**EXHIBIT10Z**

 

EXECUTION VERSION

 

SECURITY AGREEMENT

 

This Security Agreement is made as of March 9, 2004 by and betweenLAURUS MASTER FUND, LTD., a Cayman Islands corporation (“Laurus”) and MICROCOMPONENT TECHNOLOGY, INC., a Minnesota corporation (the “Company”).

 

BACKGROUND

 

Company has requested that Laurus make advances available to Company;and

 

Laurus has agreed to make such advances to Company on the terms andconditions set forth in this Agreement.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual covenants andundertakings and the terms and conditions contained herein, the parties heretoagree as follows:

 

# **(a)**           GeneralDefinitions. Capitalized terms used in this Agreement shall have the meaningsassigned to them in Annex A.

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(b)           AccountingTerms.  Any accounting termsused in this Agreement which are not specifically defined shall have themeanings customarily given them in accordance with GAAP and all financialcomputations shall be computed, unless specifically provided herein, inaccordance with GAAP consistently applied.

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## ***Other Terms***. All other terms used in this Agreement and defined in the UCC, shallhave the meaning given therein unless otherwise defined herein.

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## ***Rules of Construction***.  All Schedules, Addenda, Annexes and Exhibitshereto or expressly identified to this Agreement are incorporated herein byreference and taken together with this Agreement constitute but a singleagreement.  The words “herein”, hereof”and “hereunder” or other words of similar import refer to this Agreement as awhole, including the Exhibits, Addenda, Annexes and Schedules thereto, as thesame may be from time to time amended, modified, restated or supplemented, andnot to any particular section, subsection or clause contained in thisAgreement.  Wherever from the context itappears appropriate, each term stated in either the singular or plural shallinclude the singular and the plural, and pronouns stated in the masculine,feminine or neuter gender shall include the masculine, the feminine and theneuter.  The term “or” is notexclusive.  The term “including” (or anyform thereof) shall not be limiting or exclusive.  All references to statutes and related regulations shall includeany amendments of same and any successor statutes and regulations.  All references in this Agreement or in theSchedules, Addenda, Annexes and Exhibits to this Agreement to sections,schedules, disclosure schedules, exhibits, and attachments shall refer to thecorresponding sections, schedules, disclosure schedules, exhibits, and attachmentsof or to this Agreement.  All referencesto any instruments or agreements, including references to any of this Agreementor the Ancillary Agreements shall include any and all modifications oramendments thereto and any and all extensions or renewals thereof.

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# **Loans**.

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(a)  Subject to the terms and conditions setforth herein and in the Ancillary Agreements, Laurus may make loans (the“Loans”) to Company from time to time during the Term which, in the aggregateat any time outstanding, will not exceed the lesser of (i) (x) the CapitalAvailability Amount minus (y) such reserves as Laurus

 

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may reasonablyin its good faith judgment deem proper and necessary from time to time (the“Reserves”) or (ii) an amount equal to (x) the Accounts Availability minus (y)the Reserves.  The amount derived at anytime from Section 2(a)(ii)(x) minus 2(a)(ii)(y) shall be referred to asthe “Formula Amount”.  Company shallexecute and deliver to Laurus on the Closing Date a Minimum Borrowing Note anda Secured Revolving Note evidencing the Loans funded on the Closing Date.  From time to time thereafter, Company shallexecute and deliver to Laurus immediately prior to the final funding of eachadditional $750,000 tranche of Loans (calculated on a cumulative basis for eachsuch tranche) an additional Minimum Borrowing Note evidencing such tranche, inthe form of Note delivered by Company to Laurus on the Closing Date.Notwithstanding anything herein to the contrary, whenever during the Term theoutstanding balance on the Revolving Note should equal or exceed $2,250,000, tothe extent that the outstanding balance on Minimum Borrowing Note shall be lessthan $750,000 (the difference of $750,000 less the actual balance of theMinimum Borrowing Note, the “Available Minimum Borrowing”), such portion of thebalance of the Revolving Note as shall equal the Available Minimum Borrowingshall be deemed to be simultaneously extinguished on the Revolving Note andtransferred to, and evidenced by, the Minimum Borrowing Note (e.g., the AvailableMinimum Borrowing shall be $0).

 

## ***(b)***

### **Notwithstanding the limitations setforth above, if requested by the Company, Laurus retains the right to lend toCompany from time to time such amounts in excess of such limitations as Laurusmay determine in its sole discretion.**

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### **If Company does not pay anyinterest, fees, costs or charges to Laurus when due, Company shall thereby bedeemed to have requested, and Laurus is hereby authorized at its discretion tomake and charge to Company’s account, a Loan to Company as of such date in anamount equal to such unpaid interest, fees, costs or charges.**

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### **If Company at any time fails toperform or observe any of the covenants contained in this Agreement or anyAncillary Agreement, Laurus may, but need not, perform or observe such covenanton behalf and in the name, place and stead of Company (or, at Laurus’ option,in Laurus’ name) and may, but need not, take any and all other actions whichLaurus may deem necessary to cure or correct such failure (including thepayment of taxes, the satisfaction of Liens, the performance of obligationsowed to Account Debtors, lessors or other obligors, the procurement andmaintenance of insurance, the execution of assignments, security agreements andfinancing statements, and the endorsement of instruments).  The amount of all monies expended and allcosts and expenses (including attorneys’ fees and legal expenses) incurred byLaurus in connection with or as a result of the performance or observance ofsuch agreements or the taking of such action by Laurus shall be charged toCompany’s account as a Loan and added to the Obligations.  To facilitate Laurus’ performance orobservance of such covenants of Company, Company hereby irrevocably appointsLaurus, or Laurus’ delegate, acting alone, as Company’s attorney in fact (whichappointment is coupled with an interest) with the right (but not the duty) fromtime to time to create, prepare, complete, execute, deliver, endorse or file inthe name and on behalf of Company any and all instruments, documents,assignments, security agreements, financing statements, applications forinsurance and other agreements and writings required to be obtained, executeddelivered or endorsed by Company.**

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### **Laurus will account to Companymonthly with a statement of all Loans and other advances, charges and paymentsmade pursuant to this Agreement, and such account rendered by Laurus shall bedeemed final, binding and conclusive unless Laurus is notified by Company inwriting to the contrary within thirty (30) days of the date each account wasrendered specifying the item or items to which objection is made.**

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### **During the Term, Company may borrowand prepay Loans in excess of the Minimum Borrowing Amount, all in accordancewith the terms and conditions hereof.**

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### **If any Eligible Account is not paidby the Account Debtor within ninety (90) days after the date that such EligibleAccount was invoiced or if any Account Debtor asserts a deduction, dispute,**

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### **contingency, set-off, orcounterclaim with respect to any Eligible Account, (a “Delinquent Account”),the Company shall (i) reimburse Laurus for the amount of the Revolving CreditAdvance made with respect to such Delinquent Account plus an adjustment fee inan amount equal to one-half of one percent (0.50%) of the gross face amount ofsuch Eligible Account or (ii) immediately replace such Delinquent Account withan otherwise Eligible Account.**

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## ***(c)***           Followingthe occurrence of an Event of Default which continues to exist, Laurus may, atits option, elect to convert the credit facility contemplated hereby to anaccounts receivable purchase facility. Upon such election by Laurus (subsequent notice of which Laurus shall provideto Company), Company shall be deemed to hereby have sold, assigned,transferred, conveyed and delivered to Laurus, and Laurus shall be deemed tohave purchased and received from Company, all right, title and interest ofCompany in and to all Accounts which shall at any time constitute EligibleAccounts (the “Receivables Purchase”). All outstanding Loans hereunder shall be deemed obligations under suchaccounts receivable purchase facility. The conversion to an accounts receivable purchase facility in accordancewith the terms hereof shall not be deemed an exercise by Laurus of its securedcreditor rights under Article 9 of the UCC.  Immediately following Laurus’ request, Company shall execute allsuch further documentation as may be required by Laurus to more fully set forththe accounts receivable purchase facility herein contemplated, including,without limitation, Laurus’ standard form of accounts receivable purchaseagreement and account debtor notification letters, but Company’s failure toenter into any such documentation shall not impair or affect the ReceivablesPurchase in any manner whatsoever.

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(d)           MinimumBorrowing Amount.  After aregistration statement registering the Registrable Securities has been declaredeffective by the SEC, conversions of the Minimum Borrowing Amount into theCommon Stock of the Company may be initiated as set forth in the Note. From andafter the date upon which any outstanding principal of the Minimum BorrowingAmount (as evidenced by the first Minimum Borrowing Note) is converted intoCommon Stock (the “First Conversion Date”), (i) corresponding amounts of alloutstanding Loans (not attributable to the then outstanding Minimum BorrowingAmount) existing on or made after the First Conversion Date will be aggregated untilthey reach the sum of $750,000 and (ii) the Company will issue a new(serialized) Minimum Borrowing Note to Laurus in respect of such $750,000aggregation, and (iii) the Company shall prepare and file a subsequentregistration statement with the SEC to register such subsequent MinimumBorrowing Note as set forth in the Registration Rights Agreement.

 

# **Repaymentof the Loans**. Company (a) may prepay the Obligations in excessof the Minimum Borrowing Amount from time to time in accordance with the termsand provisions of the Notes (and Section 16 hereof if such prepayment isdue to a termination of this Agreement); and (b) shall repay on the expirationof the Term (i) the then aggregate outstanding principal balance of the Loansmade by Laurus to Company hereunder together with accrued and unpaid interest,fees and charges and (ii) all other amounts owed Laurus under this Agreementand the Ancillary Agreements.  Anypayments of principal, interest, fees or any other amounts payable hereunder orunder any Ancillary Agreement shall be made prior to 12:00 noon (New York time)on the due date thereof in immediately available funds.

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# **Procedurefor Loans**.  Companymay by written notice request a borrowing of Loans prior to 12:00 p.m.. (NewYork time) on the Business Day of its request to incur, on the next businessday, a Loan.  Together with each requestfor a Loan (or at such other intervals as Laurus may request), Company shalldeliver to Laurus a Borrowing Base Certificate in the form of Exhibit A, whichshall be certified as true and correct by the Chief Executive Officer, Chief FinancialOfficer or the Controller of Company together with all supporting documentationrelating thereto.  All Loans shall bedisbursed from whichever office or other place Laurus may designate from timeto time and shall be charged to Company’s account on Laurus’ books.  The proceeds of each Loan made by Laurusshall be made available to Company on the Business Day following the BusinessDay so requested in accordance with the terms of this Section 4 by way ofcredit to Company’s operating account maintained with such bank as Companydesignated to Laurus.  Any and allObligations due and owing hereunder may be charged to Company’s account andshall constitute Loans.

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# **Interest,Payments and**Warrants.

 

## ***Interest***.

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### **Except as modified bySection 5(a)(iii) below, Company shall pay interest at the Contract Rateon the unpaid principal balance of each Loan until such time as such Loan is collectedin full in good funds in dollars of the United States of America.**

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### **Interest and payments shall becomputed on the basis of actual days elapsed in a year of 360 days.  At Laurus’ option, Laurus may charge Companyaccount for said interest.**

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### **Effective upon the occurrence ofany Event of Default and for so long as any Event of Default shall becontinuing, the Contract Rate shall automatically be increased by five percent(5%) per annum (such increased rate, the “Default Rate”), and all outstanding Obligations,including unpaid interest, shall continue to accrue interest from the date ofsuch Event of Default at the Default Rate applicable to such Obligations.**

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### **In no event shall the aggregateinterest payable hereunder exceed the maximum rate permitted under anyapplicable law or regulation, as in effect from time to time (the “MaximumLegal Rate”) and if any provision of this Agreement or any Ancillary Agreementis in contravention of any such law or regulation, interest payable under thisAgreement and each Ancillary Agreement shall be computed on the basis of theMaximum Legal Rate (so that such interest will not exceed the Maximum LegalRate).**

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### **Company shall pay principal,interest and all other amounts payable hereunder, or under any Ancillary Agreement,without any deduction whatsoever, including any deduction for any set-off orcounterclaim.**

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## ***Payments***

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### **Closing/Annual Payments**.  Uponexecution of this Agreement by Company and Laurus, Company shall pay to LaurusCapital Management, LLC a closing payment in an amount equal to $105,000.00 orthree and one-half (3.5%) of the Capital Availability Amount. Such paymentshall be deemed fully earned on the Closing Date and shall not be subject torebate or proration for any reason.  Inaddition, on each anniversary of the Closing Date, the Company shall pay Laurusone-half of one percent (0.50%) of the Capital Availability Amount.

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### **Unused Line Payment**.  If, forany month, the average outstanding Loans (the “Average Loan Amount”) do notequal the Capital Availability Amount, Company shall pay to Laurus at the endof such month a payment (calculated on a per annum basis) in an amount equal totwenty basis points (0.2%) of the amount by which the Capital AvailabilityAmount exceeds the Average Loan Amount. Notwithstanding the foregoing, anyunpaid fee shall be immediately due and payable upon termination of thisAgreement

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### **Overadvance Payment**.  Withoutaffecting Laurus’ rights hereunder in the event the Loans exceed the amountspermitted by Section 2 (“Overadvances”), in the event an Overadvanceoccurs or is made by Laurus, all such Overadvances shall bear interest at anannual rate equal to six percent (6%) of the amount of such Overadvances foreach month or portion thereof as such amounts shall be outstanding

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### **Financial Information Default**.  Withoutaffecting Laurus’ other rights and remedies, in the event Company fails todeliver the financial information required by Section 11 on or before thedate required by this Agreement, Company shall pay Laurus a fee in the amountof $500.00 per week (or portion thereof) for each such failure until suchfailure is cured to Laurus’ satisfaction or waived in writing by Laurus.  Such fee shall be charged to Company’saccount upon the occurrence of each such failure.

 

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### **(c)**           Warrants.Onthe Closing Date, Company shall issue and deliver to Laurus a Warrant topurchase up to 400,000 shares of the Company’s Common Stock in the form annexedhereto as Exhibit B.

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All the representations, covenants, warranties, undertakings, andindemnification, and other rights made or granted to or for the benefit ofLaurus by the Company are hereby also made and granted in respect of theWarrant and the shares of the Company’s Common Stock issuable upon exercise ofthe Warrant (the “Warrant Shares”).

 

# **SecurityInterest**.

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## ***To secure the prompt payment to Laurus of the Obligations,Company hereby assigns, pledges and grants to Laurus a continuing securityinterest in and Lien upon all of the Collateral.  All of Company’s Books and Records relating to the Collateralshall, until delivered to or removed by Laurus, be kept by Company in trust forLaurus until all Obligations have been paid in full.  Each confirmatory assignment schedule or other form of assignmenthereafter executed by Company shall be deemed to include the foregoing grant,whether or not the same appears therein.***

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## ***Company hereby (i) authorizes Laurus to file any financingstatements, continuation statements or amendments thereto that (x) indicate theCollateral (1) as all assets of Company or words of similar effect, regardlessof whether any particular asset comprised in the Collateral falls within thescope of Article 9 of the UCC of such jurisdiction, or (2) as being of anequal or lesser scope or with greater detail, and (y) contain any otherinformation required by Part 5 of Article 9 of the UCC for the sufficiencyor filing office acceptance of any financing statement, continuation statementor amendment and (ii) ratifies its authorization for Laurus to have filed anyinitial financial statements, or amendments thereto if filed prior to the datehereof.  Company acknowledges that it isnot authorized to file any financing statement or amendment or terminationstatement with respect to any financing statement without the prior writtenconsent of Laurus and agrees that it will not do so without the prior writtenconsent of Laurus, subject to Company’s rights under Section 9-509(d)(2)of the UCC.***

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## ***Company hereby grants to Laurus an irrevocable,non-exclusive license (exercisable upon the termination of this Agreement dueto an occurrence and during the continuance of an Event of Default withoutpayment of royalty or other compensation to Company) to use, transfer, licenseor sublicense any Intellectual Property now owned, licensed to, or hereafteracquired by Company, and wherever the same may be located, and including insuch license access to all media in which any of the licensed items may berecorded or stored and to all computer and automatic machinery software andprograms used for the compilation or printout thereof, and represents, promisesand agrees that any such license or sublicense is not and will not be inconflict with the contractual or commercial rights of any third Person; provided,that such license will terminate on the termination of this Agreement and thepayment in full of all Obligations.***

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# **Representations, Warranties andCovenants Concerning the Collateral**.  Companyrepresents, warrants (each of which such representations and warranties shallbe deemed repeated upon the making of each request for a Loan and made as ofthe time of each and every Loan hereunder) and covenants as follows:

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## ***all of the Collateral (i) is owned by Company free and clearof all Liens (including any claims of infringement) except those in Laurus’favor and Permitted Liens and (ii) is not subject to any agreement prohibitingthe granting of a Lien or requiring notice of or consent to the granting of aLien.***

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## ***Company shall not encumber, mortgage, pledge, assign orgrant any Lien in any Collateral of Company or any of Company’s other assets toanyone other than Laurus and except for Permitted Liens.***

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## ***The Liens granted pursuant to this Agreement, uponcompletion of the filings and other actions listed on Exhibit 7(c)(which, in the case of all filings and other documents referred to in saidExhibit, have been delivered to Laurus in duly executed form) constitute validperfected security interests in all of the Collateral in favor of Laurus assecurity for the prompt and complete payment and performance of theObligations, enforceable in accordance with the terms hereof against any andall creditors of and any purchasers from Company and such security interest isprior to all other Liens in existence on the date hereof.***

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## ***No effective security agreement, mortgage, deed of trust,financing statement, equivalent security or Lien instrument or continuationstatement covering all or any part of the Collateral is or will be on file orof record in any public office, except those relating to Permitted Liens.***

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## ***Company shall not dispose of any of the Collateral whetherby sale, lease or otherwise except for the sale of Inventory in the ordinarycourse of business and as listed on Schedule 7(e), and for the dispositionor transfer in the ordinary course of business during any fiscal year ofobsolete and worn-out Equipment having an aggregate fair market value of notmore than $25,000 and only to the extent that (i) the proceeds of any suchdisposition are used to acquire replacement Equipment which is subject toLaurus’ first priority security interest or are used to repay Loans or to paygeneral corporate expenses, or (ii) following the occurrence of an Event of Defaultwhich continues to exist the proceeds of which are remitted to Laurus to beheld as cash collateral for the Obligations.***

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## ***Company shall defend the right, title and interest of Laurusin and to the Collateral against the claims and demands of all Personswhomsoever, and take such actions, including (i) all actions necessary to grantLaurus “control” of any Investment Property, Deposit Accounts, Letter-of-CreditRights or electronic Chattel Paper owned by Company, with any agreementsestablishing control to be in form and substance satisfactory to Laurus, (ii)the prompt (but in no event later than five (5) Business Days following Laurus’request therefor) delivery to Laurus of all original Instruments, ChattelPaper, negotiable Documents and certificated Stock owned by the Company (ineach case, accompanied by stock powers, allonges or other instruments oftransfer executed in blank), (iii) notification of Laurus’ interest inCollateral at Laurus’ request, and (iv) the institution of litigation against thirdparties as shall be prudent in order to protect and preserve Company’s andLaurus’ respective and several interests in the Collateral.***

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## ***Company shall promptly, and in any event within five(5)  Business Days after the same isacquired by it, notify Laurus of any commercial tort claim (as defined in theUCC) acquired by it and unless otherwise consented by Laurus, Company shallenter into a supplement to this Agreement granting to Laurus a Lien in suchcommercial tort claim.***

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## ***Company shall place notations upon its Books and Records andany financial statement of Company to disclose Laurus’ Lien in the Collateral.***

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## ***If Company retains possession of any Chattel Paper orInstrument with Laurus’ consent, upon Laurus’ request such Chattel Paper andInstruments shall be marked with the following legend:  “This writing and obligations evidenced orsecured hereby are subject to the security interest of Laurus Master Fund,Ltd.”***

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## ***Company shall perform in a reasonable time all other stepsrequested by Laurus to create and maintain in Laurus’ favor a valid perfectedfirst Lien in all Collateral subject only to Permitted Liens.***

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## ***Company shall notify Laurus promptly and in any event withinthree (3)  Business Days after obtainingknowledge thereof (i) of any event or circumstance that to Company’s knowledgewould cause Laurus to consider any then existing Account as no longerconstituting an Eligible Account; (ii) of any material delay in Company’sperformance of any of its obligations to any Account Debtor; (iii) of anyassertion by any Account Debtor of any material claims, offsets orcounterclaims; (iv) of any allowances, credits and/or monies granted by Companyto any Account Debtor; (v) of all material adverse information***

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## ***relating to the financial condition of an Account Debtor;(vi) of any material return of goods; and (vii) of any loss, damage ordestruction of any of the Collateral.***

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## ***All Eligible Accounts (i) which are billed on a constructioncompletion basis but not payable until the project is completed, representcomplete bona fide transactions which require no further act under anycircumstances on Company’s part to make such Accounts payable by the AccountDebtors, (ii) are not subject to any present, future contingent offsets orcounterclaims, and (iii) do not represent bill and hold sales, consignmentsales, guaranteed sales, sale or return or other similar understandings orobligations of any Affiliate or Subsidiary of Company.  Company has not made, and will not make anyagreement with any Account Debtor for any extension of time for the payment ofany Account, any compromise or settlement for less than the full amountthereof, any release of any Account Debtor from liability therefor, or anydeduction therefrom except a discount or allowance for prompt or early paymentallowed by Company in the ordinary course of its business consistent withhistorical practice and as previously disclosed to Laurus in writing.***

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## *** Company shall keep and maintain its Equipment in goodoperating condition, except for ordinary wear and tear, and shall make allnecessary repairs and replacements thereof so that the value and operatingefficiency shall at all times be maintained and preserved.  Company shall not permit any such items tobecome a Fixture to real estate or accessions to other personal property.***

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## ***Company shall maintain and keep all of its Books and Recordsconcerning the Collateral at Company’s executive offices listed in Exhibit12(d).***

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## ***Company shall maintain and keep the tangible Collateral atthe addresses listed in Exhibit 12(d), provided, that Company may changesuch locations or open a new location, provided that Company provides Laurus atleast thirty (30) days prior written notice of such changes or new location and(ii) prior to such change or opening of a new location where Collateral havinga value of more than $50,000 will be located, Company executes and delivers toLaurus such agreements as Laurus may request, including landlord agreements,mortgagee agreements and warehouse agreements, each in form and substancesatisfactory to Laurus.***

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## ***Exhibit 7(p)*** lists all banksand other financial institutions at which Company maintains deposits and/orother accounts, and such Exhibit correctly identifies the name, address andtelephone number of each such depository, the name in which the account isheld, a description of the purpose of the account, and the complete accountnumber.  The Company shall not establishany depository or other bank account of any with any financial institution(other than the accounts set forth on Exhibit 7(p)) without Laurus’prior written consent.

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# **Paymentof Accounts**.

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## ***Company will irrevocably direct all of its present andfuture Account Debtors and other Persons obligated to make paymentsconstituting Collateral to make such payments directly to the lockboxmaintained by Company (the “Lockbox”) with Wells Fargo Bank (the “LockboxBank”). On or prior to the Closing Date, Company shall and shall cause theLockbox Bank to enter into all such documentation acceptable to Laurus pursuantto which, among other things, the Lockbox Bank agrees to: (a) sweep the Lockboxon a daily basis and deposit all checks received therein to an accountdesignated by Laurus in writing and (b) comply only with the instructions orother directions of Laurus concerning the Lockbox. All of Company’s invoices,account statements and other written or oral communications directing,instructing, demanding or requesting payment of any Account of Company or anyother amount constituting Collateral shall conspicuously direct that allpayments be made to the Lockbox or such other address as Laurus may direct inwriting.  If, notwithstanding theinstructions to Account Debtors, Company receives any payments, Company shall immediatelyremit such payments to Laurus in their original form with all necessaryendorsements.  Until so remitted,Company shall hold all such payments in trust for and as the property of Laurusand shall not commingle such payments with any of its other funds or property.***

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## ***At Laurus’ election, following the occurrence of an Event ofDefault which is continuing, Laurus may notify Company’s Account Debtors ofLaurus’ security interest in the Accounts, collect them directly and charge thecollection costs and expenses thereof to Company’s account.***

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# **Collection and Maintenance ofCollateral**.

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## ***Laurus may verify Company’s Accounts, Inventory and PurchaseOrders from time to time, but not more often than once every three (3) monthsunless an Event of Default has occurred and is continuing, utilizing an auditcontrol company or any other agent of Laurus.***

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## ***Proceeds of Accounts received by Laurus will be deemedreceived on the Business Day after Laurus’ receipt of such proceeds in goodfunds in dollars of the United States of America in Laurus’ account.  Any amount received by Laurus after 12:00noon (New York time) on any Business Day shall be deemed received on the next BusinessDay.***

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## ***As Laurus receives the proceeds of Accounts, it shall remitall such proceeds (net of interest, fees and other amounts then due and owingto Laurus hereunder) to Company upon request (but no more often than twice aweek).  Notwithstanding the foregoing,following the occurrence and during the continuance of an Event of Default,Laurus, at its option, may (a) apply such proceeds to the Obligations in suchorder as Laurus shall elect, (b) hold such proceeds as cash collateral for theObligations and Company hereby grants to Laurus a security interest in suchcash collateral amounts as security for the Obligations and/or (c) do anycombination of the foregoing.***

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# **Inspectionsand Appraisals**.  At alltimes during normal business hours, Laurus, and/or any agent of Laurus shallhave the right to (a) have access to, visit, inspect, review, evaluate and makephysical verification and appraisals of Company’s properties and theCollateral, (b) inspect, audit and copy (or take originals if necessary) andmake extracts from Company’s Books and Records, including management lettersprepared by independent accountants, and (c) discuss with Company’s principalofficers, and independent accountants, Company’s business, assets, liabilities,financial condition, results of operations and business prospects.  Company will deliver to Laurus anyinstrument necessary for Laurus to obtain records from any service bureaumaintaining records for Company.  If anyinternally prepared financial information, including that required under thisSection is unsatisfactory in any manner to Laurus, Laurus may request thatthe Accountants review the same.

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# **FinancialReporting**.  Companywill deliver, or cause to be delivered, to Laurus each of the following, whichshall be in form and detail acceptable to Laurus:

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## ***As soon as available, and in any event within ninety (90)days after the end of each fiscal year of Company, Company’s audited financialstatements with a report of independent certified public accountants ofrecognized standing selected by Company and acceptable to Laurus (the“Accountants”), which annual financial statements shall include Company’sbalance sheet as at the end of such fiscal year and the related statements ofCompany’s income, retained earnings and cash flows for the fiscal year thenended, prepared, if Laurus so requests, on a consolidating and consolidatedbasis to include all Subsidiaries and Affiliates, all in reasonable detail andprepared in accordance with GAAP, together with (i) if and when available,copies of any management letters prepared by such accountants; and (ii) acertificate of Company’s President, Chief Executive Officer or Chief FinancialOfficer stating that such financial statements have been prepared in accordancewith GAAP and whether or not such officer has knowledge of the occurrence ofany Default or Event of Default hereunder and, if so, stating in reasonabledetail the facts with respect thereto;***

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## ***As soon as available and in any event within forty five (45)days after the end of each quarter, an unaudited/internal balance sheet andstatements of income, retained earnings and cash flows of Company as at the endof and for such quarter and for the year to date period then ended, prepared,if Laurus so requests, on a consolidating and consolidated basis to include allSubsidiaries and Affiliates, in reasonable detail and stating in comparativeform the figures for the corresponding date and periods in the previous year,all prepared in accordance with GAAP, subject to year-end adjustments andaccompanied by a certificate of Company’s President, Chief Executive Officer orChief Financial Officer, stating (i) that such financial statements have beenprepared in accordance with GAAP, subject to year-end audit adjustments, and(ii) whether or not such officer has knowledge of the occurrence of any Defaultor Event of Default hereunder not theretofore reported and remedied and, if so,stating in reasonable detail the facts with respect thereto;***

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## ***Within thirty (30) days after the end of each month (or morefrequently if Laurus so requests), agings of Company’s Accounts, unauditedtrial balances and their accounts payable and a calculation of Company’sAccounts, Eligible Accounts and thirty (30) days after the end of each fiscalquarter an Inventory ledger, in summary form, as at the end of such month orshorter time period, provided, however, that if Laurus***

 

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## ***shall request the foregoing information more often than asset forth in the immediately preceding clause, the Company shall have thirtydays from each such request to comply with Laurus’ demand; and***

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## ***Promptly after (i) the filing thereof, copies of Company’smost recent registration statements and annual, quarterly, monthly or otherregular reports which Company files with the Securities and Exchange Commission(the “SEC”), and (ii) the issuance thereof, copies of such financialstatements, reports and proxy statements as Company shall send to itsstockholders.***

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# **Additional Representations andWarranties**.  Companyrepresents and warrants (each of which such representations and warrantiesshall be deemed repeated upon the making of a request for a Loan and made as ofthe time of each Loan made hereunder), as follows:

# ** **

## ***Company is a corporation duly incorporated and validlyexisting under the laws of the jurisdiction of its incorporation and dulyqualified and in good standing in every other state or jurisdiction in whichthe nature of Company’s business requires such qualification.***

 

## ***The execution, delivery and performance of this Agreementand the Ancillary Agreements (i) have been duly authorized, (ii) are not incontravention of Company’s certificate of incorporation, by-laws or of anyindenture, agreement or undertaking to which Company is a party or by whichCompany is bound and (iii) are within Company’s corporate powers.***

## *** ***

## ***This Agreement and the Ancillary Agreements executed anddelivered by Company are Company’s legal, valid and binding obligations,enforceable in accordance with their terms.***

## *** ***

## ***Exhibit 12(d)*** sets forthCompany’s name as it appears in official filing in the state of itsincorporation, the type of entity of Company, the organizational identificationnumber issued by Company’s state of incorporation or a statement that no suchnumber has been issued, Company’s state of incorporation, and the location ofCompany’s chief executive office, corporate offices, warehouses, otherlocations of Collateral and locations where records with respect to Collateralare kept (including in each case the county of such locations) and, except asset forth in such Exhibit 12(d), such locations have not changed duringthe preceding twelve months.  As of theClosing Date, during the prior five years, except as set forth in Exhibit12(d), Company has not been known as or conducted business in any othername (including trade names).  Companyhas only one state of incorporation.

## *** ***

## ***Based upon the Employee Retirement Income Security Act of1974 (“ERISA”), and the regulations and published interpretations thereunder:(i) Company has not engaged in any Prohibited Transactions as defined inSection 406 of ERISA and Section 4975 of the Internal Revenue Code,as amended; (ii) Company has met all applicable minimum funding requirementsunder Section 302 of ERISA in respect of its plans; (iii) Company has no knowledgeof any event or occurrence which would cause the Pension Benefit GuarantyCorporation to institute proceedings under Title IV of ERISA to terminate anyemployee benefit plan(s); (iv) Company has no fiduciary responsibility forinvestments with respect to any plan existing for the benefit of persons otherthan Company’s employees; and (v) except as disclosed in Exhibit 12(e)attached hereto, Company has not withdrawn, completely or partially, from anymulti-employer pension plan so as to incur liability under the MultiemployerPension Plan Amendments Act of 1980.***

## *** ***

## ***There is no pending or threatened litigation, court order,judgment, writ, suit, action or proceeding which could reasonably be expectedto have a Material Adverse Effect.***

## *** ***

## ***All balance sheets and income statements which have beendelivered to Laurus fairly, accurately and properly state Company’s financialcondition on a basis consistent with that of previous financial statements andexcept as reflected in such financial statements there has been no materialadverse change in Company’s financial condition as reflected in such statementssince the balance sheet date of the statements last delivered to Laurus andsuch statements do not fail to disclose any fact or facts which might have a MaterialAdverse Effect on Company’s financial condition.***

## *** ***

## ***Company possesses or has licenses to use all of theIntellectual Property necessary to conduct its business.  There has been no assertion or claim ofviolation or infringement with respect to any Intellectual Property.  Exhibit 12(i) describes allIntellectual Property of Company.***

## *** ***

## ***Neither this Agreement, the exhibits and schedules hereto,the Ancillary Agreements nor any other document delivered by Company to Laurusor its attorneys or agents in connection herewith or therewith***

## *** ***

## ***10Z-***9

## ******

##  

## ***or with the transactions contemplated hereby or thereby,contain any untrue statement of a material fact nor omit to state a materialfact necessary in order to make the statements contained herein or therein, inlight of the circumstances in which they are made, not misleading.  The issuance of the Notes and the Warrantsand the shares of common stock issued upon conversion of the Notes and exerciseof the Warrants will be exempt from the registration requirements of theSecurities Act 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.  Neither Companynor any of its Affiliates, nor any person acting on its or their behalf, hasengaged in any form of general solicitation or general advertising (within themeaning of Regulation D under the Securities Act) in connection with the offeror sale of the Securities.***

## *** ***

## ***The common stock of the Company is registered pursuant toSection 12(b) or 12(g) of the Exchange Act and, except with respect tocertain matters set forth on Exhibit 12(j) attached hereto, the Companyhas timely filed all proxy statements, reports, schedules, forms, statementsand other documents required to be filed by it under the Exchange Act.  The Company has filed (i) its Annual Reporton Form 10-K for the fiscal year ended December 31, 2002, (ii) itsQuarterly Report on Form 10-Q for the fiscal quarters ended March 29,2003, June 28, 2003 and September 27, 2003 and (iii) all CurrentReports on Form 8-K which the Company were required to file (collectively, the“SEC Reports”).  Each SEC Report was, atthe time of its filing, in substantial compliance with the requirements of itsrespective form and none of the SEC Reports, nor the financial statements (andthe notes thereto) included in the SEC Reports, as of their respective filingdates, contained any untrue statement of a material fact or omitted to state amaterial fact required to be stated therein or necessary to make the statementstherein, in light of the circumstances under which they were made, notmisleading.  The financial statements ofthe Company included in the SEC Reports comply as to form in all materialrespects with applicable accounting requirements and the published rules andregulations of the Commission or other applicable rules and regulations withrespect thereto.  Such financialstatements have been prepared in accordance with generally accepted accountingprinciples (“GAAP”) applied on a consistent basis during the periods involved(except (i) as may be otherwise indicated in such financial statements or the notesthereto or (ii) in the case of unaudited interim statements, to the extent theymay not include footnotes or may be condensed) and fairly present in allmaterial respects the financial condition, the results of operations and thecash flows of the Company and its subsidiaries, on a consolidated basis, as of,and for, the periods presented in each such SEC Report.***

## *** ***

## ***The common stock of the Company is listed for trading on theNASD Over the Counter Bulletin Board (“OTCBB”) and satisfies all requirements forthe continuation of such listing.  TheCompany has not received any notice that its common stock will be delisted fromthe OTCBB or that the common stock does not meet all requirements for thecontinuation of such listing.***

## *** ***

## ***Neither the Company, nor any of its Affiliates, nor anyperson acting on its or their behalf, has directly or indirectly made anyoffers or sales of any security or solicited any offers to buy any securityunder circumstances that would cause the offering of the Securities pursuant tothis Agreement and the Ancillary Agreements to be integrated with priorofferings by the Company for purposes of the Securities Act which would preventthe Company from selling the Securities pursuant to Rule 506 under theSecurities Act, or any applicable exchange-related stockholder approvalprovisions, nor will the Company or any of its Affiliates or Subsidiaries takeany action or steps that would cause the offering of the Securities to beintegrated with other offerings (other than such concurrent offering toLaurus).***

## *** ***

## ***  The Securities are all restricted securitiesunder the Securities Act as of the date of this Agreement.  The Company will not issue any stop transferorder or other order impeding the sale and delivery of any of the Securities atsuch time as such Securities are registered for public sale or an exemptionfrom registration is available, except as required by federal or statesecurities laws.***

## *** ***

## ***The Company understands the nature of the Securitiesissuable under the Ancillary Agreements and recognizes that the issuance ofsuch Securities may have a potential dilutive effect.  The Company specifically acknowledges that its obligation toissue the Securities is binding upon the Company and enforceable regardless ofthe dilution such issuance may have on the ownership interests of othershareholders of the Company.***

 

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## ***Except for agreements made in the ordinary course ofbusiness, there is no agreement that has not been filed with the Commission asan exhibit to a registration statement or to a form required to be filed by theCompany under the Exchange Act, the breach of which could reasonably beexpected to have a Material Adverse Effect or would prohibit or otherwiseinterfere with the ability of the Company to enter into and perform any of itsobligations under this Agreement the Registration Rights Agreement executed byCompany in favor of Laurus in any material respect.***

## *** ***

## ***Laurus or any of its affiliates and investment partners hasnot, will not and will not cause any person or entity, directly or indirectly,to engage in “short sales” of the Company’s Common Stock or any other hedgingstrategies as long as the Minimum Borrowing Note shall be outstanding.***

## *** ***

# **Covenants**.  Company covenants as follows:

# ** **

## ***Company will not, without the prior written consent ofLaurus, change (i) its name as it appears in the official filings in the stateof its incorporation or formation, (ii) the type of legal entity it is, (iii)its organization identification number, if any, issued by its state ofincorporation, (iv) its state of incorporation or (v) amend its certificate ofincorporation, by-laws or other organizational document.***

## *** ***

## ***The operation of Company’s business is and will continue tobe in compliance in all material respects with all applicable federal, stateand local laws, rules and ordinances, including to all laws, rules, regulationsand orders relating to taxes, payment and withholding of payroll taxes,employer and employee contributions and similar items, securities, employeeretirement and welfare benefits, employee health safety and environmentalmatters.***

## *** ***

## ***Company will pay or discharge when due all taxes,assessments and governmental charges or levies imposed upon Company or any ofthe Collateral unless such amounts are being diligently contested in good faithby appropriate proceedings provided that (i) adequate reserves with respectthereto are maintained on the books of Company in conformity with GAAP and (ii)the related Lien shall have no effect on the priority of the Liens in favor ofLaurus or the value of the assets in which Laurus has a Lien.***

## *** ***

## ***Company will promptly inform Laurus in writing of: (i) thecommencement of all proceedings and investigations by or before and/or thereceipt of any notices from, any governmental or nongovernmental body and allactions and proceedings in any court or before any arbitrator against or in anyway concerning any event which could reasonable be expected to have singly orin the aggregate, a Material Adverse Effect; (ii) any amendment of Company’scertificate of incorporation, by-laws or other organizational document; (iii)any change which has had or could reasonably be expected to have a MaterialAdverse Effect; (iv) any Event of Default or Default; (v) any default or anyevent which with the passage of time or giving of notice or both wouldconstitute a default under any agreement for the payment of money to whichCompany is a party or by which Company or any of Company’s properties may bebound the breach of which would have a Material Adverse Effect and (vi) anychange in Company’s name or any other name used in its business.***

## *** ***

## ***The Company will not (i) create, incur, assume or suffer toexist any indebtedness (exclusive of trade debt) whether secured or unsecuredother than Company’s indebtedness to Laurus and as set forth on Exhibit13(e)(i) attached hereto and made a part hereof; (ii) cancel any debt owingto it in excess of $50,000 in the aggregate during any 12 month period; (iii)assume, guarantee, endorse or otherwise become directly or contingently liablein connection with any obligations of any other Person, except the endorsementof negotiable instruments by a Company for deposit or collection or similartransactions in the ordinary course of business; (iv) directly or indirectlydeclare, pay or make any dividend or distribution on any class of its Stockother than to pay dividends on shares of its outstanding Preferred Stock orapply any of its funds, property or assets to the purchase, redemption or otherretirement of any Stock of the Company except as required under the terms ofthe Company’s outstanding Preferred Stock issued and outstanding on the datehereof; (v) purchase or hold beneficially any Stock or other securities orevidences of indebtedness of, make or permit to exist any loans or advances to,or make any investment or acquire any interest whatsoever in, any other Person,including any partnership or joint venture, except (x) travel advances, (y)loans to Company’s officers and employees not exceeding at any one time anaggregate of $10,000, and (z) existing Subsidiaries of the Company; (vi) createor permit to exist any Subsidiary, other than any Subsidiary in existence onthe date hereof and listed in Exhibit 13(e)(ii) unless***

## *** ***

## ***10Z-***11

## ******

##  

## ***such new Subsidiary is designated by Laurus as either aco-borrower or guarantor hereunder and such Subsidiary shall have entered intoall such documentation required by Laurus to grant to Laurus a first priorityperfected security interest in such Subsidiary’s assets to secure theObligations; (vii) directly or indirectly, prepay any indebtedness (other thanto Laurus and in the ordinary course of business), or repurchase, redeem,retire or otherwise acquire any indebtedness (other than to Laurus and in theordinary course of business) except to make scheduled payments of principal andinterest thereof; (viii) enter into any merger, consolidation or otherreorganization with or into any other Person or acquire all or a portion of theassets or Stock of any Person or permit any other Person to consolidate with ormerge with it, unless (1) Company is the surviving entity of such merger orconsolidation, (2) no Event of Default shall exist immediately prior to andafter giving effect to such merger or consolidation, (3) Company shall haveprovided Laurus copies of all documentation relating to such merger orconsolidation and (4) Company shall have provided Laurus with at least thirty(30) days’ prior written notice of such merger or consolidation; (ix)materially change the nature of the business in which it is presently engaged;(x) change its fiscal year or make any changes in accounting treatment andreporting practices without prior written notice to Laurus except as requiredby GAAP or in the tax reporting treatment or except as required by law; (xi)enter into any transaction with any employee, director or Affiliate, except inthe ordinary course on arms-length terms; or (xii) bill Accounts under any nameexcept the present name of Company or its existing Subsidiaries.***

## *** ***

## ***None of the proceeds of the Loans hereunder will be useddirectly or indirectly to “purchase” or “carry” “margin stock” or to repayindebtedness incurred to “purchase” or “carry” “margin stock” within therespective meanings of each of the quoted terms under Regulation U of the Boardof Governors of the Federal Reserve System as now and from time to timehereafter in effect.***

## *** ***

## ***Company will bear the full risk of loss from any loss of anynature whatsoever with respect to the Collateral.  At Company’s own cost and expense in amounts and with carriersacceptable to Laurus, Company shall (i) keep all its insurable properties andproperties in which it has an interest insured against the hazards of fire,sprinkler leakage, those hazards covered by extended coverage insurance andsuch other hazards, and for such amounts, as is customary in the case ofcompanies engaged in businesses similar to Company’s including businessinterruption insurance; (ii) maintain a bond in such amounts as is customary inthe case of companies engaged in businesses similar to Company’s insuringagainst larceny, embezzlement or other criminal misappropriation of insured’sofficers and employees who may either singly or jointly with others at any timehave access to the assets or funds of Company either directly or throughGovernmental Authority to draw upon such funds or to direct generally thedisposition of such assets; (iii) maintain public and product liabilityinsurance against claims for personal injury, death or property damage sufferedby others; (iv) maintain all such worker’s compensation or similar insurance asmay be required under the laws of any state or jurisdiction in which Company isengaged in business; and (v) furnish Laurus with (x) certificates as to allsuch insurance coverages and evidence of the maintenance of such policies atleast thirty (30) days before any expiration date, (y) endorsements to suchpolicies naming Laurus as “co-insured” or “additional insured” and appropriateloss payable endorsements in form and substance satisfactory to Laurus, namingLaurus as loss payee, and (z) evidence that as to Laurus the insurance coverageshall not be impaired or invalidated by any act or neglect of Company and theinsurer will provide Laurus with at least thirty (30) days notice prior tocancellation or expiration thereof. Company shall instruct the insurance carriers that in the event of anyloss thereunder, the carriers shall make payment for such loss to Laurus andnot to Company and Laurus jointly.  Ifany insurance losses are paid by check, draft or other instrument payable toCompany and Laurus jointly, Laurus may endorse Company’s name thereon and dosuch other things as Laurus may deem advisable to reduce the same to cash.  Laurus is hereby authorized to adjust andcompromise claims.  All loss recoveriesreceived by Laurus upon any such insurance may be applied to the Obligations,in such order as Laurus in its sole discretion shall determine or shall otherwisebe delivered to the Company.  Anysurplus shall be paid by Laurus to Company or applied as may be otherwiserequired by law.  Any deficiency thereonshall be paid by Company to Laurus, on demand.***

 

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## *** Company will at all times have authorized and reserveda sufficient number of shares of Common Stock to provide for the conversion ofthe Notes and exercise of the Warrants.***

## *** ***

# **FurtherAssurances**.  At anytime and from time to time, upon the written request of Laurus and at the soleexpense of Company, Company shall promptly and duly execute and deliver any andall such further instruments and documents and take such further action asLaurus may request (a) to obtain the full benefits of this Agreement and theAncillary Agreements, (b) to protect, preserve and maintain Laurus’ rights inthe Collateral and under this Agreement or any Ancillary Agreement, or (c) toenable Laurus to exercise all or any of the rights and powers herein granted orany Ancillary Agreement.

# ** **

# **Powerof Attorney**.  Companyhereby appoints Laurus, or any other Person whom Laurus may designate as Company’sattorney, with power to:  (i) endorseCompany’s name on any checks, notes, acceptances, money orders, drafts or otherforms of payment or security that may come into Laurus’ possession; (ii) signCompany’s name on any invoice or bill of lading relating to any Accounts,drafts against Account Debtors, schedules and assignments of Accounts, noticesof assignment, financing statements and other public records, verifications ofAccount and notices to or from Account Debtors; (iii) verify the validity,amount or any other matter relating to any Account by mail, telephone,telegraph or otherwise with Account Debtors; (iv) do all things necessary tocarry out this Agreement, any Ancillary Agreement and all related documents;and (v) on or after the occurrence and continuation of an Event of Default,notify the post office authorities to change the address for delivery ofCompany’s mail to an address designated by Laurus, and to receive, open anddispose of all mail addressed to Company. Company hereby ratifies and approves all acts of the attorney.  Neither Laurus, nor the attorney will beliable for any acts or omissions or for any error of judgment or mistake offact or law, except for gross negligence or willful misconduct.  This power, being coupled with an interest,is irrevocable so long as Laurus has a security interest and until theObligations have been fully satisfied.

# ** **

# **Termof Agreement**.  Laurus’agreement to make Loans and extend financial accommodations under and in accordancewith the terms of this Agreement or any Ancillary Agreement shall continue infull force and effect until the expiration of the Initial Term.  At Laurus’ election following the occurrenceof an Event of Default, Laurus may terminate this Agreement.  The termination of the Agreement shall notaffect any of Laurus’ rights hereunder or any Ancillary Agreement and theprovisions hereof and thereof shall continue to be fully operative until alltransactions entered into, rights or interests created and the Obligations havebeen disposed of, concluded or liquidated. Notwithstanding the foregoing, Laurus shall release its security interestsat any time after thirty (30) days notice upon payment to it of all Obligationsif Companies shall have (i) provided Laurus with an executed release of any andall claims which Companies may have or thereafter have under this Agreement andall Ancillary Agreements and (ii) paid to Laurus an early payment fee in anamount equal to (1) four percent (4%) of the Capital Availability Amount ifsuch payment occurs prior to the first anniversary of the commencement of theInitial Term or any applicable renewal term, and (2) three (3%) of the CapitalAvailability Amount if such payment occurs on or after the first anniversaryand prior to the second anniversary of the Initial Term or any applicablerenewal term and two percent (2%) if such termination occurs thereafter priorto the end of the Initial Term; such fee being intended to compensate Laurusfor its costs and expenses incurred in initially approving this Agreement orextending same. Such early payment fee shall be due and payable by Company toLaurus upon termination by acceleration of this Agreement by Laurus due to theoccurrence and continuance of an Event of Default.

# ** **

# **Terminationof Lien**.  The Liensand rights granted to Laurus hereunder and any Ancillary Agreements and the financingstatements filed in connection herewith or therewith shall continue in fullforce and effect, notwithstanding the termination of this Agreement or the factthat Company’s account may from time to time be temporarily in a zero or creditposition, until (a) all of the Obligations of Company have been paid orperformed in full after the termination of this Agreement.  Laurus shall not be required to sendtermination statements to Company, or to file them with any filing office,unless and until this Agreement and the Ancillary Agreements shall have beenterminated in accordance with their terms and all Obligations paid in full inimmediately available funds.

# ** **

# **Eventsof Default**.  Theoccurrence of any of the following shall constitute an Event of Default:

 

10Z-13

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## ***failure to make payment of any of the Obligations whenrequired hereunder;***

## *** ***

## ***failure to pay any taxes when due unless such taxes arebeing contested in good faith by appropriate proceedings and with respect towhich adequate reserves have been provided on Company’s books;***

## *** ***

## ***failure to perform under and/or committing any breach ofthis Agreement or any Ancillary Agreement or any other agreement betweenCompany and Laurus which shall continue for a period of fifteen (15)  days after the occurrence thereof;***

## *** ***

## ***the occurrence of a default under any agreement to whichCompany is a party with third parties which has a Material Adverse Effect;***

## *** ***

## ***any representation, warranty or statement made by Companyhereunder, in any Ancillary Agreement, any certificate, statement or documentdelivered pursuant to the terms hereof, or in connection with the transactionscontemplated by this Agreement should at any time be false or misleading in anymaterial respect;***

## *** ***

## ***Except as list on Schedule 18(f), an attachment or levyis made upon Company’s assets having an aggregate value in excess of $50,000 ora judgment is rendered against Company or Company’s property involving aliability of more than $50,000 which shall not have been vacated, discharged,stayed or bonded pending appeal within thirty (30) days from the entry thereof;***

## *** ***

## ***any change in Company’s condition or affairs (financial orotherwise) which in Laurus’ reasonable, good faith opinion, could reasonably beexpected to have a Material Adverse Effect;***

## *** ***

## ***any Lien created hereunder or under any Ancillary Agreementfor any reason ceases to be or is not a valid and perfected Lien having a firstpriority interest;***

## *** ***

## ***if Company shall (i) apply for, consent to or suffer toexist the appointment of, or the taking of possession by, a receiver,custodian, trustee or liquidator of itself or of all or a substantial part ofits property, (ii) make a general assignment for the benefit of creditors,(iii) commence a voluntary case under the federal bankruptcy laws (as now orhereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file apetition seeking to take advantage of any other law providing for the relief ofdebtors, (vi) acquiesce to, or fail to have dismissed, within thirty (30) days,any petition filed against it in any involuntary case under such bankruptcylaws, or (vii) take any action for the purpose of effecting any of theforegoing;***

## *** ***

## ***Company shall admit in writing its inability, or begenerally unable to pay its debts as they become due or cease operations of itspresent business;***

## *** ***

## ***any Affiliate or Subsidiary of the Company shall (i) applyfor, consent to or suffer to exist the appointment of, or the taking possessionby, a receiver, custodian, trustee or liquidator of itself or of all or asubstantial part of its property, (ii) admit in writing its inability, or begenerally unable, to pay its debts as they become due or cease operations ofits present business, (iii) make a general assignment for the benefit ofcreditors, (iv) commence a voluntary case under the federal bankruptcy laws (asnow or hereafter in effect), (v) be adjudicated a bankrupt or insolvent, (vi)file a petition seeking to take advantage of any other law providing for therelief of debtors, (vii) acquiesce to, or fail to have dismissed, within thirty(30) days, any petition filed against it in any involuntary case under suchbankruptcy laws or (viii) take any action for the purpose of effecting any ofthe foregoing;***

## *** ***

## ***Company directly or indirectly sells, assigns, transfers,conveys, or suffers or permits to occur any sale, assignment, transfer orconveyance of any assets of Company or any interest therein, except aspermitted herein;***

## *** ***

## *** the occurrence of a change in the controllingownership of the Company;***

## *** ***

## ***a default by Company in the payment, when due, of anyprincipal of or interest on any other indebtedness for money borrowed in anamount greater than $25,000, which is not cured within any applicable cure orgrace period;***

## *** ***

## ***the indictment or threatened indictment of Company or anyexecutive officer of Company under any criminal statute, or commencement orthreatened commencement of criminal or civil proceeding against Company or anyexecutive officer of Company pursuant to which statute or proceeding penaltiesor remedies sought or available include forfeiture of any of the property ofCompany;***

## *** ***

## ***if an Event of Default shall occur under and as defined inany Note;***

 

10Z-14

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## ***any Guarantor shall breach any term or provision of anyAncillary Agreement which is not cured within any applicable cure or graceperiod;***

## *** ***

## ***if any Guarantor attempts to terminate, challenges thevalidity of, or its liability under any Guaranty or any Guarantor SecurityAgreement; or***

## *** ***

## ***should any Guarantor default in its obligations under anyGuaranty or any Guarantor Security Agreement or if any proceeding shall bebrought to challenge the validity, binding effect of any Guaranty or anyGuarantor Security Agreement or should any Guarantor breach any representation,warranty or covenant contained in any Guaranty Agreement or any GuarantorSecurity Agreement or should any Guaranty or Guarantor Security Agreement ceaseto be a valid, binding and enforceable obligation.***

## *** ***

# **Remedies**.Following the occurrence of an Event of Default, Laurus shall have the right todemand repayment in full of all Obligations, whether or not otherwise due.  Until all Obligations have been fullysatisfied, Laurus shall retain its Lien in all Collateral.  Laurus shall have, in addition to all otherrights provided herein and in each Ancillary Agreement, the rights and remediesof a secured party under the UCC, and under other applicable law, all otherlegal and equitable rights to which Laurus may be entitled, including the rightto take immediate possession of the Collateral, to require Company to assemblethe Collateral, at Company’s expense, and to make it available to Laurus at aplace designated by Laurus which is reasonably convenient to both parties andto enter any of the premises of Company or wherever the Collateral shall belocated, with or without force or process of law, and to keep and store thesame on said premises until sold (and if said premises be the property ofCompany, Company agrees not to charge Laurus for storage thereof), and theright to apply for the appointment of a receiver for Company’s property.  Further, Laurus may, at any time or timesafter the occurrence of an Event of Default, sell and deliver all Collateralheld by or for Laurus at public or private sale for cash, upon credit orotherwise, at such prices and upon such terms as Laurus, in Laurus’ solediscretion, deems advisable or Laurus may otherwise recover upon the Collateralin any commercially reasonable manner as Laurus, in its sole discretion, deemsadvisable.  The requirement of reasonablenotice shall be met if such notice is mailed postage prepaid to Company atCompany’s address as shown in Laurus’ records, at least ten (10) days beforethe time of the event of which notice is being given.  Laurus may be the purchaser at any sale, if it is public.  In connection with the exercise of theforegoing remedies, Laurus is granted permission to use all of Company’strademarks, trade names, trade styles, patents, patent applications, licenses,franchises and other proprietary rights. The proceeds of sale shall be applied first to all costs and expenses ofsale, including attorneys’ fees, and second to the payment (in whatever orderLaurus elects) of all Obligations. After the indefeasible payment and satisfaction in full in cash of all ofthe Obligations, and after the payment by Laurus of any other amount requiredby any provision of law, including Section 9-608(a)(1) of the UCC (butonly after Laurus has received what Laurus considers reasonable proof of a subordinateparty’s security interest), the surplus, if any, shall be paid to Company orits representatives or to whosoever may be lawfully entitled to receive thesame, or as a court of competent jurisdiction may direct.  Company shall remain liable to Laurus forany deficiency.  In addition, Companyshall pay Laurus a liquidation fee (“Liquidation Fee”) in the amount of fivepercent (5%) of the actual amount collected in respect of each Accountoutstanding at any time during a “liquidation period”.  For purposes hereof, “liquidation period”means a period:  (i) beginning on theearliest date of (x) an event referred to in Section 18(i) or 18(j), or(y) the cessation of Company’s business; and (ii) ending on the date on whichLaurus has actually received all Obligations due and owing it under thisAgreement and the Ancillary Agreements. The Liquidation Fee shall be paid on the date on which Laurus collectsthe applicable Account by deduction from the proceeds thereof..  Company and Laurus acknowledge that theactual damages that would be incurred by Laurus after the occurrence of anEvent of Default would be difficult to quantify and that Company and Laurushave agreed that the fees and obligations set forth in this Section and inthis Agreement would constitute fair and appropriate liquidated damages in theevent of any such termination.

# ** **

# **Waivers**.  To the full extent permitted by applicablelaw, Company waives (a) presentment, demand and protest, and notice ofpresentment, dishonor, intent to accelerate, acceleration, protest, default, nonpayment,maturity, release, compromise, settlement, extension or renewal of any or allof this Agreement and the Ancillary Agreements or any other notes, commercialpaper, Accounts, contracts, Documents, Instruments, Chattel Paper andguaranties at any time held by Laurus on which Company may in any way beliable, and hereby ratifies and confirms whatever Laurus may do in this regard;(b) all rights to notice and a hearing prior to Laurus’ taking possession orcontrol of, or to Laurus’ replevy, attachment or levy upon, any Collateral orany bond or security that might be required by any court prior to allowingLaurus to exercise any of its remedies; and (c) the benefit of all valuation,appraisal and exemption laws.  Companyacknowledges that it has been advised by counsel of its choices and decisionswith respect to this Agreement, the Ancillary Agreements and the transactionsevidenced hereby and thereby.

 

10Z-15

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# **Expenses**.  Company shall pay all of Laurus’ reasonableout-of-pocket costs and expenses, including reasonable fees and disbursementsof in-house or outside counsel and appraisers, in connection with the preparation,execution and delivery of this Agreement and the Ancillary Agreements, and inconnection with the prosecution or defense of any action, contest, dispute,suit or proceeding concerning any matter in any way arising out of, related toor connected with this Agreement or any Ancillary Agreement.  Company shall also pay all of Laurus’ reasonablefees, charges, out-of-pocket costs and expenses, including fees anddisbursements of counsel and appraisers, in connection with (a) thepreparation, execution and delivery of any waiver, any amendment thereto orconsent proposed or executed in connection with the transactions contemplatedby this Agreement or the Ancillary Agreements, (b) Laurus’ obtainingperformance of the Obligations under this Agreement and any AncillaryAgreements, including, but not limited to, the enforcement or defense of Laurus’security interests, assignments of rights and Liens hereunder as valid perfectedsecurity interests, (c) any attempt to inspect, verify, protect, collect, sell,liquidate or otherwise dispose of any Collateral, (d) any appraisals orre-appraisals of any property (real or personal) pledged to Laurus by Companyas Collateral for, or any other Person as security for, Company’s Obligationshereunder and (e) any consultations in connection with any of theforegoing.  Company shall also payLaurus’ customary bank charges for all bank services (including wire transfers)performed or caused to be performed by Laurus for Company at Company’s requestor in connection with Company’s loan account with Laurus.  All such costs and expenses together with allfiling, recording and search fees, taxes and interest payable by Company toLaurus shall be payable on demand and shall be secured by the Collateral.  If any tax by any Governmental Authority isor may be imposed on or as a result of any transaction between Company andLaurus which Laurus is or may be required to withhold or pay, Company agrees toindemnify and hold Laurus harmless in respect of such taxes, and Company willrepay to Laurus the amount of any such taxes which shall be charged toCompany’s account; and until Company shall furnish Laurus with indemnitytherefor (or supply Laurus with evidence satisfactory to it that due provisionfor the payment thereof has been made), Laurus may hold without interest anybalance standing to Company’s credit and Laurus shall retain its Liens in anyand all Collateral.

# ** **

# **AssignmentBy Laurus**.  Laurus mayassign any or all of the Obligations together with any or all of the securitytherefor to any Person which is not a competitor of the Company and any suchtransferee shall succeed to all of Laurus’ rights with respect thereto.  Upon such transfer, Laurus shall be releasedfrom all responsibility for the Collateral to the extent same is assigned toany transferee.  Laurus may from time totime sell or otherwise grant participations in any of the Obligations and theholder of any such participation shall, subject to the terms of any agreementbetween Laurus and such holder, be entitled to the same benefits as Laurus withrespect to any security for the Obligations in which such holder is aparticipant.  Company agrees that eachsuch holder may exercise any and all rights of banker’s lien, set-off andcounterclaim with respect to its participation in the Obligations as fully asthough Company were directly indebted to such holder in the amount of suchparticipation.

# ** **

# **No Waiver; Cumulative Remedies**.  Failure by Laurus to exerciseany right, remedy or option under this Agreement, any Ancillary Agreement orany supplement hereto or thereto or any other agreement between Company and Laurusor delay by Laurus in exercising the same, will not operate as a waiver; nowaiver by Laurus will be effective unless it is in writing and then only to theextent specifically stated.  Laurus’rights and remedies under this Agreement and the Ancillary Agreements will becumulative and not exclusive of any other right or remedy which Laurus mayhave.

# ** **

# **Applicationof Payments**.  Companyirrevocably waives the right to direct the application of any and all paymentsat any time or times hereafter received by Laurus from or on Company’s behalfand Company hereby irrevocably agrees that Laurus shall have the continuingexclusive right to apply and reapply any and all payments received at any timeor times hereafter against the Obligations hereunder in such manner as Laurusmay deem advisable notwithstanding any entry by Laurus upon any of Laurus’books and records.

# ** **

# **Indemnity**.  Company agrees to indemnify and hold Laurus,and its respective affiliates, employees, attorneys and agents (each, an“Indemnified Person”), harmless from and against any and all suits, actions,proceedings, claims, damages, losses, liabilities and expenses of any kind ornature whatsoever (including attorneys’ fees and disbursements and other costsof investigation or defense, including those incurred upon any appeal) whichmay be instituted or asserted against or incurred by any such IndemnifiedPerson as the result of credit having been extended, suspended or terminatedunder this Agreement or any of the Ancillary Agreements or with respect to theexecution, delivery, enforcement, performance and administration of, or in anyother way arising out of or relating to, this Agreement, the AncillaryAgreements or any other documents or transactions contemplated by or referredto herein or therein and any actions or failures to act with respect to any ofthe foregoing, except to the extent that any such indemnified liability isfinally determined by a court of competent jurisdiction to have resulted solelyfrom such Indemnified Person’s gross negligence or willful misconduct. NOINDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO COMPANY OR TO ANY OTHERPARTY OR TO ANY SUCCESSOR, ASSIGNEE

# ** **

10Z-16

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# **OR THIRD PARTY BENEFICIARY OR ANYOTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT,PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULTOF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT ORANY ANCILLARY AGREEMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATEDHEREUNDER OR THEREUNDER.**

# ** **

# **Revival**.  Company further agrees that to the extentCompany makes a payment or payments to Laurus, which payment or payments or anypart thereof are subsequently invalidated, declared to be fraudulent orpreferential, set aside and/or required to be repaid to a trustee, receiver orany other party under any bankruptcy act, state or federal law, common law orequitable cause, then, to the extent of such payment or repayment, theobligation or part thereof intended to be satisfied shall be revived andcontinued in full force and effect as if said payment had not been made.

# ** **

# **Notices**.  Any notice or request hereunder may be givento Company or Laurus at the respective addresses set forth below or as mayhereafter be specified in a notice designated as a change of address under thisSection.  Any notice or requesthereunder shall be given by registered or certified mail, return receiptrequested, hand delivery, overnight mail or telecopy (confirmed by mail).  Notices and requests shall be, in the caseof those by hand delivery, deemed to have been given when delivered to anyofficer of the party to whom it is addressed, in the case of those by mail orovernight mail, deemed to have been given three (3) business days after thedate when deposited in the mail or with the overnight mail carrier, and, in thecase of a telecopy, when confirmed.

# ** **

Notices shall be provided as follows:

 
| If to Laurus:   |   | Laurus Master Fund, Ltd.  c/o Laurus Capital Management, LLC  825 Third Avenue 14th Fl.  New York, New York 10022  Attention:  John E. Tucker, Esq.  Telephone:  (212) 541-4434  Telecopier:  (212) 541-5800 |
|-----------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |   |                                                                                                                                                                                                                        |
| If to Company:  |   | Micro Component Technology, Inc.  2340 West County Road C,  St. Paul, Minnesota 55113-2528  Attention: Chief Financial Officer  Telephone:  (651) 697-4000  Telecopier:  (651) 697-4200                           |
|            |   |                                                                                                                                                                                                                        |
| With a copy to: |   | Best & Flanagan, LLP  225 South Sixth St., Suite 4000,  Minneapolis, Minnesota 55402  Attention: James C. Diracles, Esq.  Telephone: (612) 339-7121  Facsimile: (612) 339-5897                                          |

 

or such other address as may be designated in writing hereafter inaccordance with this Section 27 by such Person.

 

# **Governing Law, Jurisdiction andWaiver of Jury Trial**.  (a) THISAGREEMENT AND THE ANCILLARY AGREEMENTS SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCEDIN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTSMADE AND PERFORMED IN SUCH STATE.

 

10Z-17

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## ***(b)  COMPANY HEREBYCONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OFNEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR ANDDETERMINE ANY CLAIMS OR DISPUTES BETWEEN COMPANY AND LAURUS PERTAINING TO THISAGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT OF ORRELATED TO THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS; PROVIDED,THAT LAURUS AND COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVETO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEWYORK; AND FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BEDEEMED OR OPERATE TO PRECLUDE LAURUS FROM BRINGING SUIT OR TAKING OTHER LEGALACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THECOLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENTOR OTHER COURT ORDER IN FAVOR OF LAURUS. COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTIONIN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND COMPANY HEREBY WAIVESANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,IMPROPER VENUE OR FORUM NON CONVENIENS. 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 OR CERTIFIEDMAIL ADDRESSED TO COMPANY AT THE ADDRESS SET FORTH IN SECTION 27 AND THATSERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF COMPANY’S ACTUALRECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPERPOSTAGE PREPAID.***

## *** ***

## ***THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY AJUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THEJUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS TOTRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANYDISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN LAURUS ANDCOMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIPESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY ANCILLARYAGREEMENT OR THE TRANSACTIONS RELATED THERETO.***

 

# **Limitationof Liability**.  Companyacknowledges and understands that in order to assure repayment of the Obligationshereunder Laurus may be required to exercise any and all of Laurus’ rights andremedies hereunder and agrees that, except as limited by applicable law,neither Laurus nor any of Laurus’ agents shall be liable for acts taken oromissions made in connection herewith or therewith except for actual bad faith.

# ** **

# **EntireUnderstanding**.  ThisAgreement and the Ancillary Agreements contain the entire understanding betweenCompany and Laurus as to the subject matter hereof and thereof and anypromises, representations, warranties or guarantees not herein contained shallhave no force and effect unless in writing, signed by Company’s and Laurus’respective officers.  Neither thisAgreement, the Ancillary Agreements, nor any portion or provisions thereof maybe changed, modified, amended, waived, supplemented, discharged, cancelled orterminated orally or by any course of dealing, or in any manner other than byan agreement in writing, signed by the party to be charged.

# ** **

# **Severability**.  Wherever possible each provision of thisAgreement or the Ancillary Agreements shall be interpreted in such manner as tobe effective and valid under applicable law, but if any provision of thisAgreement or the Ancillary Agreements shall be prohibited by or invalid underapplicable law such provision shall be ineffective to the extent of suchprohibition or invalidity, without invalidating the remainder of such provisionor the remaining provisions thereof.

# ** **

# **Captions**.  All captions are and shall be withoutsubstantive meaning or content of any kind whatsoever.

# ** **

# **Counterparts**; Telecopier Signatures.  ThisAgreement may be executed in one or more counterparts, each of which shallconstitute an original and all of which taken together shall constitute one andthe same agreement.  Any signaturedelivered by a party via telecopier transmission shall be deemed to be anyoriginal signature hereto.

 

10Z-18

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# **Construction**.  The parties acknowledge that each party andits counsel have reviewed this Agreement and that the normal rule ofconstruction to the effect that any ambiguities are to be resolved against thedrafting party shall not be employed in the interpretation of this Agreement orany amendments, schedules or exhibits thereto.

# ** **

# **Publicity**.  Company hereby authorizes Laurus to makeappropriate announcements of the financial arrangement entered into by andbetween Company and Laurus, including, without limitation, announcements whichare commonly known as tombstones, in such publications and to such selectedparties as Laurus shall in its sole and absolute discretion deem appropriate,or as required by applicable law.

# ** **

# **Legends**.  TheSecurities shall bear legends as follows;

# ** **

# **(a)**                                           The Note shall bear substantially the followinglegend:

# ** **

“THIS NOTE AND THE COMMON STOCK ISSUABLE UPONCONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF1933, AS AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS.  THIS NOTE AND THE COMMON STOCK ISSUABLE UPONCONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED ORHYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THISNOTE OR SUCH SHARES UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR ANOPINION OF COUNSEL REASONABLY SATISFACTORY TO NEWCO THAT SUCH REGISTRATION ISNOT REQUIRED.”

 

(b)           Anyshares of Common Stock issued pursuant to conversion of the Note or exercise ofthe Warrants, shall bear a legend which shall be in substantially the followingform until such shares are covered by an effective registration statement filedwith the SEC:

 

“THE SHARES REPRESENTED BY THIS CERTIFICATEHAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANYAPPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FORSALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATIONSTATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OFCOUNSEL REASONABLY SATISFACTORY TO NEWCO THAT SUCH REGISTRATION IS NOTREQUIRED.”

 

(c)           TheWarrants shall bear substantially the following legend:”THIS WARRANT AND THECOMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTEREDUNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATESECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OFTHIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THEABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THEUNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATESECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO NEWCO THATSUCH REGISTRATION IS NOT REQUIRED.”

 

[Balance of page intentionally left blank;signature page follows.]

 

10Z-19

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IN WITNESS WHEREOF, the parties have executed this Security Agreementas of the date first written above.

 
|   | MICRO COMPONENT TECHNOLOGY, INC. |
|--------|----------------------------------|
|   |                             |
|   |                             |
|   | By:                              |   /s/Thomas P. Maun |   |
|   | Name:                            |   |   |
|   | Title:                           | CFO |   |
|   |                             |
|   |                             |
|   | LAURUS MASTER FUND, LTD.         |
|   |                             |
|   |                             |
|   | By:                              | /s/ EugeneGrin |   |
|   | Name:                            |   |   |
|   | Title:                           |   Director |   |
|        |                                  |  |  |  |  |  |

 

10Z-20

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Annex A - Definitions

 

“Account Debtor” means any Person who is or may be obligatedwith respect to, or on account of, an Account.

 

“Accountants” has the meaning given to such term inSection 11(a).

 

“Accounts” means all “accounts”, as such term is defined in theUCC, now owned or hereafter acquired by any Person, including:  (a) all accounts receivable, otherreceivables, book debts and other forms of obligations (other than forms ofobligations evidenced by Chattel Paper or Instruments) (including any suchobligations that may be characterized as an account or contract right under theUCC); (b) [all of such Person’s rights in, to and under all purchase orders orreceipts for goods or services;] (c) all of such Person’s rights to any goodsrepresented by any of the foregoing (including unpaid sellers’ rights ofrescission, replevin, reclamation and stoppage in transit and rights toreturned, reclaimed or repossessed goods); (d) all rights to payment due tosuch Person for Goods or other property sold, leased, licensed, assigned orotherwise disposed of, for a policy of insurance issued or to be issued, for asecondary obligation incurred or to be incurred, for energy provided or to beprovided, for the use or hire of a vessel under a charter or other contract,arising out of the use of a credit card or charge card, or for services renderedor to be rendered by such Person or in connection with any other transaction(whether or not yet earned by performance on the part of such Person); and (e)all collateral security of any kind given by any Account Debtor or any otherPerson with respect to any of the foregoing.

 

“Accounts Availability” means the amount of Loans which Laurusmay from time to time make available to the Company which may not be greaterthan the sum of (i) ninety percent (90%) of the net face amount of EligibleAccounts; plus (ii) fifty percent (50%) of the Eligible Inventory not to exceedfifty percent (50%) of the Eligible Accounts; plus (iii) thirty percent (30%)of the Eligible Purchase Orders not to exceed the lesser of (A) fifty percent(50%) of Eligible Inventory or (B) 1,000,000.00, minus amounts currentlyborrowed under subsection (ii) above.

 

“Affiliate” of any Person means (a) any Person (other than aSubsidiary) which, directly or indirectly, is in control of, is controlled by,or is under common control with such Person, (b) any Person who is a director or officer (i) of such Person, (ii) ofany Subsidiary of such Person or (iii) of any Person described in clause (a)above. For the purposes of this definition, control of a Person shall mean thepower (direct or indirect) to direct or cause the direction of the managementand policies of such Person whether by contract or otherwise.

 

“Ancillary Agreements” means, the Notes, Warrants, RegistrationRights Agreements, each Guaranty, each Guaranty Security Agreement and allother agreements, instruments, documents, mortgages, pledges, powers ofattorney, consents, assignments, contracts, notices, security agreements, trustagreements and guarantees whether heretofore, concurrently, or hereafterexecuted by or on behalf of Company or any other Person or delivered to Laurus,relating to this Agreement or to the transactions contemplated by thisAgreement or otherwise relating to the relationship between the Company andLaurus.

 

10Z-21

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“Books and Records” means all books, records, board minutes,contracts, licenses, insurance policies, environmental audits, business plans,files, computer files, computer discs and other data and software storage andmedia devices, accounting books and records, financial statements (actual andpro forma), filings with Governmental Authorities and any and all records andinstruments relating to the Collateral or otherwise necessary or helpful in thecollection thereof or the realization thereupon.

 

“Business Day” means a day on which Laurus is open for businessand that is not a Saturday, a Sunday or other day on which banks are requiredor permitted to be closed in the State of New York.

 

“Capital Availability Amount” means $3,000,000.00.

 

“Chattel Paper” means all “chattel paper,” as such term isdefined in the UCC, including electronic chattel paper, now owned or hereafteracquired by any Person.

 

“Closing Date” means the date on which Company shall firstreceive proceeds of the initial Loans.

 

“Collateral” means all of Company’s property and assets, whetherreal or personal, tangible or intangible, and whether now owned or hereafter acquired,or in which it now has or at any time in the future may acquire any right,title or interests including all of the following property in which it now hasor at any time in the future may acquire any right, title or interest:

 

## ***all Inventory;***

## *** ***

## ***all Equipment;***

## *** ***

## ***all Fixtures;***

## *** ***

## ***all General Intangibles;***

## *** ***

## ***all Accounts;***

## *** ***

## ***all Deposit Accounts, other bank accounts and all funds ondeposit therein;***

## *** ***

## ***all Investment Property;***

## *** ***

## ***all Stock;***

## *** ***

## ***all Chattel Paper;***

## *** ***

## ***all Letter-of-Credit Rights;***

## *** ***

## ***all Instruments;***

## *** ***

## ***all commercial tort claims set forth on Exhibit 1(A);***

## *** ***

## ***all Books and Records;***

## *** ***

## ***all Supporting Obligations including letters of credit andguarantees issued in support of Accounts, Chattel Paper, General Intangiblesand Investment Property;***

## *** ***

## ***(i) all money, cash and cash equivalents and (ii) all cashheld as cash collateral to the extent not otherwise constituting Collateral,all other cash or property at any time on deposit with or held by Laurus forthe account of Company (whether for safekeeping, custody, pledge, transmissionor otherwise); and***

## *** ***

## ***all products and Proceeds of all or any of the foregoing,tort claims and all claims and other rights to payment including insuranceclaims against third parties for loss of, damage to, or destruction of, and(ii) payments due or to become due under leases, rentals and hires of any orall of the foregoing and Proceeds payable under, or unearned premiums withrespect to policies of insurance in whatever form.***

 

10Z-22

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 “Contract Rate”“Contract Rate” means an interest rate per annum equal to the Prime Rate plusone and three-quarters percent (1.75%) per annum, but subject to the immediatelyfollowing sentence, the Contract Rate shall not be less than five andthree-quarters percent (5.75%). Commencing six months after the Closing Date, the Contract Rate shall besubject to adjustment if (i) the Company shall have registered the shares ofthe Company’s common stock underlying the conversion of all the MinimumBorrowing Notes issued by the Company to Laurus and that certain warrant issuedto Laurus on a registration statement declared effective by the SEC, and (ii)the volume weighted average price of the Common Stock as reported by Bloomberg,L.P. on the principal market for the Common Stock for any of the seven (7)trading days immediately preceding an interest payment date exceeds the then applicableFixed Conversion Price in such percentages as outlined in the table below, theContract Rate for the succeeding calendar month shall automatically beadjusted:

 
|                               |   | **Contract Rate**      |
|------------------------------------|--------|------------------------|
| 130% of the Fixed Conversion Price |   | Prime Rate             |
| 150% of the Fixed Conversion Price |   | Prime Rate minus 0.75% |
| 175% of the Fixed Conversion Price |   | Prime Rate minus 2.00% |

 

In addition, the Contract Rate shall be adjusted from time to time, asprovided for in the Minimum Borrowing Note.

 

“Default” means any act or event which, with the giving ofnotice or passage of time or both, would constitute an Event of Default.

 

“Default Rate” has the meaning given to such term inSection 5(a)(iii).

 

“Deposit Accounts” means all “deposit accounts” as such term isdefined in the UCC, now or hereafter held in the name of any Person, including,without limitation, the Lockbox Account.

 

“Documents” means all “documents”, as such term is defined inthe UCC, now owned or hereafter acquired by any Person, wherever located, includingall bills of lading, dock warrants, dock receipts, warehouse receipts, andother documents of title, whether negotiable or non-negotiable.

 

 “Eligible Accounts”means and includes each Account which conforms to the following criteria:  (a) shipment of the merchandise or therendition of services has been completed; (b) no return, rejection orrepossession of the merchandise has occurred; (c) merchandise or services shallnot have been rejected or disputed by the Account Debtor and there shall nothave been asserted any offset, defense or counterclaim; (d) continues to be infull conformity with the representations and warranties made by Company to Lauruswith respect thereto; (e) Laurus is, and continues to be, satisfied with thecredit standing of the Account Debtor in relation to the amount of creditextended; (f) there are no facts existing or threatened which are likely toresult in any adverse change in an Account Debtor’s financial condition; (g) isdocumented by an invoice in a form approved by Laurus and shall not be unpaidmore than ninety (90) days from invoice date; (h) not more than twenty-fivepercent (25%) of the unpaid amount of invoices due from such Account Debtorremains unpaid more than ninety (90) days from invoice date, provided, however,that any Account considered current under the Company’s Foreign Credit InsuranceAssociation/Great American Insurance Company policy (net of any applicabledeductibles) shall be considered an Eligible Account; (i) is not evidenced bychattel paper or an instrument of any kind with respect to or in payment of theAccount unless such instrument is duly endorsed to and in possession of Laurusor represents a check in payment of a Account; (j) the Account

 

10Z-23

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Debtor is located in the United States; provided, however,Laurus may, from time to time, in the exercise of its sole discretion and basedupon satisfaction of certain conditions to be determined at such time byLaurus, deem certain Accounts as Eligible Accounts notwithstanding that suchAccount is due from an Account Debtor located outside of the United States; provided,further, that any Account considered current under the Company’s ForeignCredit Insurance Association/Great American Insurance Company policy (net ofany applicable deductibles) shall be considered an Eligible Account; (k) Laurushas a first priority perfected Lien (except foreign Accounts) in such Accountand such Account is not subject to any Lien other than Permitted Liens; (l)does not arise out of transactions with any employee, officer, director,stockholder or Affiliate of Company; (m) is payable to Company; (n) does notarise out of a bill and hold sale prior to shipment and does not arise out of asale to any Person to which Company is indebted; (o) is net of any returns,discounts, claims, credits and allowances; (p) if the Account arises out of contractsbetween Company and the United States, any state, or any department, agency orinstrumentality of any of them, Company has so notified Laurus, in writing,prior to the creation of such Account, and there has been compliance with anygovernmental notice or approval requirements, including compliance with theFederal Assignment of Claims Act; (q) is a good and valid account representingan undisputed bona fide indebtedness incurred by the Account Debtor thereinnamed, for a fixed sum as set forth in the invoice relating thereto withrespect to an unconditional sale and delivery upon the stated terms of goodssold by Company or work, labor and/or services rendered by Company; (r) doesnot arise out of progress billings prior to completion of the order; (s) thetotal unpaid Accounts from such Account Debtor does not exceed twenty-fivepercent (25%) of all Eligible Accounts; (t) Company’s right to payment isabsolute and not contingent upon the fulfillment of any condition whatsoeverwith the exception of applicable acceptance provisions for which such amountswill be deemed ineligible; (u) Company is able to bring suit and enforce itsremedies against the Account Debtor through judicial process, provided, however,that any Account considered current under the Company’s Foreign CreditInsurance Association/Great American Insurance Company policy (net of anyapplicable deductibles) shall be considered an Eligible Account; (v) does notrepresent interest payments, late or finance charges owing to Company and (w)is otherwise satisfactory to Laurus as determined by Laurus in the exercise ofits sole discretion.  In the eventCompany requests that Laurus include within Eligible Accounts certain Accountsof one or more of Company’s acquisition targets, Laurus shall at the time ofsuch request consider such inclusion, but any such inclusion shall be at thesole option of Laurus and shall at all times be subject to the execution anddelivery to Laurus of all such documentation (including, without limitation,guaranty and security documentation) as Laurus may require in its solediscretion.

 

“Eligible Inventory” means the gross amount of Inventory related to theCompany’s Strip product family (as described in more detail in Schedule Ahereto), excluding the Inventory related to the Polaris productfamily(as described in more detail in Schedule B hereto).  In no event shall the aggregate value ofinventory located outside of the United States and included as “EligibleInventory” exceed $2,500,000.00 at any time. In the event Company requests that Laurus include within EligibleInventory certain Inventory of one or more of Company’s acquisition targets,Laurus shall at the time of such request consider such inclusion, but any suchinclusion shall be at the sole option of Laurus and shall at all times besubject to the execution and delivery to Laurus of all such documentation(including, without limitation, guaranty and security documentation) as Laurusmay require in its sole discretion.

 

10Z-24

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“Eligible Purchase Orders” means and includes each Purchase Order whichconforms to the following criteria:  (a)the purchase orders related to the Company’s Strip product family, excludingthe Inventory related to the Polaris product family, and (b) is otherwise satisfactoryto Laurus as determined by Laurus in the exercise of its sole discretion.  In the event Company requests that Laurusinclude within Eligible Purchase Orders certain Purchase Orders of one or moreof Company’s acquisition targets, Laurus shall at the time of such request considersuch inclusion, but any such inclusion shall be at the sole option of Laurusand shall at all times be subject to the execution and delivery to Laurus ofall such documentation (including, without limitation, guaranty and securitydocumentation) as Laurus may require in its sole discretion.

 

“Equipment” means all “equipment” as such term is defined in theUCC, now owned or hereafter acquired by any Person, wherever located, includingany and all machinery, apparatus, equipment, fittings, furniture, fixtures,motor vehicles and other tangible personal property (other than Inventory) ofevery kind and description that may be now or hereafter used in such Person’soperations or that are owned by such Person or in which such Person may have aninterest, and all parts, accessories and accessions thereto and substitutionsand replacements therefor.

 

“ERISA” shall have the meaning given to such term inSection 12(g).

 

“Event of Default” means the occurrence of any of the events setforth in Section 18.

 

“Fixed Conversion Price” has the meaning given such term in theMinimum Borrowing Note.

 

“Fixtures” means all “fixtures” as such term is defined in theUCC, now owned or hereafter acquired by any Person.

 

“Formula Amount” has the meaning set forth inSection 2(a)(i).

 

“GAAP” means generally accepted accounting principles, practicesand procedures in effect from time to time in the United States of America.

 

“General Intangibles” means all “general intangibles” as suchterm is defined in the UCC, now owned or hereafter acquired by any Personincluding all right, title and interest that such Person may now or hereafterhave in or under any contract, all Payment Intangibles, customer lists,Licenses, Intellectual Property, interests in partnerships, joint ventures andother business associations, permits, proprietary or confidential information,inventions (whether or not patented or patentable), technical information,procedures, designs, knowledge, know-how, Software, data bases, data, skill,expertise, experience, processes, models, drawings, materials, Books andRecords, Goodwill (including the Goodwill associated with any Intellectual Property),all rights and claims in or under insurance policies (including insurance forfire, damage, loss, and casualty, whether covering personal property, realproperty, tangible rights or intangible rights, all liability, life,key-person, and business interruption insurance, and all unearned premiums),uncertificated securities, choses in action, deposit accounts, rights toreceive tax refunds and other payments, rights to received dividends,distributions, cash, Instruments and other property

 

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in respect of or in exchange for pledged Stock and Investment Property,and rights of indemnification.

 

“Goods” means all “goods”, as such term is defined in the UCC,now owned or hereafter acquired by any Person, wherever located, including embeddedsoftware to the extent included in “goods” as defined in the UCC, manufacturedhomes, standing timber that is cut and removed for sale and unborn young ofanimals.

 

“Goodwill” means all goodwill, trade secrets, proprietary orconfidential information, technical information, procedures, formulae, qualitycontrol standards, designs, operating and training manuals, customer lists, anddistribution agreements now owned or hereafter acquired by any Person.

 

 “Guarantor” means andany Person who may guarantee payment of performance of the whole or any part ofthe Obligations.

 

“Guarantor Security Agreements” means all security agreements,mortgages, cash collateral deposit letters, pledges and other agreements whichare executed by any Guarantor in favor of Laurus.

 

“Guaranty” means all agreements to perform all or any portion ofthe Obligations on behalf of Company.

 

“Governmental Authority” means any nation or government, anystate or other political subdivision thereof, and any agency, department orother entity exercising executive, legislative, judicial, regulatory oradministrative functions of or pertaining to government.

 

“Indemnified Person” shall have the meaning given to such termin Section 25.

 

“Initial Term” means the Closing Date through the close ofbusiness on the day immediately preceding the third anniversary of the ClosingDate, subject to acceleration at the option of Laurus upon the occurrence of anEvent of Default hereunder or other termination hereunder.

 

“Instruments” means all “instruments”, as such term is definedin the UCC, now owned or hereafter acquired by any Person, wherever located, includingall certificated securities and all promissory notes and other evidences ofindebtedness, other than instruments that constitute, or are a part of a groupof writings that constitute, Chattel Paper.

 

“Intellectual Property” means any and all Licenses, patents,patent registrations, copyrights, copyright registrations, trademarks,trademark registrations, trade secrets and customer lists.

 

“Inventory” means all “inventory”, as such term is defined inthe UCC, now owned or hereafter acquired by any Person, wherever located,including all inventory, merchandise, goods and other personal property thatare held by or on behalf of such Person for sale or lease or are furnished orare to be furnished under a contract of service or that constitute raw materials,work in process, finished goods, returned goods, or materials or supplies ofany kind, nature

 

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or description used or consumed or to be used or consumed in suchPerson’s business or in the processing, production, packaging, promotion,delivery or shipping of the same, including all supplies and embedded software.

 

“Investment Property” means all “investment property”, as suchterm is defined in the UCC, now owned or hereafter acquired by any Person,wherever located.

 

“Letter-of-Credit Rights” means “letter-of-credit rights” assuch term is defined in the UCC, now owned or hereafter acquired by any Person,including rights to payment or performance under a letter of credit, whether ornot such Person, as beneficiary, has demanded or is entitled to demand paymentor performance.

 

“License” means any rights under any written agreement now orhereafter acquired by any Person to use any trademark, trademark registration,copyright, copyright registration or invention for which a patent is inexistence or other license of rights or interests now held or hereafteracquired by any Person.

 

“Lien” means any mortgage, security deed, deed of trust, pledge,hypothecation, assignment, security interest, lien (whether statutory orotherwise), charge, claim or encumbrance, or preference, priority or othersecurity agreement or preferential arrangement held or asserted in respect ofany asset of any kind or nature whatsoever including any conditional sale orother title retention agreement, any lease having substantially the sameeconomic effect as any of the foregoing, and the filing of, or agreement togive, any financing statement under the UCC or comparable law of anyjurisdiction.

 

“Loans” shall have the meaning set forth in Section 2(a)(i)and shall include all other extensions of credit hereunder and under anyAncillary Agreement.

 

“Material Adverse Effect” means a material adverse effect on (a)the condition, operations, assets, business or prospects of Company, (b) Company’sability to pay or perform the Obligations in accordance with the terms hereofor any Ancillary Agreement, (c) the value of the Collateral, the Liens on theCollateral or the priority of any such Lien or (d) the practical realization ofthe benefits of Laurus’ rights and remedies under this Agreement and theAncillary Agreements.

 

“Maximum Legal Rate” shall have the meaning given to such termin Section 5(a)(iv).

 

 “Minimum Borrowing Amount”means $750,000, which such aggregate amount shall be evidenced by MinimumBorrowing Notes.

 

“Minimum Borrowing Notes” shall mean each Secured ConvertibleNote, which shall be issued in a series, made by the Company in favor of Laurusto evidence the Minimum Borrowing Amount.

 

“Notes” means each of the Minimum Borrowing Notes and theRevolving Note made by Company in favor of Laurus in connection with the transactionscontemplated hereby, as the same may be amended, modified and supplemented fromtime to time, as applicable.

 

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“Obligations” means all Loans, all advances, debts, liabilities,obligations, covenants and duties owing by Company to Laurus (or anycorporation that directly or indirectly controls or is controlled by or isunder common control with Laurus) of every kind and description (whether or notevidenced by any note or other instrument and whether or not for the payment ofmoney or the performance or non-performance of any act), direct or indirect,absolute or contingent, due or to become due, contractual or tortious,liquidated or unliquidated, whether existing by operation of law or otherwisenow existing or hereafter arising including any debt, liability or obligationowing from Company to others which Laurus may have obtained by assignment orotherwise and further including all interest (including interest accruing atthe then applicable rate provided in this Agreement after the maturity of theLoans and interest accruing at the then applicable rate provided in thisAgreement after the filing of any petition in bankruptcy, or the commencementof any insolvency, reorganization or like proceeding, whether or not a claimfor post-filing or post-petition interest is allowed in such proceeding),charges or any other payments Company is required to make by law or otherwisearising under or as a result of this Agreement and the Ancillary Agreements,together with all reasonable expenses and reasonable attorneys’ fees chargeableto Company’s account or incurred by Laurus in connection with Company’s accountwhether provided for herein or in any Ancillary Agreement.

 

“Payment Intangibles” means all “payment intangibles” as suchterm is defined in the UCC, now owned or hereafter acquired by any Person,including, a General Intangible under which the Account Debtor’s principalobligation is a monetary obligation.

 

“Permitted Liens” means (a) Liens of carriers, warehousemen,artisans, bailees, mechanics and materialmen incurred in the ordinary course ofbusiness securing sums not overdue; (b) Liens incurred in the ordinary courseof business in connection with workmen’s compensation, unemployment insuranceor other forms of governmental insurance or benefits, relating to employees,securing sums (i) not overdue or (ii) being diligently contested in good faithprovided that adequate reserves with respect thereto are maintained on thebooks of the applicable Company in conformity with GAAP; (c) Liens in favor ofLaurus; (d) Liens for taxes (i) not yet due or (ii) being diligently contestedin good faith by appropriate proceedings, provided that adequate reserves withrespect thereto are maintained on the books of the applicable Company inconformity with GAAP provided, that, the Lien shall have no effect on thepriority of Liens in favor of Laurus or the value of the assets in which Laurushas a Lien; (e) Purchase Money Liens securing Purchase Money Indebtedness tothe extent permitted in this Agreement and (f) Liens specified on Exhibit 2hereto.

 

 “Person” means anyindividual, sole proprietorship, partnership, limited liability partnership,joint venture, trust, unincorporated organization, association, corporation,limited liability company, institution, public benefit corporation, entity orgovernment (whether federal, state, county, city, municipal or otherwise,including any instrumentality, division, agency, body or department thereof),and shall include such Person’s successors and assigns.

 

“Prime Rate” means the “prime rate” published in The WallStreet Journal from time to time. The Prime Rate shall be increased or decreased as the case may be foreach increase or decrease in the Prime Rate in an amount equal to such increaseor decrease in the Prime Rate; each change to be effective as of the day of thechange in such rate.

 

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“Proceeds” means “proceeds”, as such term is defined in the UCCand, in any event, shall include:  (a)any and all proceeds of any insurance, indemnity, warranty or guaranty payableto Company or any other Person from time to time with respect to anyCollateral; (b) any and all payments (in any form whatsoever) made or due andpayable to Company from time to time in connection with any requisition,confiscation, condemnation, seizure or forfeiture of any Collateral by anygovernmental body, governmental authority, bureau or agency (or any personacting under color of governmental authority); (c) any claim of Company againstthird parties (i) for past, present or future infringement of any IntellectualProperty or (ii) for past, present or future infringement or dilution of anytrademark or trademark license or for injury to the goodwill associated withany trademark, trademark registration or trademark licensed under any trademarkLicense; (d) any recoveries by Company against third parties with respect toany litigation or dispute concerning any Collateral, including claims arisingout of the loss or nonconformity of, interference with the use of, defects in,or infringement of rights in, or damage to, Collateral; (e) all amountscollected on, or distributed on account of, other Collateral, includingdividends, interest, distributions and Instruments with respect to InvestmentProperty and pledged Stock; and (f) any and all other amounts , rights topayment or other property acquired upon the sale, lease, license, exchange orother disposition of Collateral and all rights arising out of Collateral.

 

“Purchase Money Indebtedness” means (a) any indebtednessincurred for the payment of all or any part of the purchase price of any fixedasset, including indebtedness under capitalized leases, (b) any indebtednessincurred for the sole purpose of financing or refinancing all or any part ofthe purchase price of any fixed asset, and (c) any renewals, extensions or refinancingsthereof (but not any increases in the principal amounts thereof outstanding atthat time).

 

“Purchase Money Lien” means any Lien upon any fixed assets thatsecures the Purchase Money Indebtedness related thereto but only if such Lienshall at all times be confined solely to the asset the purchase price of whichwas financed or refinanced through the incurrence of the Purchase MoneyIndebtedness secured by such Lien and only if such Lien secures only such PurchaseMoney Indebtedness.

 

“Purchase Order” means a written authorization from customersused to request the Company to supply goods and services in return for aspecified payment and providing specifications and quantities, and whichbecomes a legally binding contract once the Company accepts it.

 

“Registration Rights Agreements” means those registration rightsagreements from time to time entered into between Company and Laurus, asamended, modified and supplemented from time to time.

 

“Registrable Securities” shall have the meaning set forth in theRegistration Rights Agreement.

 

“Revolving Note” means that secured revolving note made by theCompany in favor of Laurus in the aggregate principal amount of One Million TwoHundred Fifty Thousand ($1,250,000).

 

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“Securities” means the Notes and the Warrants being issued bythe Company to Laurus pursuant to this Agreement and the Ancillary Agreementsand the shares of the common stock of the Company which may be issued pursuantto conversion of such Notes in whole or in part or exercise of such Warrants.

 

“Software” means all “software” as such term is defined in theUCC, now owned or hereafter acquired by any Person, including all computerprograms and all supporting information provided in connection with atransaction related to any program.

 

“Stock” means all certificated and uncertificated shares,options, warrants, membership interests, general or limited partnershipinterests, participation or other equivalents (regardless of how designated) ofor in a corporation, partnership, limited liability company or equivalententity whether voting or nonvoting, including common stock, preferred stock, orany other “equity security” (as such term is defined in Rule 3a11-1 of theGeneral Rules and Regulations promulgated by the SEC under the SecuritiesExchange Act of 1934).

 

“Subsidiary” of any Person means a corporation or other entitywhose shares of stock or other ownership interests having ordinary voting power(other than stock or other ownership interests having such power only by reasonof the happening of a contingency) to elect a majority of the directors of suchcorporation, or other Persons performing similar functions for such entity, areowned, directly or indirectly, by such Person.

 

“Supporting Obligations” means all “supporting obligations” assuch term is defined in the UCC.

 

“Term” means, as applicable, the Initial Term and any RenewalTerm.

 

“UCC” means the Uniform Commercial Code as the same may, fromtime be in effect in the State of New York; provided, that in the event that,by reason of mandatory provisions of law, any or all of the attachment,perfection or priority of, or remedies with respect to, Laurus’ Lien on anyCollateral is governed by the Uniform Commercial Code as in effect in ajurisdiction other than the State of New York, the term “UCC” shall mean theUniform Commercial Code as in effect in such other jurisdiction for purposes ofthe provisions of this Agreement relating to such attachment, perfection,priority or remedies and for purposes of definitions related to suchprovisions; provided further, that to the extent that UCC is used to define anyterm herein or in any Ancillary Agreement and such term is defined differentlyin different Articles or Divisions of the UCC, the definition of such termcontained in Article or Division 9 shall govern.

 

“Warrants” has the meaning set forth in the Registration RightsAgreements.

 

EXHIBITS

 

Exhibit 1(A) – Commercial Tort Claims

Exhibit 2 - Permitted Liens

Exhibit 7(c) - Actions for Perfection

Exhibit 7(p) - Bank Accounts

Exhibit 12(d) - Corporate Information and Locations of Collateral

Exhibit 12(e) - ERISA

 

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Exhibit 12(i) - Licenses, Patents, Trademarks and Copyrights

Exhibit 12(j) – Certain SEC matters

Exhibit 13(e)(i) - Permitted Indebtedness

Exhibit 13(e)(ii) - Existing Subsidiaries

Exhibit A - Form of Borrowing Base Certificate

Schedule A – Description of Strip Product Family

Schedule B – Description of Polaris Product Family

 

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Exhibit 1(A)

 

Commercial Tort Claims

 

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Exhibit 2

 

Permitted Liens

 

Company’s assets are subject to the following security interests:

 

None

 

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Exhibit 7(c)

 

Actions for Perfection

 

 

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Exhibit 7(p)

 

Bank Accounts

 

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Exhibit 12 (d)

 

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Exhibit 12(i)

 

Licenses, Patents, Trademarks and Copyrights

 

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Exhibit 13(e)(i)

 

Permitted Indebtedness

 

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Exhibit 13(e)(ii)

 

Existing Subsidiaries

 

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Exhibit A

 

Borrowing Base Certificate

 

LAURUS MASTER FUND, LTD.

 

and

 

MICRO COMPONENT TECHNOLOGY, INC.

 

Dated: March 9, 2004

 

10Z-40

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| 1.  |   | (a) General Definitions                                              |   |
|-----|--------|----------------------------------------------------------------------|--------|
| (b) |   | Accounting Terms                                                     |   |
| (c) |   | Other  Terms                                                         |   |
| (d) |   | Rules of Construction                                                |   |
| 2.  |   | Credit Advances.                                                     |   |
| 3.  |   | Repayment of the Loans                                               |   |
| 4.  |   | Procedure for Loans                                                  |   |
| 5.  |   | Interest and Payments.                                               |   |
| (a) |   | Interest.                                                            |   |
| (b) |   | Payments.                                                            |   |
| 6.  |   | Security Interest.                                                   |   |
| 7.  |   | Representations, Warranties and Covenants  Concerning the Collateral |   |
| 8.  |   | Payment of Accounts.                                                 |   |
| 9.  |   | Collection and Maintenance of Collateral.                            |   |
| 10. |   | Inspections and Appraisals                                           |   |
| 11. |   | Financial Reporting                                                  |   |
| 12. |   | Additional Representations and Warranties                            |   |
| 13. |   | Covenants.  Company covenants as follows:                       |   |
| 14. |   | Further Assurances                                                   |   |
| 15. |   | Power of Attorney                                                    |   |
| 16. |   | Term of Agreement                                                    |   |
| 17. |   | Termination of Lien                                                  |   |
| 18. |   | Events of Default                                                    |   |
| 19. |   | Remedies                                                             |   |
| 20. |   | Waivers                                                              |   |
| 21. |   | Expenses                                                             |   |
| 22. |   | Assignment By Laurus                                                 |   |
| 23. |   | No Waiver; Cumulative Remedies                                       |   |
| 24. |   | Application of Payments                                              |   |
| 25. |   | Indemnity                                                            |   |
| 26. |   | Revival                                                              |   |
| 27. |   | Notices                                                              |   |
| 28. |   | Governing Law, Jurisdiction and Waiver of  Jury                      |   |
| 29. |   | Limitation of Liability                                              |   |
| 30. |   | Entire Understanding                                                 |   |
| 31. |   | Severability                                                         |   |
| 32. |   | Captions                                                             |   |
| 33. |   | Counterparts;  Telecopier Signatures                                 |   |
| 34. |   | Construction                                                         |   |
| 35. |   | Publicity                                                            |   |

 

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