Document:

EXHIBIT
10Z

 

EXECUTION VERSION

 

SECURITY AGREEMENT

 

This Security Agreement is made as of March 9, 2004 by and between
LAURUS MASTER FUND, LTD., a Cayman Islands corporation (“Laurus”) and MICRO
COMPONENT 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 and
conditions set forth in this Agreement.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual covenants and
undertakings and the terms and conditions contained herein, the parties hereto
agree as follows:

 

(a)           General
Definitions. 
Capitalized terms used in this Agreement shall have the meanings
assigned to them in Annex A.

 

(b)           Accounting
Terms.  Any accounting terms
used in this Agreement which are not specifically defined shall have the
meanings customarily given them in accordance with GAAP and all financial
computations shall be computed, unless specifically provided herein, in
accordance with GAAP consistently applied.

 

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

 

Rules of Construction.  All Schedules, Addenda, Annexes and Exhibits
hereto or expressly identified to this Agreement are incorporated herein by
reference and taken together with this Agreement constitute but a single
agreement.  The words “herein”, hereof”
and “hereunder” or other words of similar import refer to this Agreement as a
whole, including the Exhibits, Addenda, Annexes and Schedules thereto, as the
same may be from time to time amended, modified, restated or supplemented, and
not to any particular section, subsection or clause contained in this
Agreement.  Wherever from the context it
appears appropriate, each term stated in either the singular or plural shall
include the singular and the plural, and pronouns stated in the masculine,
feminine or neuter gender shall include the masculine, the feminine and the
neuter.  The term “or” is not
exclusive.  The term “including” (or any
form thereof) shall not be limiting or exclusive.  All references to statutes and related regulations shall include
any amendments of same and any successor statutes and regulations.  All references in this Agreement or in the
Schedules, Addenda, Annexes and Exhibits to this Agreement to sections,
schedules, disclosure schedules, exhibits, and attachments shall refer to the
corresponding sections, schedules, disclosure schedules, exhibits, and attachments
of or to this Agreement.  All references
to any instruments or agreements, including references to any of this Agreement
or the Ancillary Agreements shall include any and all modifications or
amendments thereto and any and all extensions or renewals thereof.

 

Loans.

 

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

 

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may reasonably
in 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 any
time from Section 2(a)(ii)(x) minus 2(a)(ii)(y) shall be referred to as
the “Formula Amount”.  Company shall
execute and deliver to Laurus on the Closing Date a Minimum Borrowing Note and
a Secured Revolving Note evidencing the Loans funded on the Closing Date.  From time to time thereafter, Company shall
execute and deliver to Laurus immediately prior to the final funding of each
additional $750,000 tranche of Loans (calculated on a cumulative basis for each
such tranche) an additional Minimum Borrowing Note evidencing such tranche, in
the form of Note delivered by Company to Laurus on the Closing Date.
Notwithstanding anything herein to the contrary, whenever during the Term the
outstanding balance on the Revolving Note should equal or exceed $2,250,000, to
the extent that the outstanding balance on Minimum Borrowing Note shall be less
than $750,000 (the difference of $750,000 less the actual balance of the
Minimum Borrowing Note, the “Available Minimum Borrowing”), such portion of the
balance of the Revolving Note as shall equal the Available Minimum Borrowing
shall be deemed to be simultaneously extinguished on the Revolving Note and
transferred to, and evidenced by, the Minimum Borrowing Note (e.g., the Available
Minimum Borrowing shall be $0).

 

(b)

Notwithstanding the limitations set
forth above, if requested by the Company, Laurus retains the right to lend to
Company from time to time such amounts in excess of such limitations as Laurus
may determine in its sole discretion.

 

If Company does not pay any
interest, fees, costs or charges to Laurus when due, Company shall thereby be
deemed to have requested, and Laurus is hereby authorized at its discretion to
make and charge to Company’s account, a Loan to Company as of such date in an
amount equal to such unpaid interest, fees, costs or charges.

 

If Company at any time fails to
perform or observe any of the covenants contained in this Agreement or any
Ancillary Agreement, Laurus may, but need not, perform or observe such covenant
on 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 which
Laurus may deem necessary to cure or correct such failure (including the
payment of taxes, the satisfaction of Liens, the performance of obligations
owed to Account Debtors, lessors or other obligors, the procurement and
maintenance of insurance, the execution of assignments, security agreements and
financing statements, and the endorsement of instruments).  The amount of all monies expended and all
costs and expenses (including attorneys’ fees and legal expenses) incurred by
Laurus in connection with or as a result of the performance or observance of
such agreements or the taking of such action by Laurus shall be charged to
Company’s account as a Loan and added to the Obligations.  To facilitate Laurus’ performance or
observance of such covenants of Company, Company hereby irrevocably appoints
Laurus, or Laurus’ delegate, acting alone, as Company’s attorney in fact (which
appointment is coupled with an interest) with the right (but not the duty) from
time to time to create, prepare, complete, execute, deliver, endorse or file in
the name and on behalf of Company any and all instruments, documents,
assignments, security agreements, financing statements, applications for
insurance and other agreements and writings required to be obtained, executed
delivered or endorsed by Company.

 

Laurus will account to Company
monthly with a statement of all Loans and other advances, charges and payments
made pursuant to this Agreement, and such account rendered by Laurus shall be
deemed final, binding and conclusive unless Laurus is notified by Company in
writing to the contrary within thirty (30) days of the date each account was
rendered specifying the item or items to which objection is made.

 

During the Term, Company may borrow
and prepay Loans in excess of the Minimum Borrowing Amount, all in accordance
with the terms and conditions hereof.

 

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

 

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

 

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

 

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

 

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

 

Procedure
for Loans.  Company
may by written notice request a borrowing of Loans prior to 12:00 p.m.. (New
York time) on the Business Day of its request to incur, on the next business
day, a Loan.  Together with each request
for a Loan (or at such other intervals as Laurus may request), Company shall
deliver to Laurus a Borrowing Base Certificate in the form of Exhibit A, which
shall be certified as true and correct by the Chief Executive Officer, Chief Financial
Officer or the Controller of Company together with all supporting documentation
relating thereto.  All Loans shall be
disbursed from whichever office or other place Laurus may designate from time
to time and shall be charged to Company’s account on Laurus’ books.  The proceeds of each Loan made by Laurus
shall be made available to Company on the Business Day following the Business
Day so requested in accordance with the terms of this Section 4 by way of
credit to Company’s operating account maintained with such bank as Company
designated to Laurus.  Any and all
Obligations due and owing hereunder may be charged to Company’s account and
shall constitute Loans.

 

10Z-3

 

Interest,
Payments and Warrants.

 

Interest.

 

Except as modified by
Section 5(a)(iii) below, Company shall pay interest at the Contract Rate
on the unpaid principal balance of each Loan until such time as such Loan is collected
in full in good funds in dollars of the United States of America.

 

Interest and payments shall be
computed on the basis of actual days elapsed in a year of 360 days.  At Laurus’ option, Laurus may charge Company
account for said interest.

 

Effective upon the occurrence of
any Event of Default and for so long as any Event of Default shall be
continuing, 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 of
such Event of Default at the Default Rate applicable to such Obligations.

 

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

 

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 or
counterclaim.

 

Payments

 

Closing/Annual Payments.  Upon
execution of this Agreement by Company and Laurus, Company shall pay to Laurus
Capital Management, LLC a closing payment in an amount equal to $105,000.00 or
three and one-half (3.5%) of the Capital Availability Amount. Such payment
shall be deemed fully earned on the Closing Date and shall not be subject to
rebate or proration for any reason.  In
addition, on each anniversary of the Closing Date, the Company shall pay Laurus
one-half of one percent (0.50%) of the Capital Availability Amount.

 

Unused Line Payment.  If, for
any month, the average outstanding Loans (the “Average Loan Amount”) do not
equal the Capital Availability Amount, Company shall pay to Laurus at the end
of such month a payment (calculated on a per annum basis) in an amount equal to
twenty basis points (0.2%) of the amount by which the Capital Availability
Amount exceeds the Average Loan Amount. Notwithstanding the foregoing, any
unpaid fee shall be immediately due and payable upon termination of this
Agreement

 

Overadvance Payment.  Without
affecting Laurus’ rights hereunder in the event the Loans exceed the amounts
permitted by Section 2 (“Overadvances”), in the event an Overadvance
occurs or is made by Laurus, all such Overadvances shall bear interest at an
annual rate equal to six percent (6%) of the amount of such Overadvances for
each month or portion thereof as such amounts shall be outstanding

 

Financial Information Default.  Without
affecting Laurus’ other rights and remedies, in the event Company fails to
deliver the financial information required by Section 11 on or before the
date required by this Agreement, Company shall pay Laurus a fee in the amount
of $500.00 per week (or portion thereof) for each such failure until such
failure is cured to Laurus’ satisfaction or waived in writing by Laurus.  Such fee shall be charged to Company’s
account upon the occurrence of each such failure.

 

10Z-4

 

(c)           Warrants.On
the Closing Date, Company shall issue and deliver to Laurus a Warrant to
purchase up to 400,000 shares of the Company’s Common Stock in the form annexed
hereto as Exhibit B.

 

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

 

Security
Interest.

 

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

 

Company hereby (i) authorizes Laurus to file any financing
statements, continuation statements or amendments thereto that (x) indicate the
Collateral (1) as all assets of Company or words of similar effect, regardless
of whether any particular asset comprised in the Collateral falls within the
scope of Article 9 of the UCC of such jurisdiction, or (2) as being of an
equal or lesser scope or with greater detail, and (y) contain any other
information required by Part 5 of Article 9 of the UCC for the sufficiency
or filing office acceptance of any financing statement, continuation statement
or amendment and (ii) ratifies its authorization for Laurus to have filed any
initial financial statements, or amendments thereto if filed prior to the date
hereof.  Company acknowledges that it is
not authorized to file any financing statement or amendment or termination
statement with respect to any financing statement without the prior written
consent of Laurus and agrees that it will not do so without the prior written
consent of Laurus, subject to Company’s rights under Section 9-509(d)(2)
of the UCC.

 

Company hereby grants to Laurus an irrevocable,
non-exclusive license (exercisable upon the termination of this Agreement due
to an occurrence and during the continuance of an Event of Default without
payment of royalty or other compensation to Company) to use, transfer, license
or sublicense any Intellectual Property now owned, licensed to, or hereafter
acquired by Company, and wherever the same may be located, and including in
such license access to all media in which any of the licensed items may be
recorded or stored and to all computer and automatic machinery software and
programs used for the compilation or printout thereof, and represents, promises
and agrees that any such license or sublicense is not and will not be in
conflict with the contractual or commercial rights of any third Person; provided,
that such license will terminate on the termination of this Agreement and the
payment in full of all Obligations.

 

Representations, Warranties and
Covenants Concerning the Collateral.  Company
represents, warrants (each of which such representations and warranties shall
be deemed repeated upon the making of each request for a Loan and made as of
the time of each and every Loan hereunder) and covenants as follows:

 

10Z-5

 

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

 

Company shall not encumber, mortgage, pledge, assign or
grant any Lien in any Collateral of Company or any of Company’s other assets to
anyone other than Laurus and except for Permitted Liens.

 

The Liens granted pursuant to this Agreement, upon
completion of the filings and other actions listed on Exhibit 7(c)
(which, in the case of all filings and other documents referred to in said
Exhibit, have been delivered to Laurus in duly executed form) constitute valid
perfected security interests in all of the Collateral in favor of Laurus as
security for the prompt and complete payment and performance of the
Obligations, enforceable in accordance with the terms hereof against any and
all creditors of and any purchasers from Company and such security interest is
prior to all other Liens in existence on the date hereof.

 

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

 

Company shall not dispose of any of the Collateral whether
by sale, lease or otherwise except for the sale of Inventory in the ordinary
course of business and as listed on Schedule 7(e), and for the disposition
or transfer in the ordinary course of business during any fiscal year of
obsolete and worn-out Equipment having an aggregate fair market value of not
more than $25,000 and only to the extent that (i) the proceeds of any such
disposition are used to acquire replacement Equipment which is subject to
Laurus’ first priority security interest or are used to repay Loans or to pay
general corporate expenses, or (ii) following the occurrence of an Event of Default
which continues to exist the proceeds of which are remitted to Laurus to be
held as cash collateral for the Obligations.

 

Company shall defend the right, title and interest of Laurus
in and to the Collateral against the claims and demands of all Persons
whomsoever, and take such actions, including (i) all actions necessary to grant
Laurus “control” of any Investment Property, Deposit Accounts, Letter-of-Credit
Rights or electronic Chattel Paper owned by Company, with any agreements
establishing 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, Chattel
Paper, negotiable Documents and certificated Stock owned by the Company (in
each case, accompanied by stock powers, allonges or other instruments of
transfer executed in blank), (iii) notification of Laurus’ interest in
Collateral at Laurus’ request, and (iv) the institution of litigation against third
parties as shall be prudent in order to protect and preserve Company’s and
Laurus’ respective and several interests in the Collateral.

 

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

 

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

 

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

 

Company shall perform in a reasonable time all other steps
requested by Laurus to create and maintain in Laurus’ favor a valid perfected
first Lien in all Collateral subject only to Permitted Liens.

 

Company shall notify Laurus promptly and in any event within
three (3)  Business Days after obtaining
knowledge thereof (i) of any event or circumstance that to Company’s knowledge
would cause Laurus to consider any then existing Account as no longer
constituting an Eligible Account; (ii) of any material delay in Company’s
performance of any of its obligations to any Account Debtor; (iii) of any
assertion by any Account Debtor of any material claims, offsets or
counterclaims; (iv) of any allowances, credits and/or monies granted by Company
to any Account Debtor; (v) of all material adverse information

 

10Z-6

 

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

 

All Eligible Accounts (i) which are billed on a construction
completion basis but not payable until the project is completed, represent
complete bona fide transactions which require no further act under any
circumstances on Company’s part to make such Accounts payable by the Account
Debtors, (ii) are not subject to any present, future contingent offsets or
counterclaims, and (iii) do not represent bill and hold sales, consignment
sales, guaranteed sales, sale or return or other similar understandings or
obligations of any Affiliate or Subsidiary of Company.  Company has not made, and will not make any
agreement with any Account Debtor for any extension of time for the payment of
any Account, any compromise or settlement for less than the full amount
thereof, any release of any Account Debtor from liability therefor, or any
deduction therefrom except a discount or allowance for prompt or early payment
allowed by Company in the ordinary course of its business consistent with
historical practice and as previously disclosed to Laurus in writing.

 

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

 

Company shall maintain and keep all of its Books and Records
concerning the Collateral at Company’s executive offices listed in Exhibit
12(d).

 

Company shall maintain and keep the tangible Collateral at
the addresses listed in Exhibit 12(d), provided, that Company may change
such locations or open a new location, provided that Company provides Laurus at
least 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 having
a value of more than $50,000 will be located, Company executes and delivers to
Laurus such agreements as Laurus may request, including landlord agreements,
mortgagee agreements and warehouse agreements, each in form and substance
satisfactory to Laurus.

 

Exhibit 7(p) lists all banks
and other financial institutions at which Company maintains deposits and/or
other accounts, and such Exhibit correctly identifies the name, address and
telephone number of each such depository, the name in which the account is
held, a description of the purpose of the account, and the complete account
number.  The Company shall not establish
any 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.

 

Payment
of Accounts.

 

Company will irrevocably direct all of its present and
future Account Debtors and other Persons obligated to make payments
constituting Collateral to make such payments directly to the lockbox
maintained by Company (the “Lockbox”) with Wells Fargo Bank (the “Lockbox
Bank”). On or prior to the Closing Date, Company shall and shall cause the
Lockbox Bank to enter into all such documentation acceptable to Laurus pursuant
to which, among other things, the Lockbox Bank agrees to: (a) sweep the Lockbox
on a daily basis and deposit all checks received therein to an account
designated by Laurus in writing and (b) comply only with the instructions or
other 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 any
other amount constituting Collateral shall conspicuously direct that all
payments be made to the Lockbox or such other address as Laurus may direct in
writing.  If, notwithstanding the
instructions to Account Debtors, Company receives any payments, Company shall immediately
remit such payments to Laurus in their original form with all necessary
endorsements.  Until so remitted,
Company shall hold all such payments in trust for and as the property of Laurus
and shall not commingle such payments with any of its other funds or property.

 

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

 

Collection and Maintenance of
Collateral.

 

10Z-7

 

Laurus may verify Company’s Accounts, Inventory and Purchase
Orders from time to time, but not more often than once every three (3) months
unless an Event of Default has occurred and is continuing, utilizing an audit
control company or any other agent of Laurus.

 

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

 

As Laurus receives the proceeds of Accounts, it shall remit
all such proceeds (net of interest, fees and other amounts then due and owing
to Laurus hereunder) to Company upon request (but no more often than twice a
week).  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 such
order as Laurus shall elect, (b) hold such proceeds as cash collateral for the
Obligations and Company hereby grants to Laurus a security interest in such
cash collateral amounts as security for the Obligations and/or (c) do any
combination of the foregoing.

 

Inspections
and Appraisals.  At all
times during normal business hours, Laurus, and/or any agent of Laurus shall
have the right to (a) have access to, visit, inspect, review, evaluate and make
physical verification and appraisals of Company’s properties and the
Collateral, (b) inspect, audit and copy (or take originals if necessary) and
make extracts from Company’s Books and Records, including management letters
prepared by independent accountants, and (c) discuss with Company’s principal
officers, and independent accountants, Company’s business, assets, liabilities,
financial condition, results of operations and business prospects.  Company will deliver to Laurus any
instrument necessary for Laurus to obtain records from any service bureau
maintaining records for Company.  If any
internally prepared financial information, including that required under this
Section is unsatisfactory in any manner to Laurus, Laurus may request that
the Accountants review the same.

 

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

 

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

 

As soon as available and in any event within forty five (45)
days after the end of each quarter, an unaudited/internal balance sheet and
statements of income, retained earnings and cash flows of Company as at the end
of 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 all
Subsidiaries and Affiliates, in reasonable detail and stating in comparative
form the figures for the corresponding date and periods in the previous year,
all prepared in accordance with GAAP, subject to year-end adjustments and
accompanied by a certificate of Company’s President, Chief Executive Officer or
Chief Financial Officer, stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit adjustments, and
(ii) whether or not such officer has knowledge of the occurrence of any Default
or Event of Default hereunder not theretofore reported and remedied and, if so,
stating in reasonable detail the facts with respect thereto;

 

Within thirty (30) days after the end of each month (or more
frequently if Laurus so requests), agings of Company’s Accounts, unaudited
trial balances and their accounts payable and a calculation of Company’s
Accounts, Eligible Accounts and thirty (30) days after the end of each fiscal
quarter an Inventory ledger, in summary form, as at the end of such month or
shorter time period, provided, however, that if Laurus

 

10Z-8

 

shall request the foregoing information more often than as
set forth in the immediately preceding clause, the Company shall have thirty
days from each such request to comply with Laurus’ demand; and

 

Promptly after (i) the filing thereof, copies of Company’s
most recent registration statements and annual, quarterly, monthly or other
regular reports which Company files with the Securities and Exchange Commission
(the “SEC”), and (ii) the issuance thereof, copies of such financial
statements, reports and proxy statements as Company shall send to its
stockholders.

 

Additional Representations and
Warranties.  Company
represents and warrants (each of which such representations and warranties
shall be deemed repeated upon the making of a request for a Loan and made as of
the time of each Loan made hereunder), as follows:

 

Company is a corporation duly incorporated and validly
existing under the laws of the jurisdiction of its incorporation and duly
qualified and in good standing in every other state or jurisdiction in which
the nature of Company’s business requires such qualification.

 

The execution, delivery and performance of this Agreement
and the Ancillary Agreements (i) have been duly authorized, (ii) are not in
contravention of Company’s certificate of incorporation, by-laws or of any
indenture, agreement or undertaking to which Company is a party or by which
Company is bound and (iii) are within Company’s corporate powers.

 

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

 

Exhibit 12(d) sets forth
Company’s name as it appears in official filing in the state of its
incorporation, the type of entity of Company, the organizational identification
number issued by Company’s state of incorporation or a statement that no such
number has been issued, Company’s state of incorporation, and the location of
Company’s chief executive office, corporate offices, warehouses, other
locations of Collateral and locations where records with respect to Collateral
are kept (including in each case the county of such locations) and, except as
set forth in such Exhibit 12(d), such locations have not changed during
the preceding twelve months.  As of the
Closing Date, during the prior five years, except as set forth in Exhibit
12(d), Company has not been known as or conducted business in any other
name (including trade names).  Company
has only one state of incorporation.

 

Based upon the Employee Retirement Income Security Act of
1974 (“ERISA”), and the regulations and published interpretations thereunder:
(i) Company has not engaged in any Prohibited Transactions as defined in
Section 406 of ERISA and Section 4975 of the Internal Revenue Code,
as amended; (ii) Company has met all applicable minimum funding requirements
under Section 302 of ERISA in respect of its plans; (iii) Company has no knowledge
of any event or occurrence which would cause the Pension Benefit Guaranty
Corporation to institute proceedings under Title IV of ERISA to terminate any
employee benefit plan(s); (iv) Company has no fiduciary responsibility for
investments with respect to any plan existing for the benefit of persons other
than Company’s employees; and (v) except as disclosed in Exhibit 12(e)
attached hereto, Company has not withdrawn, completely or partially, from any
multi-employer pension plan so as to incur liability under the Multiemployer
Pension Plan Amendments Act of 1980.

 

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

 

All balance sheets and income statements which have been
delivered to Laurus fairly, accurately and properly state Company’s financial
condition on a basis consistent with that of previous financial statements and
except as reflected in such financial statements there has been no material
adverse change in Company’s financial condition as reflected in such statements
since the balance sheet date of the statements last delivered to Laurus and
such statements do not fail to disclose any fact or facts which might have a Material
Adverse Effect on Company’s financial condition.

 

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

 

Neither this Agreement, the exhibits and schedules hereto,
the Ancillary Agreements nor any other document delivered by Company to Laurus
or 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 material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances in which they are made, not misleading.  The issuance of the Notes and the Warrants
and the shares of common stock issued upon conversion of the Notes and exercise
of the Warrants will be exempt from the registration requirements of the
Securities Act of 1933, as amended (the “Securities Act”), and will have been
registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.  Neither Company
nor any of its Affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of the Securities.

 

The common stock of the Company is registered pursuant to
Section 12(b) or 12(g) of the Exchange Act and, except with respect to
certain matters set forth on Exhibit 12(j) attached hereto, the Company
has timely filed all proxy statements, reports, schedules, forms, statements
and other documents required to be filed by it under the Exchange Act.  The Company has filed (i) its Annual Report
on Form 10-K for the fiscal year ended December 31, 2002, (ii) its
Quarterly Report on Form 10-Q for the fiscal quarters ended March 29,
2003, June 28, 2003 and September 27, 2003 and (iii) all Current
Reports on Form 8-K which the Company were required to file (collectively, the
“SEC Reports”).  Each SEC Report was, at
the time of its filing, in substantial compliance with the requirements of its
respective form and none of the SEC Reports, nor the financial statements (and
the notes thereto) included in the SEC Reports, as of their respective filing
dates, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.  The financial statements of
the Company included in the SEC Reports comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission or other applicable rules and regulations with
respect thereto.  Such financial
statements have been prepared in accordance with generally accepted accounting
principles (“GAAP”) applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the notes
thereto or (ii) in the case of unaudited interim statements, to the extent they
may not include footnotes or may be condensed) and fairly present in all
material respects the financial condition, the results of operations and the
cash 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 the
NASD Over the Counter Bulletin Board (“OTCBB”) and satisfies all requirements for
the continuation of such listing.  The
Company has not received any notice that its common stock will be delisted from
the OTCBB or that the common stock does not meet all requirements for the
continuation of such listing.

 

Neither the Company, nor any of its Affiliates, nor any
person acting on its or their behalf, has directly or indirectly made any
offers or sales of any security or solicited any offers to buy any security
under circumstances that would cause the offering of the Securities pursuant to
this Agreement and the Ancillary Agreements to be integrated with prior
offerings by the Company for purposes of the Securities Act which would prevent
the Company from selling the Securities pursuant to Rule 506 under the
Securities Act, or any applicable exchange-related stockholder approval
provisions, nor will the Company or any of its Affiliates or Subsidiaries take
any action or steps that would cause the offering of the Securities to be
integrated with other offerings (other than such concurrent offering to
Laurus).

 

  The Securities are all restricted securities
under the Securities Act as of the date of this Agreement.  The Company will not issue any stop transfer
order or other order impeding the sale and delivery of any of the Securities at
such time as such Securities are registered for public sale or an exemption
from registration is available, except as required by federal or state
securities laws.

 

The Company understands the nature of the Securities
issuable under the Ancillary Agreements and recognizes that the issuance of
such Securities may have a potential dilutive effect.  The Company specifically acknowledges that its obligation to
issue the Securities is binding upon the Company and enforceable regardless of
the dilution such issuance may have on the ownership interests of other
shareholders of the Company.

 

10Z-10

 

Except for agreements made in the ordinary course of
business, there is no agreement that has not been filed with the Commission as
an exhibit to a registration statement or to a form required to be filed by the
Company under the Exchange Act, the breach of which could reasonably be
expected to have a Material Adverse Effect or would prohibit or otherwise
interfere with the ability of the Company to enter into and perform any of its
obligations under this Agreement the Registration Rights Agreement executed by
Company in favor of Laurus in any material respect.

 

Laurus or any of its affiliates and investment partners has
not, 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 hedging
strategies as long as the Minimum Borrowing Note shall be outstanding.

 

Covenants.  Company covenants as follows:

 

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

 

The operation of Company’s business is and will continue to
be in compliance in all material respects with all applicable federal, state
and local laws, rules and ordinances, including to all laws, rules, regulations
and orders relating to taxes, payment and withholding of payroll taxes,
employer and employee contributions and similar items, securities, employee
retirement and welfare benefits, employee health safety and environmental
matters.

 

Company will pay or discharge when due all taxes,
assessments and governmental charges or levies imposed upon Company or any of
the Collateral unless such amounts are being diligently contested in good faith
by appropriate proceedings provided that (i) adequate reserves with respect
thereto 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 of
Laurus or the value of the assets in which Laurus has a Lien.

 

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

 

The Company will not (i) create, incur, assume or suffer to
exist any indebtedness (exclusive of trade debt) whether secured or unsecured
other than Company’s indebtedness to Laurus and as set forth on Exhibit
13(e)(i) attached hereto and made a part hereof; (ii) cancel any debt owing
to it in excess of $50,000 in the aggregate during any 12 month period; (iii)
assume, guarantee, endorse or otherwise become directly or contingently liable
in connection with any obligations of any other Person, except the endorsement
of negotiable instruments by a Company for deposit or collection or similar
transactions in the ordinary course of business; (iv) directly or indirectly
declare, pay or make any dividend or distribution on any class of its Stock
other than to pay dividends on shares of its outstanding Preferred Stock or
apply any of its funds, property or assets to the purchase, redemption or other
retirement of any Stock of the Company except as required under the terms of
the Company’s outstanding Preferred Stock issued and outstanding on the date
hereof; (v) purchase or hold beneficially any Stock or other securities or
evidences 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 an
aggregate of $10,000, and (z) existing Subsidiaries of the Company; (vi) create
or permit to exist any Subsidiary, other than any Subsidiary in existence on
the date hereof and listed in Exhibit 13(e)(ii) unless

 

10Z-11

 

such new Subsidiary is designated by Laurus as either a
co-borrower or guarantor hereunder and such Subsidiary shall have entered into
all such documentation required by Laurus to grant to Laurus a first priority
perfected security interest in such Subsidiary’s assets to secure the
Obligations; (vii) directly or indirectly, prepay any indebtedness (other than
to Laurus and in the ordinary course of business), or repurchase, redeem,
retire or otherwise acquire any indebtedness (other than to Laurus and in the
ordinary course of business) except to make scheduled payments of principal and
interest thereof; (viii) enter into any merger, consolidation or other
reorganization with or into any other Person or acquire all or a portion of the
assets or Stock of any Person or permit any other Person to consolidate with or
merge with it, unless (1) Company is the surviving entity of such merger or
consolidation, (2) no Event of Default shall exist immediately prior to and
after giving effect to such merger or consolidation, (3) Company shall have
provided Laurus copies of all documentation relating to such merger or
consolidation 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 and
reporting practices without prior written notice to Laurus except as required
by 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 in
the ordinary course on arms-length terms; or (xii) bill Accounts under any name
except the present name of Company or its existing Subsidiaries.

 

None of the proceeds of the Loans hereunder will be used
directly or indirectly to “purchase” or “carry” “margin stock” or to repay
indebtedness incurred to “purchase” or “carry” “margin stock” within the
respective meanings of each of the quoted terms under Regulation U of the Board
of Governors of the Federal Reserve System as now and from time to time
hereafter in effect.

 

Company will bear the full risk of loss from any loss of any
nature whatsoever with respect to the Collateral.  At Company’s own cost and expense in amounts and with carriers
acceptable to Laurus, Company shall (i) keep all its insurable properties and
properties in which it has an interest insured against the hazards of fire,
sprinkler leakage, those hazards covered by extended coverage insurance and
such other hazards, and for such amounts, as is customary in the case of
companies engaged in businesses similar to Company’s including business
interruption insurance; (ii) maintain a bond in such amounts as is customary in
the case of companies engaged in businesses similar to Company’s insuring
against larceny, embezzlement or other criminal misappropriation of insured’s
officers and employees who may either singly or jointly with others at any time
have access to the assets or funds of Company either directly or through
Governmental Authority to draw upon such funds or to direct generally the
disposition of such assets; (iii) maintain public and product liability
insurance against claims for personal injury, death or property damage suffered
by others; (iv) maintain all such worker’s compensation or similar insurance as
may be required under the laws of any state or jurisdiction in which Company is
engaged in business; and (v) furnish Laurus with (x) certificates as to all
such insurance coverages and evidence of the maintenance of such policies at
least thirty (30) days before any expiration date, (y) endorsements to such
policies naming Laurus as “co-insured” or “additional insured” and appropriate
loss payable endorsements in form and substance satisfactory to Laurus, naming
Laurus as loss payee, and (z) evidence that as to Laurus the insurance coverage
shall not be impaired or invalidated by any act or neglect of Company and the
insurer will provide Laurus with at least thirty (30) days notice prior to
cancellation or expiration thereof. 
Company shall instruct the insurance carriers that in the event of any
loss thereunder, the carriers shall make payment for such loss to Laurus and
not to Company and Laurus jointly.  If
any insurance losses are paid by check, draft or other instrument payable to
Company and Laurus jointly, Laurus may endorse Company’s name thereon and do
such other things as Laurus may deem advisable to reduce the same to cash.  Laurus is hereby authorized to adjust and
compromise claims.  All loss recoveries
received 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 otherwise
be delivered to the Company.  Any
surplus shall be paid by Laurus to Company or applied as may be otherwise
required by law.  Any deficiency thereon
shall be paid by Company to Laurus, on demand.

 

10Z-12

 

 Company will at all times have authorized and reserved
a sufficient number of shares of Common Stock to provide for the conversion of
the Notes and exercise of the Warrants.

 

Further
Assurances.  At any
time and from time to time, upon the written request of Laurus and at the sole
expense of Company, Company shall promptly and duly execute and deliver any and
all such further instruments and documents and take such further action as
Laurus may request (a) to obtain the full benefits of this Agreement and the
Ancillary Agreements, (b) to protect, preserve and maintain Laurus’ rights in
the Collateral and under this Agreement or any Ancillary Agreement, or (c) to
enable Laurus to exercise all or any of the rights and powers herein granted or
any Ancillary Agreement.

 

Power
of Attorney.  Company
hereby appoints Laurus, or any other Person whom Laurus may designate as Company’s
attorney, with power to:  (i) endorse
Company’s name on any checks, notes, acceptances, money orders, drafts or other
forms of payment or security that may come into Laurus’ possession; (ii) sign
Company’s name on any invoice or bill of lading relating to any Accounts,
drafts against Account Debtors, schedules and assignments of Accounts, notices
of assignment, financing statements and other public records, verifications of
Account 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 to
carry 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 of
Company’s mail to an address designated by Laurus, and to receive, open and
dispose of all mail addressed to Company. 
Company hereby ratifies and approves all acts of the attorney.  Neither Laurus, nor the attorney will be
liable for any acts or omissions or for any error of judgment or mistake of
fact 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 the
Obligations have been fully satisfied.

 

Term
of Agreement.  Laurus’
agreement to make Loans and extend financial accommodations under and in accordance
with the terms of this Agreement or any Ancillary Agreement shall continue in
full force and effect until the expiration of the Initial Term.  At Laurus’ election following the occurrence
of an Event of Default, Laurus may terminate this Agreement.  The termination of the Agreement shall not
affect any of Laurus’ rights hereunder or any Ancillary Agreement and the
provisions hereof and thereof shall continue to be fully operative until all
transactions entered into, rights or interests created and the Obligations have
been disposed of, concluded or liquidated. 
Notwithstanding the foregoing, Laurus shall release its security interests
at any time after thirty (30) days notice upon payment to it of all Obligations
if Companies shall have (i) provided Laurus with an executed release of any and
all claims which Companies may have or thereafter have under this Agreement and
all Ancillary Agreements and (ii) paid to Laurus an early payment fee in an
amount equal to (1) four percent (4%) of the Capital Availability Amount if
such payment occurs prior to the first anniversary of the commencement of the
Initial Term or any applicable renewal term, and (2) three (3%) of the Capital
Availability Amount if such payment occurs on or after the first anniversary
and prior to the second anniversary of the Initial Term or any applicable
renewal term and two percent (2%) if such termination occurs thereafter prior
to the end of the Initial Term; such fee being intended to compensate Laurus
for its costs and expenses incurred in initially approving this Agreement or
extending same. Such early payment fee shall be due and payable by Company to
Laurus upon termination by acceleration of this Agreement by Laurus due to the
occurrence and continuance of an Event of Default.

 

Termination
of Lien.  The Liens
and rights granted to Laurus hereunder and any Ancillary Agreements and the financing
statements filed in connection herewith or therewith shall continue in full
force and effect, notwithstanding the termination of this Agreement or the fact
that Company’s account may from time to time be temporarily in a zero or credit
position, until (a) all of the Obligations of Company have been paid or
performed in full after the termination of this Agreement.  Laurus shall not be required to send
termination statements to Company, or to file them with any filing office,
unless and until this Agreement and the Ancillary Agreements shall have been
terminated in accordance with their terms and all Obligations paid in full in
immediately available funds.

 

Events
of Default.  The
occurrence of any of the following shall constitute an Event of Default:

 

10Z-13

 

failure to make payment of any of the Obligations when
required hereunder;

 

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

 

failure to perform under and/or committing any breach of
this Agreement or any Ancillary Agreement or any other agreement between
Company 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 which
Company is a party with third parties which has a Material Adverse Effect;

 

any representation, warranty or statement made by Company
hereunder, in any Ancillary Agreement, any certificate, statement or document
delivered pursuant to the terms hereof, or in connection with the transactions
contemplated by this Agreement should at any time be false or misleading in any
material respect;

 

Except as list on Schedule 18(f), an attachment or levy
is made upon Company’s assets having an aggregate value in excess of $50,000 or
a judgment is rendered against Company or Company’s property involving a
liability 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 or
otherwise) which in Laurus’ reasonable, good faith opinion, could reasonably be
expected to have a Material Adverse Effect;

 

any Lien created hereunder or under any Ancillary Agreement
for any reason ceases to be or is not a valid and perfected Lien having a first
priority interest;

 

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

 

Company shall admit in writing its inability, or be
generally unable to pay its debts as they become due or cease operations of its
present business;

 

any Affiliate or Subsidiary of the Company shall (i) apply
for, consent to or suffer to exist the appointment of, or the taking possession
by, a receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) admit in writing its inability, or be
generally unable, to pay its debts as they become due or cease operations of
its present business, (iii) make a general assignment for the benefit of
creditors, (iv) commence a voluntary case under the federal bankruptcy laws (as
now 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 the
relief of debtors, (vii) acquiesce to, or fail to have dismissed, within thirty
(30) days, any petition filed against it in any involuntary case under such
bankruptcy laws or (viii) take any action for the purpose of effecting any of
the foregoing;

 

Company directly or indirectly sells, assigns, transfers,
conveys, or suffers or permits to occur any sale, assignment, transfer or
conveyance of any assets of Company or any interest therein, except as
permitted herein;

 

 the occurrence of a change in the controlling
ownership of the Company;

 

a default by Company in the payment, when due, of any
principal of or interest on any other indebtedness for money borrowed in an
amount greater than $25,000, which is not cured within any applicable cure or
grace period;

 

the indictment or threatened indictment of Company or any
executive officer of Company under any criminal statute, or commencement or
threatened commencement of criminal or civil proceeding against Company or any
executive officer of Company pursuant to which statute or proceeding penalties
or remedies sought or available include forfeiture of any of the property of
Company;

 

if an Event of Default shall occur under and as defined in
any Note;

 

10Z-14

 

any Guarantor shall breach any term or provision of any
Ancillary Agreement which is not cured within any applicable cure or grace
period;

 

if any Guarantor attempts to terminate, challenges the
validity of, or its liability under any Guaranty or any Guarantor Security
Agreement; or

 

should any Guarantor default in its obligations under any
Guaranty or any Guarantor Security Agreement or if any proceeding shall be
brought to challenge the validity, binding effect of any Guaranty or any
Guarantor Security Agreement or should any Guarantor breach any representation,
warranty or covenant contained in any Guaranty Agreement or any Guarantor
Security Agreement or should any Guaranty or Guarantor Security Agreement cease
to be a valid, binding and enforceable obligation.

 

Remedies.
Following the occurrence of an Event of Default, Laurus shall have the right to
demand repayment in full of all Obligations, whether or not otherwise due.  Until all Obligations have been fully
satisfied, Laurus shall retain its Lien in all Collateral.  Laurus shall have, in addition to all other
rights provided herein and in each Ancillary Agreement, the rights and remedies
of a secured party under the UCC, and under other applicable law, all other
legal and equitable rights to which Laurus may be entitled, including the right
to take immediate possession of the Collateral, to require Company to assemble
the Collateral, at Company’s expense, and to make it available to Laurus at a
place designated by Laurus which is reasonably convenient to both parties and
to enter any of the premises of Company or wherever the Collateral shall be
located, with or without force or process of law, and to keep and store the
same on said premises until sold (and if said premises be the property of
Company, Company agrees not to charge Laurus for storage thereof), and the
right to apply for the appointment of a receiver for Company’s property.  Further, Laurus may, at any time or times
after the occurrence of an Event of Default, sell and deliver all Collateral
held by or for Laurus at public or private sale for cash, upon credit or
otherwise, at such prices and upon such terms as Laurus, in Laurus’ sole
discretion, deems advisable or Laurus may otherwise recover upon the Collateral
in any commercially reasonable manner as Laurus, in its sole discretion, deems
advisable.  The requirement of reasonable
notice shall be met if such notice is mailed postage prepaid to Company at
Company’s address as shown in Laurus’ records, at least ten (10) days before
the 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 the
foregoing remedies, Laurus is granted permission to use all of Company’s
trademarks, 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 of
sale, including attorneys’ fees, and second to the payment (in whatever order
Laurus elects) of all Obligations. 
After the indefeasible payment and satisfaction in full in cash of all of
the Obligations, and after the payment by Laurus of any other amount required
by any provision of law, including Section 9-608(a)(1) of the UCC (but
only after Laurus has received what Laurus considers reasonable proof of a subordinate
party’s security interest), the surplus, if any, shall be paid to Company or
its representatives or to whosoever may be lawfully entitled to receive the
same, or as a court of competent jurisdiction may direct.  Company shall remain liable to Laurus for
any deficiency.  In addition, Company
shall pay Laurus a liquidation fee (“Liquidation Fee”) in the amount of five
percent (5%) of the actual amount collected in respect of each Account
outstanding at any time during a “liquidation period”.  For purposes hereof, “liquidation period”
means a period:  (i) beginning on the
earliest 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 which
Laurus has actually received all Obligations due and owing it under this
Agreement and the Ancillary Agreements. 
The Liquidation Fee shall be paid on the date on which Laurus collects
the applicable Account by deduction from the proceeds thereof..  Company and Laurus acknowledge that the
actual damages that would be incurred by Laurus after the occurrence of an
Event of Default would be difficult to quantify and that Company and Laurus
have agreed that the fees and obligations set forth in this Section and in
this Agreement would constitute fair and appropriate liquidated damages in the
event of any such termination.

 

Waivers.  To the full extent permitted by applicable
law, Company waives (a) presentment, demand and protest, and notice of
presentment, dishonor, intent to accelerate, acceleration, protest, default, nonpayment,
maturity, release, compromise, settlement, extension or renewal of any or all
of this Agreement and the Ancillary Agreements or any other notes, commercial
paper, Accounts, contracts, Documents, Instruments, Chattel Paper and
guaranties at any time held by Laurus on which Company may in any way be
liable, 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 or
control of, or to Laurus’ replevy, attachment or levy upon, any Collateral or
any bond or security that might be required by any court prior to allowing
Laurus to exercise any of its remedies; and (c) the benefit of all valuation,
appraisal and exemption laws.  Company
acknowledges that it has been advised by counsel of its choices and decisions
with respect to this Agreement, the Ancillary Agreements and the transactions
evidenced hereby and thereby.

 

10Z-15

 

Expenses.  Company shall pay all of Laurus’ reasonable
out-of-pocket costs and expenses, including reasonable fees and disbursements
of in-house or outside counsel and appraisers, in connection with the preparation,
execution and delivery of this Agreement and the Ancillary Agreements, and in
connection with the prosecution or defense of any action, contest, dispute,
suit or proceeding concerning any matter in any way arising out of, related to
or connected with this Agreement or any Ancillary Agreement.  Company shall also pay all of Laurus’ reasonable
fees, charges, out-of-pocket costs and expenses, including fees and
disbursements of counsel and appraisers, in connection with (a) the
preparation, execution and delivery of any waiver, any amendment thereto or
consent proposed or executed in connection with the transactions contemplated
by this Agreement or the Ancillary Agreements, (b) Laurus’ obtaining
performance of the Obligations under this Agreement and any Ancillary
Agreements, including, but not limited to, the enforcement or defense of Laurus’
security interests, assignments of rights and Liens hereunder as valid perfected
security interests, (c) any attempt to inspect, verify, protect, collect, sell,
liquidate or otherwise dispose of any Collateral, (d) any appraisals or
re-appraisals of any property (real or personal) pledged to Laurus by Company
as Collateral for, or any other Person as security for, Company’s Obligations
hereunder and (e) any consultations in connection with any of the
foregoing.  Company shall also pay
Laurus’ customary bank charges for all bank services (including wire transfers)
performed or caused to be performed by Laurus for Company at Company’s request
or in connection with Company’s loan account with Laurus.  All such costs and expenses together with all
filing, recording and search fees, taxes and interest payable by Company to
Laurus shall be payable on demand and shall be secured by the Collateral.  If any tax by any Governmental Authority is
or may be imposed on or as a result of any transaction between Company and
Laurus which Laurus is or may be required to withhold or pay, Company agrees to
indemnify and hold Laurus harmless in respect of such taxes, and Company will
repay to Laurus the amount of any such taxes which shall be charged to
Company’s account; and until Company shall furnish Laurus with indemnity
therefor (or supply Laurus with evidence satisfactory to it that due provision
for the payment thereof has been made), Laurus may hold without interest any
balance standing to Company’s credit and Laurus shall retain its Liens in any
and all Collateral.

 

Assignment
By Laurus.  Laurus may
assign any or all of the Obligations together with any or all of the security
therefor to any Person which is not a competitor of the Company and any such
transferee shall succeed to all of Laurus’ rights with respect thereto.  Upon such transfer, Laurus shall be released
from all responsibility for the Collateral to the extent same is assigned to
any transferee.  Laurus may from time to
time sell or otherwise grant participations in any of the Obligations and the
holder of any such participation shall, subject to the terms of any agreement
between Laurus and such holder, be entitled to the same benefits as Laurus with
respect to any security for the Obligations in which such holder is a
participant.  Company agrees that each
such holder may exercise any and all rights of banker’s lien, set-off and
counterclaim with respect to its participation in the Obligations as fully as
though Company were directly indebted to such holder in the amount of such
participation.

 

No Waiver; Cumulative Remedies.  Failure by Laurus to exercise
any right, remedy or option under this Agreement, any Ancillary Agreement or
any supplement hereto or thereto or any other agreement between Company and Laurus
or delay by Laurus in exercising the same, will not operate as a waiver; no
waiver by Laurus will be effective unless it is in writing and then only to the
extent specifically stated.  Laurus’
rights and remedies under this Agreement and the Ancillary Agreements will be
cumulative and not exclusive of any other right or remedy which Laurus may
have.

 

Application
of Payments.  Company
irrevocably waives the right to direct the application of any and all payments
at any time or times hereafter received by Laurus from or on Company’s behalf
and Company hereby irrevocably agrees that Laurus shall have the continuing
exclusive right to apply and reapply any and all payments received at any time
or times hereafter against the Obligations hereunder in such manner as Laurus
may 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 or
nature whatsoever (including attorneys’ fees and disbursements and other costs
of investigation or defense, including those incurred upon any appeal) which
may be instituted or asserted against or incurred by any such Indemnified
Person as the result of credit having been extended, suspended or terminated
under this Agreement or any of the Ancillary Agreements or with respect to the
execution, delivery, enforcement, performance and administration of, or in any
other way arising out of or relating to, this Agreement, the Ancillary
Agreements or any other documents or transactions contemplated by or referred
to herein or therein and any actions or failures to act with respect to any of
the foregoing, except to the extent that any such indemnified liability is
finally determined by a court of competent jurisdiction to have resulted solely
from such Indemnified Person’s gross negligence or willful misconduct. NO
INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO COMPANY OR TO ANY OTHER
PARTY OR TO ANY SUCCESSOR, ASSIGNEE

 

10Z-16

 

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

 

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

 

Notices.  Any notice or request hereunder may be given
to Company or Laurus at the respective addresses set forth below or as may
hereafter be specified in a notice designated as a change of address under this
Section.  Any notice or request
hereunder shall be given by registered or certified mail, return receipt
requested, hand delivery, overnight mail or telecopy (confirmed by mail).  Notices and requests shall be, in the case
of those by hand delivery, deemed to have been given when delivered to any
officer of the party to whom it is addressed, in the case of those by mail or
overnight mail, deemed to have been given three (3) business days after the
date when deposited in the mail or with the overnight mail carrier, and, in the
case 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 in
accordance with this Section 27 by such Person.

 

Governing Law, Jurisdiction and
Waiver of Jury Trial.  (a) THIS
AGREEMENT AND THE ANCILLARY AGREEMENTS SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE.

 

10Z-17

 

(b)  COMPANY HEREBY
CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF
NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN COMPANY AND LAURUS PERTAINING TO THIS
AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS; PROVIDED,
THAT LAURUS AND COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE
TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW
YORK; AND FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE
DEEMED OR OPERATE TO PRECLUDE LAURUS FROM BRINGING SUIT OR TAKING OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE
COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT
OR OTHER COURT ORDER IN FAVOR OF LAURUS. 
COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION
IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND COMPANY HEREBY WAIVES
ANY 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 AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO COMPANY AT THE ADDRESS SET FORTH IN SECTION 27 AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF COMPANY’S ACTUAL
RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.

 

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

 

Limitation
of Liability.  Company
acknowledges and understands that in order to assure repayment of the Obligations
hereunder Laurus may be required to exercise any and all of Laurus’ rights and
remedies hereunder and agrees that, except as limited by applicable law,
neither Laurus nor any of Laurus’ agents shall be liable for acts taken or
omissions made in connection herewith or therewith except for actual bad faith.

 

Entire
Understanding.  This
Agreement and the Ancillary Agreements contain the entire understanding between
Company and Laurus as to the subject matter hereof and thereof and any
promises, representations, warranties or guarantees not herein contained shall
have no force and effect unless in writing, signed by Company’s and Laurus’
respective officers.  Neither this
Agreement, the Ancillary Agreements, nor any portion or provisions thereof may
be changed, modified, amended, waived, supplemented, discharged, cancelled or
terminated orally or by any course of dealing, or in any manner other than by
an agreement in writing, signed by the party to be charged.

 

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

 

Captions.  All captions are and shall be without
substantive meaning or content of any kind whatsoever.

 

Counterparts; Telecopier Signatures.  This
Agreement may be executed in one or more counterparts, each of which shall
constitute an original and all of which taken together shall constitute one and
the same agreement.  Any signature
delivered by a party via telecopier transmission shall be deemed to be any
original signature hereto.

 

10Z-18

 

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

 

Publicity.  Company hereby authorizes Laurus to make
appropriate announcements of the financial arrangement entered into by and
between Company and Laurus, including, without limitation, announcements which
are commonly known as tombstones, in such publications and to such selected
parties as Laurus shall in its sole and absolute discretion deem appropriate,
or as required by applicable law.

 

Legends.  The
Securities shall bear legends as follows;

 

(a)                                           The Note shall bear substantially the following
legend:

 

“THIS NOTE AND THE COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS.  THIS NOTE AND THE COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
NOTE OR SUCH SHARES UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO NEWCO THAT SUCH REGISTRATION IS
NOT REQUIRED.”

 

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

 

“THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO NEWCO THAT SUCH REGISTRATION IS NOT
REQUIRED.”

 

(c)           The
Warrants shall bear substantially the following legend:”THIS WARRANT AND THE
COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE
UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO NEWCO THAT
SUCH REGISTRATION IS NOT REQUIRED.”

 

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

 

10Z-19

 

IN WITNESS WHEREOF, the parties have executed this Security Agreement
as 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

 

Annex A - Definitions

 

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

 

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

 

“Accounts” means all “accounts”, as such term is defined in the
UCC, now owned or hereafter acquired by any Person, including:  (a) all accounts receivable, other
receivables, book debts and other forms of obligations (other than forms of
obligations evidenced by Chattel Paper or Instruments) (including any such
obligations that may be characterized as an account or contract right under the
UCC); (b) [all of such Person’s rights in, to and under all purchase orders or
receipts for goods or services;] (c) all of such Person’s rights to any goods
represented by any of the foregoing (including unpaid sellers’ rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods); (d) all rights to payment due to
such Person for Goods or other property sold, leased, licensed, assigned or
otherwise disposed of, for a policy of insurance issued or to be issued, for a
secondary obligation incurred or to be incurred, for energy provided or to be
provided, 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 rendered
or 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 other
Person with respect to any of the foregoing.

 

“Accounts Availability” means the amount of Loans which Laurus
may from time to time make available to the Company which may not be greater
than the sum of (i) ninety percent (90%) of the net face amount of Eligible
Accounts; plus (ii) fifty percent (50%) of the Eligible Inventory not to exceed
fifty 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 currently
borrowed under subsection (ii) above.

 

“Affiliate” of any Person means (a) any Person (other than a
Subsidiary) 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) of
any 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 the
power (direct or indirect) to direct or cause the direction of the management
and policies of such Person whether by contract or otherwise.

 

“Ancillary Agreements” means, the Notes, Warrants, Registration
Rights Agreements, each Guaranty, each Guaranty Security Agreement and all
other agreements, instruments, documents, mortgages, pledges, powers of
attorney, consents, assignments, contracts, notices, security agreements, trust
agreements and guarantees whether heretofore, concurrently, or hereafter
executed by or on behalf of Company or any other Person or delivered to Laurus,
relating to this Agreement or to the transactions contemplated by this
Agreement or otherwise relating to the relationship between the Company and
Laurus.

 

10Z-21

 

“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 and
media devices, accounting books and records, financial statements (actual and
pro forma), filings with Governmental Authorities and any and all records and
instruments relating to the Collateral or otherwise necessary or helpful in the
collection thereof or the realization thereupon.

 

“Business Day” means a day on which Laurus is open for business
and that is not a Saturday, a Sunday or other day on which banks are required
or 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 is
defined in the UCC, including electronic chattel paper, now owned or hereafter
acquired by any Person.

 

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

 

“Collateral” means all of Company’s property and assets, whether
real 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 has
or 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 on
deposit 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 and
guarantees issued in support of Accounts, Chattel Paper, General Intangibles
and Investment Property;

 

(i) all money, cash and cash equivalents and (ii) all cash
held 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 for
the account of Company (whether for safekeeping, custody, pledge, transmission
or otherwise); and

 

all products and Proceeds of all or any of the foregoing,
tort claims and all claims and other rights to payment including insurance
claims 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 or
all of the foregoing and Proceeds payable under, or unearned premiums with
respect to policies of insurance in whatever form.

 

10Z-22

 

 “Contract Rate”
“Contract Rate” means an interest rate per annum equal to the Prime Rate plus
one and three-quarters percent (1.75%) per annum, but subject to the immediately
following sentence, the Contract Rate shall not be less than five and
three-quarters percent (5.75%). 
Commencing six months after the Closing Date, the Contract Rate shall be
subject to adjustment if (i) the Company shall have registered the shares of
the Company’s common stock underlying the conversion of all the Minimum
Borrowing Notes issued by the Company to Laurus and that certain warrant issued
to 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 applicable
Fixed Conversion Price in such percentages as outlined in the table below, the
Contract Rate for the succeeding calendar month shall automatically be
adjusted:

 

	
   

  	
   

  	
  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, as
provided for in the Minimum Borrowing Note.

 

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

 

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

 

“Deposit Accounts” means all “deposit accounts” as such term is
defined 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 in
the UCC, now owned or hereafter acquired by any Person, wherever located, including
all bills of lading, dock warrants, dock receipts, warehouse receipts, and
other 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 the
rendition of services has been completed; (b) no return, rejection or
repossession of the merchandise has occurred; (c) merchandise or services shall
not have been rejected or disputed by the Account Debtor and there shall not
have been asserted any offset, defense or counterclaim; (d) continues to be in
full conformity with the representations and warranties made by Company to Laurus
with respect thereto; (e) Laurus is, and continues to be, satisfied with the
credit standing of the Account Debtor in relation to the amount of credit
extended; (f) there are no facts existing or threatened which are likely to
result in any adverse change in an Account Debtor’s financial condition; (g) is
documented by an invoice in a form approved by Laurus and shall not be unpaid
more than ninety (90) days from invoice date; (h) not more than twenty-five
percent (25%) of the unpaid amount of invoices due from such Account Debtor
remains unpaid more than ninety (90) days from invoice date, provided, however,
that any Account considered current under the Company’s Foreign Credit Insurance
Association/Great American Insurance Company policy (net of any applicable
deductibles) shall be considered an Eligible Account; (i) is not evidenced by
chattel paper or an instrument of any kind with respect to or in payment of the
Account unless such instrument is duly endorsed to and in possession of Laurus
or represents a check in payment of a Account; (j) the Account

 

10Z-23

 

Debtor is located in the United States; provided, however,
Laurus may, from time to time, in the exercise of its sole discretion and based
upon satisfaction of certain conditions to be determined at such time by
Laurus, deem certain Accounts as Eligible Accounts notwithstanding that such
Account is due from an Account Debtor located outside of the United States; provided,
further, that any Account considered current under the Company’s Foreign
Credit Insurance Association/Great American Insurance Company policy (net of
any applicable deductibles) shall be considered an Eligible Account; (k) Laurus
has a first priority perfected Lien (except foreign Accounts) in such Account
and 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 not
arise out of a bill and hold sale prior to shipment and does not arise out of a
sale 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 contracts
between Company and the United States, any state, or any department, agency or
instrumentality of any of them, Company has so notified Laurus, in writing,
prior to the creation of such Account, and there has been compliance with any
governmental notice or approval requirements, including compliance with the
Federal Assignment of Claims Act; (q) is a good and valid account representing
an undisputed bona fide indebtedness incurred by the Account Debtor therein
named, for a fixed sum as set forth in the invoice relating thereto with
respect to an unconditional sale and delivery upon the stated terms of goods
sold by Company or work, labor and/or services rendered by Company; (r) does
not arise out of progress billings prior to completion of the order; (s) the
total unpaid Accounts from such Account Debtor does not exceed twenty-five
percent (25%) of all Eligible Accounts; (t) Company’s right to payment is
absolute and not contingent upon the fulfillment of any condition whatsoever
with the exception of applicable acceptance provisions for which such amounts
will be deemed ineligible; (u) Company is able to bring suit and enforce its
remedies against the Account Debtor through judicial process, provided, however,
that any Account considered current under the Company’s Foreign Credit
Insurance Association/Great American Insurance Company policy (net of any
applicable deductibles) shall be considered an Eligible Account; (v) does not
represent interest payments, late or finance charges owing to Company and (w)
is otherwise satisfactory to Laurus as determined by Laurus in the exercise of
its sole discretion.  In the event
Company requests that Laurus include within Eligible Accounts certain Accounts
of one or more of Company’s acquisition targets, Laurus shall at the time of
such request consider such inclusion, but any such inclusion shall be at the
sole option of Laurus and shall at all times be subject to the execution and
delivery to Laurus of all such documentation (including, without limitation,
guaranty and security documentation) as Laurus may require in its sole
discretion.

 

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

 

10Z-24

 

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

 

“Equipment” means all “equipment” as such term is defined in the
UCC, now owned or hereafter acquired by any Person, wherever located, including
any and all machinery, apparatus, equipment, fittings, furniture, fixtures,
motor vehicles and other tangible personal property (other than Inventory) of
every kind and description that may be now or hereafter used in such Person’s
operations or that are owned by such Person or in which such Person may have an
interest, and all parts, accessories and accessions thereto and substitutions
and replacements therefor.

 

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

 

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

 

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

 

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

 

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

 

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

 

“General Intangibles” means all “general intangibles” as such
term is defined in the UCC, now owned or hereafter acquired by any Person
including all right, title and interest that such Person may now or hereafter
have in or under any contract, all Payment Intangibles, customer lists,
Licenses, Intellectual Property, interests in partnerships, joint ventures and
other 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 and
Records, Goodwill (including the Goodwill associated with any Intellectual Property),
all rights and claims in or under insurance policies (including insurance for
fire, damage, loss, and casualty, whether covering personal property, real
property, 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 to
receive tax refunds and other payments, rights to received dividends,
distributions, cash, Instruments and other property

 

10Z-25

 

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 embedded
software to the extent included in “goods” as defined in the UCC, manufactured
homes, standing timber that is cut and removed for sale and unborn young of
animals.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Instruments” means all “instruments”, as such term is defined
in the UCC, now owned or hereafter acquired by any Person, wherever located, including
all certificated securities and all promissory notes and other evidences of
indebtedness, other than instruments that constitute, or are a part of a group
of 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 in
the UCC, now owned or hereafter acquired by any Person, wherever located,
including all inventory, merchandise, goods and other personal property that
are held by or on behalf of such Person for sale or lease or are furnished or
are to be furnished under a contract of service or that constitute raw materials,
work in process, finished goods, returned goods, or materials or supplies of
any kind, nature

 

10Z-26

 

or description used or consumed or to be used or consumed in such
Person’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 such
term is defined in the UCC, now owned or hereafter acquired by any Person,
wherever located.

 

“Letter-of-Credit Rights” means “letter-of-credit rights” as
such 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 or
not such Person, as beneficiary, has demanded or is entitled to demand payment
or performance.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

10Z-27

 

“Obligations” means all Loans, all advances, debts, liabilities,
obligations, covenants and duties owing by Company to Laurus (or any
corporation that directly or indirectly controls or is controlled by or is
under common control with Laurus) of every kind and description (whether or not
evidenced by any note or other instrument and whether or not for the payment of
money 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 otherwise
now existing or hereafter arising including any debt, liability or obligation
owing from Company to others which Laurus may have obtained by assignment or
otherwise and further including all interest (including interest accruing at
the then applicable rate provided in this Agreement after the maturity of the
Loans and interest accruing at the then applicable rate provided in this
Agreement after the filing of any petition in bankruptcy, or the commencement
of any insolvency, reorganization or like proceeding, whether or not a claim
for post-filing or post-petition interest is allowed in such proceeding),
charges or any other payments Company is required to make by law or otherwise
arising under or as a result of this Agreement and the Ancillary Agreements,
together with all reasonable expenses and reasonable attorneys’ fees chargeable
to Company’s account or incurred by Laurus in connection with Company’s account
whether provided for herein or in any Ancillary Agreement.

 

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

 

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

 

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

 

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

 

10Z-28

 

“Proceeds” means “proceeds”, as such term is defined in the UCC
and, in any event, shall include:  (a)
any and all proceeds of any insurance, indemnity, warranty or guaranty payable
to Company or any other Person from time to time with respect to any
Collateral; (b) any and all payments (in any form whatsoever) made or due and
payable to Company from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of any Collateral by any
governmental body, governmental authority, bureau or agency (or any person
acting under color of governmental authority); (c) any claim of Company against
third parties (i) for past, present or future infringement of any Intellectual
Property or (ii) for past, present or future infringement or dilution of any
trademark or trademark license or for injury to the goodwill associated with
any trademark, trademark registration or trademark licensed under any trademark
License; (d) any recoveries by Company against third parties with respect to
any litigation or dispute concerning any Collateral, including claims arising
out of the loss or nonconformity of, interference with the use of, defects in,
or infringement of rights in, or damage to, Collateral; (e) all amounts
collected on, or distributed on account of, other Collateral, including
dividends, interest, distributions and Instruments with respect to Investment
Property and pledged Stock; and (f) any and all other amounts , rights to
payment or other property acquired upon the sale, lease, license, exchange or
other disposition of Collateral and all rights arising out of Collateral.

 

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

 

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

 

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

 

“Registration Rights Agreements” means those registration rights
agreements from time to time entered into between Company and Laurus, as
amended, modified and supplemented from time to time.

 

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

 

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

 

10Z-29

 

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

 

“Software” means all “software” as such term is defined in the
UCC, now owned or hereafter acquired by any Person, including all computer
programs and all supporting information provided in connection with a
transaction related to any program.

 

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

 

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

 

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

 

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

 

“UCC” means the Uniform Commercial Code as the same may, from
time 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 any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, the term “UCC” shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions of this Agreement relating to such attachment, perfection,
priority or remedies and for purposes of definitions related to such
provisions; provided further, that to the extent that UCC is used to define any
term herein or in any Ancillary Agreement and such term is defined differently
in different Articles or Divisions of the UCC, the definition of such term
contained in Article or Division 9 shall govern.

 

“Warrants” has the meaning set forth in the Registration Rights
Agreements.

 

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

 

10Z-30

 

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

 

10Z-31

 

Exhibit 1(A)

 

Commercial Tort Claims

 

10Z-32

 

Exhibit 2

 

Permitted Liens

 

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

 

None

 

10Z-33

 

Exhibit 7(c)

 

Actions for Perfection

 

 

10Z-34

 

Exhibit 7(p)

 

Bank Accounts

 

10Z-35

 

Exhibit 12 (d)

 

10Z-36

 

Exhibit 12(i)

 

Licenses, Patents, Trademarks and Copyrights

 

10Z-37

 

Exhibit 13(e)(i)

 

Permitted Indebtedness

 

10Z-38

 

Exhibit 13(e)(ii)

 

Existing Subsidiaries

 

10Z-39

 

Exhibit A

 

Borrowing Base Certificate

 

LAURUS MASTER FUND, LTD.

 

and

 

MICRO COMPONENT TECHNOLOGY, INC.

 

Dated: March 9, 2004

 

10Z-40

 

	
  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

  	
   

  

 

10Z-41EXHIBIT 10AA

 

EXECUTION VERSION

 

MICRO COMPONENT TECHNOLOGY, INC.

 

SECURITIES PURCHASE AGREEMENT

 

March 9,
2004

 

10AA-1

 

TABLE OF CONTENTS

 

	
  1.

  	
  Agreement to Sell and
  Purchase

  	
   

  
	
  2.

  	
  Fees

  	
   

  
	
  3.

  	
  Closing, Delivery and Payment.

  	
   

  
	
   

  	
  3.1

  	
  Closing

  	
   

  
	
   

  	
  3.2

  	
  Delivery

  	
   

  
	
  4.

  	
  Representations and
  Warranties of the Company

  	
   

  
	
   

  	
  4.1

  	
  Organization, Good Standing and
  Qualification

  	
   

  
	
   

  	
  4.2

  	
  Subsidiaries

  	
   

  
	
   

  	
  4.3

  	
  Capitalization; Voting Rights

  	
   

  
	
   

  	
  4.4

  	
  Authorization;
  Binding Obligations

  	
   

  
	
   

  	
  4.5

  	
  Liabilities

  	
   

  
	
   

  	
  4.6

  	
  Agreements;
  Action

  	
   

  
	
   

  	
  4.7

  	
  Obligations
  to Related Parties

  	
   

  
	
   

  	
  4.8

  	
  Changes

  	
   

  
	
   

  	
  4.9

  	
  Title to Properties and
  Assets; Liens, Etc.

  	
   

  
	
   

  	
  4.10

  	
  Intellectual
  Property

  	
   

  
	
   

  	
  4.11

  	
  Compliance
  with Other Instruments

  	
   

  
	
   

  	
  4.12

  	
  Litigation

  	
   

  
	
   

  	
  4.13

  	
  Tax
  Returns and Payments

  	
   

  
	
   

  	
  4.14

  	
  Employees

  	
   

  
	
   

  	
  4.15

  	
  Registration Rights and
  Voting Rights

  	
   

  
	
   

  	
  4.16

  	
  Compliance
  with Laws; Permits

  	
   

  
	
   

  	
  4.17

  	
  Environmental and Safety
  Laws

  	
   

  
	
   

  	
  4.18

  	
  Valid Offering

  	
   

  
	
   

  	
  4.19

  	
  Full Disclosure

  	
   

  
	
   

  	
  4.20

  	
  Insurance

  	
   

  
	
   

  	
  4.21

  	
  SEC Reports

  	
   

  
	
   

  	
  4.22

  	
  Listing

  	
   

  
	
   

  	
  4.23

  	
  No
  Integrated Offering

  	
   

  
	
   

  	
  4.24

  	
  Stop Transfer

  	
   

  
	
   

  	
  4.25

  	
  Dilution.

  	
   

  
	
   

  	
  4.26

  	
  Patriot Act.

  	
   

  
	
  5.

  	
  Representations
  and Warranties of the Purchaser

  	
   

  
	
   

  	
  5.1

  	
  No Shorting

  	
   

  
	
   

  	
  5.2

  	
  Requisite Power and
  Authority

  	
   

  
	
   

  	
  5.3

  	
  Investment Representations

  	
   

  
	
   

  	
  5.4

  	
  Purchaser
  Bears Economic Risk

  	
   

  
	
   

  	
  5.5

  	
  Acquisition
  for Own Account

  	
   

  
	
   

  	
  5.6

  	
  Purchaser Can Protect Its
  Interest

  	
   

  
	
   

  	
  5.7

  	
  Accredited
  Investor

  	
   

  
	
   

  	
  5.8

  	
  Legends

  	
   

  
	
  6.

  	
  Covenants
  of the Company

  	
   

  
	
   

  	
  6.1

  	
  Stop-Orders

  	
   

  
	
   

  	
  6.2

  	
  Listing

  	
   

  
	
   

  	
  6.3

  	
  Market
  Regulations

  	
   

  
	
   

  	
  6.4

  	
  Reporting
  Requirements

  	
   

  
	
   

  	
  6.5

  	
  Use of Funds

  	
   

  
	
   

  	
  6.6

  	
  Access
  to Facilities

  	
   

  
	
   

  	
  6.7

  	
  Taxes

  	
   

  
							

 

10AA-2

 

	
   

  	
  6.8

  	
  Insurance

  	
   

  
	
   

  	
  6.9

  	
  Intellectual Property

  	
   

  
	
   

  	
  6.10

  	
  Properties

  	
   

  
	
   

  	
  6.11

  	
  Confidentiality

  	
   

  
	
   

  	
  6.12

  	
  Required Approvals

  	
   

  
	
   

  	
  6.13

  	
  Reissuance of Securities

  	
   

  
	
   

  	
  6.14

  	
  Opinion

  	
   

  
	
  7.

  	
  Covenants of the Purchaser

  	
   

  
	
   

  	
  7.1

  	
  Confidentiality

  	
   

  
	
   

  	
  7.2

  	
  Non-Public
  Information

  	
   

  
	
  8.

  	
   

  	
  Covenants of
  the Company and Purchaser Regarding Indemnification

  	
   

  
	
   

  	
  8.1

  	
  Company
  Indemnification

  	
   

  
	
   

  	
  8.2

  	
  Purchaser’s Indemnification

  	
   

  
	
   

  	
  8.3

  	
  Procedures

  	
   

  
	
  9.

  	
  Conversion of Convertible
  Note.

  	
   

  
	
  10.

  	
  Registration
  Rights, Indemnification.

  	
   

  
	
   

  	
  10.1

  	
  Registration Rights Granted

  	
   

  
	
   

  	
  10.2

  	
  Indemnification

  	
   

  
	
   

  	
  10.3

  	
  Offering
  Restrictions

  	
   

  
	
  11.

  	
  Miscellaneous

  	
   

  
	
   

  	
  11.1

  	
  Governing Law

  	
   

  
	
   

  	
  11.2

  	
  Survival

  	
   

  
	
   

  	
  11.3

  	
  Successors

  	
   

  
	
   

  	
  11.4

  	
  Entire Agreement

  	
   

  
	
   

  	
  11.5

  	
  Severability

  	
   

  
	
   

  	
  11.6

  	
  Amendment and Waiver

  	
   

  
	
   

  	
  11.7

  	
  Delays or
  Omissions

  	
   

  
	
   

  	
  11.8

  	
  Notices

  	
   

  
	
   

  	
  11.9

  	
  Attorneys’ Fees

  	
   

  
	
   

  	
  11.10

  	
  Titles and Subtitles

  	
   

  
	
   

  	
  11.11

  	
  Facsimile
  Signatures; Counterparts

  	
   

  
	
   

  	
  11.12

  	
  Broker’s Fees

  	
   

  
	
   

  	
  11.13

  	
  Construction

  	
   

  
					

 

	
  LIST OF EXHIBITS

  
	
  Form of Convertible Term Note

  	
  Exhibit A

  
	
  Form of Opinion

  	
  Exhibit B

  
	
  Form of Escrow Agreement

  	
  Exhibit C

  

 

10AA-3

 

SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT (this
“Agreement”) is made and entered into as of March 9, 2004, by and between
MICRO COMPONENT TECHNOLOGY, INC., a Minnesota corporation (the “Company”), and
Laurus Master Fund, Ltd., a Cayman Islands company (the “Purchaser”).

 

RECITALS

 

WHEREAS, the Company has authorized the sale to the
Purchaser of Convertible Term Note in the aggregate principal amount of Two
Million Dollars $2,000,000.00 (the “Note”), which Note is convertible into
shares of the Company’s common stock, $0.01 par value per share (the “Common
Stock”) at a fixed conversion price of
$[             ]
per share of Common Stock (“Fixed Conversion Price”);

 

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

 

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

 

AGREEMENT

 

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

 

10AA-4

 

Agreement to Sell and Purchase.  Pursuant to the terms and conditions set forth in this Agreement,
on the Closing Date (as defined in Section 3), the Company agrees to sell
to the Purchaser, and the Purchaser hereby agrees to purchase from the Company,
a Note in the aggregate amount of $2,000,000 convertible in accordance with the
terms thereof into shares of the Company’s Common Stock in accordance with the
terms of the Note and this Agreement. The Note purchased on the Closing Date
shall be known as the “Offering.” A form of the Note is annexed hereto as
Exhibit A. The Note will have a Maturity Date thirty six (36) months from the
date hereof. Collectively, the Note and Common Stock issuable upon conversion
of the Note are referred to as the “Securities.”

 

Fees.  On the Closing Date:

 

Subject to the terms of
Section 2(d) below, the Company shall pay to Laurus Capital Management,
LLC, manager of Purchaser a closing payment in an amount equal to three and
one-half percent (3.50%) of $2,000,000 or $70,000. The foregoing fee is
referred to herein as the “Closing Payment.”

 

The Company shall reimburse the
Purchaser for its reasonable legal fees for services rendered to the Purchaser
in preparation of this Agreement and the Related Agreements (as hereinafter
defined), and expenses in connection with the Purchaser’s due diligence review
of the Company and relevant matters. Legal expenses shall be $25,250.  Amounts required to be paid hereunder will
be paid at the Closing.

 

The Closing Payment, legal fees and
due diligence fees (net of deposits previously paid by the Company shall be
paid at closing out of funds held pursuant to a Funds Escrow Agreement of even
date herewith among the Company, Purchaser, and an Escrow Agent (the “Funds
Escrow Agreement”) and a disbursement letter (the “Disbursement Letter”).

 

Closing, Delivery and Payment.

 

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

 

Delivery.  Pursuant to the Funds Escrow Agreement in the form attached
hereto as Exhibit C, at the Closing on the Closing Date, the Company will
deliver to the Purchaser, among other things, a Note in the form attached as
Exhibit A representing the principal amount of $2,000,000 and the Purchaser
will deliver to the Company, among other things, the amounts set forth in the
Disbursement Letter by certified funds or wire transfer.

 

Representations and Warranties of the Company.  The
Company hereby represents and warrants to the Purchaser as of the date of this
Agreement as set forth below which disclosures are supplemented by, and subject
to the Company’s filings under the Securities Exchange Act of 1934
(collectively, the “Exchange Act Filings”), copies of which have been provided
to the Purchaser.

 

Organization, Good Standing and Qualification.  The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota.
The Company has the corporate power and authority to own and operate its
properties and assets, to execute and deliver this Agreement, and the Note to
be issued in connection with this Agreement, the

 

10AA-5

 

Security Agreement relating to the Note dated
as of March 9, 2004 between the Company and the Purchaser, the
Registration Rights Agreement relating to the Securities dated as of
March 9, 2004 between the Company and the Purchaser and all other
agreements referred to herein (collectively, the “Related Agreements”), to
issue and sell the Note and the shares of Common Stock issuable upon conversion
of the Note (the “Note Shares”), and to carry out the provisions of this Agreement
and the Related Agreements and to carry on its business as presently
conducted.  The Company is duly
qualified and is authorized to do business and is in good standing as a foreign
corporation in all jurisdictions in which the nature of its activities and of
its properties (both owned and leased) makes such qualification necessary,
except for those jurisdictions in which failure to do so would not have a material
adverse effect on the Company or its business.

 

Subsidiaries.  The
Company owns a majority of the issued and outstanding capital stock of all its
subsidiaries as listed in Schedule 4.2 hereof.  The Company does not own or control any equity security or other
interest of any other corporation, limited partnership or other business entity.

 

Capitalization; Voting Rights.

 

The authorized capital stock of the
Company, as of the date hereof consists of 41,000,000 shares, of which
40,000,000 are shares of Common Stock, par value $0.01 per share, 24,784,776
shares of which are issued and outstanding as of March 5, 2004, and
1,000,000 are shares of preferred stock, par value $0.01 per of share, none of
which are issued and outstanding.

 

Except as disclosed on
Schedule 4.3 and other than: 
(i)  2,578,555 and 120,000 shares
of Common Stock reserved for issuance upon exercise of opition granted or to be
granted, respectively, under the Company’s stock option plans; (ii) 283,350
shares of Common Stock issuable upon exercise of warrants issued by the
Company; and (iii) the shares which may be granted pursuant to this Agreement
and the Related Agreements, there are no other outstanding options, warrants,
rights (including conversion or preemptive rights and rights of first refusal),
proxy or stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. Except as
disclosed on Schedule 4.3, neither the offer, issuance or sale of any of
the Note, or the issuance of any of the Note Shares, nor the consummation of
any transaction contemplated hereby will result in a change in the price or
number of any securities of the Company outstanding, under anti-dilution or
other similar provisions contained in or affecting any such securities.

 

All issued and outstanding shares
of the Company’s Common Stock:  (i) have
been duly authorized and validly issued and are fully paid and nonassessable;
and (ii) were issued in compliance with all applicable state and federal laws
concerning the issuance of securities.

 

The rights, preferences, privileges
and restrictions of the shares of the Common Stock are as stated in the
Company’s Certificate of Incorporation (the “Charter”).  The Note Shares have been duly and validly
reserved for issuance. When issued in compliance with the provisions of this
Agreement and the Company’s Charter, the Securities will be validly issued,
fully paid and nonassessable, and will be free of any liens or encumbrances;
provided, however, that the Securities may be subject to restrictions on
transfer under state and/or federal securities laws as set forth herein or as
otherwise required by such laws at the time a transfer is proposed.

 

10AA-6

 

Authorization; Binding Obligations.  All corporate action on the part of the Company, its officers and
directors necessary for the authorization of this Agreement and the Related
Agreements, the performance of all obligations of the Company hereunder at the
Closing and, the authorization, sale, issuance and delivery of the Note have
been taken or will be taken prior to the Closing. The Agreement and the Related
Agreements, when executed and delivered and to the extent it is a party
thereto, will be valid and binding obligations of the Company enforceable in
accordance with their terms, except:

 

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

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

 

The sale of the Note and the subsequent conversion of the Note into
Note Shares are not and will not be subject to any preemptive rights or rights
of first refusal that have not been properly waived or complied with.

 

Liabilities.  The
Company, to the best of its knowledge, has no material contingent liabilities,
except current liabilities incurred in the ordinary course of business and
liabilities disclosed in any Exchange Act Filings.

 

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

 

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

 

Since September 27, 2003, the
Company has not:  (i) declared or paid
any dividends, or authorized or made any distribution upon or with respect to
any class or series of its capital stock; (ii) incurred any indebtedness for
money borrowed or any other liabilities (other than ordinary course
obligations) individually in excess of $50,000 or, in the case of indebtedness and/or
liabilities individually less than $50,000, in excess of $100,000 in the
aggregate; (iii) made any loans or advances to any person not in excess,
individually or in the aggregate, of $100,000, other than ordinary advances for
travel expenses; or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the sale of its inventory in the ordinary course
of business.

 

For the purposes of subsections (a)
and (b) above, all indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are affiliated
therewith)

 

10AA-7

 

shall be aggregated for the purpose
of meeting the individual minimum dollar amounts of such subsections.

 

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

 

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

reimbursement for reasonable
expenses incurred on behalf of the Company;

for other standard employee
benefits made generally available to all employees (including stock option
agreements outstanding under any stock option plan approved by the Board of
Directors of the Company); and

obligations listed in the Company’s
financial statements or disclosed in any of its Exchange Act Filings.

 

Except as described above or set forth on Schedule 4.7, none of
the officers, directors or, to the best of the Company’s knowledge, key
employees or stockholders of the Company or any members of their immediate
families, are indebted to the Company, individually or in the aggregate, in
excess of $50,000 or have any direct or indirect ownership interest in any firm
or corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation which competes with the
Company, other than passive investments in publicly traded companies
(representing less than one percent (1%) of such company) which may compete
with the Company. Except as described above, no officer, director or
stockholder, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with the Company and no
agreements, understandings or proposed transactions are contemplated between
the Company and any such person.  Except
as set forth on Schedule 4.7, the Company is not a guarantor or indemnitor
of any indebtedness of any other person, firm or corporation.

 

10AA-8

 

Changes.  Since
September 27, 2003, except as disclosed in any Exchange Act Filing or in
any Schedule to this Agreement or to any of the Related Agreements, there
has not been:

 

Any change in the assets,
liabilities, financial condition, prospects or operations of the Company, other
than changes in the ordinary course of business, none of which individually or
in the aggregate has had or is reasonably expected to have a material adverse
effect on such assets, liabilities, financial condition, prospects or
operations of the Company;

 

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

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

Any damage, destruction or loss,
whether or not covered by insurance, materially and adversely affecting the
properties, business or prospects or financial condition of the Company;

Any waiver by the Company of a
valuable right or of a material debt owed to it;

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

Any material change in any
compensation arrangement or agreement with any employee, officer, director or
stockholder;

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

Any labor organization activity
related to the Company;

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

Any sale, assignment or transfer of
any patents, trademarks, copyrights, trade secrets or other intangible assets;

Any change in any material
agreement to which the Company is a party or by which it is bound which may
materially and adversely affect the business, assets, liabilities, financial
condition, operations or prospects of the Company;

Any other event or condition of any
character that, either individually or cumulatively, has or may materially and
adversely affect the business, assets, liabilities, financial condition,
prospects or operations of the Company; or

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

 

Title to Properties
and Assets;
Liens, Etc.  Except as set forth on Schedule 4.9,
the Company has good and marketable title to its properties and assets, and
good title to its leasehold estates, in each case subject to no mortgage,
pledge, lien, lease, encumbrance or charge, other than:

 

those resulting from taxes which
have not yet become delinquent;

minor liens and encumbrances which
do not materially detract from the value of the property subject thereto or
materially impair the operations of the Company; and

those that have otherwise arisen in
the ordinary course of business.

 

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

 

10AA-9

 

Intellectual
Property.

 

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

 

The Company has not received any
communications alleging that the Company has violated any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity, nor is the Company aware of
any basis therefor.

 

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

 

Compliance with Other Instruments.  Except as set forth on Schedule 4.11, the Company is not in
violation or default of any term of its Charter or Bylaws, or of any material
provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or by which it is bound or of any judgment,
decree, order or writ.  The execution,
delivery and performance of and compliance with this Agreement and the Related
Agreements to which it is a party, and the issuance and sale of the Note by the
Company and the other Securities by the Company each pursuant hereto, will not,
with or without the passage of time or giving of notice, result in any such
material violation, or be in conflict with or constitute a default under any
such term or provision, or result in the creation of any mortgage, pledge,
lien, encumbrance or charge upon any of the properties or assets of the Company
or the suspension, revocation, impairment, forfeiture or nonrenewal of any
permit, license, authorization or approval applicable to the Company, its
business or operations or any of its assets or properties.

 

Litigation. 
Except as set forth on Schedule 4.12 hereto, there is no action,
suit, proceeding or investigation pending or, to the Company’s knowledge,
currently threatened against the Company that prevents the Company to enter
into this Agreement or the Related Agreements, or to consummate the
transactions contemplated hereby or thereby, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of the Company, financially or otherwise, or
any change in the current equity ownership of the Company, nor is the Company
aware that there is any basis for any of the foregoing. The Company is not a
party or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality.  There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.

 

10AA-10

 

Tax Returns and
Payments.  The Company has timely filed all tax returns
(federal, state and local) required to be filed by it.  All taxes shown to be due and payable on
such returns, any assessments imposed, and to the Company’s knowledge all other
taxes due and payable by the Company on or before the Closing, have been paid
or will be paid prior to the time they become delinquent.  Except as set forth on Schedule 4.13,
the Company has not been advised:

 

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

of any deficiency in assessment or
proposed judgment to its federal, state or other taxes.

 

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

 

10AA-11

 

Employees.  Except as
set forth on Schedule 4.14, the Company has no collective bargaining
agreements with any of its employees. 
There is no labor union organizing activity pending or, to the Company’s
knowledge, threatened with respect to the Company.  Except as disclosed in the Exchange Act Filings or on
Schedule 4.14, the Company is not a party to or bound by any currently
effective employment contract, deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation plan or agreement.  To the
Company’s knowledge, no employee of the Company, nor any consultant with whom
the Company has contracted, is in violation of any term of any employment
contract, proprietary information agreement or any other agreement relating to
the right of any such individual to be employed by, or to contract with, the
Company because of the nature of the business to be conducted by the Company;
and to the Company’s knowledge the continued employment by the Company of its
present employees, and the performance of the Company’s contracts with its
independent contractors, will not result in any such violation.  The Company is not aware that any of its
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere
with their duties to the Company.  The
Company has not received any notice alleging that any such violation has occurred.  Except for employees who have a current
effective employment agreement with the Company, no employee of the Company has
been granted the right to continued employment by the Company or to any material
compensation following termination of employment with the Company.  Except as set forth on Schedule 4.14,
the Company is not aware that any officer, key employee or group of employees
intends to terminate his, her or their employment with the Company, nor does
the Company have a present intention to terminate the employment of any officer,
key employee or group of employees.

 

Registration
Rights and Voting Rights.  Except as
set forth on Schedule 4.15 and except as disclosed in Exchange Act
Filings, the Company is presently not under any obligation, and has not granted
any rights, to register any of the Company’s presently outstanding securities
or any of its securities that may hereafter be issued.  Except as set forth on Schedule 4.15
and except as disclosed in Exchange Act Filings, to the Company’s knowledge, no
stockholder of the Company has entered into any agreement with respect to the
voting of equity securities of the Company.

 

Compliance with
Laws; Permits.  Except as set forth on Schedule 4.16,
to its knowledge, the Company is not in violation in any material respect of
any applicable statute, rule, regulation, order or restriction of any domestic
or foreign government or any instrumentality or agency thereof in respect of
the conduct of its business or the ownership of its properties which violation
would materially and adversely affect the business, assets, liabilities,
financial condition, operations or prospects of the Company.  No governmental orders, permissions,
consents, approvals or authorizations are required to be obtained and no
registrations or declarations are required to be filed in connection with the
execution and delivery of this Agreement and the issuance of any of the
Securities, except such as has been duly and validly obtained or filed, or with
respect to any filings that must be made after the Closing, as will be filed in
a timely manner.  The Company has all
material franchises, permits, licenses and any similar authority necessary for
the conduct of its business as now being conducted by it, the lack of which
would

 

10AA-12

 

materially and adversely affect the business,
properties, prospects or financial condition of the Company.

 

Environmental and
Safety Laws.  The Company is not in violation of any
applicable statute, law or regulation relating to the environment or occupational
health and safety, and to its knowledge, no material expenditures are or will
be required in order to comply with any such existing statute, law or
regulation. Except as set forth on Schedule 4.17, no Hazardous Materials
(as defined below) are used or have been used, stored, or disposed of by the
Company or, to the Company’s knowledge, by any other person or entity on any
property owned, leased or used by the Company. For the purposes of the
preceding sentence, “Hazardous Materials” shall mean:

 

materials which are listed or
otherwise defined as “hazardous” or “toxic” under any applicable local, state,
federal and/or foreign laws and regulations that govern the existence and/or
remedy of contamination on property, the protection of the environment from
contamination, the control of hazardous wastes, or other activities involving
hazardous substances, including building materials; or

any petroleum products or nuclear
materials.

 

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

 

Full Disclosure.  The Company has provided the Purchaser with all information
requested by the Purchaser in connection with its decision to purchase the
Note, including all information the Company believes is reasonably necessary to
make such investment decision.  Neither
this Agreement, the exhibits and schedules hereto, the Related Agreements nor
any other document delivered by the Company to Purchaser or its attorneys or
agents in connection herewith or therewith or with the transactions
contemplated hereby or thereby, contain any untrue statement of a material fact
nor omit to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances in which they are
made, not misleading.  Any financial
projections and other estimates provided to the Purchaser by the Company were
based on the Company’s experience in the industry and on assumptions of fact
and opinion as to future events which the Company, at the date of the issuance
of such projections or estimates, believed to be reasonable.

 

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

 

SEC Reports. 
Except as set forth on Schedule 4.21, the Company has filed all
proxy statements, reports and other documents required to be filed by it under
the Exchange Act.  The Company has
furnished the Purchaser with copies of: 
(i) its Annual Report on Form 10-K for the fiscal year ended
December 31, 2002; and (ii) its Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 29, 2003, June 28, 2003 and
September 27, 2003, and the Form 8-K filings

 

10AA-13

 

which it has made during 2003 to date
(collectively, the “SEC Reports”). Except as set forth on Schedule 4.21,
each SEC Report was, at the time of its filing, in substantial compliance with
the requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.

 

Listing.  The
Company’s Common Stock is listed for trading on the National Association
of  Securities Dealers,  Inc. Over the Counter Bulletin Board (“NASD
OTCBB”) and satisfies all requirements for the continuation of such
listings.  The Company has not received
any notice that its Common Stock will be delisted from NASD OTCBB or that it
does not meet all requirements for listing.

 

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

 

Stop Transfer.  The
Securities are restricted securities as of the date of this Agreement.  The Company will not issue any stop transfer
order or other order impeding the sale and delivery of any of the Securities at
such time as the Securities are registered for public sale or an exemption from
registration is available, except as required by state and federal securities
laws.

 

Dilution. 
The Company specifically acknowledges that its obligation to issue the
shares of Common Stock upon conversion of the Note is binding upon the Company
and enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company.

 

Patriot Act. 
If the Company is a corporation, trust, partnership, limited liability
Purchaser or other organization, the Company certifies that, to the best of
Company’s knowledge, the Company has not been designated, and is not owned or
controlled, by a “suspected terrorist” as defined in Executive Order
13224.  The Company hereby acknowledges
that the Purchaser seeks to comply with all applicable laws concerning money
laundering and related activities.  In
furtherance of those efforts, the Company hereby represents, warrants and
agrees that:  (i) none of the cash or
property that the Company will pay or will contribute to the Purchaser has been
or shall be derived from, or related to, any activity that is deemed criminal
under United States law; and (ii) no contribution or payment by the Company to
the Purchaser, to the extent that they are within the Company’s control shall
cause the Purchaser to be in violation of the United States Bank Secrecy Act,
the United States International Money Laundering Control Act of 1986 or the
United States International Money Laundering Abatement and Anti-Terrorist
Financing Act of 2001.  The Company
shall promptly notify the Purchaser if any of these representations ceases to
be true and accurate regarding the Company. 
The Company agrees to provide the Purchaser any additional information
regarding the Company that the Purchaser deems necessary or convenient to
ensure compliance with all applicable laws concerning money laundering and
similar activities.  The Company

 

10AA-14

 

understands and
agrees that if at any time it is discovered that any of the foregoing
representations are incorrect, or if otherwise required by applicable law or
regulation related to money laundering similar activities, the Purchaser may
undertake appropriate actions to ensure compliance with applicable law or
regulation, including but not limited to segregation and/or redemption of the
Company’s investment in the Purchaser. 
The Company further understands that the Purchaser may release
confidential information about the Company and, if applicable, any underlying
beneficial owners, to proper authorities if the Purchaser, in its sole
discretion, determines that it is in the best interests of the Purchaser in
light of relevant rules and regulations under the laws set forth in
subsection (ii) above.

 

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

 

No Shorting.  The
Purchaser or any of its affiliates and investment partners has not, will not
and will not cause any person or entity, directly or indirectly, to engage in
“short sales” of the Company’s Traded Securities or any other hedging
strategies as long as the Note shall be outstanding.

 

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

 

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

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

 

Investment
Representations.  Purchaser understands that the Securities
are being offered and sold pursuant to an exemption from registration contained
in the Securities Act based in part upon Purchaser’s representations contained
in the Agreement, including, without limitation, that the Purchaser is an
“accredited investor” within the meaning of Regulation D under the Securities
Act of 1933, as amended (the “Securities Act”). The Purchaser confirms that it
has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect
to the Note to be purchased by it under this Agreement and the Note Shares
acquired by it upon the conversion of the Note. The Purchaser further confirms
that it has had an opportunity to ask questions and receive answers from the
Company regarding the Company’s business, management and financial affairs and
the terms and conditions of the Offering, the Note and the Securities and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Purchaser or to which the
Purchaser had access.

 

10AA-15

 

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

 

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

 

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

 

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

 

Legends.

 

The Note shall bear substantially
the following legend:

“THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
NOTE OR SUCH SHARES UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO MICRO COMPONENT TECHNOLOGY, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED.”

 

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

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE, STATE
SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN

 

10AA-16

 

EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO MICRO
COMPONENT TECHNOLOGY, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”

 

10AA-17

 

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

 

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

 

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

 

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

 

Reporting
Requirements.  The Company will timely file with the SEC
all reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file
reports thereunder even if the Exchange Act or the rules or regulations
thereunder would permit such termination.

 

Use of Funds.  The
Company agrees that it will use the proceeds of the sale of the Note for
working capital purposes only.

 

Access to
Facilities. The Company
will permit any representatives designated by the Purchaser (or any successor
of the Purchaser), upon reasonable notice and during normal business hours, at
such person’s expense and accompanied by a representative of the Company, to:

 

visit and inspect any of the
properties of the Company;

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

discuss the affairs, finances and
accounts of the Company with the directors, officers and independent
accountants of the Company.

 

Notwithstanding the foregoing, the Company will not provide any
material, non-public information to the Purchaser unless the Purchaser signs a
confidentiality agreement and otherwise complies with Regulation FD, under the
federal securities laws.

 

10AA-18

 

Taxes.  The
Company will promptly pay and discharge, or cause to be paid and discharged,
when due and payable, all lawful taxes, assessments and governmental charges or
levies imposed upon the income, profits, property or business of the Company;
provided, however, that any such tax, assessment, charge or levy need not be
paid if the validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Company shall have set aside on its books
adequate reserves with respect thereto, and provided, further, that the Company
will pay all such taxes, assessments, charges or levies forthwith upon the
commencement of proceedings to foreclose any lien which may have attached as
security therefor.

 

Insurance.  The Company will keep its assets which are of an insurable
character insured by financially sound and reputable insurers against loss or
damage by fire, explosion and other risks customarily insured against by companies
in similar business similarly situated as the Company; and the Company will
maintain, with financially sound and reputable insurers, insurance against
other hazards and risks and liability to persons and property to the extent and
in the manner which the Company reasonably believes is customary for companies
in similar business similarly situated as the Company and to the extent
available on commercially reasonable terms. The Company and each of its subsidiaries set forth in
Section 4.2 hereof (the “Subsidiaries”) will jointly and severally bear
the full risk of loss from any loss of any nature whatsoever with respect to
the assets pledged to the Purchaser as security for its obligations hereunder
and under the Related Agreements. At the Company’s own cost and expense in
amounts and with carriers reasonably acceptable to Purchaser, the Company and
each of the Subsidiaries shall (i) keep all its insurable properties and
properties in which it has an interest insured against the hazards of fire,
flood, sprinkler leakage, those hazards covered by extended coverage insurance
and such other hazards, and for such amounts, as is customary in the case of
companies engaged in businesses similar to the Company’s or the respective
Subsidiary’s including business interruption insurance; (ii) maintain a bond in
such amounts as is customary in the case of companies engaged in businesses
similar to the Company’s or the Subsidiaries’ insuring against larceny,
embezzlement or other criminal misappropriation of insured’s officers and
employees who may either singly or jointly with others at any time have access
to the assets or funds of the Company either directly or through governmental
authority to draw upon such funds or to direct generally the disposition of
such assets; (iii) maintain public and product liability insurance against
claims for personal injury, death or property damage suffered by others; (iv)
maintain all such worker’s compensation or similar insurance as may be required
under the laws of any state or jurisdiction in which the Company or the
Subsidiaries are engaged in business; and (v) furnish Purchaser with (x) copies
of all policies and evidence of the maintenance of such policies at least
thirty (30) days before any expiration date, (y) excepting the Company’s
workers’ compensation policy, endorsements to such policies naming Purchaser as
“co-insured” or “additional insured” and appropriate loss payable endorsements
in form and substance satisfactory to Purchaser, naming Purchaser as loss
payee, and (z) evidence that as to Purchaser the insurance coverage shall not
be impaired or invalidated by any act or neglect of the Company or any of its
Subsidiaries and the insurer will provide Purchaser with at least thirty (30)
days notice prior to cancellation.  The
Company and each of its Subsidiaries shall instruct the insurance carriers that
in the event of any loss thereunder, the carriers shall make payment for such
loss to the Company and/or any of the Subsidiaries and Purchaser jointly.  In the event that as of the date of receipt
of

 

10AA-19

 

each loss recovery upon any such insurance, the Purchaser has not
declared an event of default with respect to this Agreement or any of the
Related Agreements, then the Company shall be permitted to direct the
application of such loss recovery proceeds toward investment in property, plant
and equipment that would comprise “Collateral” secured by Purchaser’s security
interest pursuant to its security agreement, with any surplus funds to be
applied toward payment of the obligations of the Company to Purchaser. In the
event that Purchaser has properly declared an event of default with respect to
this Agreement or any of the Related Agreements, then all loss recoveries
received by Purchaser upon any such insurance thereafter may be applied to the
obligations of the Company hereunder and under the Related Agreements, in such
order as the Purchaser may determine. Any surplus (following satisfaction of
all Company obligations to Purchaser) shall be paid by Purchaser to the Company
or applied as may be otherwise required by law.  Any deficiency thereon shall be paid by the Company or any of the
Subsidiaries, as applicable, to Purchaser, on demand.

 

Intellectual Property.  The Company shall maintain in full force and effect its corporate
existence, rights and franchises and all licenses and other rights to use
Intellectual Property owned or possessed by it and reasonably deemed to be
necessary to the conduct of its business.

 

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

 

Confidentiality.  The Company agrees that it will not disclose, and will not
include in any public announcement, the name of the Purchaser, unless expressly
agreed to by the Purchaser or unless and until such disclosure is required by
law or applicable regulation, and then only to the extent of such requirement.  The Company may disclose Purchaser’s
identity and the terms of this Agreement to its current and prospective debt
and equity financing sources.

 

Required Approvals.  For so long as twenty-five percent (25%) of the aggregate
principal amount of the Note is outstanding, the Company, without the prior
written consent of the Purchaser, shall not:

 

directly or indirectly declare or
pay any dividends, other than dividends with respect to its preferred stock;

liquidate, dissolve or effect a
material reorganization;

become subject to (including,
without limitation, by way of amendment to or modification of) any agreement or
instrument which by its terms would (under any circumstances) restrict the
Company’s right to perform the provisions of this Agreement or any of the agreements
contemplated thereby;

materially alter or change the
scope of the business of the Company;

create, incur, assume or suffer to exist any indebtedness (exclusive of
trade debt and debt incurred to finance the purchase of equipment (not in
excess of five percent (5%) per annum of

 

10AA-20

 

the Company’s assets) whether secured or unsecured other than the
Company’s indebtedness to Laurus and as set forth on Exhibit 6.12(e) attached
hereto and made a part hereof or any refinancings or replacements thereof or
any debt incurred in connection with the purchase of assets or in connection
with operating lines of credit as necessary to operate such assets, or any
refinancings or replacements thereof; (ii) cancel any debt owing to it in
excess of $50,000 in the aggregate during any 12 month period; (iii) assume,
guarantee, endorse or otherwise become directly or contingently liable in
connection with any obligations of any other Person, except the endorsement of
negotiable instruments by a Company for deposit or collection or similar
transactions in the ordinary course of business or guarantees provided to any
of the lenders set forth in subparagraph (i) immediately above.

 

Reissuance of Securities.  The Company agrees to reissue certificates representing the
Securities without the legends set forth in Section 5.7 above at such time
as:

 

the holder thereof is permitted to
dispose of such Securities pursuant to Rule 144(k) under the Securities Act; or

upon resale subject to an effective
registration statement after such Securities are registered under the
Securities Act.

 

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

 

Opinion.  On the Closing Date, the Company will deliver to the Purchaser an
opinion in the form attached hereto as Exhibit B. The Company will provide, at
the Company’s expense, such other legal opinions in the future as are
reasonably necessary for the conversion of the Note.

 

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

 

Confidentiality.  The Purchaser agrees that it will not disclose, and will not
include in any public announcement, the name of the Company, unless expressly
agreed to by the Company or unless and until such disclosure is required by law
or applicable regulation, and then only to the extent of such requirement.

 

Non-Public
Information.  The Purchaser agrees not to effect any sales
in the shares of the Company’s Common Stock while in possession of material,
non-public information regarding the Company if such sales would violate
applicable securities law.

 

Covenants of the Company and Purchaser Regarding Indemnification.

 

Company
Indemnification.  The Company agrees to indemnify, hold
harmless, reimburse and defend Purchaser, each of Purchaser’s officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon
the Purchaser which results, arises out of or is based upon: (i) any
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any exhibits or schedules attached hereto or any

 

10AA-21

 

Related Agreement; or (ii) any breach or
default in performance by Company of any covenant or undertaking to be
performed by Company hereunder, or any other agreement entered into by the Company
and Purchaser relating hereto.

 

Purchaser’s
Indemnification.  Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company’s officers,
directors, agents, affiliates, control persons and principal shareholders, at
all times against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company which results, arises out of or is based upon:  (i) any misrepresentation by Purchaser or
breach of any warranty by Purchaser in this Agreement or in any exhibits or
schedules attached hereto or any Related Agreement; or (ii) any breach or
default in performance by Purchaser of any covenant or undertaking to be
performed by Purchaser hereunder, or any other agreement entered into by the
Company and Purchaser relating hereto.

 

Procedures.  The
procedures and limitations set forth in Section 10.2(c) and (d) shall
apply to the indemnifications set forth in Sections 8.1 and 8.2 above.

 

Conversion of
Convertible Note.

 

Provided the Purchaser has notified
the Company of the Purchaser’s intention to sell the Note Shares and the Note
Shares are included in an effective registration statement or are otherwise
exempt from registration when sold:  (i)
Upon the conversion of the Note or part thereof, the Company shall, at its own
cost and expense, take all necessary action (including the issuance of an
opinion of counsel) to assure that the Company’s transfer agent shall issue
shares of the Company’s Common Stock in the name of the Purchaser (or its
nominee) or such other persons as designated by the Purchaser in accordance
with Section 9.1(b) hereof and in such denominations to be specified
representing the number of Note Shares issuable upon such conversion; and
(ii)  the Company warrants that no
instructions other than these instructions have been or will be given to the
transfer agent of the Company’s Common Stock and that after the Effectiveness
Date (as defined in the Registration Rights Agreement) the Note Shares issued
will be freely transferable subject to the prospectus delivery requirements of
the Securities Act and the provisions of this Agreement, and will not contain a
legend restricting the resale or transferability of the Note Shares.

 

  The Purchaser shall
convert the Notes into shares of Common Stock pursuant to the provision of
Article III of the Note.

 

 

10AA-22

 

 

Registration Rights, Indemnification.

 

Registration Rights Granted.  The Company hereby grants registration rights to the Purchaser
pursuant to a Registration Rights Agreement dated as of even date herewith
between the Company and the Purchaser.

 

Indemnification. The Company shall be
subject to the indemnification provisions provided for in Section 5 of the
Registration Rights Agreement.

 

Offering
Restrictions.  Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company; or shares of preferred stock issued to
pay dividends in respect of the Company’s preferred stock; or equity or debt
issued in connection with an acquisition of a business or assets by the
Company; or the issuance by the Company of stock in connection with the
establishment of a joint venture partnership or licensing arrangement (these
exceptions hereinafter referred to as the “Excepted Issuances”), the Company
will not issue any securities with a continuously variable/floating conversion
feature which are or could be (by conversion or registration) free-trading
securities (i.e. common stock subject to a registration statement) prior to the
full repayment or conversion of the Note (the “Exclusion Period”).

 

Miscellaneous.

 

Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.  ANY ACTION BROUGHT
BY EITHER PARTY AGAINST THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE
FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK.  BOTH PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT AND
OTHER AGREEMENTS ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION
OF SUCH COURTS AND WAIVE TRIAL BY JURY. 
IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY OTHER AGREEMENT
DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY
APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED
INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED
MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW.  ANY SUCH PROVISION WHICH MAY PROVE INVALID OR UNENFORCEABLE UNDER
ANY LAW SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION
OF ANY AGREEMENT.

 

Survival.  The
representations, warranties, covenants and agreements made herein shall survive
any investigation made by the Purchaser and the closing of the transactions
contemplated hereby to the extent provided therein. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.

 

10AA-23

 

Successors. 
Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon, the successors, heirs,
executors and administrators of the parties hereto and shall inure to the
benefit of and be enforceable by each person who shall be a holder of the
Securities from time to time, other than the holders of Common Stock which has
been sold by the Purchaser pursuant to Rule 144 or an effective registration
statement. Purchaser may not assign its rights hereunder to a competitor of the
Company.

 

Entire Agreement.  This Agreement, the exhibits and schedules hereto, the Related
Agreements and the other documents delivered pursuant hereto constitute the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and no party shall be liable or bound to any other in any
manner by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.

 

Severability.  In
case any provision of the Agreement shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.

 

Amendment and Waiver.

 

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

 

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

 

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

 

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

 

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

 

upon personal delivery to the party
to be notified;

when sent by confirmed facsimile if
sent during normal business hours of the recipient, if not, then on the next
business day;

three (3) business days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid; or

one (1) day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt.

 

10AA-24

 

All communications shall be sent as follows:

 

	
  If to the Company, to:

  	
   

  	
  MICRO COMPONENT
  TECHNOLOGY, INC.

  2340 West County Road C,

  St. Paul, Minnesota 55113-2528

  Attention: Chief Financial Officer

  Telephone:  (651) 697-4000

  Facsimile: (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

  
	
   

  	
   

  	
   

  
	
  If to the Purchaser, to:

  	
   

  	
  Laurus Master Fund, Ltd.

  c/o Ironshore Corporate Services ltd.

  P.O. Box 1234 G.T.

  Queensgate House, South Church Street

  Grand Cayman, Cayman Islands

  Facsimile:(345)949-9877

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  with a copy to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  John E. Tucker, Esq.

  825 Third Avenue 14th Floor

  New York, NY 10022

  Facsimile:(212)541-4434

  

 

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

 

10AA-25

 

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

 

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

 

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

 

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

 

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

 

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK

 

10AA-26

 

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

 

	
  COMPANY:

  	
  PURCHASER:

  
	
   

  	
   

  
	
  MICRO COMPONENT
  TECHNOLOGY, INC.

  	
  LAURUS MASTER FUND, LTD.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   /s/ Thomas P. Maun

  	
   

  	
  By:

  	
   /s/ Eugene Grin

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
  Title:

  	
    CFO

  	
   

  	
  Title:

  	
    Director

  	
   

  

 

10AA-27

 

EXHIBIT A

 

FORM OF CONVERTIBLE NOTE

 

10AA-28

 

EXHIBIT B

 

FORM OF OPINION

 

1.                                       The Company is
a corporation validly existing and in good standing under the laws of the State
of Minnesota and has all requisite corporate power and authority to own,
operate and lease its properties and to carry on its business as it is now
being conducted.

 

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

 

3.                                       The execution,
delivery and performance of the Agreement, the Note or the Related Agreements
by the Company and the consummation of the transactions on its part
contemplated by any thereof, will not, with or without the giving of notice or
the passage of time or both:

 

(a)                                  Violate the provisions of
the Charter or bylaws of the Company; or

 

(b)                                 To the best of such
counsel’s knowledge, violate any judgment, decree, order or award of any court
binding upon the Company.

 

4.                                       The Agreement
and Related Agreements will constitute, valid and legally binding obligations
of the Company, and are enforceable against the Company in accordance with
their respective terms, except:

 

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

 

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

 

5.                                       To such
counsel’s knowledge, the sale of the Note and the subsequent conversion of the
Note into Note Shares are not subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with.

 

6.                                       Assuming the
accuracy of the representations and warranties of the Purchaser contained in
the Agreement, the offer, sale and issuance of the Securities on the Closing
Date

 

10AA-29

 

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

 

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

 

8.                                       The
UCC-1 Financing Statement naming the Company as debtor and Laurus as secured
party is in proper form for filing and assuming that such UCC-1 Financing
Statement has been filed with the Secretary of State of Minnesota, the security
interest created under the Security Agreement will constitute a perfected
security interest under the Uniform Commercial Code in favor of Laurus.

 

10AA-30

 

EXHIBIT C

 

FORM OF ESCROW AGREEMENT

 

10AA-31

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