Exhibit 10.1
SECURITIES PURCHASE
AGREEMENT
LAURUS MASTER FUND,
LTD.
and
MICRO COMPONENT TECHNOLOGY,
INC.
Dated: March 29,
2007
TABLE OF CONTENTS
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Page
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1.
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Agreement to Sell and Purchase.
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1
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2.
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Fees and Warrant.
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1
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3.
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Closing, Delivery and Payment.
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2
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3.1
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Closing.
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2
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3.2
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Delivery.
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2
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4.
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Representations and Warranties of the
Company.
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2
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4.1
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Organization, Good Standing and
Qualification.
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2
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4.2
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Subsidiaries.
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3
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4.3
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Capitalization; Voting Rights.
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3
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4.4
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Authorization; Binding
Obligations.
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4
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4.5
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Liabilities; Solvency.
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5
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4.6
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Agreements; Action.
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5
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4.7
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Obligations to Related Parties.
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6
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4.8
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Changes.
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7
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4.9
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Title to Properties and Assets; Liens,
Etc.
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8
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4.10
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Intellectual Property.
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9
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4.11
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Compliance with Other
Instruments.
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9
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4.12
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Litigation.
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10
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4.13
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Tax Returns and Payments.
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10
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4.14
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Employees.
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10
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4.15
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Registration Rights and Voting
Rights.
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11
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4.16
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Compliance with Laws; Permits.
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11
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4.17
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Environmental and Safety Laws.
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11
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4.18
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Valid Offering.
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12
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4.19
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Full Disclosure.
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12
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4.20
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Insurance.
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12
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4.21
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SEC Reports.
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12
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4.22
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Listing.
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13
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4.23
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No Integrated Offering.
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13
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4.24
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Stop Transfer.
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13
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4.25
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Dilution.
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13
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4.26
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Patriot Act.
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13
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4.27
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ERISA.
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14
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5.
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Representations and Warranties of the
Purchaser.
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14
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5.1
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No Shorting.
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14
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5.2
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Requisite Power and Authority.
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14
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5.3
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Investment Representations.
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15
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5.4
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The Purchaser Bears Economic
Risk.
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15
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5.5
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Acquisition for Own Account.
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15
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5.6
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The Purchaser Can Protect Its
Interest.
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15
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5.7
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Accredited Investor.
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16
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5.8
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Legends.
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16
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i
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Page(s)
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6.
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Covenants of the Company.
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16
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6.1
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Stop-Orders.
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16
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6.2
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Listing.
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16
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6.3
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Market Regulations.
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17
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6.4
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Reporting Requirements.
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17
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6.5
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Use of Funds.
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18
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6.6
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Access to Facilities.
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18
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6.7
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Taxes.
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19
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6.8
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Insurance.
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19
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6.9
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Intellectual Property.
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20
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6.10
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Properties.
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20
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6.11
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Confidentiality.
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20
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6.12
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Required Approvals.
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20
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6.13
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Reissuance of Securities.
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22
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6.14
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Opinion.
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22
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6.15
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Margin Stock.
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22
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6.16
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FIRPTA.
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22
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6.17
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Financing Right of First Refusal.
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22
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6.18
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Authorization and Reservation of
Shares.
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23
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7.
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Covenants of the Purchaser.
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24
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7.1
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Confidentiality.
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24
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7.2
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Non-Public Information.
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24
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7.3
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Limitation on Acquisition of Common Stock of the
Company.
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24
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8.
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Covenants of the Company and the Purchaser
Regarding Indemnification.
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24
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8.1
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Company Indemnification.
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24
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8.2
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Purchaser’s
Indemnification.
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24
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9.
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Exercise of the Warrant.
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25
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9.1
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Mechanics of Exercise.
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25
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10.
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Registration Rights.
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26
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10.1
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Registration Rights Granted.
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26
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10.2
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Offering Restrictions.
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26
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11.
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Miscellaneous.
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26
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11.1
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Governing Law, Jurisdiction and Waiver of Jury
Trial.
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26
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11.2
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Severability.
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27
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11.3
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Survival.
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28
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11.4
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Successors.
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28
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11.5
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Entire Agreement; Maximum
Interest.
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28
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11.6
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Amendment and Waiver.
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29
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11.7
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Delays or Omissions.
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29
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11.8
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Notices.
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29
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11.9
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Attorneys’ Fees.
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30
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11.10
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Titles and Subtitles.
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30
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11.11
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Facsimile Signatures;
Counterparts.
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30
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11.12
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Broker’s Fees.
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30
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11.13
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Construction.
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31
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ii
LIST OF EXHIBITS
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Form of Secured Term Note
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Exhibit A
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Form of Warrant
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Exhibit B
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Form of Opinion
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Exhibit C
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Form of Escrow Agreement
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Exhibit D
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iii
SECURITIES PURCHASE
AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT
(this “Agreement”) is made and entered into as of March
29, 2007, 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 a Secured Term Note in the aggregate
principal amount of One Million Dollars ($1,000,000) in the form of
Exhibit A hereto (as amended, modified and/or supplemented from
time to time, the “Note”);
WHEREAS, the Company wishes to issue
to the Purchaser a warrant in the form of Exhibit B hereto (as
amended, modified and/or supplemented from time to time, the
“Warrant”) to purchase up to 5,000,000 shares of the
Company’s Common Stock (subject to adjustment as set forth
therein) in connection with the Purchaser’s purchase of the
Note;
WHEREAS, the Purchaser desires to
purchase the Note and the Warrant on the terms and conditions set
forth herein; and
WHEREAS, the Company desires to
issue and sell the Note and Warrant to the 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:
2.
Agreement to Sell and Purchase . Pursuant to the terms
and conditions set forth in this Agreement, on the Closing Date (as
defined in Section 3), the Company shall sell to the Purchaser, and
the Purchaser shall purchase from the Company, the Note. The
sale of the Note on the Closing Date shall be known as the
“Offering.” The Note will mature on the Maturity
Date (as defined in the Note). Collectively, the Note and
Warrant and Common Stock issuable upon exercise of the Warrant are
referred to as the “Securities.”
3.
Fees and Warrant . On the Closing Date:
(a)
The Company will issue and deliver to the Purchaser the Warrant to
purchase up to 5,000,000 shares of Common Stock (subject to
adjustment as set forth therein) in connection with the Offering,
pursuant to Section 1 hereof. All the representations,
covenants, warranties, undertakings, and indemnification, and other
rights made or granted to or for the benefit of the Purchaser by
the Company are hereby also made and granted for the benefit of the
holder of the Warrant and shares of the
Company’s Common Stock
issuable upon exercise of the Warrant (the “Warrant
Shares”).
(b)
Subject to the terms of Section 2(d) below, the Company shall pay
to Laurus Capital Management, LLC, the investment manager of the
Purchaser (“LCM”), a non-refundable payment in an
amount equal to three and one half percent (3.50%) of the aggregate
principal amount of the Note. The foregoing payment is
referred to herein as the “LCM Payment.” Such
payment shall be deemed fully earned on the Closing Date and shall
not be subject to rebate or proration for any reason.
(c)
[Intentionally Deleted].
(d)
The LCM Payment and the expenses referred to in the preceding
clause (c) (net of deposits previously paid by the Company) shall
be paid at closing out of funds held pursuant to the Escrow
Agreement (as defined below) and a disbursement letter (the
“Disbursement Letter”).
4.
Closing, Delivery and Payment .
4.1
Closing . Subject to the terms and conditions herein,
the closing of the transactions contemplated hereby (the
“Closing”), shall take place on the date hereof, at
such time or place as the Company and the Purchaser may mutually
agree (such date is hereinafter referred to as the “Closing
Date”).
4.2
Delivery . Pursuant to the Escrow Agreement, at the
Closing on the Closing Date, the Company will deliver to the
Purchaser, among other things, the Note and the Warrant 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 (it being understood that $964,500 of the proceeds of
the Note shall be placed in the Restricted Account (as defined in
the Restricted Account Agreement referred to below)). The Company
hereby acknowledges and agrees that Purchaser’s obligation to
purchase the Note from the Company on the Closing Date shall be
contingent upon the satisfaction (or waiver by the Purchaser in its
sole discretion) of the items and matters set forth in the closing
checklist provided by the Purchaser to the Company on or prior to
the Closing Date.
5.
Representations and Warranties of the Company . The
Company hereby represents and warrants to the Purchaser as
follows
5.1
Organization, Good Standing and Qualification . Each
of the Company and each of its Subsidiaries is a corporation,
partnership or limited liability company, as the case may be, duly
organized, validly existing and in good standing under the laws of
its jurisdiction of organization. Each of the Company and
each of its Subsidiaries has the corporate, limited liability
company or partnership, as the case may be, power and authority to
own and operate its properties and assets and, insofar as it is or
shall be a party thereto, to (1) execute and deliver (i) this
Agreement, (ii) the Note and the Warrant to be issued in connection
with this Agreement, (iii) the Reaffirmation and Ratification
Agreement dated as of the date hereof among the Company, certain
Subsidiaries of the Company and the Purchaser (as amended, modified
and/or supplemented from time to time, the “Reaffirmation
Agreement”), (iv) the Registration Rights
2
Agreement relating to the Securities
dated as of the date hereof between the Company and the Purchaser
(as amended, modified and/or supplemented from time to time, the
“Registration Rights Agreement”), (v) the Funds Escrow
Agreement dated as of the date hereof among the Company, the
Purchaser and the escrow agent referred to therein, substantially
in the form of Exhibit D hereto (as amended, modified and/or
supplemented from time to time, the “Escrow
Agreement”), (vi) the Restricted Account Agreement dated as
of the date hereof among the Company, the Purchaser and North Fork
Bank (as amended, restated, modified and/or supplemented from time
to time, the “Restricted Account Agreement”), (vii) the
Restricted Account Side Letter related to the Restricted Account
Agreement dated as of the date hereof between the Company and the
Purchaser (as amended, restated, modified and/or supplemented from
time to time, the “Restricted Account Side Letter”) and
(viii) all other documents, instruments and agreements entered into
in connection with the transactions contemplated hereby and thereby
(the preceding clauses (ii) through (viii), together with (w) that
certain Master Security Agreement dated as of February 17, 2006 by
and among the Company, certain Subsidiaries of the Company and the
Purchaser (as amended, restated, modified and/or supplemented from
time to time, the “2006 Master Security Agreement”),
(x) that certain Stock Pledge Agreement dated as of February 17,
2006 among the Company, certain Subsidiaries of the Company and the
Purchaser (as amended, restated, modified and/or supplemented from
time to time, the “2006 Stock Pledge Agreement”), and
(y) that certain Guaranty dated as of February 17, 2006 made by
certain Subsidiaries of the Company (as amended, restated, modified
and/or supplemented from time to time, the “2006
Guaranty”), collectively, the “Related
Agreements” and each, a “Related Agreement”); (2)
issue and sell the Note; (3) issue and sell the Warrant and
the Warrant Shares; and (4) carry out the provisions of this
Agreement and the Related Agreements and to carry on its business
as presently conducted. Each of the Company and each of its
Subsidiaries is duly qualified and is authorized to do business and
is in good standing as a foreign corporation, partnership or
limited liability company, as the case may be, in all jurisdictions
in which the nature or location of its activities and of its
properties (both owned and leased) makes such qualification
necessary, except for those jurisdictions in which failure to do so
has not, or could not reasonably be expected to have, individually
or in the aggregate, a material adverse effect on the business,
assets, liabilities, condition (financial or otherwise),
properties, operations or prospects of the Company and its
Subsidiaries, taken individually and as a whole (a “Material
Adverse Effect”).
5.2
Subsidiaries . Each direct and indirect Subsidiary of
the Company, the direct owner of such Subsidiary and its percentage
ownership thereof, is set forth on Schedule 4.2. For the
purpose of this Agreement, a “Subsidiary” of any person
or entity means (i) a corporation or other entity whose shares of
stock or other ownership interests having ordinary voting power
(other than stock or other ownership interests having such power
only by reason of the happening of a contingency) to elect a
majority of the directors of such corporation, or other persons or
entities performing similar functions for such person or entity,
are owned, directly or indirectly, by such person or entity or (ii)
a corporation or other entity in which such person or entity owns,
directly or indirectly, more than 50% of the equity interests at
such time.
5.3
Capitalization; Voting Rights .
(a)
The authorized capital stock of the Company, as of the date hereof
consists of 55,000,000 shares, of which 54,000,000 are shares of
Common Stock, par
3
value $0.01 per share, 36,665,322
shares of which are issued and outstanding , and 1,000,000 are
shares of preferred stock, par value $0.01 per share none of which
shares of preferred stock are issued and outstanding.] The
authorized, issued and outstanding capital stock of each Subsidiary
of the Company is set forth on Schedule 4.3.
(b)
Except as disclosed on Schedule 4.3, other than: (i) the
shares reserved for issuance under the Company’s stock option
plans; and (ii) shares which may be granted pursuant to this
Agreement and the Related Agreements, there are no outstanding
options, warrants, rights (including conversion or preemptive
rights and rights of first refusal), proxy or stockholder
agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its
securities. Except as disclosed on Schedule 4.3, neither the
offer, issuance or sale of any of the Note or the Warrant, or the
issuance of any of the Warrant 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.
(c)
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.
(d)
The rights, preferences, privileges and restrictions of the shares
of the Common Stock are as stated in the Company’s
Certificate of Incorporation (the “Charter”). The
Warrant Shares have been duly and validly reserved for
issuance. When issued in compliance with the provisions of
this Agreement and the Company’s Charter, the Securities will
be validly issued, fully paid and 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.
5.4
Authorization; Binding Obligations . All corporate,
partnership or limited liability company, as the case may be,
action on the part of the Company and each of its Subsidiaries
(including their respective officers and directors) necessary for
the authorization of this Agreement and the Related Agreements, the
performance of all obligations of the Company and its Subsidiaries
hereunder and under the other Related Agreements at the Closing
and, the authorization, sale, issuance and delivery of the Note and
Warrant has been taken or will be taken prior to the Closing.
This Agreement and the Related Agreements, when executed and
delivered and to the extent it is a party thereto, will be valid
and binding obligations of each of the Company and each of its
Subsidiaries, enforceable against each such person or entity in
accordance with their terms, except:
(a)
as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting
enforcement of creditors’ rights; and
4
(b)
general principles of equity that restrict the availability of
equitable or legal remedies.
The sale of the Note is not and will
not be subject to any preemptive rights or rights of first refusal
that have not been properly waived or complied with. The
issuance of the Warrant and the subsequent exercise of the Warrant
for Warrant Shares are not and will not be subject to any
preemptive rights or rights of first refusal that have not been
properly waived or complied with.
5.5
Liabilities .
Neither the
Company nor any of its Subsidiaries has any liabilities, except
current liabilities incurred in the ordinary course of business and
liabilities disclosed in any of the Company’s filings under
the Securities Exchange Act of 1934 (“Exchange Act”)
made prior to the date of this Agreement (collectively, the
“Exchange Act Filings”), copies of which have been
provided to the Purchaser.
5.6
Agreements; Action . Except as set forth on Schedule
4.6 or as disclosed in any Exchange Act Filings:
(a)
there are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which
the Company or any of its Subsidiaries is a party or by which it is
bound which may involve: (i) obligations (contingent or otherwise)
of, or payments to, the Company or any of its Subsidiaries in
excess of $50,000 (other than obligations of, or payments to, the
Company or any of its Subsidiaries arising from purchase or sale
agreements entered into in the ordinary course of business); or
(ii) the transfer or license of any patent, copyright, trade secret
or other proprietary right to or from the Company or any of its
Subsidiaries (other than licenses arising from the purchase of
“off the shelf” or other standard products); or (iii)
provisions restricting the development, manufacture or distribution
of the Company’s or any of its Subsidiaries products or
services; or (iv) indemnification by the Company or any of its
Subsidiaries with respect to infringements of proprietary
rights.
(b)
Since December 31, 2005 (the “Balance Sheet Date”),
neither the Company nor any of its Subsidiaries has: (i)
declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its
capital stock; (ii) incurred any indebtedness for money borrowed or
any other liabilities (other than ordinary course obligations)
individually in excess of $50,000 or, in the case of indebtedness
and/or liabilities individually less than $50,000, in excess of
$100,000 in the aggregate; (iii) made any loans or advances to any
person or entity not in excess, individually or in the aggregate,
of $100,000, other than ordinary course advances for travel
expenses; or (iv) sold, exchanged or otherwise disposed of any of
its assets or rights, other than the sale of its inventory in the
ordinary course of business.
(c)
For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or
entity (including persons or entities the Company or
any
5
Subsidiary of the Company has reason
to believe are affiliated therewith) shall be aggregated for the
purpose of meeting the individual minimum dollar amounts of such
subsections.
(d)
The Company maintains disclosure controls and procedures
(“Disclosure Controls”) designed to ensure that
information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is recorded,
processed, summarized, and reported, within the time periods
specified in the rules and forms of the Securities and Exchange
Commission (“SEC”).
(e)
The Company makes and keep books, records, and accounts, that, in
reasonable detail, accurately and fairly reflect the transactions
and dispositions of the Company’s assets. The Company
maintains internal control over financial reporting
(“Financial Reporting Controls”) designed by, or under
the supervision of, the Company’s principal executive and
principal financial officers, and effected by the Company’s
board of directors, management, and other personnel, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles (“GAAP”), including that:
(i)
transactions are executed in accordance with management’s
general or specific authorization;
(ii)
unauthorized acquisition, use, or disposition of the
Company’s assets that could have a material effect on the
financial statements are prevented or timely detected;
(iii)
transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, and that the
Company’s receipts and expenditures are being made only in
accordance with authorizations of the Company’s management
and board of directors;
(iv)
transactions are recorded as necessary to maintain accountability
for assets; and
(v)
the recorded accountability for assets is compared with the
existing assets at reasonable intervals, and appropriate action is
taken with respect to any differences.
(f)
There is no weakness in any of the Company’s Disclosure
Controls or Financial Reporting Controls that is required to be
disclosed in any of the Exchange Act Filings, except as so
disclosed.
5.7
Obligations to Related Parties . Except as set forth
on Schedule 4.7, there are no obligations of the Company or any of
its Subsidiaries to officers, directors, stockholders or employees
of the Company or any of its Subsidiaries other than:
(a)
for payment of salary for services rendered and for bonus
payments;
6
(b)
reimbursement for reasonable expenses incurred on behalf of the
Company and its Subsidiaries;
(c)
for other standard employee benefits made generally available to
all employees (including stock option agreements outstanding under
any stock option plan approved by the Board of Directors of the
Company and each Subsidiary of the Company, as applicable);
and
(d)
obligations listed in the Company’s and each of its
Subsidiary’s financial statements or disclosed in any of the
Company’s Exchange Act Filings.
Except as described above or set
forth on Schedule 4.7, none of the officers, directors or, to the
best of the Company’s knowledge, key employees or
stockholders of the Company or any of its Subsidiaries or any
members of their immediate families, are indebted to the Company or
any of its Subsidiaries, individually or in the aggregate, in
excess of $50,000 or have any direct or indirect ownership interest
in any firm or corporation with which the Company or any of its
Subsidiaries is affiliated or with which the Company or any of its
Subsidiaries has a business relationship, or any firm or
corporation which competes with the Company or any of its
Subsidiaries, other than passive investments in publicly traded
companies (representing less than one percent (1%) of such company)
which may compete with the Company or any of its
Subsidiaries. Except as described above, no officer, director
or stockholder of the Company or any of its Subsidiaries, or any
member of their immediate families, is, directly or indirectly,
interested in any material contract with the Company or any of its
Subsidiaries and no agreements, understandings or proposed
transactions are contemplated between the Company or any of its
Subsidiaries and any such person. Except as set forth on
Schedule 4.7, neither the Company nor any of its Subsidiaries is a
guarantor or indemnitor of any indebtedness of any other person or
entity.
5.8
Changes . Since the Balance Sheet Date, except as
disclosed in any Exchange Act Filing or in any Schedule to this
Agreement or to any of the Related Agreements, there has not
been:
(a)
any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of
the Company or any of its Subsidiaries, which individually or in
the aggregate has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse
Effect;
(b)
any resignation or termination of any officer, key employee or
group of employees of the Company or any of its
Subsidiaries;
(c)
any material change, except in the ordinary course of business, in
the contingent obligations of the Company or any of its
Subsidiaries by way of guaranty, endorsement, indemnity, warranty
or otherwise;
(d)
any damage, destruction or loss, whether or not covered by
insurance, which has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse
Effect;
7
(e)
any waiver by the Company or any of its Subsidiaries of a valuable
right or of a material debt owed to it;
(f)
any direct or indirect loans made by the Company or any of its
Subsidiaries to any stockholder, employee, officer or director of
the Company or any of its Subsidiaries, other than advances made in
the ordinary course of business;
(g)
any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder of the Company
or any of its Subsidiaries;
(h)
any declaration or payment of any dividend or other distribution of
the assets of the Company or any of its Subsidiaries;
(i)
any labor organization activity related to the Company or any of
its Subsidiaries;
(j)
any debt, obligation or liability incurred, assumed or guaranteed
by the Company or any of its Subsidiaries, except those for
immaterial amounts and for current liabilities incurred in the
ordinary course of business;
(k)
any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets owned by the
Company or any of its Subsidiaries;
(l)
any change in any material agreement to which the Company or any of
its Subsidiaries is a party or by which either the Company or any
of its Subsidiaries is bound which either individually or in the
aggregate has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse
Effect;
(m)
any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be
expected to have, individually or in the aggregate, a Material
Adverse Effect; or
(n)
any arrangement or commitment by the Company or any of its
Subsidiaries to do any of the acts described in subsection (a)
through (m) above.
5.9
Title to Properties and Assets; Liens, Etc . Except as
set forth on Schedule 4.9, each of the Company and each of its
Subsidiaries has good and marketable title to its properties and
assets, and good title to its leasehold interests, in each case
subject to no mortgage, pledge, lien, lease, encumbrance or charge,
other than:
(a)
those resulting from taxes which have not yet become
delinquent;
(b)
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 or any of its Subsidiaries, so long as in
each such case, such liens and encumbrances have no effect on the
lien priority of the Purchaser in such property; and
8
(c)
those that have otherwise arisen in the ordinary course of
business, so long as they have no effect on the lien priority of
the Purchaser therein.
All facilities, machinery,
equipment, fixtures, vehicles and other properties owned, leased or
used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the
purposes for which they are being used. Except as set forth
on Schedule 4.9, the Company and its Subsidiaries are in compliance
with all material terms of each lease to which it is a party or is
otherwise bound.
5.10
Intellectual Property .
(a)
Each of the Company and each of its Subsidiaries owns or possesses
sufficient legal rights to all patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information and
other proprietary rights and processes necessary for its business
as now conducted and, to the Company’s knowledge, as
presently proposed to be conducted (the “Intellectual
Property”), without any known infringement of the rights of
others. There are no outstanding options, licenses or
agreements of any kind relating to the foregoing proprietary
rights, nor is the Company or any of its Subsidiaries bound by or a
party to any options, licenses or agreements of any kind with
respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other
proprietary rights and processes of any other person or entity
other than such licenses or agreements arising from the purchase of
“off the shelf” or standard products.
(b)
Neither the Company nor any of its Subsidiaries has received any
communications alleging that the Company or any of its Subsidiaries
has violated any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of
any other person or entity, nor is the Company or any of its
Subsidiaries aware of any basis therefor.
(c)
The Company does not believe it is or will be necessary to utilize
any inventions, trade secrets or proprietary information of any of
its employees made prior to their employment by the Company or any
of its Subsidiaries, except for inventions, trade secrets or
proprietary information that have been rightfully assigned to the
Company or any of its Subsidiaries.
5.11
Compliance with Other Instruments . Neither the
Company nor any of its Subsidiaries is in violation or default of
(x) any term of its Charter or Bylaws, or (y) any provision of any
indebtedness, mortgage, indenture, contract, agreement or
instrument to which it is party or by which it is bound or of any
judgment, decree, order or writ, which violation or default, in the
case of this clause (y), has had, or could reasonably be expected
to have, either individually or in the aggregate, a Material
Adverse Effect. The execution, delivery and performance of
and compliance with this Agreement and the Related Agreements to
which it is a party, and the issuance and sale of the Note by the
Company and the other Securities by the Company each pursuant
hereto and thereto, will not, with or without the passage of time
or giving of notice, result in any such material violation, or be
in conflict with or constitute a default under any such term or
provision, or result in the creation of any mortgage, pledge,
lien,
9
encumbrance or charge upon any of
the properties or assets of the Company or any of its Subsidiaries
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.
5.12
Litigation . Except as set forth on Schedule 4.12
hereto, there is no action, suit, proceeding or investigation
pending or, to the Company’s knowledge, currently threatened
against the Company or any of its Subsidiaries that prevents the
Company or any of its Subsidiaries from entering into this
Agreement or the other Related Agreements, or from consummating the
transactions contemplated hereby or thereby, or which has had, or
could reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect or any change in the current
equity ownership of the Company or any of its Subsidiaries, nor is
the Company aware that there is any basis to assert any of the
foregoing. Neither the Company nor any of its Subsidiaries is
a party to or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or
investigation by the Company or any of its Subsidiaries currently
pending or which the Company or any of its Subsidiaries intends to
initiate.
5.13
Tax Returns and Payments . Each of the Company and
each of its Subsidiaries has timely filed all tax returns (federal,
state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and
all other taxes due and payable by the Company or any of its
Subsidiaries on or before the Closing, have been paid or will be
paid prior to the time they become delinquent. Except as set
forth on Schedule 4.13, neither the Company nor any of its
Subsidiaries has been advised:
(a)
that any of its returns, federal, state or other, have been or are
being audited as of the date hereof; or
(b)
of any adjustment, deficiency, assessment or court decision in
respect of its federal, state or other taxes.
The Company has no knowledge of any
liability for any tax to be imposed upon its properties or assets
as of the date of this Agreement that is not adequately provided
for.
5.14
Employees . Except as set forth on Schedule 4.14,
neither the Company nor any of its Subsidiaries has any collective
bargaining agreements with any of its employees. There is no
labor union organizing activity pending or, to the Company’s
knowledge, threatened with respect to the Company or any of its
Subsidiaries. Except as disclosed in the Exchange Act Filings
or on Schedule 4.14, neither the Company nor any of its
Subsidiaries is a party to or bound by any currently effective
employment contract, deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To the
Company’s knowledge, no employee of the Company or any of its
Subsidiaries, nor any consultant with whom the Company or any of
its Subsidiaries has contracted, is in violation of any term of any
employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be
employed by, or to contract with, the Company or any of its
Subsidiaries because of the nature of the business to be conducted
by the Company or any of its Subsidiaries; and to the
Company’s knowledge the
10
continued
employment by the Company and its Subsidiaries of their present
employees, and the performance of the Company’s and its
Subsidiaries’ contracts with its independent contractors,
will not result in any such violation. Neither the Company
nor any of its Subsidiaries is aware that any of its employees is
obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency
that would interfere with their duties to the Company or any of its
Subsidiaries. Neither the Company nor any of its Subsidiaries
has received any notice alleging that any such violation has
occurred. Except for employees who have a current effective
employment agreement with the Company or any of its Subsidiaries,
no employee of the Company or any of its Subsidiaries has been
granted the right to continued employment by the Company or any of
its Subsidiaries or to any material compensation following
termination of employment with the Company or any of its
Subsidiaries. Except as set forth on Schedule 4.14, the
Company is not aware that any officer, key employee or group of
employees intends to terminate his, her or their employment with
the Company or any of its Subsidiaries, nor does the Company or any
of its Subsidiaries have a present intention to terminate the
employment of any officer, key employee or group of
employees.
5.15
Registration Rights and Voting Rights . Except as set
forth on Schedule 4.15 and except as disclosed in Exchange Act
Filings, neither the Company nor any of its Subsidiaries is
presently under any obligation, and neither the Company nor any of
its Subsidiaries has granted any rights, to register any of the
Company’s or its Subsidiaries’ presently outstanding
securities or any of its securities that may hereafter be
issued. Except as set forth on Schedule 4.15 and except as
disclosed in Exchange Act Filings, to the Company’s
knowledge, no stockholder of the Company or any of its Subsidiaries
has entered into any agreement with respect to the voting of equity
securities of the Company or any of its Subsidiaries.
5.16
Compliance with Laws; Permits . Neither the Company
nor any of its Subsidiaries is in violation of any provision of the
Sarbanes-Oxley Act of 2002 or any SEC related regulation or rule or
any rule of the Principal Market (as hereafter defined) promulgated
thereunder or any other applicable statute, rule, regulation, order
or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its
business or the ownership of its properties which has had, or could
reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect. No governmental orders,
permissions, consents, approvals or authorizations are required to
be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this
Agreement or any other Related Agreement and the issuance of any of
the Securities, except such as have been duly and validly obtained
or filed, or with respect to any filings that must be made after
the Closing, as will be filed in a timely manner. Each of the
Company and its Subsidiaries has all material franchises, permits,
licenses and any similar authority necessary for the conduct of its
business as now being conducted by it, the lack of which could,
either individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
5.17
Environmental and Safety Laws . Neither the Company
nor any of its Subsidiaries is 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.
11
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 any of its
Subsidiaries or, to the Company’s knowledge, by any other
person or entity on any property owned, leased or used by the
Company or any of its Subsidiaries. For the purposes of the
preceding sentence, “Hazardous Materials” shall
mean:
(a)
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
(b)
any petroleum products or nuclear materials.
5.18
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.
5.19
Full Disclosure . Each of the Company and each of its
Subsidiaries has provided the Purchaser with all information
requested by the Purchaser in connection with its decision to
purchase the Note and Warrant, including all information the
Company and its Subsidiaries believe is reasonably necessary to
make such investment decision. Neither this Agreement, the
Related Agreements, the exhibits and schedules hereto and thereto
nor any other document delivered by the Company or any of its
Subsidiaries 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 or any of its Subsidiaries were based on the
Company’s and its Subsidiaries’ experience in the
industry and on assumptions of fact and opinion as to future events
which the Company or any of its Subsidiaries, at the date of the
issuance of such projections or estimates, believed to be
reasonable.
5.20
Insurance . Each of the Company and each of its
Subsidiaries 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 and its Subsidiaries in the same or similar
business.
5.21
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 Securities Exchange
Act 1934, as amended (the “Exchange Act”). The
Company has furnished the Purchaser copies of: (i) its Annual
Reports on Form 10-KSB for its fiscal year ended December 31, 2005;
and (ii) its Quarterly Reports on Form 10-QSB for its fiscal
quarters ended March 31, 2006, June 30, 2006 and September 30,
2006, and the Form 8-K filings which it has
12
made during the fiscal years 2006
and 2007 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.
5.22
Listing . The Company’s Common Stock is listed
or quoted, as applicable, on a Principal Market (as hereafter
defined) and satisfies and at all times hereafter will satisfy, all
requirements for the continuation of such listing or quotation, as
applicable. The Company has not received any notice that its
Common Stock will be delisted from, or no longer quoted on, as
applicable, the Principal Market or that its Common Stock does not
meet all requirements
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