hereof shall inure tothe benefit of, and be binding upon, the successors, heirs, executors andadministrators of the parties hereto and shall inure to the benefit of and beenforceable by each person or entity which shall be a holder of the Securitiesfrom time to time, other than the holders of Common Stock which has been soldby any Purchaser pursuant to Rule 144 or an effective registrationstatement.  Each Purchaser may assign anyor all of the Obligations to any Person and, subject to acceptance andrecordation thereof by the Agent pursuant to Section 11.4(b) andreceipt by the Agent of a copy of the agreement or instrument pursuant to whichsuch assignment is made (each such agreement or instrument, an “AssignmentAgreement”), any such assignee shall succeed to all of such Purchaser’s rightswith respect thereto.  Upon suchassignment, such Purchaser shall be released from all responsibility for theCollateral (as defined in the Master Security Agreement, the Stock PledgeAgreement and each other security agreement, mortgage, cash collateral depositletter, pledge and other agreements which are executed by the Company or any ofits Subsidiaries in favor of any Creditor Party) to the extent same is assignedto any transferee.  Each Purchaser mayfrom time to time sell or otherwise grant participations in any of theObligations (as defined in the Master Security Agreement) and the holder of anysuch participation shall, subject to the terms of any agreement between suchPurchaser and such holder, be entitled to the same benefits as such Purchaserwith respect to any security for the Obligations (as defined in the Master SecurityAgreement) in which such holder is a participant.  The Company agrees that each such holder mayexercise any and all rights of banker’s lien, set-off and counterclaim withrespect to its participation in the Obligations (as defined in the Master SecurityAgreement) as fully as though the Company were directly indebted to such holderin the amount of such participation.  TheCompany may not assign any of its rights or obligations hereunder without theprior written consent of the Agent.  Allof the terms, conditions, promises, covenants, provisions and warranties ofthis Agreement shall inure to the benefit of each of the undersigned, and shallbind the representatives, successors and permitted assigns of the Company.**

### ** **

### **TheAgent shall maintain, or cause to be maintained, for this purpose only as agentof the Company, (i) a copy of each Assignment Agreement delivered to itand (ii) a book entry system, within the meaning of U.S. TreasuryRegulation 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 nameand address of each assignee of each Purchaser under this Agreement, and theprincipal amount of, and stated interest on, the Notes owing to each suchPurchaser and assignee pursuant to the terms hereof and each AssignmentAgreement.  The right, title and interestof the Purchasers and their assignees in and to such Notes shall betransferable only upon notation of such transfer in the Register, and noassignment thereof shall be**

 

29

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### **effectiveuntil recorded therein.  The Company andeach Creditor Party shall treat each Person whose name is recorded in theRegister as a Purchaser pursuant to the terms hereof as a Purchaser and ownerof an interest in the Obligations hereunder for all purposes of this Agreement,notwithstanding notice to the contrary or any notation of ownership or otherwriting or any Note.  The Register shallbe available for inspection by the Company or any Purchaser, at any reasonabletime and from time to time, upon reasonable prior notice.**

### ** **

## EntireAgreement; Maximum Interest.  ThisAgreement, the Related Agreements, the exhibits and schedules hereto andthereto and the other documents delivered pursuant hereto constitute the fulland entire understanding and agreement between the parties with regard to thesubjects hereof and no party shall be liable or bound to any other in anymanner by any representations, warranties, covenants and agreements except asspecifically set forth herein and therein. Nothing contained in this Agreement, any Related Agreement or in anydocument referred to herein or delivered in connection herewith shall be deemedto establish or require the payment of a rate of interest or other charges inexcess of the maximum rate permitted by applicable law.  In the event that the rate of interest ordividends required to be paid or other charges hereunder exceed the maximumrate permitted by such law, any payments in excess of such maximum shall be creditedagainst amounts owed by the Company to the Purchasers and thus refunded to theCompany.

##  

## Amendmentand Waiver.

##  

### **ThisAgreement may be amended or modified only upon the written consent of theCompany and the Agent.**

### ** **

### **Theobligations of the Company and the rights of the Creditor Parties under thisAgreement may be waived only with the written consent of the Agent. Theobligations of the Creditor Parties and the rights of the Company under thisAgreement may be waived only with the written consent of the Company.**

### ** **

## Delaysor Omissions.  It is agreed that no delay or omission toexercise any right, power or remedy accruing to any party, upon any breach,default or noncompliance by another party under this Agreement or the RelatedAgreements, shall impair any such right, power or remedy, nor shall it beconstrued to be a waiver of any such breach, default or noncompliance, or anyacquiescence therein, or of or in any similar breach, default or noncompliancethereafter occurring.  All remedies,either under this Agreement or the Related Agreements, by law or otherwiseafforded to any party, shall be cumulative and not alternative.

##  

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

##  

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

 

30

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Allcommunications 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 atsuch other address as the Company or the applicable Creditor Party maydesignate by written notice to the other parties hereto given in accordanceherewith.

 

31

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

##  

## Titlesand Subtitles.  The titles of the sections and subsections ofthis Agreement are for convenience of reference only and are not to beconsidered in construing this Agreement. 

##  

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

##  

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

##  

## Construction. Each party acknowledges that its legal counsel participated in thepreparation of this Agreement and the Related Agreements and, therefore,stipulates that the rule of construction that ambiguities are to beresolved against the drafting party shall not be applied in the interpretationof this Agreement or any Related Agreement to favor any party against theother. 

##  

## Agency. Each Purchaser has pursuant to an Administrative and Collateral AgencyAgreement designated and appointed the Agent as the administrative andcollateral agent of such Purchaser under this Agreement and the RelatedAgreements.

##  

**[THE REMAINDER OF THIS PAGEIS INTENTIONALLY LEFT BLANK]**

 

32

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**EXHIBIT10.12**

 

IN WITNESS WHEREOF, the parties hereto have executedthe SECURITIES PURCHASE AGREEMENT as of the date set forth in the firstparagraph 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 PURCHASEAGREEMENT

 

----

** **

**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.           TheCompany and each of its Subsidiaries is a corporation duly incorporated,validly existing and in good standing under the laws of the jurisdiction of itsformation and has all requisite corporate power and authority to own, operateand lease its properties and to carry on its business as it is now beingconducted.

 

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

 

13.           Theexecution, delivery and performance by the Company and each of its Subsidiariesof the Agreement and the Related Agreements (to which it is a party) and theconsummation of the transactions on its part contemplated by any thereof, willnot, with or without the giving of notice or the passage of time or both:

 

a.             Violatethe provisions of their respective Charter or bylaws; or

 

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

 

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

 

14.           TheAgreement and the Related Agreements will constitute, valid and legally bindingobligations of the Company and each of its Subsidiaries (to the extent suchentity is a party thereto), and are enforceable against the Company and each ofits Subsidiaries party thereto in accordance with their respective terms,except:

 

a.             aslimited by applicable bankruptcy, insolvency, reorganization, moratorium orother laws of general application affecting enforcement of creditors’ rights;and

 

b.             generalprinciples of equity that restrict the availability of equitable or legalremedies.

 

15.           Tosuch counsel’s knowledge, the sale of the Notes are not subject to anypreemptive rights or rights of first refusal that have not been properly waivedor complied with.  

 

C - 1

----

 

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

 

16.           Assumingthe accuracy of the representations and warranties of each Purchaser containedin the Agreement, the offer, sale and issuance of the Securities on the ClosingDate will be exempt from the registration requirements of the SecuritiesAct.  To such counsel’s knowledge,neither the Company, nor any of its affiliates, nor any person acting on its ortheir behalf, has directly or indirectly made any offers or sales of anysecurity or solicited any offers to buy and security under circumstances thatwould cause the offering of the Securities pursuant to the Agreement or any RelatedAgreement to be integrated with prior offerings by the Company for purposes ofthe Securities Act which would prevent the Company from selling the Securitiespursuant to Rule 506 under the Securities Act, or any applicableexchange-related stockholder approval provisions.

 

17.           Thereis no action, suit, proceeding or investigation pending or, to such counsel’sknowledge, currently threatened against the Company or any of its Subsidiariesthat prevents the right of the Company or any of its Subsidiaries to enter intothis Agreement or any Related Agreement, or to consummate the transactionscontemplated thereby.  To such counsel’sknowledge, the Company is not a party or subject to the provisions of anyorder, writ, injunction, judgment or decree of any court or government agencyor instrumentality; nor is there any action, suit, proceeding or investigationby the Company currently pending or which the Company intends to initiate.

 

18.           Theterms and provisions of the Master Security Agreement and the Stock PledgeAgreement create a valid security interest in favor of the Agent, in therespective rights, title and interests of the Company and its Subsidiaries inand to the Collateral (as defined in each of the Master Security Agreement andthe Stock Pledge Agreement).  Each UCC-1Financing Statement naming the Company or any Subsidiary thereof as debtor andthe Agent as secured party are in proper form for filing and assuming that suchUCC-1 Financing Statements have been filed with the Secretary of State ofMinnesota, the security interest created under the Master Security Agreementwill constitute a perfected security interest under the Uniform Commercial Codein favor of the Agent in respect of the Collateral that can be perfected byfiling a financing statement.  Aftergiving effect to the delivery to the Agent of the stock certificatesrepresenting the ownership interests of each Subsidiary of the Company(together with effective endorsements) and assuming the continued possession bythe Agent of such stock certificates in the State of New York, the securityinterest created in favor of the Agent under the Stock Pledge Agreementconstitutes a valid and enforceable first perfected security interest in suchownership interests (and the proceeds thereof) in favor of the Agent, subjectto no other security interest.  Nofilings, registrations or recordings are required in order to perfect (ormaintain the perfection or priority of) the security interest created under theStock Pledge Agreement in respect of such ownership interests.

 

19.           Assumingthat Capital One, N.A. is a “bank” (as such term is defined in Section 9-102(a)(8) ofthe UCC), and that the Restricted Account (as defined in the Restricted AccountAgreement) 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 deliveryof the Restricted Account Agreement perfects the Purchaser’s security interestin the Restricted Account.

 

C - 2

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**EXHIBIT D**

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**FORM OF ESCROWAGREEMENT**

 

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