exv10w1



 






Exhibit 10.1




SECURITIES PURCHASE AGREEMENT




by and among




MTI TECHNOLOGY CORPORATION




and




THE SEVERAL PURCHASERS NAMED ON SCHEDULE A




Dated August 19, 2005





 









 








TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page	 
	ARTICLE 1
— DEFINITIONS
	 	 	1	 
	 
	 	 	 	 
	Section 1.01 Definitions
	 	 	1	 
	Section 1.02 Interpretation and Rules of Construction
	 	 	9	 
	 
	 	 	 	 
	ARTICLE 2 — PURCHASE AND SALE OF THE SECURITIES
	 	 	9	 
	 
	 	 	 	 
	Section 2.01 Commitment to Purchase
	 	 	9	 
	Section 2.02 The Closing
	 	 	10	 
	 
	 	 	 	 
	ARTICLE 3 — REPRESENTATIONS AND WARRANTIES OF THE COMPANY
	 	 	10	 
	 
	 	 	 	 
	Section 3.01 Existence and Power
	 	 	11	 
	Section 3.02 Authorization
	 	 	11	 
	Section 3.03 Governmental Authorization
	 	 	11	 
	Section 3.04 Noncontravention
	 	 	11	 
	Section 3.05 Capitalization
	 	 	12	 
	Section 3.06 Subsidiaries
	 	 	13	 
	Section 3.07 Public Reports; Financial Statements
	 	 	14	 
	Section 3.08 Absence of Certain Changes
	 	 	14	 
	Section 3.09 Indebtedness; No Undisclosed Material Liabilities
	 	 	16	 
	Section 3.10 Litigation
	 	 	17	 
	Section 3.11 Compliance with Laws
	 	 	17	 
	Section 3.12 Title to Assets
	 	 	17	 
	Section 3.13 Material Contracts
	 	 	18	 
	Section 3.14 Intellectual Property
	 	 	18	 
	Section 3.15 Licenses and Permits
	 	 	20	 
	Section 3.16 Employee Matters
	 	 	20	 
	Section 3.17 Key Employees and Executive Compensation
	 	 	22	 
	Section 3.18 Labor Matters
	 	 	22	 
	Section 3.19 Taxes
	 	 	22	 
	Section 3.20 Environmental Matters
	 	 	23	 
	Section 3.21 Certain Payments
	 	 	23	 
	Section 3.22 Affiliate Transactions
	 	 	24	 
	Section 3.23 Finders’ Fees
	 	 	24	 
	Section 3.24 Nasdaq SmallCap Market
	 	 	24	 
	Section 3.25 No Manipulation of Stock
	 	 	24	 
	Section 3.26 Non-Investment Company
	 	 	24	 
	Section 3.27 Compliance with Securities Act
	 	 	24	 
	Section 3.28 Sarbanes-Oxley Act
	 	 	25	 
	Section 3.29 Accounting Controls
	 	 	25	 
	Section 3.30 Acknowledgement Regarding Purchasers’ Purchase of
Purchased Securities
	 	 	25	 
	Section 3.31
Form S-3 Eligibility
	 	 	26	 






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	 	 	Page	 
	Section 3.32 Disclosure
	 	 	26	 
	 
	 	 	 	 
	ARTICLE 4 — REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER
	 	 	26	 
	 
	 	 	 	 
	Section 4.01 Existence and Power
	 	 	26	 
	Section 4.02 Authorization
	 	 	26	 
	Section 4.03 Governmental Authorization
	 	 	26	 
	Section 4.04 Noncontravention
	 	 	26	 
	Section 4.05 Private Placement
	 	 	26	 
	Section 4.06 Access to Information
	 	 	27	 
	Section 4.07 General Solicitation
	 	 	27	 
	Section 4.08 Reliance
	 	 	27	 
	Section 4.09 Absence of Litigation
	 	 	27	 
	Section 4.10 Finders’ Fees
	 	 	28	 
	Section 4.11 Economic Risk
	 	 	28	 
	Section 4.12 Legends
	 	 	28	 
	 
	 	 	 	 
	ARTICLE 5 — COVENANTS OF THE COMPANY
	 	 	29	 
	 
	 	 	 	 
	Section 5.01 Notices of Certain Pre-Closing Events
	 	 	29	 
	Section 5.02 Pre-Closing Conduct of the Company
	 	 	30	 
	Section 5.03 Tax Elections; Changes in Accounting Practices
	 	 	32	 
	Section 5.04 Capital Stock Matters
	 	 	32	 
	Section 5.05 Pre-Closing Access to Information
	 	 	33	 
	Section 5.06 Update of Disclosure
	 	 	33	 
	Section 5.07 No Solicitation
	 	 	34	 
	Section 5.08 Use of Proceeds
	 	 	35	 
	Section 5.09 Insurance
	 	 	35	 
	 
	 	 	 	 
	ARTICLE 6 — COVENANTS OF THE COMPANY AND THE PURCHASERS
	 	 	36	 
	 
	 	 	 	 
	Section 6.01 Further Assurances
	 	 	36	 
	Section 6.02 Required Filings and Consents
	 	 	36	 
	Section 6.03 Public Announcements
	 	 	36	 
	Section 6.04 Proxy Statement
	 	 	36	 
	 
	 	 	 	 
	ARTICLE 7 — CONDITIONS TO CLOSING
	 	 	37	 
	 
	 	 	 	 
	Section 7.01 Conditions to Each Purchaser’s Obligations
	 	 	37	 
	Section 7.02 Conditions to Company’s Obligations
	 	 	39	 
	 
	 	 	 	 
	ARTICLE 8 — SURVIVAL; INDEMNIFICATION
	 	 	41	 
	 
	 	 	 	 
	Section 8.01 Survival
	 	 	41	 
	Section 8.02 Indemnification
	 	 	41	 
	Section 8.03 Limitations on Indemnification
	 	 	43	 






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	 	 	Page	 
	ARTICLE 9
— MISCELLANEOUS
	 	 	44	 
	 
	 	 	 	 
	Section 9.01 Notices
	 	 	44	 
	Section 9.02 Expenses; Documentary Taxes
	 	 	44	 
	Section 9.03 Entire Agreement
	 	 	45	 
	Section 9.04 Termination.
	 	 	45	 
	Section 9.05 Amendments and Waivers
	 	 	46	 
	Section 9.06 Successors and Assigns
	 	 	46	 
	Section 9.07 Representative of the Purchasers
	 	 	47	 
	Section 9.08 Third Party Beneficiaries
	 	 	47	 
	Section 9.09 Governing Law; Waiver of Jury Trial
	 	 	47	 
	Section 9.10 Headings
	 	 	47	 
	Section 9.11 Counterparts; Facsimile Signatures; Effectiveness
	 	 	47	 






EXHIBITS




	 	 	 
	Exhibit A

	 	Form of Certificate of Designation
	Exhibit B

	 	Form of Warrant
	Exhibit C

	 	Form of Indemnification Agreement
	Exhibit D

	 	Form of Amended and Restated Investor Rights Agreement
	Exhibit E

	 	Form of Amended and Restated Management Rights Letter
	Exhibit F

	 	Form of Morrison & Foerster LLP Legal Opinion
	Exhibit G

	 	Form of Certificate of Amendment of Series A Convertible
Preferred Stock Certificate of Designations
	Exhibit H

	 	Form of Consent and Waiver






SCHEDULES




	 	 	 
	Schedule A

	 	Purchasers






DISCLOSURE LETTER SECTIONS




	 	 	 
	Schedule 3.05(c)

	 	Company Securities
	Schedule 3.05(f)

	 	Securities Laws Compliance
	Schedule 3.06(a)

	 	Subsidiaries
	Schedule 3.08

	 	Certain Changes Since Balance Sheet Date
	Schedule 3.09(a)

	 	Indebtedness
	Schedule 3.10(a)

	 	Suits
	Schedule 3.12

	 	Liens on Assets
	Schedule 3.13

	 	Performance Under Material Contracts
	Schedule 3.14(a)

	 	Business Intellectual Property
	Schedule 3.14(b)

	 	Business Intellectual Property Rights
	Schedule 3.14(c)

	 	Registrations and Applications for Business Intellectual Property
	Schedule 3.14(h)

	 	Transfers of Business Intellectual Property
	Schedule 3.16(a)

	 	Employee Benefit Plans
	Schedule 3.16(f)

	 	Contributions and Payments Under Employee Benefit Plans
	Schedule 3.17(a)

	 	Key Employees






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Page




	 	 	 
	Schedule 3.17(c)

	 	Payments to Employees
	Schedule 3.19

	 	Taxes
	Schedule 3.22

	 	Affiliate Transactions
	Schedule 3.23

	 	Finders’ Fees







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SECURITIES PURCHASE AGREEMENT




          THIS
SECURITIES PURCHASE AGREEMENT (this “Agreement”) dated August 19, 2005 by and among MTI
TECHNOLOGY CORPORATION, a Delaware corporation (the
“Company”), and the several purchasers named as
“Purchasers” in Schedule A hereto (each, a “Purchaser” and, collectively, the
“Purchasers”).



BACKGROUND




          A. The Company proposes to issue to the Purchasers, pursuant to this Agreement, (i) shares of
its Series B Convertible Preferred Stock, par value $0.001 per share (the “Series B Preferred
Stock”), which shall have the rights, privileges and preferences set forth on the Certificate of
Designation of Series B Preferred Stock, substantially in the form of Exhibit A (the
“Certificate of Designation”), and (ii) warrants (the “Warrants”), in substantially the form
attached hereto as Exhibit B to purchase shares of its Common Stock, par value $0.001 per
share (the “Common Stock”).




          B. The Purchasers desire to purchase from the Company, and the Company desires to issue to the
Purchasers, such shares of Series B Preferred Stock, and such Warrants, in each case on the terms
and subject to the conditions set forth herein.




AGREEMENT




          NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the
parties hereto agree as follows:




ARTICLE 1

DEFINITIONS




     Section 1.01 Definitions.



          (a) The following terms, as used herein, have the following meanings:




          “Advent” means Advent International Corporation, a Delaware corporation, the manager of the
Advent Funds.




          “Advent Funds” means those Purchasers that are managed by Advent.




          “Affiliate” of a Person means any Person which, directly or indirectly, controls, is
controlled by, or is under common control with such Person. The term “control” (including, with
correlative meaning, the terms “controlled by” and “under common control with”), as used with
respect to any Person, means the possession, directly or indirectly, of the power to elect a
majority of the board of directors (or other governing body) or to direct or cause the direction of
the management and policies of such Person, whether through the ownership of voting securities, by
contract or otherwise and, in any event and without limiting the generality of the foregoing, any
Person owning more than twenty percent (20%) of the voting securities of another Person shall be
deemed to control that Person. With respect to each of the Purchasers, the term “Affiliate” shall
also include (i) any entity in which such Purchaser (or one of its Affiliates) is a




 









 





general partner or member, (ii) each investor in such Purchaser, but only in connection with
the liquidation, winding up or dissolution of, or in-kind distribution by, the Purchaser, and only
to the extent of such investor’s pro rata share in the Purchaser, and (iii) any investment fund
managed by Advent.



          “Alternative Transaction” means any (a) tender or exchange offer involving the Company; (b)
merger, consolidation or other business combination involving the Company or any of the
Subsidiaries, other than a merger, consolidation or other business combination solely between the
Company or any of the Subsidiaries; (c) acquisition by any Person (other than Canopy, Advent,
Affiliates of Advent, EMC, Affiliates of EMC, the Company or any of the Subsidiaries) of any
interest in equity securities (either outstanding or newly issued) of the Company or any of the
Subsidiaries whereby after the consummation of such acquisition such acquiring Person would be the
beneficial owner of twenty percent (20%) or more of the outstanding equity securities of the
Company or any of the Subsidiaries; (d) acquisition of all or any material portion of the business
or assets of the Company, or any of the Subsidiaries, when considered as a whole; (e)
recapitalization or restructuring with respect to the Company; and (f) any other transaction
substantially similar to any of the foregoing with respect to the Company or any of the
Subsidiaries, other than pursuant to the transactions to be effected pursuant to this Agreement and
the other Transaction Documents.




          “Balance Sheet” means the balance sheet of the Company dated April 2, 2005 and filed in its
Public Reports.




          “Board” means the Board of Directors of the Company.




          “Business” means the business of the Company and its Subsidiaries.




          “Business Day” means any day except a Saturday, Sunday or other day on which commercial banks
in the City of New York are authorized by law to close.




          “Canopy” means The Canopy Group, Inc.




          “Code” means the Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder or in connection therewith.




          “Commission” means the Securities and Exchange Commission.




          “Common Stock” means the Common Stock, par value $0.001 per share, of the Company.




          “Common Stock Outstanding” means, as of any given date, the aggregate number of shares of
Common Stock issued and outstanding.




          “Company’s Knowledge” and “Knowledge of the Company” means the actual knowledge of the
following directors and executive officers of the Company, and any knowledge a reasonably prudent
person would have if he performed the functions of his respective position with ordinary care and
due diligence: Thomas Raimondi, Jon Caputo, Scott Poteracki, Keith Clark, Todd Williams and Rick
Ruskin.




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          “Copyrights” means all copyrights, copyrightable works, mask works and databases, including,
without limitation, any Software and any other works of authorship, whether statutory or common
law, registered or unregistered, and registrations for and pending applications to register the
same, including all reissues, extensions and renewals thereto.




          “Custodian” means Merrill Lynch & Co., Inc.




          “Employee Benefit Plan” means any pension, retirement, profit-sharing, deferred compensation,
bonus, incentive, performance, stock option, phantom stock, stock purchase, restricted stock,
premium conversion, medical, hospitalization, vision, dental or other health, life, disability,
severance (other than non-U.S. statutory severance obligations), termination or other employee
benefit plan, program, arrangement, agreement or policy, whether written or unwritten and whether
or not subject to ERISA, to which the Company or any Subsidiary contributes, is obligated to
contribute to, is a party to or is otherwise bound, or with respect to which the Company or any
Subsidiary may have any liability.




          “Environmental Laws” means any applicable federal, state, local or foreign law, treaty,
judicial decision, regulation, rule, judgment, order, decree, injunction, permit or valid and
binding governmental restriction or requirement or any agreement with any governmental authority,
now in effect, relating to the protection of the environment or to the presence or potential
presence of pollutants, contaminants, wastes or chemicals or any toxic, radioactive, ignitable,
corrosive, reactive or otherwise hazardous substances, wastes or materials in the environment.




          “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the rules
and regulations promulgated thereunder or in connection therewith.




          “ERISA Affiliate” means (a) a member of any “controlled group” (as defined in Section 414(b)
of the Code) of which the Company is a member, (b) a trade or business, whether or not
incorporated, under common control (within the meaning of Section 414(c) of the Code) with the
Company, or (c) a member of any affiliated service group (within the meaning of Section 414(m) of
the Code) of which the Company is a member.




          “Exchange Act” means the Securities Exchange Act of 1934, as amended, and any successor
thereto, and the rules and regulations promulgated thereunder or in connection therewith, all as
the same shall be in effect from time to time.




          “Executive Officers” means the executive officers of the Company within the meaning of Item
401 of Regulation S-K of the Commission.




          “GAAP” means U.S. generally accepted accounting principles consistently applied and maintained
throughout the applicable periods.




          “Indebtedness” means, of any Person at any date, without duplication, all items which in
accordance with GAAP, would be included in determining total liabilities as shown on the liability
side of the balance sheet as of the date to be determined, and shall include, without limitation:





-3-









 








          (a) indebtedness for borrowed money or funded debt;




          (b) liabilities in respect of capitalized leases and liabilities secured by any Liens on
property owned or acquired, whether or not such a liability shall have been assumed (but only to
the extent of the book value of such property;




          (c) any obligation, contingent or otherwise, of such Person directly or indirectly
guaranteeing any debt or other obligation of any other Person and, without limiting the generality
of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i)
to purchase or pay (or advance or supply funds for the purchase or payment of) such debt or other
obligation of such other Person (whether arising by virtue of partnership arrangements, by
agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of
assuring in any other manner the obligee of such debt or other obligation for the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in part); and




          (d) all reimbursement and other obligations with respect to surety bonds, letters of credit
and bankers’ acceptances, whether or not matured.




          “Indemnification Agreement” means the Indemnification Agreement to be dated and issued as of
the Closing Date by the Company in favor of the person appointed or elected to the Board of
Directors pursuant to the Certificate of Designation, substantially in the form of Exhibit
C.




          “Intellectual Property” means all rights in and to, including all licenses related to, the
Copyrights, Patents, Software, Trademarks, Trade Secrets, web sites, and any other tangible or
intangible proprietary or confidential information, and all improvements, modifications, and
enhancements to and derivatives of any of the foregoing protected, created, developed and/or
arising, as of the date hereof under the laws of the United States or any other jurisdiction, in
whatever stage of development.




          “Investor Rights Agreement” means the Amended and Restated Investor Rights Agreement to be
dated and entered into as of the Closing Date among the Company and the Purchasers and the
purchasers of Series A Preferred Stock, substantially in the form of Exhibit D.




          “Law” means any statute, law, ordinance, code, regulation, order or rule of any federal,
state, local or, foreign governmental or regulatory body or authority, including Environmental Laws
and those covering safety, health, information technology, Tax, antitrust, transportation, bribery,
recordkeeping, zoning, export, import, employment and employment practices, wage and hour, and
price and “age control” matters.




          “Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, any
Person shall be deemed to own subject to Lien any asset that it has acquired or holds subject to
the interest of a vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement relating to such asset.




-4-









 





          “Management Rights Letter” means the Amended and Restated Management Rights Letter to be dated
and issued as of the Closing Date by the Company in favor of the Purchasers or their affiliates
designated by Advent, substantially in the form of Exhibit E.




          “Material Adverse Effect” means any material adverse effect or series of related effects on
(a) the business, assets, financial condition, cash flow or results of operations of the Company,
or any of the Subsidiaries, when considered as a group or (b) the ability of the Company to perform
its obligations under this Agreement. Notwithstanding the foregoing, in no event shall any of the
following constitute a Material Adverse Effect: (i) any material adverse effect resulting from
conditions generally affecting any industry in which the Company participates or from generally
prevailing conditions in the United States or global economies, unless such conditions have a
disproportionate impact on the Company; (ii) conditions reasonably resulting from the announcement
and the pendency of the transactions contemplated by this Agreement or any of the other Transaction
Documents; (iii) conditions resulting from acts of terrorism or war; (iv) conditions or changes in
any industry in which the Company participates resulting from changes or proposed changes in laws,
rules or regulations, unless such conditions or changes have a disproportionate impact on the
Company; or (v) conditions or events resulting from actions taken pursuant to express
authorizations in this Agreement or any of the other Transaction Documents or with the prior
written consent of Advent.




          “Material Contract” means each contract or agreement to which the Company or any Subsidiary is
a party or by which it is bound which is a material contract as defined in Item 601(b)(10) of
Regulation S-K of the Commission.




          “Nasdaq” means The NASDAQ Stock Market, Inc.




          “Patents” means all patents and patent applications (including, without limitation,
provisional applications, utility applications and design applications) including, without
limitations reissues, patents of addition, divisions, renewals, continuations,
continuations-in-part, substitutions, additions, certificates of inventorship, reexaminations and
extensions of any of the foregoing and all licenses to any of the foregoing.




          “Person” means an individual or a corporation, partnership, limited liability company,
association, trust, or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.




          “Preferred Stock” means the Preferred Stock, par value $0.001 per share, of the Company.




          “Purchased Securities” shall mean the Series B Shares and the Warrants.




          “Securities Act” means the Securities Act of 1933, as amended, and any successor thereto, and
the rules and regulations promulgated thereunder or in connection therewith, all as the same shall
be in effect from time to time.




          “Series A Preferred Stock” means the Series A Convertible Preferred Stock, par value $0.001
per share, of the Company.




-5-









 





          “Software” means (i) all software programs, including all versions of source code, object
code, assembly language, compiler language, machine code, and all other computer instructions,
code, and languages embodied in computer software of any nature whatsoever and whether for use in
or in conjunction with a mainframe computer, personal computer (desk top, lap top or hand held),
personal digital assistant (PDA) or any other programmable hardware or device; computer systems,
computer hardware, network infrastructure and related equipment, and all error corrections updates,
upgrades, enhancements, translations, modifications, adaptations, further developments, derivative
works, and other changes or functionality additions, of any kind to any of the foregoing; (ii) all
designs and design documents (whether detailed or not), technical summaries, and documentation
(including flow charts, logic diagrams, white papers, manuals, guides and specifications) with
respect to such software described in the preceding clause; and (iii) all firmware and middleware
associated with any of the foregoing in subparts (i) and (ii) hereof.




          “Subsidiary” means any corporation or other entity of which a majority of the capital stock or
other ownership interests having voting power to elect a majority of the board of directors or
other persons performing similar functions is at the time directly or indirectly owned by the
Company.




          “Suits” means any action, suit, claim, litigation, arbitration or other dispute resolution
proceeding or governmental or administrative proceeding, audit or investigation, including without
limitation the following: (i) any proceedings, audits, investigations or arbitrations by the
Internal Revenue Service, the Commission, the National Association of Securities Dealers, Inc.,
Nasdaq, the National Labor Relations Board, any domestic stock exchanges, quotation systems or
other self-regulatory organizations, any foreign securities commissions, foreign stock exchanges,
foreign regulatory organizations or foreign self-regulatory organizations, or state securities
commissions; (ii) any action, suit or proceeding by any Person that the Intellectual Property
infringes or misappropriates or constitutes unfair competition or trade practices or other
violation of such Person’s intellectual property or other proprietary rights; and (iii) any action,
suit or proceeding involving (A) the prior employment of any of the Company’s or any Subsidiary’s
employees, (B) the use by such employees in connection with the Company’s business or any
Subsidiary’s business of any information or techniques allegedly proprietary to any of their former
employers or (C) the obligations of such employees under any agreements with prior employers.




          “Superior Proposal” means any proposal relating to an Alternative Transaction (on its most
recently amended or modified terms, if amended or modified) (a) which the Board determines in its
good faith judgment (after consultation with a financial advisor of nationally recognized
reputation) to be more favorable to the Company’s stockholders, from a financial point of view,
than the issuance and sale of the Securities under this Agreement (taking into account all the
terms and conditions of such Alternative Transaction and this Agreement, including any changes to
the financial terms of this Agreement proposed by the Purchasers in response to such offer or
otherwise), (b) for which the Board has received evidence reasonably demonstrating that any
financing required in connection with the Alternative Transaction has been obtained or is then
committed, and (c) reasonably capable of being completed, taking into account all financial, legal,
regulatory and other aspects of such Alternative Transaction.




-6-









 





          “Tax” (and, with correlative meaning, “Taxes”) means any income, alternative or add-on minimum
tax, gross receipts, sales, use, ad valorem, value added, transfer, franchise, capital stock,
profits, license, withholding on amounts paid to or by the Company or any of the Subsidiaries,
payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or
windfall profit tax, custom, duty or other tax, governmental fee, assessment or charge in the
nature of taxes, together with any interest or any penalty, addition to tax or additional amount
due from, or in respect of the Company or any of the Subsidiaries, as the case may be, imposed by
any domestic or foreign governmental authority (a “Taxing Authority”) responsible for the
imposition of any such tax, including any amounts for which liability arises under Treasury
Regulation Sections 1.1502-6 or similar provision under foreign, state or local law.




          “Termination Date” means November 15, 2005.




          “Trade Secrets” means all common law and statutory trade secrets and all other confidential
information or other non-public information, whether or not reduced to a writing or other tangible
form including, without limitation, patterns, designs, plans, product road maps, specifications,
compilations, programs, devices, schematics, technology, methods, inventions, discoveries,
improvements, concepts, ideas, drawings, analytics, techniques, processes and procedures, working
notes and memos, market studies, consultant reports, know-how, research, customer lists, marketing,
distribution and sales methods and systems, formulae, technical and laboratory data, competitive
samples, and engineering prototypes and all similar information and know-how, whether or not
reduced to a writing or other tangible form, including all documents and things embodying,
incorporating or referring in any way to such Trade Secret, and all licenses to any of the
foregoing, in any country or other geographic area in the world.




          “Trademarks” means (i) all trademarks, service marks, trade names, corporate names, company
names, business names, fictitious business names, trade dress, trade styles, certification marks,
collective marks, logos, domain names, uniform resource locaters (URLs), and other sources of
business identifiers, whether in use or not, (ii) all registrations and recordings thereof and all
applications to register in connection therewith, whether pending or in preparation for filing,
including registrations, recordings and applications in the United States Patent and Trademark
Office or in any office or agency of the United States of America or any State thereof or any
foreign country, (iii) all reissues, extensions or renewals of any of the items described in this
definition, (iv) all of the goodwill of the business connected with the use of, and symbolized by
the any of the foregoing.




          “Transaction Documents” means this Agreement, the Certificate of Designation, the Investor
Rights Agreement and the Management Rights Letter.




          “Transferee” means each Person who shall acquire any Company Securities from any Purchaser,
directly or indirectly, in compliance with the Investor Rights Agreement.




          “Underlying Shares” shall mean all shares of Common Stock issuable upon conversion of the
Series B Preferred Stock.




-7-









 





          (b) Each of the following terms is defined in the section hereof set forth opposite such term:




	 	 	 
	Term	 	Section
	Affiliate Transaction

	 	Section 3.22
	Agreement

	 	Preamble
	Allocation Percentage

	 	Section 2.01(c)
	Annual Meeting

	 	Section 6.04
	Balance Sheet Date

	 	Section 3.08
	Business Intellectual Property

	 	Section 3.14(a)
	Certificate of Designation

	 	Background
	Closing

	 	Section 2.02(a)
	Closing Date

	 	Section 2.02(a)
	Company

	 	Preamble
	Company Securities

	 	Section 3.05(c)
	Disclosure Letter

	 	Article 3
	Expense Reimbursement Amount

	 	Section 9.02(b)
	Gross Purchase Price

	 	Section 2.01(a)
	Indemnified Person

	 	Section 8.02(c)
	Indemnifying Person

	 	Section 8.02(c)
	Infringes

	 	Section 3.14(d)
	Investment Company Act

	 	Section 3.26
	Loss Cap

	 	Section 8.03(b)
	Loss Threshold

	 	Section 8.03(a)
	Losses

	 	Section 8.02(a)
	Permits

	 	Section 3.15
	Price Per Share

	 	Section 2.01(b)
	Proceeding

	 	Section 8.02(a)
	Public Reports

	 	Section 3.07(a)
	Purchase Price

	 	Section 2.01(c)
	Purchaser(s)

	 	Preamble
	Purchasers’ Percentage

	 	Section 8.02(a)
	Returns

	 	Section 3.19(a)
	Sarbanes-Oxley Act

	 	Section 3.28
	Series B Preferred Stock

	 	Background
	Stockholder Approval

	 	Section 3.02
	Series B Shares

	 	Section 2.01(a)
	Subsidiary Securities

	 	Section 3.06(b)
	Superior Proposal Notice

	 	Section 5.07(c)
	Superior Proposal Period

	 	Section 5.07(c)
	Survival Date

	 	Section 8.01
	WARN Act

	 	Section 3.08(o)
	Warrants

	 	Section 2.01(a)
	Warrant Shares

	 	Section 2.01(a)






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     Section 1.02 Interpretation and Rules of Construction. Definitions contained in this
Agreement apply to singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms. Words in the singular shall be held to
include the plural and vice versa, and words of one gender shall be held to include the other
gender or the neuter as the context requires. The terms “hereof,” “herein,” “hereby” and
“herewith” and words of similar import shall, unless otherwise stated, be construed to refer to
this Agreement as a whole and not to any particular provision of this Agreement. The terms
“includes” and the word “including” and words of similar import shall be deemed to be followed by
the words “without limitation.” Article, section and paragraph, schedule and exhibit references
herein are to the articles, sections and paragraphs of, and schedules and exhibits to, this
Agreement unless otherwise specified. The word “or” shall not be exclusive. For purposes of this
Agreement, the terms “Company” and “Subsidiary” shall include any entity which is, in whole or in
part, a predecessor of the Company or any Subsidiary, unless the context expressly requires
otherwise.



ARTICLE 2

PURCHASE AND SALE OF THE SECURITIES




     Section 2.01 Commitment to Purchase.



          (a) Upon the basis of the representations and warranties contained herein and subject to the
terms and conditions set forth herein, at the Closing, the Company shall issue to the Purchasers:




               (i) The number of shares of Series B Preferred Stock, which equals Twenty Million Dollars
($20,000,000) (the “Gross Purchase Price”) divided by the Price Per Share, rounded to the nearest
hundredth of a share (with .005 rounded up to .01); and



               (ii) Warrants (the “Warrants”) to purchase the number of shares of Common Stock (the “Warrant
Shares”), which is equal to thirty-seven and one-half percent (37.5%) of the number of Underlying
Shares (determined as of the Closing Date), rounded to the nearest whole number of shares (with 0.5
shares rounded up to 1 share).



          The shares of Series B Preferred Stock issuable by the Company pursuant to this Section
2.01(a) are referred to herein as the “Series B Shares.”




          (b) The “Price Per Share” shall be (i) $19.50 or (ii) ten (10) times ninety percent (90%) of
the average closing price per share of Common Stock on the Nasdaq SmallCap Market for the fifteen
(15) trading days prior to (and not including) the Closing Date, rounded to the nearest hundredth
of a cent (with $0.00005 rounded up to $0.0001), whichever is less.




          (c) Each Purchaser, severally but not jointly, agrees to purchase from the Company, at the
Closing, a portion of the Series B Shares and the Warrants, respectively, equal to the product
obtained by multiplying the aggregate number of Series B Shares and Warrants, respectively,
issuable pursuant to the terms hereof by the percentage allocated to such Purchaser on Schedule
A hereto (the “Allocation Percentage”). The aggregate purchase price for the Purchased
Securities purchased by each Purchaser (the “Purchase Price”) shall be the Price Per




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Share multiplied by the number of Series B Shares allocated to such Purchaser on Schedule
A hereto.



          (d) The Allocation Percentages shall be specified by Advent to the Company in writing at least
two (2) Business Days prior to the Closing Date. Advent shall be entitled to resolve on behalf of
the Purchasers any rounding issues with respect to the allocations of the Purchased Securities in
order to avoid the issuance of fractional shares of Series B Preferred Stock or Warrants to acquire
fractional shares of Common Stock.




     Section 2.02 The Closing.



          (a) The purchase and sale of the Purchased Securities shall take place via facsimile at a
closing (the “Closing”) at the offices of Morrison & Foerster LLP at 19900 MacArthur Boulevard,
12th Floor, Irvine, California 92612, commencing at 10:00 a.m. local time on the first
(1st)
business day following the Annual Meeting contemplated by
Section 6.04 hereof or if all conditions to Closing have not been satisfied by such date
then the third (3rd) Business Day following the date upon which all conditions to the
obligations of the parties to consummate the transactions contemplated hereby have been satisfied
or waived (other than conditions with respect to actions the respective parties will take at the
Closing itself), or such other location or date as the parties may mutually determine but, unless
otherwise agreed to in writing, not later than the Termination Date. The date and time of the
Closing are referred to herein as the “Closing Date.”




          (b) At the Closing, each Purchaser shall deliver to the Company by wire transfer of
immediately available funds, to an account designated by the Company at least two (2) Business Days
prior to the Closing Date, an amount equal to the Purchase Price for the Purchased Securities
purchased by such Purchaser.




          (c) At the Closing, the Company shall deliver to each Purchaser (or, in the case of each
Purchaser that is an Advent Fund, the Custodian), against delivery of the Purchase Price, a
certificate or certificates evidencing the Series B Shares and a certificate evidencing the
Warrants allocated to such Purchaser, each in definitive form and registered in the name of such
Purchaser or in such nominee name as such Purchaser shall request at least two (2) Business Days
prior to the Closing Date.




ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE COMPANY




          Except as set forth in the disclosure letter dated the date of this Agreement (the “Disclosure
Letter”) and delivered to the Purchasers on the date hereof, the Company represents and warrants to
the Purchasers, as of the date hereof, as set forth in this Article 3. The Disclosure Letter shall
be arranged in sections corresponding to the sections contained in this Agreement, and disclosures
set forth in any section of the Disclosure Letter shall qualify (i) the corresponding section of
this Agreement and (ii) other sections of this Agreement to the extent (notwithstanding the absence
of a specific cross-reference) that such disclosure reasonably relates to such other sections.




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     Section 3.01 Existence and Power. The Company (a) is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware, (b) has the full
corporate power to own, lease and operate its properties and assets and to carry on its business as
now conducted, and (c) is duly qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which the failure so to qualify would have, or could
reasonably be expected to have, a Material Adverse Effect. The Company has furnished to the
Purchasers true and complete copies of the Company’s certificate of incorporation and bylaws, each
as in effect on the date hereof.



     Section 3.02 Authorization. The execution, delivery and performance by the Company of
this Agreement and each other Transaction Document and the consummation of the transactions
contemplated hereby and thereby are within the Company’s corporate powers and have been duly
authorized by all necessary corporate action on the part of Company other than approval by the
Company’s stockholders (including the holders of the Series A Preferred Stock) at the Annual
Meeting (“Stockholder Approval”). Subject to the foregoing, this Agreement and each of the other
Transaction Documents constitutes (in the case of the Certificate of Designation, upon the filing
thereof with the Secretary of State of Delaware) a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as such enforceability may be
limited by (i) laws of general application relating to bankruptcy, insolvency and the relief of
debtors, (ii) rules of law governing specific performance, injunctive relief or other equitable
remedies and by general principles of equity, and (iii) with respect to the indemnification
provisions contained in the Investor Rights Agreement, applicable laws and principles of public
policy. The Board has taken all action necessary to render inapplicable the provisions of Section
203 of the General Corporation Law of the State of Delaware to the transactions contemplated by
this Agreement and the other Transaction Documents.



     Section 3.03 Governmental Authorization. The execution, delivery and performance by
the Company of this Agreement and each other Transaction Document, and the consummation of the
transactions contemplated hereby and thereby, require no action by or in respect of, or filing
with, any governmental body, agency or official by the Company other than (a) the filing of the
Certificate of Designation with the Secretary of State of Delaware, (b) the filing by the Company
with the Commission of such reports and other documents under the Securities Act or the Exchange
Act, and filings pursuant to the rules of Nasdaq, as may be required in connection with this
Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby
to be effected at or prior to the Closing, and (c) any filings required by the securities or blue
sky laws of the various states and filings under the Securities Act, the Exchange Act and/or
pursuant to Nasdaq rules in connection with a registration of securities pursuant to the Investor
Rights Agreement.



     Section 3.04 Noncontravention. The execution, delivery and performance by the Company
of this Agreement and each other Transaction Document, and, upon receipt of Stockholder Approval,
the consummation of the transactions contemplated hereby and thereby, do not and will not (a)
violate the certificate of incorporation or bylaws of the Company in effect, (b) violate the
certificate of incorporation, bylaws, operating, limited liability or partnership agreement of any
Subsidiary in effect, (c) violate any material law, rule, regulation, judgment, injunction, order
or decree applicable to the Company or any Subsidiary, including applicable



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Nasdaq rules and regulations, (d) except for approvals required that result from the filings
referred to in Section 3.03 hereof, require any consent or other action by any Person
under, constitute a default under, or give rise to termination, cancellation or acceleration of any
right or obligation of the Company or any Subsidiary or to a loss of any benefit to which the
Company or any Subsidiary is entitled under, and are not inconsistent with, any provision of any
Material Contract binding upon the Company or any Subsidiary, or (e) result in the creation or
imposition of any Lien on any material asset of the Company or any Subsidiary.



     Section 3.05 Capitalization.




          (a) The authorized capital stock of the Company consists of (i) 80,000,000 authorized shares
of Common Stock and (ii) 5,000,000 authorized shares of Preferred Stock, a total of 567,000 shares
of which are designated Series A Preferred Stock, and the remainder of which are undesignated and
can be issued by the Board without further stockholder approval.




          (b) As of the date hereof, there are (i) 35,493,360 shares of Common Stock issued and
outstanding, (ii) 566,797.03 shares of Series A Preferred Stock issued and outstanding, and (iii)
additional warrants and/or options to purchase 11,460,532 shares of Common Stock issued and
outstanding. The Company has not paid any dividends or made any other distributions of cash or
other property in respect of any shares of its outstanding capital stock since the Balance Sheet
Date.




          (c) All outstanding shares of capital stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable, and none of such shares has been issued in
violation of any preemptive right, right of first refusal or similar right under any provision of
the General Corporation Law of the State of Delaware, the Company’s certificate of incorporation or
bylaws, or any agreement, document or instrument to which the Company is a party or by which it is
otherwise bound. Except as set forth in Section 3.05(c) of the Disclosure Letter, the Series A
Preferred Stock, the warrants issued in connection therewith and the rights granted to the
Purchasers in this Agreement, there are no outstanding (i) securities of the Company convertible
into, or exchangeable or exercisable for, shares of capital stock or other voting securities of the
Company or (ii) options, warrants or other rights to acquire from the Company, or other obligation
of the Company to issue, any capital stock, other voting securities or securities convertible into,
or exchangeable or exercisable for, capital stock or other voting securities of the Company (the
items in clauses (i) and (ii) of this sentence being referred collectively as the “Company
Securities”). Except for the Series A Preferred Stock and the warrants issued in connection
therewith, there are no obligations of the Company or any Subsidiary to repurchase, redeem or
otherwise acquire any outstanding Company Securities.




          (d) Upon issuance at the Closing in accordance with the terms hereof, all of the Purchased
Securities will be duly and validly authorized and issued, fully paid and non-assessable, free and
clear of all Liens (other than Liens imposed under the Investor Rights Agreement and the Securities
Act and other than Liens relating to, or resulting from, actions of the Purchasers), and the
issuance of any of the Purchased Securities as contemplated in and pursuant to this Agreement, the
Transaction Document and the Warrants will not (i) except for anti-dilution adjustments to the
conversion price of the Series A Preferred Stock and assuming the holders of Series A Preferred
Stock waive their preemptive rights and approve the transaction




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pursuant to their voting rights, violate or trigger anti-dilution adjustments under, or be
subject to any preemptive rights or right of first refusal or similar right under, any provision of
the General Corporation Law of the State of Delaware, the Company’s certificate of incorporation or
bylaws, or any material agreement, document or instrument to which the Company is a party or by
which it is otherwise bound (and which will be in effect immediately following the Closing) or (ii)
violate any applicable federal or state or foreign securities laws as a result of any act or
omission by any Person other than the Purchasers or (iii) violate applicable rules or regulations
of Nasdaq.



          (e) Prior to Closing and the issuance of the Purchased Securities, the Company shall have
reserved for issuance the total number of shares of Common Stock issuable upon conversion of the
authorized amount of Series B Preferred Stock based upon the conversion ratio then in effect, as
set forth in the Certificate of Designation, and upon exercise of the Warrants based upon the
number of Warrant Shares and the purchase price then in effect. All of the Underlying Shares and
all Warrant Shares have been duly authorized and, when issued in accordance with the terms of the
Certificate of Designation and the Warrants, as the case may be, will be duly and validly issued,
fully paid and non-assessable, free and clear of all Liens (other than Liens relating to, or
resulting from actions of, the Purchasers), and the issuance thereof will not, (i) except pursuant
to the Series A Preferred Stock, violate or trigger anti-dilution adjustments under, or be subject
to any preemptive rights or right of first refusal or similar right under, any provision of the
General Corporation Law of the State of Delaware, the Company’s certificate of incorporation or
bylaws, or any material agreement, document or instrument to which the Company is a party or by
which it is otherwise bound or (ii) violate any applicable federal or state or foreign securities
laws as a result of any act or omission by any Person other than the Purchasers.




          (f) All outstanding shares of capital stock of the Company and the Subsidiaries have been
issued in compliance with all applicable federal, state and foreign securities laws and applicable
listing standards, rules and regulations of Nasdaq.




     Section 3.06 Subsidiaries.



          (a) All of the Subsidiaries, their respective jurisdictions of incorporation or organization
and percentage ownership by the Company are set forth in Section 3.06(a) of the Disclosure
Letter. The Company does not directly or indirectly own, or hold the right to acquire, any capital
stock or other ownership interests of any Person not listed in Section 3.06(a) of the
Disclosure Letter. Each Subsidiary is duly incorporated or organized, validly existing and (to the
extent applicable) in good standing under the laws of its jurisdiction of incorporation or
organization and has the full corporate power to own, lease and operate its properties and assets
and to carry on its business as now conducted. Each Subsidiary is duly qualified to transact
business and (to the extent applicable) is in good standing in each jurisdiction in which the
failure so to qualify would have, or could reasonably be expected to have, a Material Adverse
Effect.




          (b) Except as indicated in Section 3.06(a) of the Disclosure Letter, all of the
outstanding capital stock or other voting securities of each Subsidiary is owned by the Company,
directly or indirectly, free and clear of any Lien and free of any other limitation or restriction
(including any restriction on the right to vote, sell or otherwise dispose of such capital stock or




-13-









 








other voting securities) excluding restrictions under applicable securities laws. There are
no outstanding (i) securities of the Company or any Subsidiary convertible into, or exchangeable or
exercisable for, shares of capital stock or other voting securities of any Subsidiary or (ii)
options, warrants or other rights to acquire from the Company or any Subsidiary, or other
obligation of the Company or any Subsidiary to issue, any capital stock, other voting securities or
securities convertible into, or exchangeable or exercisable for, capital stock or other voting
securities of any Subsidiary (the items in clauses (i) and (ii) of this sentence being referred to
collectively as the “Subsidiary Securities”). There are no obligations of the Company or any
Subsidiary to repurchase, redeem or otherwise acquire any outstanding Subsidiary Securities.



     Section 3.07 Public Reports; Financial Statements.



          (a) Since May 1, 2004, the Company has filed with the Commission all forms, reports,
schedules, proxy statements (collectively, and in each case including all exhibits and schedules
thereto and documents incorporated by reference therein, and including all registration statements,
prospectuses and other reports and documents filed with the Commission since such date, the “Public
Reports”) required to be filed by the Company with the Commission. As of its date of filing,
except to the extent otherwise disclosed in subsequently filed Public Reports, each Public Report
complied in all material respects with the requirements of the Securities Act and the Exchange Act,
as applicable, and the rules and regulations promulgated thereunder and, except to the extent
revised or superseded by a subsequent filing with the Commission prior to the date hereof, none of
such Public Reports (including any and all financial statements included therein) when filed
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 made therein, in light of the circumstances
under which they were made, not misleading.




          (b) Except to the extent otherwise disclosed in the Public Reports, each of the consolidated
financial statements (including the notes thereto) included in the Public Reports complied as to
form in all material respects, as of its date of filing with the Commission, with applicable
accounting requirements and the published rules and regulations of the Commission with respect
thereto, was prepared in accordance with GAAP (except as may otherwise be indicated in the notes
thereto) and fairly presents in all material respects the consolidated financial position of
Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of
their operations and cash flows for the periods then ended (subject, in the case of unaudited
financial statements, to (i) normal year-end adjustments, (ii) the absence of footnote disclosure
required to be included in audited financial statements and (iii) as otherwise permitted by the
Commission on Form 10-Q under the Exchange Act, which collectively were not and are not expected to
be in the aggregate material).




     Section 3.08 Absence of Certain Changes. The Company and the Subsidiaries have
conducted their businesses since April 2, 2005 (the “Balance Sheet Date”) in the ordinary course of
business consistent with past practice. Without limiting the generality of the foregoing, since
the Balance Sheet Date there has not been, except as set forth in the Public Reports, any:



          (a) event or series of related events which, individually or in the aggregate, has had or
could reasonably be expected to have a Material Adverse Effect;




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          (b) declaration, setting aside or payment of any dividend or other distribution with respect
to any shares of capital stock of the Company, or any repurchase, redemption or other acquisition
by the Company or any Subsidiary of any outstanding shares of capital stock or other securities of
the Company or any Subsidiary;




          (c) incurrence, assumption or guarantee by the Company or any Subsidiary of any Indebtedness,
other than in the ordinary course of business consistent with past practices;




          (d) creation or other incurrence by the Company or any Subsidiary of any Lien on any material
asset other than in the ordinary course of business consistent with past practices;




          (e) making of any loan, advance or capital contributions to or investment by the Company or
any Subsidiary in any Person, other than (i) loans, advances or capital contributions to or
investments in wholly-owned Subsidiaries and (ii) loans to employees to advance reasonable and
customary expenses to be incurred by them in the performance of their duties on behalf of the
Company or any Subsidiary, in each case made in the ordinary course of business consistent with
past practices;




          (f) acquisition, disposition or similar transaction by the Company or any Subsidiary involving
any assets, properties or liabilities (other than sales of inventory in the ordinary course of
business consistent with past practices), whether by merger, purchase or sale of stock, purchase or
sale of assets or otherwise;




          (g) damage, destruction or other casualty loss (whether or not covered by insurance) which has
not had, or could reasonably be expected to have, a Material Adverse Effect;




          (h) Tax election or material change in any method of accounting or accounting practice by the
Company or any Subsidiary, except for any such change after the date hereof required by reason of a
concurrent change in GAAP;




          (i) payment, deferral, discharge or satisfaction of any material claims, liabilities or
obligations (absolute, accrued, contingent or otherwise), other than the payment, deferral,
discharge or satisfaction, in accordance with the respective terms thereof and in the ordinary
course of business consistent with past practices, of liabilities and obligations (i) reflected or
reserved against in the Company’s financial statements included in the Public Reports or in the
notes thereto or (ii) incurred since the date of such financial statements in the ordinary course
of business consistent with past practices;




          (j) collection or attempt to collect any accounts receivable other than in the ordinary course
of business consistent with past practices;




          (k) resignation or, except as approved by the Board, any termination or removal of any
Executive Officers;




          (l) increase in the compensation of, or Employee Benefits made available to, any of the
Executive Officers or in the rate of pay or Employee Benefits of any of its employees,




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except as part of regular compensation increases in the ordinary course of business consistent
with past practices;



          (m) labor dispute, other than routine individual grievances, or written notice of any, or to
the Company’s Knowledge threatened, activity or proceeding by a labor union or representative
thereof to organize any employees of the Company or any Subsidiary, which employees were not
subject to a collective bargaining agreement at the Balance Sheet Date, or any lockouts, strikes,
slowdowns, or work stoppages by or with respect to any employees of the Company or any Subsidiary,
nor, to the Company’s Knowledge, has any Person threatened to initiate any such activity;




          (n) Material Contract (other than the Transaction Documents) entered into, or any
relinquishment or waiver by the Company or any Subsidiary of any material right under any Material
Contract, and none of the Company or any of the Subsidiaries has taken or omitted to take, and, to
the Company’s Knowledge, no third party has taken or omitted to take, any action that constitutes,
or would with the passage of time constitute, a material default under any Material Contract or any
transaction document entered into by the Company in connection with the Series A Preferred Stock
issuance; or




          (o) any (i) “plant closing” (as defined in the Worker Adjustment and Retraining Notification
Act of 1988 (the “WARN Act”)), or (ii) “mass layoff” (as defined in the WARN Act), nor has the
Company or any of the Subsidiaries engaged in or given notice of layoffs or employment terminations
sufficient in number to trigger application of any similar state or local law, with respect to
which, under either (i) or (ii) above or under state or local law, the Company or any of the
Subsidiaries has any liability material to the Company and the Subsidiaries taken as a whole.




     Section 3.09 Indebtedness; No Undisclosed Material Liabilities.



          (a) Except as set forth in the Public Reports, neither the Company nor any Subsidiary has any
secured or unsecured Indebtedness or commitments for Indebtedness.




          (b) There are no liabilities of the Company or any Subsidiary of any kind whatsoever, whether
accrued, contingent, unliquidated, absolute, determined, unknown or otherwise, other than:




               (i) liabilities provided for in the Company’s financial statements included in the Public
Reports or disclosed in the notes to the financial statements set forth therein which liabilities,
both individually and in the aggregate, are not material to the Company and the Subsidiaries, taken
as a whole; and



               (ii) liabilities incurred since the Balance Sheet Date in the ordinary course of business
consistent with past practice.



          (c) Except for leases for personal or real property entered into in the ordinary course of
business, and except for instruments, arrangements or agreements referred to in this Agreement, the
Company has not issued any instruments, entered into any agreements, commitments or arrangements or
incurred any obligations that would have, or could reasonably




-16-









 








be expected to have, the effect of providing the Company with “off balance sheet” financing,
including, without limitation, any sale-leaseback arrangements,
“synthetic leases”, “GIC”s,
“Synthetic GIC”s, shared trust arrangements and “off balance sheet” Indebtedness.



     Section 3.10 Litigation.



          (a) Except as set forth in Section 3.10 of the Disclosure Letter, there are no Suits pending
or, to the Company’s Knowledge, threatened against the Company or any of the Subsidiaries. To the
Company’s Knowledge, there is no reasonable basis upon which any Suit may be initiated against the
Company or any of the Subsidiaries that could result in any material liability to the Company.




          (b) Neither the Company nor any Subsidiary is party to or bound by (i) any agreement to pay
damages or fines to, or provide indemnification, contribution or expense reimbursement to any
Person with respect to any matter that is the subject of a Suit or (ii) any release of any claims
that it may have against any Person with respect to any matter that is the subject of a Suit. No
Person has given written notice to the Company or any of the Subsidiaries of its intention to seek
such indemnification or expense reimbursement.




          (c) Neither the Company nor any Subsidiary is a named party in any outstanding order, writ,
injunction, judgment, arbitration award or decree of any court, arbitrator, government agency, or
instrumentality.




     Section 3.11 Compliance with Laws and Charter.



          (a) The Company and each of the Subsidiaries have complied with, are not in violation of, and
have not received any written notices alleging any violation with respect to, any applicable
provisions of any Laws with respect to the conduct of its business, or the ownership or operation
of its properties or assets, except for failures to comply or violations that, individually or in
the aggregate, have not had, and could not reasonably be expected to have, a Material Adverse
Effect.




          (b) Since January 1, 2000, the Company has had in effect a policy regarding insider trading,
and the Company is not aware of any violation thereof. A copy of the current version of such
policy has been delivered to the Purchasers.




          (c) Except as set forth on Section 3.11(c) of the Disclosure Letter, the Company has complied,
and is in compliance, with its Certificate of Incorporation (including the Certificate of
Designation of the Series A Preferred Stock) and bylaws, except for failures to comply that,
individually or in the aggregate, have not had, and could not reasonably be expected to have, a
material effect on the Company.




     Section 3.12 Title to Assets. Each of the Company and the Subsidiaries has good and
marketable title to all of its real and personal property reflected in the Public Reports, in each
case free of all Liens other than (i) liens for taxes not yet due and payable, (ii) liens imposed
by law and incurred in the ordinary course of business for obligations not past due, (iii) liens in
respect of pledges or deposits under workers’ compensation laws or similar legislation, and (iv)
liens, encumbrances and defects in title that do not materially detract from the value or



-17-









 





usefulness of the property subject thereto, do not have a Material Adverse Effect, and have
not arisen other than in the ordinary course of business.



     Section 3.13 Material Contracts. Except as set forth in Section 3.13(a) of the
Disclosure Letter, the Company and each of the Subsidiaries have performed all the obligations
required to be performed by them to date under each Material Contract, except for such
non-performance as could not reasonably be expected to give rise to a declaration of a default
thereunder. Neither the Company nor any Subsidiary has received a notice of default and, to the
Company’s Knowledge, are not in default under any Material Contract now in effect. Except as set
forth in Section 3.13(b) of the Disclosure Letter, no written or oral contract, instrument,
agreement, commitment, obligation, plan or arrangement of the Company or any Subsidiary limits or
shall limit the payment of dividends on the Preferred Stock or the Common Stock.



     Section 3.14 Intellectual Property.



          (a) For purposes of this Section 3.14, the term “Business Intellectual Property” means
all Intellectual Property owned, in whole or in part, or licensed by the Company or any of its
Subsidiaries or that has been used, is used or has been acquired or developed with the intent of
being used, in whole or in part, in the Business, other than off-the-shelf software applications
used generally in the Business. Section 3.14(a) of the Disclosure Letter sets forth an
accurate and complete list, as of the date hereof, of all Business Intellectual Property that is
the subject of a registration, or for which a registration application is pending, in the United
States or any other jurisdiction.




          (b) The Company or one of its Subsidiaries either (i) owns all right, title and interest in
the Business Intellectual Property without the making of any payment or the obligation to grant
rights to any Person, or (ii) possesses adequate licenses or other valid rights to use the Business
Intellectual Property in the manner in which the Company and/or its Subsidiaries has used, is
using, or has contemplated using the Business Intellectual Property. Without limiting the
foregoing, except as set forth in Section 3.14(b) of the Disclosure Letter, no open source
or public library Software, including, without limitation, any Software licensed pursuant to any
GNU public license, is or was used in the creation, development or modification of, or is or was
incorporated into, any material Business Intellectual Property. None of the uses of any open
source code or public library Software set forth in Section 3.14(b) of the Disclosure
Letter would have, or could reasonably be expected to have, a Material Adverse Effect on the
Business, the Company or any of its Subsidiaries.




          (c) All Business Intellectual Property registrations and applications to register, whether in
the United States or any other jurisdiction, (i) are in compliance in all material respects with
all formal legal requirements (including, without limitation, examination and maintenance fees,
recordations and proofs of use) and (ii) if registered, are valid, subsisting and enforceable and
have not been abandoned and as to all applications to register any Business Intellectual Property,
are pending and in good standing without challenge of any kind.




          (d) No claim has been brought or, to the Company’s Knowledge, is threatened by any third
party, and neither the Company nor any of its Subsidiaries has received notice of any claim that
(i) alleges that any Business Intellectual Property, or the use thereof, infringes,





-18-









 





violates, dilutes or misappropriates or has infringed, violated, diluted or misappropriated
(collectively “Infringes”) the rights of any Person, (ii) challenges the ownership, validity or
enforceability of any Business Intellectual Property, or (iii) alleges that the conduct of the
Business, including, without limitation, any products or services or the actual or contemplated
use, offer or provision thereof by the Company or any of its Subsidiaries, Infringes the rights of
any Person. To the Company’s Knowledge, neither the conduct of the Business including, without
limitation, any products or services or the actual or contemplated use, offer or provision thereof
by the Company or any of its Subsidiaries, nor any Business Intellectual Property, or use thereof,
Infringes the rights of any Person.




          (e) Neither the Company nor any of its Subsidiaries has threatened or initiated any claim
against any third party alleging that such third party Infringes any Business Intellectual Property
and no such claim is pending or being considered. To the Company’s Knowledge, no Person is
Infringing the rights of the Company or any Subsidiary in the Business Intellectual Property.




          (f) The Company and its Subsidiaries have taken all commercially reasonable actions to protect
and preserve the security, confidentiality and value of all material Business Intellectual
Property, including, without limitation, Trade Secrets.




          (g) All personnel of the Company and its Subsidiaries, including, without limitation, all
current and former officers, employees, agents, developers, consultants and contractors, who have
or have had access to, or have contributed to or participated in the conception, reduction to
practice, creation or development of the Business Intellectual Property either (i) are a party to a
“work-for-hire” agreement that has accorded and assigned to the Company all right, title and
interest in and to all Intellectual Property and all tangible and intangible property created or
developed, in whole or in part, by such Person or (ii) have executed appropriate instruments of
assignment in favor of the Company that have conveyed to the Company, and that contain a continuing
obligation to convey to the Company, all right, title and interest in and to all Intellectual
Property and all tangible and intangible property created and/or developed, in whole or in part, by
such Person.




          (h) Neither the Company nor any of its Subsidiaries has assigned, licensed, leased, sold,
placed in escrow or otherwise transferred, disposed of or released any interest which the Company
or any of its Subsidiaries has or had in or to any Business Intellectual Property.




          (i) All contracts, including, without limitation, all licenses, relating to or affecting the
Business Intellectual Property, are legal, valid, binding and enforceable. None of the Company,
any of the Subsidiaries, or to the Company’s Knowledge, any Person is in material default under any
contract relating to or affecting any of the Business Intellectual Property, including, without
limitation, contracts related to any Software service levels. The execution and delivery of this
Agreement and consummation of the transactions contemplated hereby will not result in the breach
of, or create on behalf of any Person the right to terminate or modify, any license, sublicense or
other contract or agreement (i) relating to or affecting any Business Intellectual Property or (ii)
pursuant to which the Company or any of the Subsidiaries is granted a license or otherwise
authorized to use, sell, resell, distribute or sublicense any third party Intellectual Property.




-19-









 








          (j) All Software included in the Business Intellectual Property performs in accordance with
all user specifications in all material respects, is covered by appropriate maintenance and
disaster recovery agreements, and, to the Company’s Knowledge, does not contain any viruses, worms,
Trojan horses or similar programs. To the Company’s Knowledge, no person or entity has been
supplied with any key, “backdoor” or other mechanism to reverse, defeat, disable or weaken the full
strength or power of any encryption, centralized management interface, or other similar protections
provided by or resident in the Software included in the Business Intellectual Property.




     Section 3.15 Licenses and Permits. The Company and each of the Subsidiaries has all
material franchises, authorizations, memberships, approvals, orders, consents, licenses,
certificates, permits, registrations, qualifications or other rights and privileges of any U.S. or
foreign governmental or self-regulatory authority or agency or political subdivision thereof
(collectively, “Permits”) necessary to permit the ownership of property and the conduct of business
as conducted by the Company and the Subsidiaries, and all such Permits are valid and in full force
and effect. No such Permit is reasonably expected to be terminated as a result of the execution of
this Agreement, the Transaction Documents or consummation of the transactions contemplated hereby
or thereby.



     Section 3.16 Employee Matters.



          (a) Section 3.16(a) of the Disclosure Letter sets forth a true, complete and accurate
list of all Employee Benefit Plans.




          (b) Each of the Employee Benefit Plans conforms (and at all times has conformed) in all
material respects to, and is being administered and operated (and has at all times been
administered and operated) in material compliance with, its terms and the requirements of ERISA,
the Code and all other applicable laws. All returns, reports and disclosures required to be made
under ERISA, the Code or any other applicable law with respect to the Employee Benefit Plans have
been timely filed or made, and all statements made on such returns, reports and disclosures have
been true and complete in all material respects. Neither the Company nor any ERISA Affiliate has
incurred any material liability for any tax, excise tax, or penalty with respect to any Employee
Benefit Plan, and no event has occurred and no circumstance exists or has existed that could
reasonably be expected to give rise to a material liability for any such tax or penalty.




          (c) Each Employee Benefit Plan intended to be qualified under Section 401(a) of the Code and
exempt from tax under Section 501(a) of the Code has been determined by the Internal Revenue
Service to be so qualified and exempt or a timely application for such determination has been made
or will be made with respect to the initial qualification of each such Employee Benefit Plan. Any
such Internal Revenue Service determination remains in effect and has not been revoked. Nothing
has occurred since the date of any such determination that is reasonably expected to affect
adversely such qualification or exemption.




          (d) The Company has delivered or made available to the Purchasers true, complete and accurate
copies of the following documents: (i) all plan documents, amendments and trust agreements
relating to each Employee Benefit Plan; (ii) the most recent annual and

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periodic accountings of plan assets; (iii) the most recent Internal Revenue Service
determination or notification letter for each Employee Benefit Plan that is an “employee pension
benefit plan” (as that term is defined in Section 3(2) of ERISA) and a list identifying any
amendment not covered by such determination or notification letter; (iv) annual reports filed on
Form 5500 (including accompanying schedules) for each Employee Benefit Plan for the past three
years, if such reports were required to be filed; (v) the current summary plan description, if any
is required by ERISA, for each Employee Benefit Plan; and (vi) all insurance contracts, annuity
contracts, investment management or advisory agreements, administration contracts, service provider
agreements, audit reports, fidelity bonds and fiduciary liability policies relating to any Employee
Benefit Plan; and (vii) all material correspondence with any governmental authority relating to any
Employee Benefit Plan.




          (e) There are no pending or, to the Knowledge of the Company, threatened claims by or on
behalf of any Employee Benefit Plan, or by or on behalf of any individual participants or
beneficiaries of any Employee Benefit Plan, alleging any violation of ERISA or any other applicable
laws or regulations, or claiming payments (other than benefit claims made and expected to be
approved in the ordinary course of the operation of such plans), nor is there any basis for such
claim. No Employee Benefit Plan is the subject of any pending or, to the Company’s Knowledge,
threatened investigation or audit by the Internal Revenue Service, the U.S. Department of Labor,
the Pension Benefit Guaranty Corporation or any other regulatory agency, foreign or domestic. To
the Company’s Knowledge, no “prohibited transaction” (as described in Section 406 of ERISA, but not
including transactions exempted by Section 408 of ERISA or related regulations or rulings) has
occurred with respect to any Employee Benefit Plan.




          (f) All contributions to and payments from the Employee Benefit Plans, have been timely made.




          (g) There has been no amendment to, written interpretation or announcement (whether or not
written) relating to, or change in employee participation or coverage under, any Employee Benefit
Plan which, when aggregated with all such amendments, written interpretations, announcements or
changes, would increase materially the aggregate expense of maintaining the Employee Benefit Plans
above the level of the expense incurred in respect thereof for the fiscal year of the Company
ending immediately prior to the date hereof. Each Employee Benefit Plan may be amended or
terminated, at any time determined by the Company in its sole discretion, except as limited by law
and with respect to previously accrued benefits.




          (h) The Company and the ERISA Affiliates do not sponsor, participate in or contribute to, and
have not in the past sponsored, participated in or contributed to, and have no current or
contingent obligation with respect to: (1) any defined benefit pension plan subject to Title IV of
ERISA, (2) any “multiemployer plan” (as defined in Section 3(37) of ERISA), (3) any plan or
arrangement that provides post retirement medical benefits, death benefits or other welfare
benefits, except to the extent required by Part 6 of Title I of ERISA or any similar law, or (4)
any “welfare benefit fund” (within the meaning of Section 419 of the Code).




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     Section 3.17 Key Employees and Executive Compensation.



          (a) Section 3.17(a) of the Disclosure Letter sets forth, as of the date hereof, a true
and complete list of the names, titles, annual salaries and other compensation of all officers of
the Company and the Subsidiaries and all other employees of the Company and the Subsidiaries whose
annual base salary exceeds $200,000 or whose annual commissions exceeded $200,000 in the most
recent fiscal year. As of the date hereof, to the Knowledge of the Company none of the individuals
listed in Section 3.17(a) of the Disclosure Letter has indicated that he or she intends to
resign or retire as a result of the transactions contemplated by this Agreement, or that he or she
otherwise intends to resign.




          (b) Neither the Company nor any Subsidiary, for the one year period ending on the date hereof,
has made any payment of any amount to any employee or former employee that would not be deductible
pursuant to Section 162(m) of the Code.




          (c) The execution of and performance of the transactions contemplated by this Agreement will
not result in: (i) any payment, or obligation to make any payment, to or acceleration, vesting or
increase in the rights of any employee or former employee of the Company or the Subsidiaries,
including pursuant to any employment, severance, indemnification, change of control or other
agreement or understanding, or (ii) any “excess parachute payment” (as defined in Section 280G of
the Code), or obligation to make such a payment, to any current or former employee of the Company
or the Subsidiaries.




          (d) Since June 1, 2004 there has not been: (i) any payment, or obligation to make any payment,
to or acceleration, vesting or increase in the rights of any current or former employee of the
Company or the Subsidiaries, including pursuant to any employment, severance, indemnification,
change of control or other agreement or understanding, other than the vesting of options or
restricted stock as a result only of the passing of time as set forth in the vesting schedule put
in place at the time of the initial grant and any compensation payments arising in the ordinary
course of business, or (ii) any “excess parachute payment” (as defined in Section 280G of the
Code), or obligation to make such a payment, to any current or former employee of the Company or
the Subsidiaries.




     Section 3.18 Labor Matters. None of Company or any of the Subsidiaries is a party to
or bound by any collective bargaining or similar agreement, letter of understanding or any other
agreement, formal or informal, with any labor organization, or work rules or practices agreed to
with any labor organization or employee association applicable to employees of the Company or any
of the Subsidiaries in the United States. None of the employees of the Company or any of the
Subsidiaries is represented by any labor organization. The Company has provided the Purchasers
with true, complete and accurate copies of all written employee handbooks, policy manuals and other
material personnel policies, rules or procedures applicable to employees of the Company or any of
the Subsidiaries.



     Section 3.19 Taxes. Except as set forth in Section 3.19 of the Disclosure
Letter:



          (a) the Company and each of the Subsidiaries has timely filed in accordance with all
applicable laws, all Tax returns, statements, reports and forms (collectively, the “Returns”)




-22-









 







required to be filed with any Taxing Authority (taking into account any extension of a
required filing date);




          (b) such Returns were true, complete and accurate in all material respects;




          (c) the Company has paid when due all Taxes that were required to be withheld and paid to a
taxing authority with respect to payments made to employees, independent contractors and any other
person payments to whom are subject to tax withholding;




          (d) the charges, accruals and reserves reflected on the Balance Sheet (excluding any provision
for deferred income taxes) are adequate to cover the Tax liabilities accruing through the date
thereof;




          (e) the Company is not engaged in any proceeding involving an audit of any Tax Returns of the
Company and the Subsidiaries, and, to the Company’s Knowledge, no such audit is pending or
contemplated;




          (f) neither the Company nor any of the Subsidiaries has any obligation under any tax sharing
agreement, tax allocation agreement, tax indemnification agreement or any other agreement or
arrangement in respect of any Tax with any Person or any distributions made or to be made with
respect to Taxes;




          (g) neither the Company nor any of the Subsidiaries has been a member of any affiliated,
consolidated, combined or unitary group other than one in which the Company was the common parent;




          (h) the Company is not now, and has never been a “United States Real Property Holding
Corporation” as defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the Treasury
Regulations promulgated thereunder;




          (i) none of the Subsidiaries that are not formed under the laws of the United States has made
an investment in U.S. property, as defined by Section 956 of the Code; and




          (j) the Subsidiaries are and, since the date of their acquisition or formation (as the case
may be) by the Company, have been corporations as defined in Treasury Regulation 301.7701-2.




     Section 3.20 Environmental Matters. To the Company’s Knowledge, (a) the Company is
not in violation of any applicable statute, law or regulation relating to the environment or
occupational health and safety, and (b) no material expenditures are or will be required in order
to comply with any such statute, law or regulation.



     Section 3.21 Certain Payments. To the Company’s Knowledge, neither the Company nor
any of the Subsidiaries nor any of their respective current or former directors, officers,
employees, agents or Affiliates has, on behalf of the Company or any Subsidiary or in connection
with their respective businesses, (a) used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (b) made any direct or
indirect unlawful payments to any governmental officials or employees from



-23-









 




corporate funds, (c) established or maintained any unlawful or unrecorded fund of corporate
monies or other assets, (d) made any false or fictitious entries on the books and records of the
Company, (e) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful
payment of any nature, or (f) submitted any claims for payment to any Person that are not permitted
by applicable law.




     Section 3.22 Affiliate Transactions. All transactions (other than those relating to
services as directors or employees) between or among the Company or any Subsidiary, on the one
hand, and any Affiliate of the Company (other than a Subsidiary), on the other hand (each, an
“Affiliate Transaction”), are listed in Section 3.22 of the Disclosure Letter or set forth
in the Public Reports if such Affiliate Transaction is either (i) with an Affiliate of the Company
other than Canopy and involves aggregate expenditures to be made by, or aggregate payments to be
received by, the Company of greater than $60,000 (except the transactions contemplated by this
Agreement), or (ii) with Canopy. All Affiliate Transactions (including the transactions
contemplated by this Agreement) have been entered into in the ordinary course of business
consistent with past practices and on fair and reasonable terms, no less favorable to the Company
or any Subsidiary than such terms as reasonably could be expected to be obtained in a comparable
arm’s-length transaction with an unaffiliated Person.



     Section 3.23 Finders’ Fees. No investment banker, broker, finder or other
intermediary is or will be entitled to any fee or commission or other payment in connection with
the transactions contemplated by this Agreement.



     Section 3.24 Nasdaq SmallCap Market. The Common Stock is registered pursuant to
Section 12(g) of the Exchange Act and is listed on the Nasdaq SmallCap Market under the symbol
“MTIC,” and the Company has taken no action designed to, or expected to have the effect of,
terminating the registration of the Common Stock under the Exchange Act or delisting the Common
Stock from the Nasdaq SmallCap Market. Since May 1, 2004, the Company has not received any
notification that the Commission or Nasdaq is contemplating terminating such registration or
listing or that it is in violation of the Nasdaq listing standards. There are no matters with
respect to which the Company has received notice of violation or deficiency from Nasdaq that, to
the Company’s Knowledge, remain open or unresolved.



     Section 3.25 No Manipulation of Stock. Neither the Company nor any of the
Subsidiaries has taken or authorized any Person to take, and, to the Company’s Knowledge, no other
Person has taken, any action designed to, or that might reasonably be expected to cause or result
in, any stabilization or manipulation of the price of Common Stock in violation of applicable law.



     Section 3.26 Non-Investment Company. The Company has been advised of the rules and
requirements under the Investment Company Act of 1940, as amended (the “Investment Company Act”).
The Company is not, and immediately after receipt of payment for the Purchased Securities will not
be, an “investment company” or an entity “controlled” by an “investment company” within the meaning
of the Investment Company Act.



     Section 3.27 Compliance with Securities Act. The Company has complied with all
applicable federal and state securities laws in connection with the offer, issuance and sale of the



-24-









 




Purchased Securities pursuant to this Agreement. Neither the Company, nor any Person
authorized to, or with authority to, act on its behalf, has (i) taken any action so as to bring the
issuance and sale of the Purchased Securities pursuant to this Agreement under the registration
provisions of the Securities Act or applicable state securities laws, or (ii) engaged in a general
solicitation of, or general advertising to (in each case, within the meaning of Regulation D of the
Securities Act) investors with respect to offers or sales of the Series B Shares or the Warrants.
The Company has not, directly or indirectly, sold, offered for sale, solicited offers to buy or
otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or
will be integrated with the Purchased Securities sold pursuant to this Agreement. The Purchasers
and the Company acknowledge the Company’s reliance on the representations set forth in Section 4.05
hereof.




     Section 3.28 Sarbanes-Oxley Act. The Company is in compliance with the applicable
provisions of the Sarbanes-Oxley Act of 2002, and the rules and regulations promulgated thereunder
(the “Sarbanes-Oxley Act”), that are in effect, and intends to comply with any other applicable
provisions of the Sarbanes-Oxley Act upon the effectiveness of such provisions. For the purposes
of clarification, nothing in this Section 3.28 shall be deemed to require the Company to
accelerate its compliance with any provision of the Sarbanes-Oxley Act prior to the date the
Company is required under the Sarbanes-Oxley Act to comply with such provision.



     Section 3.29 Accounting Controls. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (a) transactions are executed
in accordance with management’s general or specific authorizations, (b) transactions are recorded
as necessary to permit preparation of financial statements in accordance with GAAP and to maintain
assets accountability, (c) access to assets is permitted only in accordance with management’s
general or specific authorization and (d) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with respect to any
differences. The Company has not received a notice of non-compliance with respect to any such
internal controls and, to the Company’s knowledge, no such notice is pending or threatened.



     Section 3.30 Acknowledgement Regarding Purchasers’ Purchase of Purchased Securities.
The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of
an arm’s length purchaser with respect to this Agreement, the other Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges that no Purchaser
is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement, the other Transaction Documents and the transactions contemplated hereby
and thereby and any advice given by any Purchaser or any of their respective representatives or
agents in connection with this Agreement, the other Transaction Documents and the transactions
contemplated hereby and thereby is merely incidental to the Purchasers’ purchase of the Purchased
Securities. The Company further represents to each Purchaser that the Company’s decision to enter
into this Agreement has been based solely on the independent evaluation of the Company and its
representatives excluding Michael Pehl, whom the Company acknowledges is a Partner of Advent.



-25-









 





     Section 3.31 Form S-3 Eligibility. The Company has the ability to register the
Underlying Shares for resale by the Purchasers under
Form S-3 promulgated under the Securities Act.



     Section 3.32 Disclosure. To the Company’s Knowledge, neither this Agreement nor the
Disclosure Letter, nor any other documents, certificates or instruments furnished to the Purchaser
by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated
by this Agreement taken as a whole, contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made herein and therein, in light
of the circumstances under which they were made, not misleading.



ARTICLE 4




REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER




     Each Purchaser, severally as to itself and no other Purchaser, hereby represents and warrants
to the Company as of the date hereof that:



     Section 4.01 Existence and Power. Such Purchaser is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization.



     Section 4.02 Authorization. Such Purchaser has the power to execute, deliver and
perform its obligations under this Agreement and the other Transaction Documents to which it is a
party and has taken all necessary action to authorize the execution, delivery and performance by it
of this Agreement and such other Transaction Documents. This Agreement constitutes, and each of
the other Transaction Documents to which it is a party, when executed and delivered by such
Purchaser, will constitute, a valid and binding agreement of such Purchaser, enforceable in
accordance with its terms.



     Section 4.03 Governmental Authorization. The execution, delivery and performance by
such Purchaser of this Agreement and the other Transaction Documents to which it is a party, and
the consummation of the transactions contemplated hereby and thereby, require no action by or in
respect of, or filing with, any governmental body, agency or official, by such Purchaser other than
(a) the filing by such Purchaser with the Commission of such reports and other documents under the
Securities Act or the Exchange Act, and filings pursuant to applicable stock exchange rules, as may
be required in connection with this Agreement and the other Transaction Documents and the
transactions contemplated hereby and thereby to be effected at or prior to the Closing, and (b) any
filings required by the securities or blue sky laws of the various states and filings under the
Securities Act, the Exchange Act and/or pursuant to Nasdaq rules in connection with a registration
of securities pursuant to the Investor Rights Agreement.



     Section 4.04 Noncontravention. The execution, delivery and performance by such
Purchaser of this Agreement and the other Transaction Documents to which it is a party, and the
consummation of the transactions contemplated hereby and thereby do not and will not violate the
organizational documents of such Purchaser or any applicable material law, rule, regulation,
judgment, injunction, order or decree.



     Section 4.05 Private Placement. Such Purchaser is acquiring the Purchased Securities
pursuant to this Agreement for investment and not with a view to the resale or distribution of the



-26-









 




Series B Shares, the Warrants, the Underlying Shares or the Warrant Shares, or any interest
therein, without prejudice, however, to such Purchaser’s right, subject to compliance with the
Transaction Documents (including the Investor Rights Agreement), at all times to sell or otherwise
dispose of all or any part of such Series B Shares, Warrants, Underlying Shares or Warrant Shares
pursuant to an effective registration statement under the Securities Act or under an exemption from
such registration and in compliance with applicable federal and state securities laws. Nothing
contained herein shall be deemed a representation or warranty by such Purchaser to hold any of the
Series B Shares, Warrants, Underlying Shares or Warrant Shares for any period of time. Such
Purchaser is acquiring the Purchased Securities hereunder in the ordinary course of business.
Except as contemplated by the Investor Rights Agreement, such Purchaser has no agreement,
undertaking, arrangement, obligation or commitment providing for the disposition of such Series B
Shares, Warrants, Underlying Shares or Warrant Shares. The Purchaser has not been organized,
reorganized or recapitalized specifically for the purpose of investing in the Purchased Securities.
At all times since the time such Purchaser was initially offered the Purchased Securities, such
Purchaser has been an “accredited investor” as such term is defined in Regulation D under the
Securities Act.




     Section 4.06 Access to Information. Such Purchaser acknowledges that it has been
afforded: (a) the opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions of the offering of
the Purchased Securities and the merits and risks of investing in the Purchased Securities; (b)
access to information about the Company and the Subsidiaries and their respective financial
condition sufficient to enable it to evaluate its investment; and (c) the opportunity to obtain
such additional information that the Company possesses or can acquire without unreasonable effort
or expense that is necessary to make an informed investment decision with respect to the
investment. Neither such inquiries nor any other investigation conducted by or on behalf of such
Purchaser or its representatives or counsel, nor any other provisions of this Section 4.06,
shall modify, amend or affect such Purchaser’s right to rely on the truth, accuracy and
completeness of the representations and warranties contained in the Transaction Documents to which
it is a party.



     Section 4.07 General Solicitation. Such Purchaser is not purchasing Purchased
Securities as a result of any advertisement, article, notice or other communication regarding such
Purchased Securities published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar or any other general solicitation or general
advertisement.



     Section 4.08 Reliance. Such Purchaser understands and acknowledges that (a) the
Purchased Securities are being offered and sold to it without registration under the Securities Act
in a private placement that is exempt from the registration provisions of the Securities Act and
(b) the availability of such exemption depends in part on, and the Company will rely upon the
accuracy and truthfulness of, the foregoing representations and such Purchaser hereby consents to
such reliance.



     Section 4.09 Absence of Litigation. There are no Suits pending or, to such
Purchaser’s knowledge, threatened against such Purchaser or any of its Affiliates by or before any
court or other governmental body or arbitrator in which an unfavorable outcome, ruling or finding
in any



-27-









 




said Suit, or for all such Suits taken as a whole, questions this Agreement or any of the
Transaction Documents to which such Purchaser is a party or seeks to or could reasonably be
expected to delay or prevent the consummation of the transactions contemplated hereunder or
thereunder or the right of such Purchaser to execute, deliver and perform hereunder or thereunder.




     Section 4.10 Finders’ Fees. Except for the persons entitled to the Expense
Reimbursement Amounts such Purchaser has not retained or authorized an investment banker, broker,
finder or other intermediary to act on behalf of such Purchaser who might be entitled to any fee or
commission or other payment from the Company or any of its Affiliates in connection with the
transactions contemplated by this Agreement.



     Section 4.11 Economic Risk. Such Purchaser has substantial experience in evaluating
and investing in private placement transactions of securities in companies similar to the Company
so that it is capable of evaluating the merits and risks of its investment in the Company and has
the capacity to protect its own interests. Such Purchaser will bear the economic risk of this
investment until the Securities are registered pursuant to the Securities Act, or an exemption from
registration is available.



     Section 4.12 Legends. In addition to any legend required by any applicable state
securities law, the certificates evidencing the Series B Shares shall bear the following legend
until the Series B Shares are covered by an effective registration statement filed with the
Commission:



	 	 	 
	“THE SHARES OF PREFERRED STOCK EVIDENCED BY THIS CERTIFICATE, AND
THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH
PREFERRED STOCK (COLLECTIVELY, THE “SHARES”), HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”),
OR APPLICABLE STATE SECURITIES LAWS. THE SHARES MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
MTI TECHNOLOGY CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.”

	 	 






          (a) In addition to any legend required by any applicable state securities law, the Warrants
shall bear the following legend until the Warrant Shares are covered by an effective registration
statement filed with the Commission:




	 	 	 
	“THIS WARRANT, AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
OF THIS WARRANT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES

	 	 






-28- 







 





LAWS. THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON

EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED

OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION

STATEMENT UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS, OR AN

OPINION OF COUNSEL REASONABLY SATISFACTORY TO MTI TECHNOLOGY

CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.”



          (b) In addition to any legend required by any applicable state securities law, any
certificates evidencing either (i) Conversion Shares that the Company may issue upon conversion of
the Series B Shares or (ii) Warrant Shares that the Company may issue upon exercise of the
Warrants, shall bear the following legend until the Conversion Shares or Warrant Shares, as the
case may be, are covered by an effective registration statement filed with the Commission:



“THE SHARES OF COMMON STOCK EVIDENCED BY THIS CERTIFICATE HAVE NOT

BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR

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 SAID ACT AND APPLICABLE STATE

SECURITIES LAWS, OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO

MTI TECHNOLOGY CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.”



ARTICLE 5





COVENANTS OF THE COMPANY




     Section 5.01 Notices of Certain Pre-Closing Events. From the date hereof until the Closing
Date, the Company shall notify each Purchaser of the occurrence of any of the following
circumstances or events promptly following the Company’s becoming aware of such circumstances or
events:



          (a) the Company’s receipt of any written notice or other written communication from any Person
alleging that the consent of such Person is or may be required in connection with the transactions
contemplated by this Agreement or the other Transaction Documents;




          (b) the Company’s receipt of any notice or other communication from the Commission, Nasdaq or
any other governmental or regulatory agency or authority regarding the transactions contemplated by
the Transaction Documents or regarding any of the terms set forth in the Certificate of Designation
or the other Transaction Documents in connection with the transactions contemplated by this
Agreement or the other Transaction Documents or otherwise;




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          (c) the Company’s or any Subsidiary’s receipt of written notice of any Suit pending or, to the
Company’s Knowledge, threatened against the Company or any of the Subsidiaries, and any judgment,
injunction, order, decree or arbitration award relating to or involving or otherwise affecting the
Company or any Subsidiary, that, if pending or, to the Company’s Knowledge, threatened on the date
of this Agreement, would have been required to have been disclosed in Section 3.10(a) of
the Disclosure Letter or in the Public Reports;




          (d) any event or series of related events, which, individually or in the aggregate, would
have, or could reasonably be expected to have, a Material Adverse Effect; and




          (e) any event which reasonably causes the Company to believe that any of the conditions to
Closing set forth in Section 7.01 and Section 7.02 hereof cannot be satisfied.




     Section 5.02 Pre-Closing Conduct of the Company.



          (a) From the date hereof until the Closing Date, the Company shall, and shall cause each of
the Subsidiaries to:




               (i) conduct its and their businesses in the ordinary course consistent with past practice;



               (ii) use its and their commercially reasonable efforts to preserve intact its and their
business organizations and relationships with third parties;



               (iii) maintain all applicable Permits to do business;



               (iv) fund each Employee Benefit Plan in accordance with the terms of such plan and with
respect to benefits accrued or claims incurred through the Closing Date, including the payment of
applicable premiums on any insurance contract funding an Employee Benefit Plan for coverage
provided through the Closing Date; and



               (v) comply in all material respects with the requirements of the Securities Act and the
Exchange Act, as applicable, and the rules and regulations promulgated thereunder, including the
timely filing of each Public Report required to be filed by the Company.



          (b) Without limiting the generality of the foregoing, from the date hereof until the Closing
Date, the Company shall not, and shall not permit any of the Subsidiaries to, without the prior
written consent of Advent:




               (i) adopt or propose any change in the certificate of incorporation or bylaws of the Company,
other than the filing with the Secretary of State of Delaware, at or prior
to Closing, of the Certificate of Designation in accordance with the General Corporation Law
of the State of Delaware;



               (ii) issue any shares of Preferred Stock or file any certificate of designation creating any
class of Preferred Stock, other than the Certificate of Designation;



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               (iii) issue any shares of Common Stock, other than shares of Common Stock issuable upon the
exercise of preferred stock, options, warrants or other rights (including rights under the
Company’s employee stock purchase plan) outstanding on the date hereof, or other obligations of the
Company to issue, shares of Common Stock;



               (iv) issue any Company Securities, other than options and restricted stock issued in
accordance with Employee Benefit Plans in effect on the date hereof;



               (v) redeem, retire, purchase or otherwise acquire, directly or indirectly, any shares of
Common Stock, any Company Securities or any other equity interests of the Company, or declare, set
aside or pay any cash or non-cash dividends or other non-cash distributions in respect of such
interests;



               (vi) split, combine or reclassify any shares of the capital stock or other securities of the
Company or any Subsidiary;



               (vii) merge or consolidate with any other Person (other than a Subsidiary), or acquire a
significant portion of the business assets of any other Person (other than a Subsidiary);



               (viii) sell, lease, license or otherwise dispose of any material amount of assets or property
except in the ordinary course of business;



               (ix) pay, defer, discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, contingent or otherwise), other than the payment, deferral, discharge or satisfaction, in
accordance with the respective terms thereof and the ordinary course of business consistent with
past practices, of liabilities and obligations (1) reflected or reserved against in the Company’s
financial statements included in the Public Reports or in the notes thereto or (2) incurred in the
ordinary course of business consistent with past practices;



               (x) collect or attempt to collect any of its accounts receivable, except in the ordinary
course of business consistent with past practices;



               (xi) take, commit to take or intentionally omit to take, any action, that would result, or
could reasonably be expected to result, in any of the conditions to the obligations of the
Purchasers set forth in Section 7.01 hereof not being satisfied;



               (xii) except as may be required by law or as may be necessary to preserve an Employee Benefit
Plan’s qualified status under Section 401 of the Code, adopt, terminate, amend, extend, or
otherwise change any Employee Benefit Plan in a manner that, when aggregated with all such
adoptions, terminations, amendments, extensions or changes, would materially increase the aggregate
costs of the Employee Benefit Plans;



               (xiii) materially adjust the compensation of any executive officer;



               (xiv) take or omit to take any action that would result in:



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                    (1) the representations and warranties of the Company made in this Agreement which are
qualified as to “materiality,” “Material Adverse Effect” or words of similar meaning not being true
and correct at and as of the Closing Date, as if made at and as of such date (except for
representations and warranties made as of a particular date, which, on the Closing Date need to be
true and correct as of the particular date referenced therein);



                    (2) all other representations and warranties of the Company made in this Agreement not being
true and correct in all material respects at and as of the Closing Date, as if made at and as of
such date (except for representations and warranties made as of a particular date, which, on the
Closing Date, need to be true and correct as of the particular date referenced therein);



               (xv) release any party from any confidentiality agreement by which such party is bound that
was entered into in connection with a contemplated purchase of securities of the Company, or from
its obligations under any agreements relating to covenants not to purchase the Company’s securities
or other standstill obligations; or



               (xvi) agree or commit to do any of the foregoing.



     Section 5.03 Tax Elections; Changes in Accounting Practices. From the date hereof
until the Closing Date, the Company shall not make any material Tax election or material change in
any method of accounting or accounting practice of the Company or any Subsidiary except for any
such change required by reason of a concurrent change in GAAP.



     Section 5.04 Capital Stock Matters.



          (a) The Company shall file the Certificate of Designation prior to the Closing with the
Secretary of State of Delaware in accordance with Delaware law.




          (b) The Company shall file the Certificate of Amendment to the Certificate of Designation of
the Series A Preferred Stock in the form of Exhibit G hereto with the Secretary of State of
Delaware in accordance with Delaware law, promptly after it receives the consent of the holders of
Series A Preferred Stock set forth in Exhibit H hereto.




          (c) After the Closing, the Company shall reserve and shall keep available for issuance at all
times when any shares of Series B Preferred Stock are outstanding, solely for the purpose of
effecting the conversion of the Series B Preferred Stock, the total number of Underlying Shares
issuable upon conversion of the outstanding shares of Series B Preferred Stock.




          (d) After the Closing, the Company shall reserve and shall keep available for issuance at all
times when any Warrants are outstanding, solely for the purpose of effecting the exercise of the
Warrants, the total number of Warrant Shares issuable upon exercise of the outstanding Warrants.




          (e) The Company shall use all commercially reasonable efforts to comply with all applicable
Nasdaq SmallCap Market eligibility requirements and Nasdaq Marketplace Rules and to follow any
recommendations by Nasdaq.




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          (f) The Company shall file with Nasdaq a Notification Form for Listing Additional Shares with
respect to the Underlying Shares within twenty (20) days after the date of this Agreement or at
such earlier time as may be required by Nasdaq.




     Section 5.05 Pre-Closing Access to Information. From the date hereof until the
Closing Date, the Company shall, and shall cause each Subsidiary to, (a) during regular business
hours, and upon reasonable notice, give each Purchaser, its counsel, financial advisors, auditors
and other authorized representatives, full access to the offices, properties, books and records of
the Company and the Subsidiaries upon reasonable notice by the Purchasers to Company; (b) furnish
to each Purchaser, its counsel, financial advisors, auditors and other authorized representatives
such financial and operating data and other information relating to the Company or any Subsidiary
as such Persons may reasonably request, except to the extent that furnishing any such information
or data would violate any law, order, contract or license applicable to the Company or any
Subsidiary or by which any of their respective assets and/or properties is bound; and (c) instruct
the employees, counsel, auditors and financial advisors of the Company or any Subsidiary to
cooperate with each Purchaser in its investigation of the Company and the Subsidiaries. No
investigation by any Purchaser, its counsel, financial advisors, auditors or other authorized
representatives or any other Person, and no information received by any Purchaser, its counsel,
financial advisors, auditors or other authorized representatives or any other Person, shall operate
as a waiver or otherwise affect any representation, warranty, covenant or agreement given or made
by the Company hereunder. Unless otherwise agreed to in writing by the Company, each Purchaser
(for and on behalf of itself and its counsel, financial advisors, auditors and other authorized
representatives) who receives any written proprietary or confidential information or data that is
marked as such after the date hereof and prior to the Closing Date with respect to the Company or
any Subsidiary pursuant to this Section 5.05 agrees, (i) except as required by applicable
law, to keep such information or data confidential and not to disclose or reveal such information
to any Person (other than the Purchaser’s counsel, financial advisors, auditors and other
authorized representatives in connection with the transactions contemplated hereby), and (ii) not
to use such information or data for any purpose other than in connection with the Purchaser’s
ownership of Company securities and in connection with evaluating the transactions contemplated
hereby. In the event that any Purchaser (or its counsel, financial advisors, auditors and other
authorized representatives) is requested, or required by applicable law, to disclose any
proprietary or confidential information or data with respect to the Company or any Subsidiary
pursuant to this Section 5.05, such Person will provide the Company with prompt notice of
such request or requirement. Notwithstanding the above, the confidentiality and limited use
obligations of this Section 5.05 shall not apply to information received pursuant to this
Section 5.05 which: (i) is or becomes publicly known other than through a breach of this
Section 5.05 by the applicable Purchasers; or (ii) is already known to a Purchaser at the
time of disclosure; or (iii) is lawfully received by a Purchaser from a third party who is not
known by such Purchaser to be bound by any confidentiality agreement with the Company with respect
to such information; or (iv) is independently developed by employees or agents of a Purchaser or
one of its affiliates; or (v) is authorized in writing by the Company to be released from the
confidentiality obligations herein.



     Section 5.06 Update of Disclosure. On or prior to the Closing Date, the Company shall
deliver to the Purchasers written notice of any event or development that (a) renders any
statement, representation or warranty of the Company in this Agreement (including the



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Disclosure Letter) inaccurate or incomplete in any respect, or (b) constitutes or results in a breach by the
Company of, or a failure by the Company to comply with, any agreement or covenant in this Agreement
applicable to it. For the purposes of clarification, no such written notice shall be deemed to
supplement or amend this Agreement, the other Transaction Documents or any Exhibit or Schedule to
this Agreement for the purpose of (i) determining the accuracy of any of the representations and
warranties made by the Company in this Agreement or (ii) determining whether any conditions
precedent to the Purchasers’ performance of their obligations hereunder have been satisfied.




     Section 5.07 No Solicitation.



          (a) Subject to Section 5.07(c) hereof, the Company shall not, and shall cause each of
the Subsidiaries and each of their respective directors and officers not to, and shall use all
commercially reasonable efforts to ensure that each of the Company’s agents, advisors (including
its legal counsel and financial advisors) and employees do not, directly or indirectly: (i)
initiate, solicit or encourage, or take any action to facilitate the making of, any offer or
proposal from any Person which constitutes, or could reasonably be expected to result in, an
Alternative Transaction or an inquiry with respect thereto; (ii) enter into any agreement with
respect to any Alternative Transaction; or (iii) engage in negotiations or discussions with, or
provide any non-public information or data to, any Person other than the Purchasers or any of their
Affiliates or representatives relating to any Alternative Transaction, or otherwise cooperate in
any way with, or assist or participate in, facilitate or encourage any effort or attempt by any
Person to do or seek any of the foregoing.




          (b) Notwithstanding anything set forth in Section 5.07(a) hereof to the contrary, the
Company may furnish information in response to an unsolicited written proposal (provided such
proposal was not solicited by the Company’s legal counsel or any other agent of the Company)
regarding an Alternative Transaction and engage in negotiations with a Person relating to any such
Alternative Transaction if, but only if, the Board determines in good faith that (i) such
Alternative Transaction is reasonably expected to result in a Superior Proposal and (ii) after
consultation with its independent outside counsel, the failure to furnish such information or
engage in such negotiations would reasonably be expected to violate the Board’s fiduciary duties
under applicable law; provided, however, that the Company shall notify the Purchasers orally (with
written confirmation to follow within 24 hours) of any inquiries, expressions of interest,
proposals or offers received by, the Company or any of the Subsidiaries or any of their
representatives relating to any Alternative Transaction indicating, in such notice, the name of the
Person submitting the Alternative Transaction proposal in question and the terms and conditions of
such proposal; provided, further, that the Company shall notify the Purchasers orally (with written
confirmation to follow within 24 hours) of any Superior Proposal, which notice shall identify the
Person submitting the Superior Proposal and include a summary of the terms and conditions of such
Superior Proposal (a “Superior Proposal Notice”), the Company shall permit the Purchasers a period
of five (5) Business Days after receipt of a Superior Proposal Notice (the “Superior Proposal
Period”) to submit to the Company a new proposal in response to the Superior Proposal that is the
subject of the Superior Proposal Notice. After one such Superior
Proposal Period, the Board shall determine whether and how, in its sole discretion in light of
its fiduciary obligations under applicable law, to proceed with respect to the Superior Proposal
and the Purchasers’ response.




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          (c) The Company shall, and shall cause each of the Subsidiaries and each of their respective
directors and officers to, and that it will use all commercially reasonable efforts to cause each
of its employees, advisors (including its legal counsel and financial advisors) and agents to,
immediately cease and cause to be terminated any existing activities, discussions or negotiations
with any Persons conducted heretofore with respect to any Alternative Transaction.




          (d) Nothing contained in this Section 5.07 or Section 6.04 hereof shall
prohibit the Company from (i) taking and disclosing to its stockholders a position contemplated by
Rule 14d-9 or Rule 14e-2(a) promulgated under the Exchange Act or (ii) making any disclosure to its
stockholders, in each case, if, in the good faith judgment of the Board, after consultation with
independent outside counsel, the failure to take such position or make such disclosure would
violate, or would reasonably be expected to violate, applicable law.




          (e) Neither the Board nor any committee thereof shall, except as permitted by this Section
5.07(e), (i) withdraw or modify, or propose publicly to withdraw or modify, in a manner adverse
to the Purchasers, the approval or recommendation by the Board or such committee of this Agreement
and the transactions contemplated hereby, (ii) approve or recommend, or propose publicly to approve
or recommend, any Alternative Transaction, or (iii) authorize the Company to enter into any letter
of intent, agreement in principle, acquisition agreement or other similar agreement related to any
Alternative Transaction. Notwithstanding the foregoing, in the event that, prior to the approval
of the issuance and sale of the shares of Purchased Securities and the transactions contemplated by
this Agreement by the stockholders of the Company, the Board determines in good faith, after it has
received a Superior Proposal and after consultation with independent outside counsel, that the
failure to approve or recommend such Superior Proposal would reasonably be expected to violate the
Board’s fiduciary duties under applicable law, the Board may withdraw or modify its approval or
recommendation of this Agreement and the transactions contemplated hereby but only after such time
that the Board considers any adjustments in the terms and conditions of this Agreement submitted by
the Purchasers during the Superior Proposal Period. The Board shall provide the Purchasers’ with
prior notice of the Board’s intention to so withdraw or modify its approval and/or recommendation
not less than two (2) Business Days prior to such withdraw or modification.




     Section 5.08 Use of Proceeds. The Company shall use the proceeds from the issuance
and sale of the Purchased Securities to the Purchasers solely as follows:



          (a) to pay the Expense Reimbursement Amount; and




          (b) for general working capital of the Company and the Subsidiaries.




     Section 5.09 Insurance. For so long as the holders of the Series B Preferred Stock
have the right to elect directors of the Company pursuant to the Certificate of Designation, the
Company shall use all commercially reasonable efforts to carry and maintain any insurance against
directors’ and officers’ liability to cover such directors to the same extent as directors
elected by the holders of Common Stock. The amount of such coverage shall not be less than
$15,000,000.



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ARTICLE 6





COVENANTS OF THE COMPANY AND THE PURCHASERS




     Section 6.01 Further Assurances. Each of the Purchasers, severally as to itself, and
the Company shall use, and the Company shall cause each Subsidiary to use, all commercially
reasonable efforts to cause the conditions to Closing set forth in Section 7.01 and
Section 7.02 hereof to be satisfied and to execute and deliver such documents,
certificates, agreements and other writings and to take such other actions as may be necessary or
desirable in order to consummate or implement expeditiously the transactions contemplated by this
Agreement or any other Transaction Document.



     Section 6.02 Required Filings and Consents. The Company and each Purchaser agree to
cooperate with each other (i) in determining whether any action by or in respect of, or filing
with, any governmental body, agency, official or authority is required, or any actions, consents,
approvals or waivers are required to be obtained from parties to any material contracts, in
connection with the consummation of the transactions contemplated by this Agreement and the other
Transaction Documents and (ii) in taking such actions or making any such filings, furnishing
information required in connection therewith and seeking timely to obtain any such actions,
consents, approvals or waivers.



     Section 6.03 Public Announcements. Except as may be required by law or Nasdaq
regulations, each of the Purchasers, severally as to itself, and the Company agrees to consult with
each other before issuing any press release or making any public statement with respect to this
Agreement or the transactions contemplated hereby.



     Section 6.04 Proxy Statement. The Company, in consultation with the Purchasers, shall
use all commercially reasonable efforts to prepare and file with the Commission, as promptly as
practicable after the date hereof, preliminary proxy materials with respect to a meeting of the
stockholders (the “Annual Meeting”) for the purpose of approving the issuance and sale of the
Purchased Securities hereunder and all transactions contemplated by this Agreement; provided,
however, that, prior to filing any such preliminary proxy materials with the Commission, the
Company shall afford the Purchasers reasonable opportunity (which shall not be less than two (2)
Business Days) to review and comment on any such preliminary proxy materials; and provided,
further, that the Company shall not file any preliminary proxy materials to which the Purchasers
reasonably object. Thereafter, the Company, in consultation with the Purchasers, shall promptly
file with the Commission the definitive proxy statement and, acting through the Board, (i) call an
Annual Meeting to be held as soon as reasonably practicable after the date hereof and in no event
later than 45 days after the earlier of (a) receiving notification that the Commission is not
reviewing the preliminary proxy materials and (b) the conclusion of any Commission review of the
preliminary proxy materials, for the purpose of voting upon the approval of the sale of Purchased
Securities hereunder and all transactions contemplated by this Agreement and (ii) subject to
Section 5.07(e) hereof, include in the proxy statement the recommendation of the Board that
holders of the Common Stock approve the Company Proposals; and provided, however, that, prior to
filing any such definitive proxy statement with the Commission, the
Company shall afford the Purchasers reasonable opportunity (which shall not be less than two
(2) Business Days) to review and comment on any change reflected in such definitive proxy
statement; provided, further, that the Company shall not file any definitive proxy statement to



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which the Purchasers reasonably objected. Neither prior to nor at the Annual Meeting shall the
Company put forth any matter, other than those matters relating to transactions expressly
contemplated by this Agreement and the election of directors, to the holders of Common Stock for
their approval without the prior written consent of Advent.




          (a) Each of the Company, on the one hand, and each of the Purchasers, severally and not
jointly, on the other hand, hereby agrees that the information provided and to be provided by it
specifically for use in the preliminary proxy material and the definitive proxy statement shall
not, on the date upon which the definitive proxy statement is mailed to the stockholders of the
Company or on the date of the Annual Meeting contemplated by this Agreement contain any untrue
statement of a material fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances under which they
were made, not misleading. The Company and each of the Purchasers agrees to correct promptly any
such information provided by it that shall have become false or misleading in any material respect,
and the Company shall take all steps necessary to file with the Commission any amendment or
supplement to the definitive proxy statement so as to correct the same and to cause such definitive
proxy statement as so corrected to be disseminated to the Company’s stockholders to the extent
required by applicable law.




          (b) Any proxy solicitation materials prepared and filed by the Company with the Commission
and/or delivered to the Company’s stockholders pursuant to this Section 6.04, including the
preliminary proxy materials and definitive proxy statement to be filed in accordance with this
Section 6.04, shall comply as to form in all material respects with the provisions of the
Exchange Act.




ARTICLE 7







CONDITIONS TO CLOSING




     Section 7.01 Conditions to Each Purchaser’s Obligations. The obligation of each
Purchaser to purchase the Purchased Securities is subject to the satisfaction or waiver by Advent
of the following conditions:



          (a) No provision of any applicable law or regulation shall have been enacted, no judgment,
injunction, order, decree or arbitration award shall have been issued, and no Suit, of which any
party hereto shall have received notice, shall be pending or threatened, in any case which seeks to
prohibit, and which could reasonably be expected to result in the enjoinment of, any of the
transactions contemplated by this Agreement.




          (b) The Company shall not have received notice from Nasdaq with respect to any material issues
relating to the Notification Form for Listing of Additional Shares filed pursuant to Section
5.04(f) hereof that remain unresolved.




          (c) No event or series of related events shall have occurred that shall have had or that could
reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.




          (d) Each of the following conditions shall have been satisfied:




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               (i) the Company shall have performed in all material respects all of its obligations hereunder
required to be performed by it on or prior to the Closing Date;



               (ii) the representations and warranties of the Company and each of the other Purchasers made
in this Agreement which are qualified as to “materiality,” “Material Adverse Effect” or words of
similar meaning shall have been true and correct when made on the date hereof and shall be true and
correct at and as of the Closing Date, as if made at and as of such date (except for
representations and warranties made as of a particular date, which, on the Closing Date need to be
true and correct as of the particular date referenced therein);



               (iii) all other representations and warranties of the Company and the other Purchasers made in
this Agreement shall have been true and correct in all material respects when made on the date
hereof and shall be true and correct in all material respects at and as of the Closing Date, as if
made at and as of such date (except for representations and warranties made as of a particular
date, which, on the Closing Date, need to be true and correct as of the particular date referenced
therein); and



               (iv) with respect to the conditions in this clause (d), the Purchasers shall each have
received a certificate signed by the Chief Executive Officer and Chief Financial Officer of the
Company to the foregoing effect.



          (e) The issuance and sale of the Purchased Securities and the transactions contemplated by
this Agreement shall have been approved and adopted at the Annual Meeting, at which a quorum is
present, by the requisite vote of the stockholders of the Company under applicable law, the rules
and regulations of Nasdaq, and the Company’s certificate of incorporation and bylaws.




          (f) No proceeding with respect to the Proxy Statement shall have been initiated or threatened
in writing by the Commission.




          (g) The Company shall have filed the Certificate of Designation with the Secretary of State of
Delaware, and Advent shall have received a copy thereof, together with a long-form good standing
certificate issued by the Secretary of State of Delaware, as of a date no earlier than five (5)
days prior to the Closing Date with respect to the good standing certificate and immediately prior
to the Closing in the case of the Certificate of Designation.




          (h) Advent shall have received (i) a certification from the Secretary of the Company that the
documents delivered to Advent pursuant to Section 7.01(g) hereof, together with the
Certificate of Incorporation (including the certificates of designation) of the Company in effect
on the date hereof, constitute the entire charter of the Company, and that none of such documents
have been amended, modified or supplemented, and (ii) all other documents reasonably requested by
it relating to the existence of the Company, the corporate authority for
entering into, and the validity of, this Agreement and each other Transaction Document, all in
form and substance reasonably satisfactory to Advent.




          (i) The Company and the Subsidiaries shall have received or obtained all governmental and
regulatory (non-customer) consents, and all material third-party consents, authorizations or
approvals (domestic and foreign) necessary for the consummation of the




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transactions contemplated
hereby, in each case in form and substance reasonably satisfactory to Advent, and no such consent,
authorization or approval shall have been revoked. The Company shall have received any waivers or
consents related to the agreements required to be listed in Section 3.04, Section 3.11 or Section
3.17(c) of the Disclosure Letter, in each case in form and substance reasonably satisfactory to
Advent, and no such consent, authorization or approval shall have been revoked.




          (j) The Purchasers shall have received an opinion, dated the Closing Date, of Morrison &
Foerster LLP, counsel to the Company, in the form of Exhibit F.




          (k) The application, on and as of the Closing Date, of the formula set forth in Section 4(b)
of the Certificate of Designation shall result in the holders of Series B Preferred Stock being
entitled to elect a Series B Director (as defined in the Certificate of Designation) to the Board,
and the Series B Director shall have been elected to serve on the Board commencing immediately
after the Closing as the initial Series B Director designated by the holders of Series B Preferred
Stock.




          (l) The Series B Director, if one is selected prior to the Closing, shall have received an
executed copy of the Indemnification Agreement from the Company.




          (m) The individuals designated as “key employees” in Section 3.17(a) of the Disclosure
Letter shall continue to be employed by the Company in the same positions as such individuals were
employed on the date hereof.




          (n) The Company shall have paid the Expense Reimbursement Amount in accordance with
Section 9.02(b) hereof.




          (o) The Purchasers designated by Advent prior to the Closing shall have received an executed
copy of the Management Rights Letter from the Company.




          (p) The Purchasers shall have received from each other party to the Investor Rights Agreement
(other than the Purchaser) either (i) a counterpart for each such Transaction Document, signed on
behalf of such party, or (ii) a facsimile transmission of the signature pages to each such
Transaction Document, signed on behalf of such party.




          (q) The Company shall have issued the Purchased Securities in exchange for the Gross Purchase
Price in accordance with Section 2.02 hereof and the other provisions of this Agreement,
and the Purchasers (or, in the case of each Purchaser that is an Advent Fund, the Custodian) shall
have received certificates evidencing the Purchased Securities issuable to each such Purchaser
hereunder, which certificates shall be in definitive form and registered in such names as such
Purchaser shall have requested.




          (r) The holders of Series A Preferred Stock shall have received a certificate of adjustment as
required by Section 4(j) of the Certificate of Designation of the Series A Preferred Stock (which
shall become effective immediately following the Closing).




     Section 7.02 Conditions to Company’s Obligations. The obligations of the Company to
issue and deliver the Purchased Securities to the Purchasers hereunder are subject to the



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satisfaction or waiver by the Company, at or prior to the Closing Date, of the following
conditions:




          (a) No provision of any applicable law or regulation shall have been enacted, no judgment,
injunction, order, decree or arbitration award shall have been issued, and no Suit, of which any
party hereto shall have received notice, shall be pending or threatened, in any case which seeks to
prohibit, and which could reasonably be expected to result in the enjoinment of, any of the
transactions contemplated by this Agreement.




          (b) Each of the following conditions shall have been satisfied:




               (i) Each of the Purchasers shall have performed in all material respects all of its
obligations hereunder required to be performed by it on or prior to the Closing Date;



               (ii) the representations and warranties of the several Purchasers made to the Company in this
Agreement and any other Transaction Document which are qualified as to “materiality,” “Material
Adverse Effect” or words of similar meaning shall have been true and correct when made on the date
hereof and shall be true and correct at and as of the Closing Date, as if made at and as of such
date; and



               (iii) all other representations and warranties of the several Purchasers made to the Company
in this Agreement and any other Transaction Document shall have been true and correct in all
material respects when made on the date hereof and shall be true and correct in all material
respects at and as of the Closing Date, as if made at and as of such date.



          (c) The Company shall have received from each other party to the Investor Rights Agreement
either (i) a counterpart to the Investor Rights Agreement, signed on behalf of such party, or (ii)
a facsimile transmission of the signature pages to the Investor Rights Agreement, signed on behalf
of such party.




          (d) The Company shall have received a certificate from the Purchasers indicating, in
reasonable detail, the Expense Reimbursement Amount known as of the Closing Date to be paid in
accordance with Section 9.02(b) hereof.




          (e) The issuance and sale of the Purchased Securities and the other transactions contemplated
by this Agreement shall have been approved and adopted at the Annual Meeting, at which a quorum is
present, by the requisite vote of the stockholders of the Company under applicable law, the rules
and proposed rules of Nasdaq, and the Company’s certificate of incorporation and bylaws.




          (f) No proceeding with respect to the Proxy Statement shall have been initiated or threatened
in writing by the Commission.




          (g) The Company shall have received the Gross Purchase Price for the Purchased Securities from
the Purchasers, as provided in Section 2.02 hereof.




-40-









 








          (h) The Company shall not have received notice from Nasdaq with respect to any material issues
relating to the Notification Form for Listing of Additional Shares filed pursuant to Section
5.04(f) hereof that remain unresolved.




          (i) The holders of the Series A Preferred Stock shall have duly authorized and approved the
adoption and filing with the Secretary of State of the State of Delaware on the Closing Date of the
Certificate of Amendment of Certificate of Designation of Series A Convertible Preferred Stock, as
attached hereto as Exhibit G, in accordance with the Series A Certificate of Designation
then in effect, the Company’s certificate of incorporation and bylaws then in effect, and the
Delaware Law, and such authorization and approval shall be in full force and effect on the Closing
Date.




          (j) The Company shall have received from each Investor an executed Consent and Waiver, as
attached hereto as Exhibit H.




ARTICLE 8






SURVIVAL; INDEMNIFICATION




     Section 8.01 Survival. All of the representations and warranties of the Company and
the Purchasers contained in this Agreement and in the other Transaction Documents shall survive the
execution and delivery hereof and thereof and the issuance, sale and delivery of the Purchased
Securities, and shall remain in full force and effect until the date which is thirty (30) days
after the date upon which the Company’s Annual Report on Form 10-K for the fiscal year ending April
1, 2006 has been filed with the Commission (the “Survival Date”). All covenants and agreements of
the Company and the Purchasers contained in this Agreement and in the other Transaction Documents
shall survive the execution and delivery hereof and thereof and the issuance, sale and delivery of
the Purchased Securities, and shall remain in full force and effect in accordance with their
respective terms. Without limiting the generality of the foregoing, with respect to a breach of
any representation or warranty for which notice is given prior to 5:00 p.m., New York City time, on
the Survival Date, the indemnification obligation set forth in Section 8.02 hereof shall
survive the Survival Date until the claim identified in the notice is finally resolved.



     Section 8.02 Indemnification.



          (a) Subject to Section 8.03 hereof, from and after the Closing Date, the Company
agrees to indemnify, defend and hold harmless, each Purchaser and its Affiliates from and against
any and all losses, claims, damages, liabilities, costs and expenses, including reasonable
attorneys’ fees and disbursements and other expenses incurred in connection with investigating,
preparing, settling or defending any action, claim or proceeding (each a “Proceeding”), pending or
threatened, and the costs of enforcement thereof (collectively, “Losses”), which such Person may
suffer or become subject to as a result of (i) any misstatement in any representation or
warranty, or (ii) any breach of any covenant or agreement, made by, or to be performed on the
part of, the Company under this Agreement or any other Transaction Document, and in each case to
reimburse any such Person for all such Losses as they are incurred by such Person. In the event of
any breach by the Company of a representation or warranty or covenant made by it in this Agreement
or any other Transaction Document, the Loss to the Purchasers shall be deemed




-41-









 







to be equal to (i)
the Purchasers’ Percentage multiplied by the amount equal to the Loss to the Company divided by
(ii) a percentage equal to one hundred percent (100%) minus the Purchasers’ Percentage.
“Purchasers’ Percentage” means the number of shares of Common Stock into which the Series B Shares
are convertible on the date the Loss is incurred, divided by the Common Stock Outstanding as of
such date.




          (b) Subject to Section 8.03 hereof, each Purchaser, severally as to itself and no
other Purchaser, hereby agrees to indemnify, defend and hold harmless, the Company and its
Affiliates (which term shall not include any Purchaser for the purposes of this Section
8.02(a)) from and against any and all Losses which such Person may suffer or become subject to
as a result of (i) any misstatement in any representation or warranty made by, or (ii) any breach
of any covenant or agreement to be performed on the part of, such Purchaser under this Agreement or
any other Transaction Document, and in each case to reimburse any such Person for all such Losses
as they are incurred by such Person.




          (c) Promptly after receipt by any Person (the “Indemnified Person”) of notice of any demand,
claim or event which would, or could reasonably be expected to, give rise to a claim or the
commencement of any Suit in respect of which indemnity may be sought pursuant to Section
8.02(a) or (b) hereof, such Indemnified Person shall give notice thereof to the Person
against whom such indemnity may be sought (the “Indemnifying Person”) and the Company will deliver
a copy of such notice to each Purchaser. Notwithstanding the foregoing, the failure so to give
prompt notice to the Indemnifying Person will not relieve such Indemnifying Person from liability,
except to the extent such failure or delay materially prejudices such Indemnifying Person. The
Indemnifying Person may participate in and, to the extent that it shall elect by written notice
delivered to the Indemnified Person promptly after receiving such notice from the Indemnified
Person, shall be entitled to control the defense of any such Suit at its own expense with counsel
reasonably satisfactory to the Indemnified Person. After notice from the Indemnifying Person to
such Indemnified Person of its election to control the defense thereof, such Indemnifying Person
shall not be liable to such Indemnified Person for any legal expenses subsequently incurred by such
Indemnified Person in connection with the defense thereof; provided, however, that if the named
parties in any Suit (including any impleaded parties) include both such Indemnified Person and such
Indemnifying Person and there exists or shall exist a conflict of interest that would make it
inappropriate, in the opinion of counsel to the Indemnified Person, for the same counsel to
represent both such Indemnified Person and such Indemnifying Person or any affiliate or associate
thereof, the Indemnified Person shall be entitled to retain its own counsel at the expense of such
Indemnifying Person; and provided further that no Indemnifying Person shall be responsible for the
fees and expenses of more than one separate counsel for all Indemnified Persons, it being
understood that if any stockholder of the Company that is an Affiliate of Advent or one of such
stockholders’ Affiliates is an Indemnified Person, then Advent shall select any such separate law
firm (and local counsel) which may be counsel to Advent or such Affiliates in other unrelated
matters. The Indemnifying Person shall not, except with the prior written consent of the
Indemnified Person, enter into any settlement, or consent to
entry of any judgment, that does not include as an unconditional term thereof that the Person
or Persons asserting such claim unconditionally release such Indemnified Person from all liability
with respect to such claim. The Indemnifying Person shall not be liable under this Section
8.02 for the settlement of any claim or Suit in respect of which indemnity may be sought
hereunder if




-42-









 







such settlement was effected without its consent (which consent shall not be
unreasonably denied, withheld or delayed).




          (d) Any amounts payable under subsections (a) or (b) of this Section 8.02 shall be the
exclusive remedy for any breach by a party of a representation or warranty made by such party in
this Agreement or any other Transaction Document, absent any fraud on the part of such breaching
party. All amounts payable under subsections (a) or (b) of this Section 8.02 shall be
treated for all Tax purposes as adjustments to the Gross Purchase Price, except as otherwise
required by law.




     Section 8.03 Limitations on Indemnification.



          (a) The Company shall not have any liability to the Purchasers and their Affiliates under
Section 8.02 hereof until the aggregate amount of Losses incurred under such Section
8.02(a) by the Purchasers and their Affiliates exceeds One Hundred Fifty Thousand Dollars
($150,000) (the “Loss Threshold”), in which case the Purchasers and their Affiliates shall be
entitled to all Losses they have incurred (including all Losses under the Loss Threshold).




          (b) The maximum amount of aggregate Losses incurred under Section 8.02(a) hereof by
the Purchasers and their Affiliates for which the Company shall be liable shall not exceed Six
Million Dollars ($6,000,000) (the “Loss Cap”).




          (c) No Purchaser shall have any liability under Section 8.02(a) hereof until the
aggregate amount of Losses theretofore incurred under such Section 8.02(a) by the Company
and its Affiliates exceeds the Loss Threshold, in which case the Company and its Affiliates shall
be entitled to all Losses they have incurred (including all Losses under the Loss Threshold).




          (d) The maximum amount of aggregate Losses incurred under Section 8.02(a) hereof by
the Company and its Affiliates for which the Purchasers shall be liable shall not exceed the Loss
Cap.




     Section 8.04 Equity Compensation for Losses. Notwithstanding anything in this Article
VIII to the contrary, if the Company and the Indemnified Parties agree, the Company may settle or
pay up to $2 million with respect to any liability it may have to pursuant to this Article VIII by
issuing additional Series B Preferred Stock and Warrants for 37.5% of the Common Stock that may be
issued upon conversion of such Series B Preferred Stock. In the event of any settlement or payment
pursuant to this Section 8.04, and notwithstanding the last sentence of Section 8.02(a) hereof, the
amount of the Loss to the Purchasers shall be deemed to be 100% of the Loss to the Company. The
Loss Threshold and the Loss Cap shall not apply to, and shall not take into account, payments in
equity pursuant to this Section 8.04. The number of shares of Series B Preferred Stock (and
associated Warrants as described above) to be issued pursuant to this Section 8.04 shall be
determined by dividing 100% of the Loss to the Company by the Price Per Share.




-43-










 






ARTICLE 9





MISCELLANEOUS




     Section 9.01 Notices. All notices, requests and other communications to any party
hereunder shall be in writing (including facsimile or similar writing) and shall be given to such
party at its address or facsimile number set forth on the signature page hereof, or such other
address or facsimile number as such party may hereinafter specify for the purpose of this
Section 9.01 to the party giving such notice. Each such notice, request or other
communication shall be effective (a) if given by facsimile transmission, when such facsimile is
transmitted to the facsimile number specified on the signature pages of this Agreement and
electronic confirmation of the transmission of such facsimile is received or, (b) if given by mail,
72 hours after such communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or, (c) if given by any other means, when delivered at the address specified
on the signature pages of this Agreement.



     Section 9.02 Expenses; Documentary Taxes.



          (a) Except as expressly set forth in this Agreement or any other Transaction Document, the
Company and each Purchaser will each pay its own costs and expenses in connection with this
Agreement and the other Transaction Documents and the transactions contemplated hereby or thereby.




          (b) The Company agrees to pay, promptly after the presentation of invoices summarizing the
work performed and supporting documentation, the out-of-pocket expenses incurred by Advent and the
Purchasers in connection with the transactions contemplated by this Agreement and the other
Transaction Documents, including without limitation for the reasonable fees, costs and
disbursements of Pepper Hamilton LLP, in connection with the due diligence investigation and the
preparation and negotiation of this Agreement and the other Transaction Documents (and the
documents and instruments executed in connection herewith and therewith) and the transactions
contemplated hereby and thereby, and any other reasonable third party costs and expenses incurred
by Advent and the Purchasers in connection with such transactions, including customary post-closing
matters (the “Expense Reimbursement Amount”). In the event a Trigger Event occurs, the Expense
Reimbursement Amount shall be paid not later than two (2) Business Days following the date of the
Trigger Event. In addition, should the Closing occur, the Company agrees to pay any and all
reasonable out-of-pocket expenses (including fees and disbursements of counsel) incurred by Advent
or any Purchaser (or any of its assignees) in connection with any amendment, waiver, consent or
enforcement of this Agreement or any other Transaction Document.




          (c)
 In the event this Agreement is terminated (i) by a Purchaser pursuant to Section
9.04(a)(iv), (ii) by the Company pursuant to Section 9.04(a)(vi), or (iii)
automatically pursuant to Section 9.04(a)(vii), then in any such case (each being referred to as a
“Trigger Event”), the Company shall pay to Advent, as agent for the Purchasers, no later than five
(5) Business Days following the Trigger Event, by wire transfer of immediately available funds, an
amount equal to One Million Dollars ($1,000,000) plus any amounts payable by the Company to the
Purchasers under Section 9.02(b) in respect of the Expense Reimbursement Amount.




-44-









 








          (d) The Company agrees to pay any and all stamp, transfer and other similar taxes payable or
determined to be payable in connection with the execution and delivery of this Agreement and the
issuance of the Series B Shares and all Underlying Shares, and the issuance of the Warrants and all
Warrant Shares.




     Section 9.03 Entire Agreement. This Agreement and the other Transaction Documents
constitute the entire agreement and understanding between the parties hereto and supersede any and
all prior agreements and understandings, written or oral, relating to the subject matter of the
Transaction Documents.



     Section 9.04 Termination.



          (a) This Agreement may be terminated at any time prior to the Closing:




               (i) by mutual written agreement of the Company and Advent;



               (ii) by the Company or Advent if the Closing shall not have been consummated on or before the
Termination Date (provided that the right to terminate this Agreement under this Section
9.04(a)(ii) shall not be available to any party whose failure to fulfill any obligation under
this Agreement has been a principal cause of or resulted in the failure of the Closing to occur on
or before the Termination Date);



               (iii) by the Company or the Purchasers if the Company’s stockholders fail to approve the
issuance and sale of the Purchased Securities or the transactions contemplated by this Agreement at
the Annual Meeting contemplated by the Agreement;



               (iv) by Advent if the Company shall have breached any of its representations, warranties,
covenants or agreements contained in this Agreement which would cause the conditions set forth in
Section 7.01(d) hereof not to be satisfied, and such breach is not cured to the reasonable
satisfaction of Advent within thirty (30) days after notice thereof is received by the Company or
by the Termination Date, whichever is earlier;



               (v) by the Company if any Purchaser shall have breached any of its representations,
warranties, covenants or agreements contained in this Agreement which would cause the conditions
set forth in Section 7.02(b) hereof not to be satisfied, and such breach is not cured to
the reasonable satisfaction of the Company within thirty (30) days after notice thereof is received
by such Purchaser or by the Termination Date, whichever is earlier; or



               (vi) by the Company or any Purchaser if there shall be enacted any law or regulation, if any
order, decree or judgment of any court or governmental body having jurisdiction is issued, or if
any Suit is filed, in any case which makes consummation of the transactions contemplated hereby in
accordance with the terms and conditions hereof illegal or otherwise permanently prohibited.



               (vii) automatically upon the Company’s stockholders approval of a Superior Proposal.



-45-









 





          (b) If this Agreement is terminated as permitted by Section 9.04(a) hereof, such
termination shall be without liability of any party (or any Affiliate of such party) to the other
parties to this Agreement; provided, however, that if such termination shall result from the (i)
failure of any party to perform any covenant or agreement contained in this Agreement or (ii)
breach by any party of any of its representations or warranties contained herein, then such party
shall be fully liable for any and all damages incurred or suffered by the other parties as a result
of such failure or breach (in addition to, in the Company’s case, any payments required to be made
pursuant to Section 9.02(c) hereof).




          (c) Any party to this Agreement providing a notice of termination to any other party to this
Agreement pursuant to Section 9.04(a) hereof shall simultaneously provide such notice to
all other parties hereto.




          (d) The provisions of this Article 9 shall survive the termination of this Agreement.




     Section 9.05 Amendments and Waivers.



          (a) Any provision of this Agreement may be amended or waived if, but only if, such amendment
or waiver is in writing and is signed by the party against whom such amendment or waiver is to be
effective.




          (b) No failure or delay by any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies
provided by law.




     Section 9.06 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective successors and
assigns; provided that no party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the consent of each other party. Notwithstanding the
foregoing, any Purchaser may assign or transfer, in whole or, from time to time, in part, the right
to purchase all or any portion of the Purchased Securities to (i) one or more of its Affiliates or
to one or more limited partners of the Purchasers who have pre-existing contractual co-investment
rights with the assigning Purchaser, (ii) subject to the terms and conditions of the Investor
Rights Agreement, from and after the Closing Date, any Purchaser or other holder of Series B Shares
or Warrants may assign, pledge or otherwise transfer, in whole or from time to time in part, its
rights hereunder to any Person who acquires any interest in any Series B Shares or Warrants and
(iii) any Purchaser may assign or transfer any of its rights or obligations under this Agreement,
in whole or, from time to time, in part to the Company or any other Purchaser or Affiliate of such
Purchaser. As a condition of any transfer pursuant to this Section 9.06, the Transferee
must agree in writing for the benefit of all parties to this Agreement (which writing shall be in
form and substance reasonably acceptable to all parties to this Agreement) to be bound by the terms
and conditions of this Agreement and all other Transaction Documents with respect to any Series B
Shares or Warrants being transferred hereunder.



-46-









 





     Section 9.07 Representative of the Purchasers. To the extent certain provisions
hereof expressly convey certain rights and authorities to Advent, each Purchaser hereby appoints
and authorizes Advent to act on its behalf with respect to such rights and authorities; provided,
however, that prior to any such action Advent shall obtain the approval of Purchasers purchasing at
least a majority of the Series B Shares pursuant to this Agreement.



     Section 9.08 Third Party Beneficiaries. No provision of this Agreement (other than
Section 5.09, Section 8.02 and Section 9.07 hereof) is intended to confer
upon any Person other than the parties hereto any rights or remedies hereunder.



     Section 9.09 Governing Law; Waiver of Jury Trial. ALL QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE. EACH PARTY HEREBY
IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE
STATE OF DELAWARE FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH
ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT
OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN
ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF
ANY SUCH COURT. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO
PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA
REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE
ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL
CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN
SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
EACH PARTY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.



     Section 9.10 Headings. The headings in this Agreement are included for convenience of
reference only and shall be ignored in the construction or interpretation hereof.



     Section 9.11 Counterparts; Facsimile Signatures; Effectiveness. This Agreement may be
executed in any number of counterparts (including facsimile signature) each of which shall be an
original with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall have received a
counterpart hereof signed by the other party hereto.



[signature pages follow]




-47-









 








          IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date first above written.




	 	 	 
	 

	 	MTI TECHNOLOGY CORPORATION
	 
	 	 
	 

	 	By: /s/ Thomas P. Raimondi, Jr.
	 

	 	Name: Thomas P. Raimoni, Jr.
	 

	 	Title: Chariman, President & Chief Executive Officer
	 
	 	 
	 

	 	Address for notices:
	 
	 	 
	 

	 	MTI Technology Corporation
	 

	 	14661 Franklin Avenue
	 

	 	Tustin, California 92780
	 

	 	Attention: Chief Financial Officer
	 

	 	Facsimile: (714) 481-4141
	 
	 	 
	 

	 	with a copy to:
	 
	 	 
	 

	 	Morrison & Foerster LLP
	 

	 	19900 MacArthur Boulevard, 12th Floor
	 

	 	Irvine, California 92612
	 

	 	Attention: Tamara Tate, Esq.
	 

	 	Facsimile: (949) 251-0900






[Purchaser signature pages follow]




 S-1




 









 








	 	 	 
	 

	 	PURCHASERS:
	 
	 	 
	 

	 	DIGITAL MEDIA & COMMUNICATIONS III LIMITED PARTNERSHIP
	 

	 	DIGITAL MEDIA & COMMUNICATIONS III-A LIMITED PARTNERSHIP
	 

	 	DIGITAL MEDIA & COMMUNICATIONS III-B LIMITED PARTNERSHIP
	 

	 	DIGITAL MEDIA & COMMUNICATIONS III-C LIMITED PARTNERSHIP
	 

	 	DIGITAL MEDIA & COMMUNICATIONS III-D C.V.
	 

	 	DIGITAL MEDIA & COMMUNICATIONS III-E C.V.
	 
	 	 
	 

	 	By:   Advent International Limited Partnership, General Partner
	 

	 	By: Advent International Corporation, General Partner
	 
	 	 
	 

	 	By:   /s/ Michael Pehl
	 

	 	Name:   Michael Pehl
	 

	 	Title:   Partner
	 
	 	 
	 

	 	Address for notices:
	 
	 	 
	 

	 	c/o Advent International Corporation
	 

	 	75 State Street
	 

	 	Boston, Massachusetts 02109
	 

	 	Attention: Michael Pehl Partner
	 

	 	Facsimile: 617.951.0566
	 
	 	 
	 

	 	With a copy to:
	 
	 	 
	 

	 	Pepper Hamilton LLP
	 

	 	3000 Two Logan Square
	 

	 	18th and Arch Streets
	 

	 	Philadelphia, Pennsylvania 19103
	 

	 	Attention: Julia D. Corelli, Esquire
	 

	 	Facsimile: 215.981.4750






Purchaser Signature Page to Securities Purchase Agreement




 S-2




 









 








	 	 	 	 	 
	 

	 	ADVENT PARTNERS DMC III LIMITED PARTNERSHIP	 	 
	 

	 	ADVENT PARTNERS II LIMITED PARTNERSHIP	 	 
	 
	 	 	 	 
	 

	 	By:   Advent International Corporation, General Partner	 	 
	 
	 	 	 	 
	 

	 	By:   /s/ Michael Pehl	 	 
	 

	 	Name:   Michael Pehl	 	 
	 

	 	Title:    Partner	 	 
	 
	 	 	 	 
	 

	 	Address for notices:	 	 
	 
	 	 	 	 
	 

	 	c/o Advent International Corporation	 	 
	 

	 	75 State Street	 	 
	 

	 	Boston, Massachusetts 02109	 	 
	 

	 	Attention: Michael Pehl Partner	 	 
	 

	 	Facsimile: 617.951.0566	 	 
	 
	 	 	 	 
	 

	 	With a copy to:	 	 
	 
	 	 	 	 
	 

	 	Pepper Hamilton LLP	 	 
	 

	 	3000 Two Logan Square	 	 
	 

	 	18th and Arch Streets	 	 
	 

	 	Philadelphia, Pennsylvania 19103	 	 
	 

	 	Attention:   Julia D. Corelli, Esquire	 	 
	 

	 	Facsimile:   215.981.4750	 	 






Purchaser Signature Page to Securities Purchase Agreement




 S-3




 









 








	 	 	 	 	 	 	 
	 	 	EMC CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Michael Cody 	 	 
	 
	 	Name:	 	Michael Cody
	 	 
	 
	 	Title:	 	Vice President, Corporate Development	 	 






	 	 	 	 	 
	 

	 	Address for notices:	 	 
	 
	 	 	 	 
	 

	 	176 South Street	 	 
	 

	 	Hopkinton, Massachusetts 01748	 	 
	 

	 	Attention: C. Matthew Olton, Esquire	 	 
	 

	 	                  Senior Corporate Counsel	 	 
	 

	 	Facsimile: 508.497.6915	 	 
	 
	 	 	 	 
	 

	 	With a copy to:	 	 
	 
	 	 	 	 
	 

	 	Pepper Hamilton LLP	 	 
	 

	 	3000 Two Logan Square	 	 
	 

	 	18th and Arch Streets	 	 
	 

	 	Philadelphia, Pennsylvania 19103	 	 
	 

	 	Attention: Julia D. Corelli, Esquire	 	 
	 

	 	Facsimile: 215.981.4750	 	 






Purchaser Signature Page to Securities Purchase Agreement




 S-4





 









 








Schedule A — Purchasers




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Common Shares for	 	 	 	 
	 	 	Allocation	 	 	Series B Shares	 	 	which Warrant	 	 	Amount of	 
	Purchaser	 	Percentage	 	 	Purchased	 	 	Exercisable	 	 	Investment	 
	 
	Digital Media & Communications III Limited
Partnership
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Digital Media & Communications III-A
Limited Partnership
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Digital Media & Communications III-B
Limited Partnership
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Digital Media & Communications III-C
Limited Partnership
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Digital Media & Communications III-D C.V.
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Digital Media & Communications III-E C.V.
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Advent Partners DMC III Limited Partnership
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Advent Partners II Limited Partnership
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	EMC Corporation
	 	 	25	%	 	 	 	 	 	 	 	 	 	$	5,000,000	 
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	 	100	%	 	 	 	 	 	 	 	 	 	$	20,000,000	 






 









 




Exhibit A




MTI TECHNOLOGY CORPORATION




 






FORM OF

CERTIFICATE OF DESIGNATION

OF

SERIES B CONVERTIBLE PREFERRED STOCK

(Pursuant to Section 151 of the Delaware General Corporation Law)




          MTI Technology Corporation, a Delaware corporation (the “Corporation”), in accordance with the
provisions of Section 103 of the Delaware General Corporation Law, does hereby certify that the
following resolution was duly adopted by the Board of Directors of the Corporation as of
______, 2005, in accordance with Section 141(c) of the Delaware General Corporation Law:




          RESOLVED, that a series of Preferred Stock, the Series B Convertible Preferred Stock, par
value $0.001 per share, of the Corporation is hereby created and the designation, number of shares,
powers, preferences, rights, qualifications, limitations and restrictions thereof (in addition to
any provisions set forth in the Certificate of Incorporation of the Corporation that are applicable
to the Preferred Stock of all classes and series) are as follows:




SERIES B CONVERTIBLE PREFERRED STOCK




          A total of
                    
                    
            
        
(                    )1 shares of the authorized
and unissued Preferred Stock of the Corporation are hereby designated “Series B Convertible
Preferred Stock” (“Series B Preferred Stock”) with such series having the following rights,
preferences, powers, privileges and restrictions, qualifications and limitations:




     1. Rank. 




          (a) Junior Stock. The Series B Preferred Stock shall rank senior, in all
matters, to (i) the Series A Convertible Preferred Stock (the “Series A Preferred Stock”),
(ii) any class of common stock of the Company, including, without limitation, the Common
Stock, par value $0.001 per share, of the Corporation (the “Common Stock”) and any other
class of capital stock into which such Common Stock is reclassified or reconstituted, (iii)
any other class of capital stock of the Company either specifically ranking by its terms
junior to the Series B Preferred Stock or not specifically ranking by its terms senior to or
on parity with the Series B Preferred Stock and (iii) any class or class of capital stock of
the Company into which the capital stock referred to in the preceding subclauses (i) and
(ii) is reclassified or reconstituted (the Series A Preferred





 




			
	1  The number of shares will equal $20,000,000
divided by the Stated Value rounded to the nearest thousand.




 









 










Stock and the Common Stock and other capital stock described in this clause (a) is
hereinafter referred to as (“Junior Stock”).



     (b) Parity Stock. The Series B Preferred Stock shall rank on parity with any
class of capital stock of the Company specifically ranking by its terms on parity, in all
matters expressly provided, with the Series B Preferred Stock (the “Parity Stock”).



     (c) Senior Stock. The Series B Preferred Stock shall rank junior, in all
matters expressly provided, to any class of capital stock of the Company specifically
ranking by its terms senior to the Series B Preferred Stock (the “Senior Stock”), in each
case, including, without limitation, as to payment of dividends, voting, distributions of
assets upon a Liquidation (as defined in Section 3 below) or otherwise.



2. Dividends.




     (a) Dividend Rate. The holders of shares of Series B Preferred Stock shall be
entitled, out of funds legally available therefor, to receive cumulative dividends at the
rate per annum equal to eight percent (8%) (subject to adjustment in accordance with Section
7(b) below) of the Stated Value (as defined below) per share, payable only when, as and if
declared by the Board of Directors of the Corporation (the “Board”). Such dividends shall
be calculated on the basis of a 365-day year, shall accumulate daily with respect to each
share of Series B Preferred Stock commencing on the Series B Original Issue Date (as defined
below) and until such share is no longer outstanding, shall compound annually to the extent
not previously paid, and shall accumulate whether or not earned or declared and whether or
not there are profits, surplus or other funds of the Corporation legally available for the
payment of dividends. For the purposes hereof, the “Stated Value” shall initially be
$                     per share2, which shall be subject to appropriate adjustment in the
event of any stock dividend, stock split, reverse stock split, combination, split-up,
recapitalization and like occurrences on or after the Series B Original Issue Date affecting
the shares of Series B Preferred Stock.



     (b) Dividend Payments. Dividends declared on Series B Preferred Stock by the
Board pursuant to Section 2(a) above shall be payable in cash. If the Corporation elects to
pay less than all of such accumulated dividends, an equal amount of the dividends declared
shall be paid with respect to each share of Series B Preferred Stock.



     (c) Prohibition on Other Dividends. So long as any shares of Series B
Preferred Stock are outstanding, the Corporation shall not declare, pay or set aside any
dividends (other than dividends payable in shares of Common Stock, and then only at such
times as the Corporation is in compliance with its obligations hereunder) on shares of
Junior Stock (as defined below) unless dividends equal to the full amount of accumulated and
unpaid dividends on the Series B Preferred Stock have been declared and have been, or are
then being simultaneously, paid.





 




			
	2  The Purchase Price per share.




-2-









 










3. Liquidation Dissolution or Winding Up;




     Certain Mergers, Consolidations and Asset Sales.



     (a) Payments to Holders of Series B Preferred Stock.




     (i) In the event of any Liquidation (as defined below), the Corporation shall
pay the holders of shares of Series B Preferred Stock then outstanding out of the
assets of the Corporation available for distribution to its stockholders, before any
payment shall be made to the holders of Junior Stock by reason of their ownership
thereof, an amount per share (the “Series B Liquidation Amount”) equal to:




	 	(A)	 	if the Liquidation occurs prior to the date
that is six (6) months after the Series B Original Issue Date, such
amount per share as would be payable if each such share had been
converted into Common Stock pursuant to Section 4 below immediately
prior to such Liquidation; or
	 
	 	(B)	 	if the Liquidation occurs on or subsequent to
the date that is six (6) months after the Series B Original Issue Date,
the greater of:






	 	(I)	 	the sum of (x) the Stated Value
plus (y) any accumulated but unpaid dividends (the “Liquidation
I Amount”) and (z) such amount per share as would be payable if
each such share (excluding any accumulated but unpaid dividends
thereon) (the “B Stated Value Shares”) had been converted into
Common Stock pursuant to Section 4 below immediately prior to
such Liquidation and participated in distributions to holders of
Common Stock in connection with such Liquidation (for purposes
of this calculation, after payment of the Liquidation I Amount,
the assets available for distribution to the Corporation’s
stockholders shall be multiplied by a fraction the numerator of
which is the A Stated Value Shares and the denominator of which
is the sum of the following: the outstanding Common Stock, the B
Stated Value Shares and either the A Stated Value Shares or the
A Stated Value Interest Shares (as each are defined in the
Series A Certificate of Designation), as applicable based on the
choice of the holders of the Series B Preferred Stock) after
only the payment to the holders of Series B Preferred Stock of
the Liquidation I Amount; or
	 
	 	(II)	 	the sum of (x) the Stated Value
(the “Liquidation II Amount”) plus (y) such amount per share as
would be payable if each such share (including any accumulated
but unpaid dividends thereon) (the “B Stated Value Interest
Shares”) had been converted into Common Stock pursuant




-3-









 












	 	 	 	to Section 4 below immediately prior to such Liquidation and
participated in distributions to holders of Common Stock in
connection with such Liquidation (for purposes of this
calculation, after payment of the Liquidation II Amount, the
assets available for distribution to the Corporation’s
stockholders shall be multiplied by a fraction the numerator
of which is the A Stated Value Interest Shares and the
denominator of which is the sum of the following: the
outstanding Common Stock, the B Stated Value Interest Shares
and one of the B Stated Value Shares or the B Stated Value
Interest Shares (as each are defined in the Series B
Certificate of Designation) after only the payment to the
holders of Series B Preferred Stock of the Liquidation II
Amount.
	 
	 	(III)	 	In the event of any dispute with
holders of any class of the Company’s stock, or the Company,
regarding the calculation of the Series A Liquidation Amount (as
defined in the Series A Certificate of Designation) or the
Series B Liquidation Amount, any reasonable interpretation of
Section 2(a)(i) of the Series A Certificate of Designation or
the above that is agreed to by a majority of the holders of the
Series B Preferred Stock shall govern.






     (ii) The Corporation shall use its reasonable best efforts to pay the Series B
Liquidation Amount to the holders of shares of Series B Preferred Stock within
fifteen (15) days after consummation of the event constituting the Liquidation.




     (iii) If upon any such Liquidation the remaining assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
holders of shares of Series B Preferred Stock and any Parity Stock (as defined
below) the full amount to which they shall be entitled, the holders of shares of
Series B Preferred Stock and any Parity Stock shall share ratably in any
distribution of the remaining assets and funds of the Corporation in proportion to
the respective amounts that would otherwise be payable in respect of the shares held
by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.




     (iv) For purposes hereof, “Parity Stock” shall mean any class or series of
equity securities of the Corporation expressly on parity with the Series B Preferred
Stock, as to the payment of dividends and as to distribution of assets upon
liquidation, dissolution or winding up, whether the dividend rates, dividend payment
dates or redemption or liquidation prices per share thereof be different from those
of the Series B Preferred Stock, if the holders of such class of stock or series and
the Series B Preferred Stock shall be entitled to the receipt of dividends and of
amounts distributable upon liquidation, dissolution or winding up in



-4-









 





proportion to their respective amounts of accumulated but unpaid dividends per
share or liquidation preferences, without preference or priority one over the other.




     (v) For purposes hereof, a “Liquidation” shall mean any of the following: (A) a
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, or (B) a Deemed Liquidation Event (as defined below).



     (b) Payments to Holders of Junior Stock. After the payment of all preferential
amounts required to be paid to the holders of Series B Preferred Stock, any Parity Stock and
any other class or series of stock of the Corporation ranking on liquidation senior to the
Series B Preferred Stock, upon any such Liquidation, the holders of shares of Junior Stock
then outstanding shall be entitled to receive the remaining assets and funds of the
Corporation available for distribution to its stockholders.



     (c) Deemed Liquidation Events.




     (i) The following events shall be deemed to be a liquidation of the Corporation
for purposes of this Section 3 (a “Deemed Liquidation Event”):




	 	(A)	 	a merger, consolidation, recapitalization,
reorganization or other transaction in which (x) the Corporation is a
constituent party or (y) a subsidiary of the Corporation is a
constituent party and the Corporation issues shares of its capital
stock pursuant to such transaction, except any such merger,
consolidation, recapitalization, reorganization or other transaction
involving the Corporation or a subsidiary in which the holders of
capital stock of the Corporation immediately prior to such merger or
consolidation continue to hold immediately following such merger or
consolidation, recapitalization, reorganization or other transaction,
at least fifty-one percent (51%), by voting power and economic
interest, of the capital stock of either the surviving or resulting
corporation, or, if the surviving or resulting corporation is a wholly
owned subsidiary of another corporation immediately following such
merger or consolidation, the parent corporation of such surviving or
resulting corporation; or
	 
	 	(B)	 	the sale, in a single transaction or series of
related transactions, by the Corporation of all or substantially all
the assets of the Corporation.






     (ii) The amount deemed paid or distributed to the holders of capital stock of
the Corporation upon any such Deemed Liquidation Event shall be the cash or the fair
market value of the property, rights or securities paid or distributed to such
holders by the Corporation or the acquiring person, firm or other entity. The value
of such property, rights or securities shall be determined in good faith by the
Board.



-5-









 






     (d) Notice. The Corporation shall mail written notice of any Liquidation to
each holder of Series B Preferred Stock not less than twenty (20) days prior to the payment
date or effective date thereof.




	 	4.	 	Voting.






     (a) General Voting Rights. On any matter (other than the election of
directors) presented to the stockholders of the Corporation for their action or
consideration at any meeting of stockholders of the Corporation (or by written action of
stockholders in lieu of meeting), each holder of outstanding shares of Series B Preferred
Stock shall be entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Series B Preferred Stock held by such holder are convertible
pursuant to Section 5 below as of the record date for determining stockholders entitled to
vote on such matter; provided, however, that in no event shall any share of Series B
Preferred Stock be entitled to more votes than the Maximum Per Share Preferred Vote (as
defined below). Except as provided by law or by the provisions of Section 4(b) or 4(c)
below, holders of Series B Preferred Stock shall vote together with the holders of Common
Stock, and with the holders of any other series of Preferred Stock the terms of which so
provide, as a single class.



               As used herein, the “Maximum Per Share Preferred Vote” for each share of Series B Preferred
Stock shall be                     3 (such number to be adjusted for stock splits, reverse
stock splits, stock dividends, recapitalizations, reclassifications and similar adjustments to the
Corporation’s capital stock).




(b) Elections of Directors.




          (i) Subject to Section 4(b)(ii) below, the holders of the shares of Series B
Preferred Stock, exclusively and as a separate class, shall be entitled to elect, by
written consent or affirmative vote of the holders of a majority of the shares of
Series B Preferred Stock outstanding on the record date for the applicable election,
one (1) person to the Board (the “Series B Director”).




          (ii) The holders of the Series B Preferred Stock shall not be entitled to elect
a Series B Director pursuant to Section 4(b)(i) above if, at the time of such
election, the result of the following calculation is less than five tenths (0.5):




	 	(A)	 	the total number of directors to be on the
Board immediately following such annual meeting; multiplied by
	 
	 	(B)	 	a fraction of which:





 






3 10 mulitiplied by a fraction the numerator of
which is the Stated Value and the denominator of which is the closing bid price
per share of Common Stock on the last trading day prior to the date of
issuance.



-6-









 






	 	(I)	 	the numerator shall be the number
of votes to which the Series B Preferred Stock is entitled
pursuant to Section 4(a) above for all shares of Series B
Preferred Stock outstanding on the record date for such
election, and
	 
	 	(II)	 	the denominator shall be the sum
of (x) the total number of shares of Common Stock outstanding as
of the record date for such election, (y) the number of votes to
which the Series B Preferred Stock is entitled pursuant to
Section 4(a) above for all shares of Series B Preferred Stock
outstanding on the record date for such election, and (z) for
each other security of the Corporation entitled to vote in an
election for directors as of the record date for such election,
the number of votes such other securities are permitted to have
under (1) the Certificate of Incorporation of the Corporation,
(2) any Certificate of Designation of the Corporation, or (3)
any applicable law, rule or regulation.






          (iii) A vacancy in any directorship filled by the Series B Director shall be
filled, subject to Section 4(b)(ii) above, only by written consent or affirmative
vote of the holders of a majority of the shares of Series B Preferred Stock then
outstanding.




     (c) Series Voting Rights. The Corporation shall not, without the written
consent or affirmative vote of the holders of a majority of the shares of Series B Preferred
Stock then outstanding, given in writing or by vote at a meeting, consenting or voting (as
the case may be) separately as a class:




          (i) amend the Certificate of Incorporation, including this Certificate of
Designation or the Bylaws of the Corporation, so as to amend, alter or repeal the
powers, preferences or special rights of the Series B Preferred Stock in a manner
that adversely affects the rights, preferences or privileges of the holders of
Series B Preferred Stock;




          (ii) authorize, designate or issue, or amend the terms of, any Parity Stock or
any class of stock of the Corporation ranking senior to the Series B Preferred Stock
as to the payment of dividends or as to distribution of assets upon Liquidation
(“Senior Stock”);




          (iii) amend, alter or repeal the Bylaws of the Corporation in any way that is
inconsistent with this Certificate of Designation or to opt into or out of any law,
regulation or ruling applicable or otherwise applicable, as the case may be, to the
Corporation;




          (iv) increase the number of directors of the Corporation to more than eight (8)
directors, or change the classification and terms of the Board members;



-7-









 






          (v) redeem, retire, repurchase or acquire, directly or indirectly (including
through a Corporation Subsidiary (as defined below)) any shares of Junior Stock of
the Corporation or any securities or indebtedness of any Corporation Subsidiary
(including securities convertible into or exchangeable for such capital stock of the
Corporation or a Corporation Subsidiary), other than repurchases of Common Stock
from employees and consultants who received the stock in connection with their
performance of services at cost upon termination of employment or service;




          (vi) redeem, retire, repurchase or acquire directly or indirectly (including
through a Corporation Subsidiary) any shares of Senior Stock or Parity Stock other
than in accordance with the terms of such Senior Stock or Parity Stock approved
pursuant to Section 4(c)(ii) above;




          (vii) effect, or enter into an agreement to effect, any merger, consolidation,
recapitalization, reorganization or other similar transaction involving the
Corporation or any Corporation Subsidiary (other than transactions to effect an
internal reorganization of the Corporation and/or the Corporation Subsidiaries);
provided, however, that this Section 4(c)(b)(vii) shall only apply to a Corporation
Subsidiary if it represents greater than five percent (5%) of the Corporation’s
consolidated gross revenues; and




          (viii) effect, or adopt any plan to effect, any liquidation, dissolution or
winding up of the Corporation;




          (ix) sell or otherwise transfer, in a single transaction or series of related
transactions, any assets of the Corporation or a Corporation Subsidiary other than
sales in the ordinary course of business consistent with past practices;




          (x) acquire all or substantially all of the assets of, or stock of any class of
or other equity interest in, any other corporation, partnership, limited liability
company, joint venture, association, joint stock company or trust where the
aggregate consideration paid by the Corporation for such acquisition is greater than
$5,000,000; or




          (xi) incur, or permit any Corporation Subsidiary to incur, indebtedness for
borrowed money (which shall not include trade payables or indebtedness of
Corporation Subsidiaries owed to the Corporation or other intercompany indebtedness)
in excess of $1,000,000 in the aggregate (excluding indebtedness of the Corporation
and the Corporation Subsidiaries for borrowed money that is outstanding on the
Series B Original Issue Date or that is borrowed after the Series B Original Issue
Date pursuant to the revolving line of credit existing on the Series B Original
Issue Date)).



               For purposes hereof, the term “Corporation Subsidiary” shall mean any corporation,
partnership, trust, limited liability company or other non-corporate business enterprise
(“Company”) in which the Corporation (or another Corporation Subsidiary) holds



-8-









 





stock or other ownership interests representing (1) more that fifty percent (50%) of the
voting power of all outstanding stock or ownership interests of such entity, (2) the right to
receive more than fifty percent (50%) of the net assets of such entity available for distribution
to the holders of outstanding stock or ownership interests upon a liquidation or dissolution of
such entity.




	 	5.	 	Optional Conversion. The holders of the Series B Preferred Stock shall
have conversion rights as follows (the “Conversion Rights”):






          (a) Right to Convert. Subject to Section 5(a)(i) below, each share of Series B
Preferred Stock shall be convertible, at the option of the holder thereof, at any time and
from time to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and non-assessable shares of Common Stock as is
determined by dividing (i) the Stated Value of such shares plus any accumulated and unpaid
dividends by (ii) the Conversion Price (as defined below) in effect on the Conversion Date
(as defined below).




          (i) The “Conversion Price” initially shall be $                    4, and such
initial Conversion Price, and the rate at which shares of Series B Preferred Stock
may be converted into shares of Common Stock, shall be subject to adjustment as
provided below.




          (ii) In the event of a notice of redemption of any shares of Series B Preferred
Stock pursuant to Section 6 or 7 below, the Conversion Rights of the shares of
Series B Preferred Stock designated for redemption shall terminate at 5:00 p.m.,
Pacific time, on the last full day preceding the applicable Redemption Date (as
defined below), unless the Redemption Price (as defined below) is not paid or
tendered for payment on the Redemption Date, in which case the Conversion Rights for
such shares shall continue until such price is paid, or tendered for payment, in
full.




          (iii) In the event of a Liquidation, the Conversion Rights shall terminate at
5:00 p.m., Pacific time, on the tenth (10th) business day following the receipt of
the notice of the Liquidation by the holders of the Series B Preferred Stock;
provided, however, that if such Liquidation is not consummated within ninety (90)
days after the mailing of such notice, the Conversion Rights shall be deemed to have
not terminated and shall thereafter continue in full force and effect.




          (iv) For the purposes of this Section 5(a), “Redemption Date” shall mean any
Call Date (as defined below) or Put Date (as defined below) and “Redemption Price”
shall mean, as applicable, the Call Price (as defined below) or the Put Price (as
defined below).





 




			
	4  Stated Value divided by 10.




-9-









 











          (b) Fractional Shares. No fractional shares of Common Stock shall be issued
upon conversion of the Series B Preferred Stock pursuant to this Section 5. In lieu of any
fractional shares to which the holder would otherwise be entitled, the Corporation shall pay
cash equal to such fraction multiplied by the then-effective Conversion Price. The
Corporation shall, as soon as practicable after the Conversion Date, and in no event later
than three (3) days after the Conversion Date, pay to such holder any cash payable in lieu
of any such fraction of a share.




          (c) Mechanics of Conversion.




            (i) In order for a holder of Series B Preferred Stock to convert shares of
Series B Preferred Stock into shares of Common Stock, such holder shall deliver to
the office of the transfer agent for the Series B Preferred Stock (or at the
principal office of the Corporation if the Corporation serves as its own transfer
agent) a written notice (the “Conversion Notice”) that such holder elects to convert
all or any number of the shares of the Series B Preferred Stock represented by such
certificate or certificates. The Conversion Notice shall state such holder’s name
or the names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. The date specified by the
holder in the notice shall be the conversion date or, if no date is specified in the
Conversion Notice, the conversion date shall be the date the Conversion Notice is
delivered to the Corporation (such date, as determined in accordance with the notice
provisions hereof, the “Conversion Date”). On or before the Conversion Date, the
holders shall surrender a certificate or certificates for the shares to be converted
(or an affidavit of loss and indemnity agreement relating thereto) to the office of
the transfer agent for the Series B Preferred (or at the principal office of the
Corporation if the Corporation serves as its own transfer agent). If required by
the Corporation, certificates surrendered for conversion shall be accompanied by a
written instrument evidencing such holder’s desire to convert a specified number of shares of Series B Preferred Stock, duly executed by the registered holder or such
holder’s attorney duly authorized in writing. Upon surrender of a certificate
following one or more partial conversions, the Corporation shall promptly deliver to
such holder a new certificate representing the remaining shares of Series B
Preferred Stock. Upon conversion of any Series B Preferred Stock, the Corporation
shall promptly (but in no event later than three (3) days after the Conversion Date)
issue or cause to be issued and cause to be delivered to, or upon the written order
of, such holder (or former holder, as the case may be) of Series B Preferred Stock
and in such name or names as such holder may designate, a certificate for the shares
of Common Stock issuable upon such conversion, free of restrictive legends unless
such shares of Common Stock are not then freely transferable without volume
restrictions pursuant to Rule 144(k) under the Securities Act. The shares of Common
Stock issuable upon conversion of the shares represented by the certificate or
certificates delivered to the Corporation shall be deemed to be outstanding as of
the Conversion Date. Such holder, or any person so designated by such holder to
receive such shares of Common Stock, shall be deemed to have become the holder of
record of such shares of Common Stock as of the Conversion Date. If and when such shares of



-10-









 





Common Stock may be freely transferred pursuant to Rule 144 under the
Securities Act or pursuant to an effective registration statement, the Corporation
shall use its best efforts to deliver such shares of Common Stock electronically
through the Depository Trust Corporation or another established clearing corporation
performing similar functions, and shall issue such shares of Common Stock in the
same manner as dividend payment shares are issued pursuant to Section 2(b)(iii)
above.




          (ii) The Corporation covenants that it shall at all times when the Series B
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of the
Series B Preferred Stock, such number of its duly authorized but unissued and
otherwise unreserved shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding Series B Preferred Stock or, if the
number of shares of Common Stock so reserved is insufficient, the Corporation shall
take any corporation action that is necessary to make available a sufficient number
of authorized but unissued and otherwise unreserved shares of Common Stock within
thirty (30) days after the occurrence of such deficiency. Before taking any action
that would cause an adjustment reducing the Conversion Price below the then par
value of the Common Stock, the Corporation shall take any corporate action that may,
in the opinion of its counsel, be necessary in order that the Corporation may
validly and legally issue fully paid and nonassessable shares of Common Stock at
such adjusted Conversion Price.




          (iii) Upon any such conversion, shares of Common Stock issued upon conversion
of such shares of Series B Preferred Stock shall not be deemed Additional Shares of
Common Stock (as defined below) and no adjustment to the Conversion Price shall be
made for any accumulated but unpaid dividends on the Series B Preferred Stock
surrendered for conversion or on the Common Stock delivered upon conversion.




          (iv) All shares of Series B Preferred Stock that shall have been surrendered
for conversion as herein provided shall no longer be deemed to be outstanding and
all rights with respect to such shares, including the rights, if any, to receive
notices and to vote, shall immediately cease and terminate on the Conversion Date,
except for the right of the holders thereof to receive shares of Common Stock and
cash, if any, in accordance with Sections 5(b) and 5(c) above. Any shares of Series
B Preferred Stock so converted shall be retired and canceled and shall not be
reissued, and the Corporation (without the need for action by the holders of Series
B Preferred Stock or any other stockholders) may from time to time take such
appropriate action as may be necessary to reduce the authorized number of shares of
Series B Preferred Stock accordingly.




          (v) The Corporation shall pay any and all issue and other similar taxes that
may be payable in respect of any issuance or delivery of shares of Common Stock upon
conversion of shares of Series B Preferred Stock pursuant to this Section 5. The
Corporation shall not, however, be required to pay any tax that



-11-









 





may be payable in respect of any transfer involved in the issuance and delivery
of shares of Common Stock in a name other than that in which the shares of Series B
Preferred Stock so converted were registered, and no such issuance or delivery shall
be made unless and until the person or entity requesting such issuance has paid to
the Corporation the amount of any such tax or has established, to the reasonable
satisfaction of the Corporation, that such tax has been paid.




(d) Adjustments to Conversion Price for Dilutive Issuances.




	 	(i)	 	Definitions. For purposes hereof, the following definitions shall
apply:
	 
	 	(A)	 	“Option” shall mean any rights, options or
warrants to subscribe for, purchase or otherwise acquire Common Stock
or Convertible Securities.
	 
	 	(B)	 	“Convertible Securities” shall mean any
evidences of indebtedness, shares or other securities directly or
indirectly convertible into or exchangeable for Common Stock, but
excluding Options.
	 
	 	(C)	 	“Series B Original Issue Date” shall mean the
date on which a share of Series B Preferred Stock was first issued,
regardless of the number of times the transfer of such share shall be
made on the Corporation’s stock transfer records and regardless of the
number of certificates that may be issued to evidence such share.
	 
	 	(D)	 	“Additional Shares of Common Stock” shall mean
all shares of Common Stock issued (or, pursuant to Section 5(d)(iii)
below, deemed to be issued) by the Corporation after the Series B
Original Issue Date, other than shares of Common Stock issued, issuable
or deemed issued:






	 	(I)	 	by reason of a dividend, stock
split, split-up or other distribution on shares of Common Stock
that is covered by Section 5(f) or 5(g) below;
	 
	 	(II)	 	by reason of Options granted or
stock issued with the approval of the Board to employees,
officers or directors of the Corporation or any Corporation
Subsidiary pursuant to an equity incentive plan approved by the
stockholders of the Corporation, provided that (x) for grants or
issuances under any plan other than a Series B Approved Plan,
the exercise price of such Options or the purchase price of such
stock is equal to or greater than the Fair Market Value of the
Common Stock on the date such Options are granted or such stock
is issued, and (y) for grants or issuances of stock under any
Series B Approved Plan, the exercise price of such Options or
the purchase price of such stock represents










-12-









 












	 	 	 	a discount of no more than fifteen percent (15%) from the
Fair Market Value of the Common Stock on the date such
Options are granted or such stock is issued. For purposes
hereof, a “Series B Approved Plan” shall mean (1) the
Corporation’s Employee Stock Purchase Plan or any similar or
replacement plan, (ii) any stock option or equity incentive
plan of the Corporation in effect as of the Series B Original
Issue Date, and (iii) any stock option or equity incentive
plan of the Corporation adopted after the Series B Original
Issue Date by either a majority the Board, which majority
includes the Series B Director, or approved by a majority of
the holders of the Series B Preferred Stock;
	 
	 	(III)	 	by reason of Options granted or
stock issued with the approval of the Board to consultants to
the Corporation or any Corporation Subsidiary or to any other
person (other than grants or issuances to persons described in
Section 5(d)(i)(D)(II) above) pursuant to an equity incentive
plan approved by the stockholders of the Corporation, provided
that the exercise price of such Options or the purchase price of
such stock is equal to or greater than the Fair Market Value of
the Common Stock on the date such Options are exercised or such
stock is issued;
	 
	 	(IV)	 	by reason of the warrants to
purchase Common Stock issued on the Series B Original Issue Date
pursuant to that certain Securities Purchase Agreement related
to the Series B Preferred Stock Issuance; or
	 
	 	(V)	 	in connection with any
transaction with any strategic investor, vendor or customer,
lessor, customer, supplier, marketing partner, developer or
integrator or any similar arrangement, or any acquisition, in
each case the primary purpose of which is not to raise equity
capital, provided that (1) the purchase price for the shares of
Common Stock to be issued in connection with such transaction is
equal to or greater than the Fair Market Value of the Common
Stock on the date of the closing of the transaction and (2) such
transaction is approved by the Board.






	 	(E)	 	“Fair Market Value” shall mean, as of any given
date, either (1) the fair market value as determined under the relevant
equity incentive plan, if applicable, or (2) an amount equal to the
average closing price per share of Common Stock on the Nasdaq Stock
Market for the five (5) trading days prior to (and not including) such
date.




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          (ii) No Adjustment of Conversion Price. No adjustment in the
Conversion Price shall be made as the result of the issuance of Additional Shares of
Common Stock if the consideration per share (determined pursuant to Section 5(d)(v)
below) for such Additional Shares of Common Stock issued or deemed to be issued by
the Corporation is equal to or greater than the applicable Conversion Price in
effect immediately prior to the issuance or deemed issuance of such Additional
Shares of Common Stock. In addition, no adjustment in the Conversion Price shall be
made, or a lesser adjustment than otherwise required may be made, if, prior to such
issuance or deemed issuance of Additional Shares of Common Stock, the Corporation
receives written notice from the holders of at least a majority of the shares of
Series B Preferred Stock then outstanding agreeing that no such adjustment, or a
lesser adjustment, shall be made as a result of such issuance or deemed issuance.




          (iii) Issue of Securities to be a Deemed Issue of Additional Shares of
Common Stock.




	 	(A)	 	If the Corporation at any time or from time to
time after the Series B Original Issue Date shall issue any Options or
Convertible Securities (excluding Options or Convertible Securities
that, upon exercise, conversion or exchange thereof, would entitle the
holder thereof to receive shares of Common Stock that are specifically
excepted from the definition of Additional Shares of Common Stock by
Section 5(d)(i)(D) above) or shall fix a record date for the
determination of holders of any class of securities entitled to receive
any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto
without regard to any provision contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options
or, in the case of Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be deemed
to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the
close of business on such record date.
	 
	 	(B)	 	If the terms of any Option or Convertible
Security, the issuance of which resulted in an adjustment to the
Conversion Price pursuant to the terms of Section 5(d)(iv) below, are
revised (either automatically pursuant the provisions contained therein
or as a result of an amendment to such terms) to provide for either (1)
any increase or decrease in the number of shares of Common Stock
issuable upon the exercise, conversion or exchange of any such Option
or Convertible Security or (2) any increase or decrease in the
consideration payable to the Corporation upon such exercise, conversion
or exchange, then, effective upon such increase or decrease becoming
effective, the Conversion Price computed upon




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	 	 	 	the original issue of such Option or Convertible Security (or upon
the occurrence of a record date with respect thereto) shall be
readjusted prospectively to such Conversion Price as would have
obtained had such revised terms been in effect upon the original date
of issuance of such Option or Convertible Security. Notwithstanding
the foregoing, no adjustment pursuant to this clause (B) shall have
the effect of increasing the Conversion Price to an amount that
exceeds the lower of (i) the Conversion Price on the original
adjustment date, or (ii) the Conversion Price that would have
resulted from any issuances of Additional Shares of Common Stock
between the original adjustment date and such readjustment date.
	 
	 	(C)	 	If the terms of any Option or Convertible
Security (excluding Options or Convertible Securities that, upon
exercise, conversion or exchange thereof, would entitle the holder
thereof to receive shares of Common Stock that are specifically
excepted from the definition of Additional Shares of Common Stock by
Section 5(d)(i)(D) above), the issuance of which did not result in an
adjustment to the Conversion Price pursuant to the terms of Section
5(d)(iv) below (either because the consideration per share (determined
pursuant to Section 5(d)(v) below) of the Additional Shares of Common
Stock subject thereto was equal to or greater than the Conversion Price
then in effect, or because such Option or Convertible Security was
issued before the Series B Original Issue Date), are revised after the
Series B Original Issue Date (either automatically pursuant the
provisions contained therein or as a result of an amendment to such
terms) to provide for either (1) any increase or decrease in the number
of shares of Common Stock issuable upon the exercise, conversion or
exchange of any such Option or Convertible Security or (2) any increase
or decrease in the consideration payable to the Corporation upon such
exercise, conversion or exchange, then such Option or Convertible
Security, as so amended, and the Additional Shares of Common Stock
subject thereto (determined in the manner provided in Section
5(d)(iii)(A) above) shall be deemed to have been issued effective upon
such increase or decrease becoming effective.
	 
	 	(D)	 	Upon the expiration or termination of any
unexercised Option or unconverted or unexchanged Convertible Security
that resulted (either upon its original issuance or upon a revision of
its terms) in an adjustment to the Conversion Price pursuant to the
terms of Section 5(d)(iv) below, the Conversion Price shall be
readjusted prospectively to such Conversion Price as would have
obtained had such Option or Convertible Security never been issued.










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	 	(E)	 	No adjustment in the Conversion Price shall be
made upon the issue of shares of Common Stock or Convertible Securities
upon the exercise of Options or the issue of shares of Common Stock
upon the conversion or exchange of Convertible Securities.






          (iv) Adjustment of Conversion Price Upon Issuance of Additional Shares of
Common Stock. In the event the Corporation shall at any time after the Series B
Original Issue Date issue Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to Section 5(d)(iii) above),
without consideration or for a consideration per share less than the applicable
Conversion Price in effect immediately prior to such issue, then the Conversion
Price shall be reduced, concurrently with such issue, to a price determined by
multiplying the Conversion Price in effect immediately prior to such issuance by a
fraction, (A) the numerator of which shall be (1) the number of shares of Common
Stock outstanding immediately prior to such issue plus (2) the number of shares of
Common Stock that the aggregate consideration received or to be received by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at the Conversion Price in effect immediately prior to such issuance;
and (B) the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such Additional
Shares of Common Stock so issued; provided, however, that, (i) all shares of Common
Stock issuable upon conversion or exercise of shares of Series B Preferred Stock,
Options or Convertible Securities outstanding immediately prior to such issue or
upon exercise of such securities shall be deemed to be outstanding, and (ii) the
number of shares of Common Stock deemed issuable upon conversion of such outstanding shares of Series B Preferred Stock shall be determined without giving effect to any
adjustments to the Conversion Price resulting from the issuance of Additional Shares
of Common Stock that is the subject of this calculation.




          (v) Determination of Consideration. For purposes of this Section 5(d),
the consideration received by the Corporation for the issue of any Additional Shares
of Common Stock shall be computed as follows:




          (A) Cash and Property. Such consideration
shall:




	 	(I)	 	insofar as it consists of cash,
be computed at the aggregate amount of cash received by the
Corporation, excluding amounts paid or payable for accrued
interest;
	 
	 	(II)	 	insofar as it consists of
property other than cash, be computed at the fair market value
thereof at the time of such issue, as determined in good faith
by the members of the Board other than any member who will
receive such property; and










-16-









 












	 	(III)	 	in the event Additional Shares
of Common Stock are issued together with other shares or
securities or other assets of the Corporation for consideration
that covers both, be the proportion of such consideration so
received, computed as provided in clauses (I) and (II) above, as
determined in good faith by the members of the Board other than
any member who will receive such consideration.






	 	(B)	 	Options and Convertible Securities.
The consideration per share received by the Corporation for Additional
Shares of Common Stock deemed to have been issued pursuant to Section
5(d)(iii) above, relating to Options and Convertible Securities, shall
be determined by dividing:






	 	(I)	 	the total amount, if any,
received or receivable by the Corporation as consideration for
the issue of such Options or Convertible Securities, plus the
minimum aggregate amount of additional consideration (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of
such Options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible
Securities; by
	 
	 	(II)	 	the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise
of such Options or the conversion or exchange of such
Convertible Securities.






          (vi) Multiple Closing Dates. In the event the Corporation shall issue
on more than one date Additional Shares of Common Stock that are comprised of shares
of the same series or class of Preferred Stock and that would result in an
adjustment to the Conversion Price pursuant to the terms of Section 5(d)(iv) above,
and such issuance dates occur within a period of no more than sixty (60) days, then,
upon the final such issuance, the Conversion Price shall be readjusted prospectively
to give effect to all such issuances as if they occurred on the date of the final
such issuance (and without giving effect to any adjustments as a result of such
prior issuances within such period).



     (e) Adjustment for Stock Splits and Combinations. If the Corporation shall at
any time or from time to time after the Series B Original Issue Date (i) effect a
subdivision of the outstanding Common Stock (whether by stock split, stock dividend or



-17-









 





otherwise) without a corresponding subdivision of the Series B Preferred Stock, or (ii)
combine the outstanding shares of Series B Preferred Stock (whether by reverse stock split
or otherwise) without a corresponding combination of the Common Stock, the Conversion Price
in effect immediately before that subdivision or combination shall be proportionately
decreased. If the Corporation shall at any time or from time to time after the Series B
Original Issue Date (x) combine the outstanding shares of Common Stock (whether by reverse
stock split or otherwise) without a corresponding combination of the Series B Preferred
Stock, or (y) effect a subdivision of the outstanding shares of Series B Preferred Stock
(whether by stock split, stock dividend or otherwise) without a corresponding subdivision of
the Common Stock, the Conversion Price in effect immediately before the combination or
subdivision shall be proportionately increased. Any adjustment under this paragraph shall
become effective at the close of business on the date the subdivision or combination becomes
effective.



     (f) Adjustment for Certain Dividends and Distributions. In the event the
Corporation at any time, or from time to time after the Series B Original Issue Date shall
make or issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Conversion Price in effect immediately before such
event shall be decreased, as of the time of such issuance or, in the event such a record
date shall have been fixed, as of the close of business on such record date, by multiplying
the Conversion Price then in effect by the following fraction:




     (i) the numerator shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date; and




     (ii) the denominator shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock issuable in
payment of such dividend or distribution;



provided, however, that if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price shall be recomputed accordingly as of the close of
business on such record date and thereafter the Conversion Price shall be adjusted
pursuant to this paragraph as of the time of actual payment of such dividends or
distributions; and provided further, that no such adjustment shall be made if the
holders of Series B Preferred Stock simultaneously receive (i) a dividend or other
distribution of shares of Common Stock in a number equal to the number of shares of
Common Stock as they would have received if all outstanding shares of Series B
Preferred Stock had been converted into Common Stock on the date of such event or
(ii) a dividend or other distribution of shares of Series B Preferred Stock that are
convertible, as of the date of such event, into such number of shares of Common
Stock as is equal to the number of additional shares of Common Stock being issued
with respect to each share of Common Stock in such dividend or distribution.



-18-









 








     (g) Adjustments for Other Dividends and Distributions. In the event the
Corporation at any time or from time to time after the Series B Original Issue Date shall
make or issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of the
Corporation (other than shares of Common Stock) or in cash or other property, then and in
each such event provision shall be made so that the holders of the Series B Preferred Stock
shall receive upon conversion thereof, in addition to the number of shares of Common Stock
to be received upon such conversion, the kind and amount of securities of the Corporation,
cash or other property that they would have been entitled to receive had the Series B
Preferred Stock been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the conversion
date, retained such securities receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this paragraph with
respect to the rights of the holders of the Series B Preferred Stock; provided, however,
that no such provision shall be made if the holders of Series B Preferred Stock receive,
simultaneously with the distribution to the holders of Common Stock, a dividend or other
distribution of such securities, cash or other property in an amount equal to the amount of
such securities, cash or other property as they would have received if all outstanding shares of Series B Preferred Stock had been converted into Common Stock on the date of such
event.



     (h) Adjustment for Merger or Reorganization, etc. Subject to the provisions of
Section 3(c) above, if there shall occur any reorganization, recapitalization,
reclassification, consolidation or merger involving the Corporation (which is not a
Liquidation) in which the Common Stock (but not the Series B Preferred Stock) is converted
into or exchanged for securities, cash or other property (other than a transaction covered
by paragraph (e), (f) or (g) of this Section 5), then, following any such reorganization,
recapitalization, reclassification, consolidation or merger, each share of Series B
Preferred Stock shall be convertible into the kind and amount of securities, cash or other
property that a holder of the number of shares of Common Stock of the Corporation issuable
upon conversion of one share of Series B Preferred Stock immediately prior to such
reorganization, recapitalization, reclassification, consolidation or merger would have been
entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment
(as determined in good faith by the Board) shall be made in the application of the
provisions in this Section 5 with respect to the rights and interests thereafter of the
holders of the Series B Preferred Stock, to the end that the provisions set forth in this
Section 5 (including provisions with respect to changes in and other adjustments of the
Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any securities or other property thereafter deliverable upon the conversion of
the Series B Preferred Stock.



     (i) Rounding of Calculations, Minimum Adjustments. All calculations under this
Section 5 shall be made to the nearest one tenth of a cent ($0.001), with five one
hundredths of a cent ($0.0005) rounded down. No adjustment in the Conversion Price is
required if the amount of such adjustment would be less than one cent ($0.01); provided,
however, that any adjustments which by reason of this Section 5(j) are not required to be
made will be carried forward and given effect in any subsequent adjustment. The number



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of shares of Common Stock outstanding at any given time shall not include shares owned
or held by or for the account of the Corporation, and the disposition of any such shares
shall be considered an issue or sale of Common Stock.



     (j) Certificate as to Adjustments. Upon the occurrence of each adjustment
pursuant to this Section 5, the Corporation at its expense will promptly compute such
adjustment in accordance with the terms hereof and prepare a certificate describing in
reasonable detail such adjustment and the transactions giving rise thereto, including all
facts upon which such adjustment is based. The Corporation will promptly deliver a copy of
each such certificate to each holder of Series B Preferred Stock and to the Corporation’s
Transfer Agent. The Corporation shall, as promptly as reasonably practicable after the
written request at any time of any holder of Series B Preferred Stock (but in any event not
later than ten (10) days thereafter), furnish or cause to be furnished to such holder a
certificate setting forth (i) the Conversion Price then in effect, and (ii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property that
then would be received upon the conversion of Series B Preferred Stock.



     (k) Notice of Record Date. In the event:




     (i) the Corporation shall take a record of the holders of its Common Stock (or
other stock or securities at the time issuable upon conversion of the Series B
Preferred Stock) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or purchase
any shares of stock of any class or any other securities, or to receive any other
right;




     (ii) of any capital reorganization of the Corporation, any reclassification of
the Common Stock of the Corporation, any consolidation or merger of the Corporation
with or into another corporation (other than a consolidation or merger in which the
Corporation is the surviving entity and its Common Stock is not converted into or
exchanged for any other securities or property), or any transfer of all or
substantially all of the assets of the Corporation; or




     (iii) of the voluntary or involuntary dissolution, liquidation or winding-up of
the Corporation;



then, and in each such case, the Corporation will send or cause to be sent to the
holders of the Series B Preferred Stock a notice specifying, as the case may be, (i)
the record date for such dividend, distribution or right, and the amount and
character of such dividend, distribution or right, or (ii) the effective date on
which such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up is to take place, and the time, if any is to
be fixed, as of which the holders of Common Stock (or such other stock or securities
at the time issuable upon the conversion of the Series B Preferred Stock) shall be
entitled to exchange their shares of Common Stock (or such other stock or
securities) for securities or other property deliverable upon such reorganization,
reclassification,



-20-









 








consolidation, merger, transfer, dissolution, liquidation or winding-up. Any notice
required under this Section 5(1) shall be sent at least twenty (20) days prior to
the record date or effective date for the event specified in such notice.



     (l) No Impairment. The Corporation shall at all times in good faith assist in
the carrying out of all the provisions of this Section 5 and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the holders of
the Series B Preferred Stock against impairment.




	6.	 	Redemption at the Option of the Corporation.





     (a) Corporation’s Right to Redeem.




     (i) At any time, and from time to time, on or after the fifth (5th)
anniversary of the Series B Original Issue Date, the Corporation may, in its sole
discretion, redeem all or any portion (provided that such portion would be deemed as
“substantially disproportionate” under Section 302(b)(2) of the Internal Revenue
Code of 1986, as amended (the “Code”), or if such redemption would otherwise qualify
as an exchange under Section 302 of the Code, as determined by the holders of the
Series B Preferred Stock in their sole discretion) of the outstanding shares of
Series B Preferred Stock at a price per share (the “Call Price”) equal to the
greater of




	 	(A)	 	an amount equal to (I) the average closing
price per share of Common Stock on the Nasdaq Stock Market for the five
(5) trading days prior to (and not including) the Call Date (as defined
below) multiplied by (II) the number of shares of Common Stock into
which a share of Series B Preferred Stock (and any accumulated but
unpaid dividends thereon) is convertible as of the Call Date; and
	 
	 	(B)	 	the Stated Value plus all accumulated but
unpaid dividends thereon as of the Call Date.






     (ii) On each Call Date, the Corporation shall redeem, on a pro rata basis in
accordance with the number of shares of Series B Preferred Stock owned by each
holder, that number of outstanding shares of Series B Preferred Stock specified in
the related Call Notice (as defined below).



     (b) Call Notice. The Corporation shall provide written notice (a “Call
Notice”) to each holder of Series B Preferred Stock of the Corporation’s intent to redeem shares of Series B Preferred Stock pursuant to Section 6(a) at least thirty (30) days prior
to the date on which such shares shall be redeemed (the “Call Date”). Any Call Notice shall
be delivered to each holder of record of Series B Preferred Stock, as applicable, in
accordance with the notice provisions set forth in Section 13 below. Each Call Notice shall
state:




     (i) the Call Date;



-21-









 






     (ii) the Call Price;




     (iii) the number of shares of Series B Preferred Stock held by the holder that
the Corporation shall redeem on the Call Date;




     (iv) the date upon which the holder’s right to convert such shares terminates
(as determined in accordance with Section 5 above); and




     (v) that the holder is to surrender to the Corporation, in the manner and at
the place designated, its certificate or certificates (or an affidavit of loss and
indemnity agreement for such certificates) representing the shares of Series B
Preferred Stock to be redeemed.



     (c) Surrender of Certificates; Payment. On or before the applicable Call Date,
each holder of shares of Series B Preferred Stock to be redeemed on such Call Date, unless
such holder has exercised its right to convert such shares as provided in Section 5 above,
shall surrender the certificate or certificates (or deliver an affidavit of loss and
indemnity agreement for such certificates) representing such shares to the Corporation, in
the manner and at the place designated in the Call Notice, and thereupon the Call Price for
such shares shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered certificate shall be
canceled and retired. In the event less than all of the shares of Series B Preferred Stock
represented by a certificate are redeemed, a new certificate representing the unredeemed shares of Series B Preferred Stock shall promptly be issued to such holder.



     (d) Rights Subsequent to Call. If the Call Notice shall have been duly given,
and if on the applicable Call Date the Call Price payable upon redemption of the shares of
Series B Preferred Stock to be redeemed on such Call Date is paid or tendered for payment,
then notwithstanding that the certificates evidencing any of the shares of Series B
Preferred Stock so called for redemption shall not have been surrendered, dividends with
respect to such shares of Preferred Stock shall cease to accumulate after such Call Date and
all rights with respect to such shares shall forthwith after the Call Date terminate, except
only the right of the holders to receive the Call Price without interest upon surrender of
their certificate or certificates therefor.



     (e) Redeemed or Otherwise Acquired Shares. Any shares of Series B Preferred
Stock that are redeemed pursuant to this Section 6 or Section 7 below or otherwise acquired
by the Corporation or any of its subsidiaries shall be automatically and immediately
canceled and shall not be reissued, sold or transferred as shares of Series B Preferred
Stock. Neither the Corporation nor any of its subsidiaries may exercise any voting or other
rights granted to the holders of Series B Preferred Stock following any redemption.




	7.	 	Redemption at the Option of the Holders of Series B Preferred Stock.





     (a) Holder Right to Require Redemption. At any time, and from time to time, on
or after the fifth (5th) anniversary of the Series B Original Issue Date, each
holder of Series B Preferred Stock may, in its sole discretion, require the Corporation to
redeem all



-22-









 





or any portion of the shares of Series B Preferred Stock held by such holder at a price
per share equal to the Stated Value plus accumulated but unpaid dividends as of the Put Date
(as defined below) (the “Put Price”), by providing the Corporation with written notice
requesting such redemption (a “Put Notice”).



     (b) The process for effecting any such redemption shall be as follows:




     (i) Within fifteen (15) days after the receipt of a Put Notice, the Corporation
shall send to each holder of Series B Preferred Stock a notice (the “Corporation
Notice”) which shall (A) state the number of shares of Series B Preferred Stock that
are the subject of the applicable Put Notice, and (B) specify a date (a “Put Date”)
as of which a redemption pursuant to this Section 7 shall be effected and the date
by which a holder may elect to join in the redemption pursuant to Section (b)(ii)
below. Each Put Date shall be not more than forty (40) days following the date on
which the related Corporation Notice is sent by the Corporation.




     (ii) Within ten (10) days after receipt of the Corporation Notice, each holder
of Series B Preferred Stock may provide notice to the Corporation that such holder
wishes to include all or a portion of its shares of Series B Preferred Stock in such
Put Notice and stating the number of shares to be so included (and, thereafter such shares shall be deemed to be included in such Put Notice).




     (iii) At least ten (10) days prior to the Put Date, the Corporation shall
provide each holder of Series B Preferred Shares for which redemption was requested
with written notice (“Closing Notice”) that states (i) the applicable Put Price,
(ii) the applicable Put Date, (iii) the number of shares requested to be redeemed on
that Put Date, (iv) the number of shares of Series B Preferred Stock to be redeemed
on such date, and (v) that the holder is to surrender to the Corporation, in the
manner and at the place designated, its certificate or certificates (or affidavit of
loss and indemnity agreement) representing the shares of Series B Preferred Stock to
be redeemed.




     (iv) Subject to the limitations above in this Section 7, on the applicable Put
Date, the Corporation shall redeem, on a pro rata basis in accordance with the
number of shares of Series B Preferred Stock owned by each holder for which
redemption was requested, that number of outstanding shares of Series B Preferred
Stock specified or deemed to be included in the Put Notice. In the event the
Corporation does not have sufficient funds legally available to redeem on such Put
Date all shares of Series B Preferred Stock to be redeemed on such Put Date, the
Corporation shall redeem a pro rata portion of each holder’s shares out of funds
legally available therefor, based on the respective amounts that would otherwise be
payable in respect of the shares to be redeemed if the legally available funds were
sufficient to redeem all such shares, and shall redeem the remaining shares to have
been redeemed as soon as practicable after the Corporation has funds legally
available therefor. If the Corporation has not redeemed all outstanding shares of
Series B Preferred Stock which are to be



-23-









 





redeemed within one hundred twenty (120) days following the date on which the
related Put Notice is sent by the Corporation, the Dividend Rate with regard to any shares of Series B Preferred Stock that remain outstanding shall be twelve percent
(12%) per annum from the date of the Put Notice until such date as such shares are
actually redeemed.



     (c) Put Notice and Other Notices. Any Put Notice shall be delivered to the
Corporation, and any Corporation Notice or Closing Notice shall be delivered to each holder
of record of Series B Preferred Stock, as applicable, in accordance with the notice
provisions set forth in Section 13 below.



     (d) Surrender of Certificates; Payment. On or before the applicable Put Date,
each holder of shares of Series B Preferred Stock to be redeemed on such Put Date, unless
such holder has exercised its right to convert such shares as provided in Section 5 above,
shall surrender the certificate or certificates (or deliver an affidavit of loss and
indemnity agreement for such certificates) representing such shares to the Corporation, in
the manner and at the place designated by the Corporation in its notice pursuant to this
Section 7, and thereupon the Put Price for such shares shall be payable to the order of the
person whose name appears on such certificate or certificates as the owner thereof, and each
surrendered certificate shall be canceled and retired. In the event less than all of the shares of Series B Preferred Stock represented by a certificate are redeemed, a new
certificate representing the unredeemed shares of Series B Preferred Stock shall promptly be
issued to such holder.



     (e) Rights Subsequent to Put. If the Put Notice shall have been duly given,
and if on the applicable Put Date the Put Price payable upon redemption of the shares of
Series B Preferred Stock to be redeemed on such Put Date is paid or tendered for payment,
then notwithstanding that the certificates evidencing any of the shares of Series B
Preferred Stock so called for redemption shall not have been surrendered, dividends with
respect to such shares of Preferred Stock shall cease to accumulate after such Put Date and
all rights with respect to such shares shall forthwith after the Put Date terminate, except
only the right of the holders to receive the Put Price without interest upon surrender of
their certificate or certificates therefor.




	8.	 	Preemptive Rights.





     (a) Definitions. For purposes of this Section 8, the following definitions
shall apply:




          (i) “Acceptance” means a written notice from a holder of Preferred Stock to the
Corporation containing the information specified in Section 8(b)(ii).




          (ii) “Available Unsubscribed Amount” means the difference between the total of
all of the Basic Amounts available for purchase by holders of Preferred Stock
pursuant to Section 8(b)(i) and the Basic Amounts subscribed for pursuant to Section
8(b)(ii).



-24-









 






          (iii) “Basic Amount” means, with respect to a holder of Preferred Stock, its
pro rata portion of the Securities, determined by multiplying the number of
Securities by a fraction, the numerator of which is the aggregate number of shares
of Common Stock then held by such holder (giving effect to the conversion into
Common Stock of all shares of convertible preferred stock and exercise of all
warrants (assuming cashless exercise) then held by such holder) and the denominator
of which is the total number of shares of Common Stock then outstanding (giving
effect to the conversion into Common Stock of all shares of convertible preferred
stock or other convertible securities and exercise of all options, warrants
(assuming cashless exercise) or other rights to purchase Securities of the
Corporation then outstanding).




          (iv) “Offer” means a written notice of any proposed issuance, sale or exchange
of Securities containing the information specified in Section 8(b)(i).




          (v) “Preferred Stock” means, the Series A Preferred Stock and the Series B
Preferred Stock.




          (vi) “Refused Securities” means those Securities as to which an Acceptance has
not been given by holders of Preferred Stock pursuant to Section 8(b)(ii).




          (vii) “Securities” means (a) any shares of Common Stock, (b) any other equity
securities of the Corporation, including shares of preferred stock, (c) any option,
warrant or other right to subscribe for, purchase or otherwise acquire any equity
securities of the Corporation, or (d) any debt securities convertible into capital
stock of the Corporation.




          (viii) “Unsubscribed Amount” means, with respect to a holder of Preferred
Stock, any additional portion of the Securities attributable to the Basic Amounts of
other holders of Preferred Stock as such holder indicates it will purchase or
acquire should the other holders subscribe for less than their Basic Amounts.



(b) Rights of Investors.




          (i) The Corporation shall not issue, sell or exchange, agree to issue, sell or
exchange, or reserve or set aside for issuance, sale or exchange, any Securities,
unless in each such case the Corporation shall have first complied with this Section
8. The Corporation shall deliver to each holder of Preferred Stock an Offer, which
shall (a) identify and describe the Securities, (b) describe the price (expressed in
either a fixed dollar amount or a definitive formula pursuant to which the only
variable is the market price of the Common Stock at or near the time of the proposed
issuance, sale or exchange) and other terms upon which they are to be issued, sold
or exchanged, and the number or amount of the Securities to be issued, sold or
exchanged, (c) identify the offerees or purchasers (if known) to which or with which
the Securities are to be offered, issued, sold or exchanged,




-25-










 








and (d) offer to issue and sell to or exchange with such holder of Preferred
Stock (1) such holder’s Basic Amount and (2) such holder’s Unsubscribed Amount.




     (ii) To accept an Offer, in whole or in part, a holder of Preferred Stock must
deliver to the Corporation, on or prior to the date fifteen (15) days after the date
of delivery of the Offer, an Acceptance indicating the portion of the holder’s Basic
Amount that such holder elects to purchase and, if such holder shall elect to
purchase all of its Basic Amount, the Unsubscribed Amount (if any) that such holder
elects to purchase. If the Basic Amounts subscribed for by all holders of Preferred
Stock are less than the total of all of the Basic Amounts available for purchase,
then each holder who has set forth an Unsubscribed Amount in its Acceptance shall be
entitled to purchase, in addition to the Basic Amounts subscribed for, the
Unsubscribed Amount it has subscribed for; provided, however, that if the
Unsubscribed Amounts subscribed for exceed the Available Unsubscribed Amount, each
holder who has subscribed for any Unsubscribed Amount shall be entitled to purchase
only that portion of the Available Unsubscribed Amount as the Unsubscribed Amount
subscribed for by such holder bears to the total Unsubscribed Amounts subscribed for
by all holders of Preferred Stock, subject to rounding by the Board to the extent it
deems reasonably necessary.




     (iii) The Corporation shall have ninety (90) days from the expiration of the
period set forth in Section 8(b)(ii) to issue, sell or exchange all or any part of
the Refused Securities, but only to the offerees or purchasers described in the
Offer (if so described therein) and only upon terms and conditions (including unit
prices and interest rates) that are not more favorable, in the aggregate, to the
offerees or purchasers than those set forth in the Offer.




     (iv) In the event the Corporation shall propose to sell less than all the
Refused Securities, then each holder of Preferred Stock may, at its sole option and
in its sole discretion, reduce the number or amount of the Securities specified in
its Acceptance to an amount that shall be not less than the number or amount of the
Securities that the holder elected to purchase pursuant to Section 7(b)(ii)
multiplied by a fraction, (i) the numerator of which shall be the number or amount
of Securities the Corporation actually proposes to issue, sell or exchange
(including Securities to be issued or sold to holders of Preferred Stock pursuant to
Section 8(b)(ii) prior to such reduction) and (ii) the denominator of which shall be
the original amount of the Securities. In the event that any holder so elects to
reduce the number or amount of Securities specified in its Acceptance, the
Corporation may not issue, sell or exchange more than the reduced number or amount
of the Securities unless and until such securities have again been offered to the
holders of Preferred Stock in accordance with Section 8(b)(ii).




     (v) Upon (a) the closing of the issuance, sale or exchange of all or less than
all of the Refused Securities or (b) such other date agreed to by the Corporation
and the holders of Preferred Stock who have subscribed for a majority of the
Securities subscribed for by the holders of Preferred Stock, such



-26-









 






holder or holders shall acquire from the Corporation and the Corporation shall
issue to such holder or holders, the number or amount of Securities specified in the
Acceptances, as reduced pursuant to Section 8(b)(iv) if any of the holders has so
elected, upon the terms and conditions specified in the Offer.




     (vi) The purchase by the holders of Preferred Stock of any Securities is
subject in all cases to the preparation, execution and delivery by the Corporation
and the holders of Preferred Stock of a purchase agreement relating to such
Securities reasonably satisfactory in form and substance to the holders of Preferred
Stock and their respective counsel.




     (vii) Securities not acquired by the holders of Preferred Stock in accordance
with Section 8(b)(ii) and not sold pursuant to Section 8(b)(iii) may not be issued,
sold or exchanged until they are again offered to the holders of Preferred Stock
under the procedures specified in this Section 8.



     (c) Excluded Transactions. The rights of the holders of Series B Preferred
Stock under this Section 8 shall not apply to:




     (i) any issuance of securities of the Corporation for consideration other than
cash, including the issuance of shares (a) as a stock dividend to holders of Common
Stock, Series B Preferred Stock, Series B Preferred Stock or any other Corporation
securities, or upon any subdivision or combination of shares of Common Stock, Series
B Preferred Stock or any other Corporation securities; (b) upon exercise or
conversion of preferred stock, options, warrants or debt securities exercisable or
convertible for Common Stock pursuant to their terms; and (c) in connection with a
transaction described in Section 4(c)(x) so long as any required consent or vote is
first obtained by the Corporation; and




     (ii) any issuance of securities of the Corporation if such issuance is excluded
from the definition of “Additional Shares of Common Stock” under clauses (I) through
(V) of Section 5(d)(i)(D) above.




	9.	 	Waivers. The holders of Series B Preferred Stock shall also be
entitled to, and shall not be deemed to have waived, any other applicable rights
granted to such holders under the Delaware General Corporation Law. Any of the rights
of the holders of Series B Preferred Stock set forth herein may be waived by the
affirmative consent or vote of the holders of at least a majority of the then
outstanding shares of Series B Preferred Stock, subject to applicable law.
	 
	10.	 	Registration of Series B Preferred Stock. The Corporation shall
register shares of the Series B Preferred Stock, upon records to be maintained by the
Corporation for that purpose (the “Series B Preferred Stock Register”), in the name of
the record holders thereof from time to time. The Corporation may deem and treat the
registered holder of shares of Series B Preferred Stock as the absolute owner thereof
for the purpose of any conversion hereof or any distribution to such holder, and for
all other purposes, absent actual notice to the contrary.




-27-









 






	11.	 	Registration of Transfers. The Corporation shall register the transfer
of any shares of Series B Preferred Stock in the Series B Preferred Stock Register,
upon surrender of certificates evidencing such Shares to the Corporation at its address
specified herein. Upon any such registration or transfer, a new certificate evidencing
the shares of Series B Preferred Stock so transferred shall be issued to the transferee
and a new certificate evidencing the remaining portion of the shares not so
transferred, if any, shall be issued to the transferring holder.
	 
	12.	 	Replacement Certificates. If any certificate evidencing Series B
Preferred Stock, or Common Stock issued upon conversion thereof, is mutilated, lost,
stolen or destroyed, the Corporation shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution for such
certificate, a new certificate, but only upon receipt of an affidavit of loss and
indemnity agreement reasonably satisfactory to the Corporation evidencing such loss,
theft or destruction and customary and reasonable indemnity, if requested. Applicants
for a new certificate under such circumstances shall also comply with such other
reasonable regulations and procedures and pay such other reasonable third-party costs
as the Corporation may prescribe.
	 
	13.	 	Notices. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the earliest
of (i) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section prior to 5:00 p.m. (Pacific
time) and electronic confirmation of receipt is received by the sender, (ii) the day
following the date of mailing, if sent by nationally recognized overnight courier
service, or (iii) upon actual receipt by the party to whom such notice is required to
be given. The addresses for such communications shall be: (i) if to the Corporation,
to 14661 Franklin Avenue, Tustin, California 92780, facsimile: (714) 481-4141,
attention: Chief Executive Officer and President, or (ii) if to a holder of Series B
Preferred Stock, to the address or facsimile number appearing on the Corporation’s
stockholder records or such other address or facsimile number as such holder may
provide to the Corporation in accordance with this Section.





*
   *   *





-28-










 







Exhibit B




FORM OF WARRANT



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





			
	Warrant No. WB-_______
	 	Number of Shares: _________
	 
	 	     (subject to adjustment)
	Date of Issuance: _________, 2005	 	 






MTI TECHNOLOGY CORPORATION




Common Stock Purchase Warrant




(Void after ___________, 2015)




     MTI Technology Corporation, a Delaware corporation (the “Company”), for value received, hereby
certifies that __________________, or its registered assigns (the “Registered
Holder”), is entitled, subject to the terms and conditions set forth below, to purchase from the
Company, at any time or from time to time on or before 5:00 p.m. (Pacific time) on _________, 2015,__________________(_________) shares of Common Stock, $0.001 par value per
share, of the Company (“Common Stock”). The purchase price shall be
$_________1  per share. The shares purchasable upon exercise of this
Warrant, and the purchase price per share, each as adjusted from time to time pursuant to the
provisions of this Warrant, are hereinafter referred to as the “Warrant Shares” and the “Purchase
Price,” respectively. For purposes of this Warrant, “Warrant Issue Date” shall mean the date on
which this Warrant was first issued, regardless of any subsequent transfer or partial exercise of
this Warrant that may occur after such date.



     1. Exercise




     (a) Exercise for Cash. The Registered Holder may, at its option, elect to
exercise this Warrant, in whole or in part and at any time or from time to time, by
surrendering this





 




			
	1	 	The purchase price shall be
the Price Per Share in the Securities Purchase Agreement divided by 10.




 









 











Warrant, with the purchase form appended hereto as Exhibit I duly executed by or
on behalf of the Registered Holder, at the principal office of the Company, or at such other
office or agency as the Company may designate, accompanied by payment in full, in lawful money
of the United States, of the Purchase Price payable in respect of the number of Warrant Shares
purchased upon such exercise.




     (b) Cashless Exercise




     (i) The Registered Holder may, at its option, elect to exercise this Warrant, in
whole or in part from time to time, on a cashless basis, by surrendering this Warrant,
with the purchase form appended hereto as Exhibit I duly executed by or on behalf
of the Registered Holder, at the principal office of the Company, or at such other office
or agency as the Company may designate, by canceling a portion of this Warrant in payment
of the Purchase Price payable in respect of the number of Warrant Shares purchased upon
such exercise. In the event of an exercise pursuant to this subsection 1(b), the number
of Warrant Shares issued to the Registered Holder shall be determined according to the
following formula:



X = Y(A-B)

A




	 	 	 	 	 	 	 	 	 
	 

	 	Where:
	 	X
	 	=
	 	the number of Warrant Shares that shall be issued to the Registered Holder
pursuant to the cashless exercise;
	 
	 

	 	 	 	Y
	 	=
	 	the number of Warrant Shares for which this
Warrant is being exercised (which shall include both the number of Warrant
Shares issued to the Registered Holder and the number of Warrant Shares
subject to the portion of the Warrant being cancelled in payment of the
Purchase Price);
	 
	 

	 	 	 	A
	 	=
	 	the Fair Market Value (as defined below) of one
share of Common Stock; and
	 
	 

	 	 	 	B
	 	=
	 	the Purchase Price then in effect.







     (ii) For purpose of this Warrant, “Fair Market Value” per share of Common Stock
shall be determined as follows:




     (A) If the Common Stock is listed on a national securities exchange, the Nasdaq
SmallCap Market or another nationally recognized trading system as of the Exercise
Date, the Fair Market Value per share of Common Stock shall be deemed to be the
average of the high and low reported sale prices per share of Common Stock thereon
on the five (5) trading days immediately preceding (and not including) the Exercise
Date.




     (B) If as of the Exercise Date the Common Stock is not listed on a national
securities exchange, the Nasdaq SmallCap Market or another nationally recognized
trading system as of the Exercise Date, the Fair Market Value per



-2-









 






share of Common Stock shall be deemed to be the amount most recently determined
by the Board of Directors of the Company (the “Board”) to represent the fair market
value per share of the Common Stock (including a determination for purposes of
granting Common Stock options or issuing Common Stock under any plan, agreement or
arrangement with employees of the Company); and, upon request of the Registered
Holder, such Board (or a representative thereof) shall, as promptly as reasonably
practicable but in any event not later than five (5) days after such request, notify
the Registered Holder of the Fair Market Value per share of Common Stock and furnish
the Registered Holder with reasonable documentation of such Board’s determination of
such Fair Market Value. Notwithstanding the foregoing, if the Board has not made
such a determination within the three-month period prior to the Exercise Date, then
(a) the Board shall make, and shall provide or cause to be provided to the
Registered Holder notice of, a determination of the Fair Market Value per share of
the Common Stock within fifteen (15) days of a request by the Registered Holder that
it do so, and (b) the exercise of this Warrant pursuant to this subsection 1(b)
shall be delayed until such determination is made and notice thereof is provided to
the Registered Holder.




     (c) Exercise Date. Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this Warrant shall
have been surrendered to the Company as provided in subsection 1(a) or 1(b) above (the
“Exercise Date”). At such time, the person or persons in whose name or names any certificates
for Warrant Shares shall be issuable upon such exercise as provided in subsection 1(d) below
shall be deemed to have become the holder or holders of record of the Warrant Shares
represented by such certificates.




     (d) Issuance of Certificates. As soon as practicable after the exercise of this
Warrant in whole or in part, and in any event within three (3) Trading Days (as defined below)
thereafter, the Company, at its expense, shall cause to be issued in the name of, and
delivered to, the Registered Holder, or as the Registered Holder (upon payment by the
Registered Holder of any applicable transfer taxes) may direct:




	 	(i)	 	a certificate or certificates for the number of full Warrant
Shares to which the Registered Holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which the Registered Holder would
otherwise be entitled, cash in an amount determined pursuant to Section 3
below; and
	 
	 	(ii)	 	in case such exercise is in part only, a new warrant or
warrants of like tenor, calling in the aggregate on the face or faces thereof
for the number of Warrant Shares equal (without giving effect to any adjustment
therein) to the number of such shares called for on the face of this Warrant
minus the number of Warrant Shares for which this Warrant was so exercised.






For purposes of this Warrant, “Trading Day” shall mean (a) any day on which quotations or
listings with respect to the Common Stock are provided on the Nasdaq SmallCap Market or
another nationally recognized quotation or trading system or (b) if the Common Stock is



-3-









 






not then listed or quoted on the Nasdaq SmallCap Market or another nationally recognized
trading system, then a day on which trading occurs on the New York Stock Exchange (or any
successor thereto).



     2. Adjustments




     (a) Adjustment for Stock Splits and Combinations. If the Company shall at any
time or from time to time after the Warrant Issue Date (i) effect a subdivision of the
outstanding shares of Common Stock (whether by stock split, stock dividend or otherwise), or
(ii) combine the outstanding shares of Common Stock (whether by reverse stock split or
otherwise), the Purchase Price in effect immediately before that subdivision or combination
shall be proportionately adjusted. Any adjustment under this paragraph shall become effective
concurrently with the effectiveness of the applicable subdivision or combination of the
outstanding shares of Common Stock. Notwithstanding Section 13 hereof or the foregoing, in the
event (a) the Company effects a split of the Common Stock by means of a stock dividend and the
Purchase Price of and the number of Warrant Shares are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such dividend) and (b) the
Registered Holder exercises this Warrant between the record date and the distribution date for
such stock dividend, the Registered Holder shall be entitled to receive, on the distribution
date, the stock dividend with respect to the shares of Common Stock acquired upon such
exercise, notwithstanding the fact that such shares were not outstanding as of the close of
business on the record date for such stock dividend.




     (b) Adjustments for Dividends and Other Distributions. In the event the Company
at any time or from time to time after the Warrant Issue Date shall make or issue, or fix a
record date for the determination of holders of Common Stock entitled to receive, a dividend
or other distribution payable in shares of Common Stock or other securities of the Company or
in cash or other property, then, and in each such event, the Registered Holder shall receive
upon exercise hereof, in addition to the number of shares of Common Stock to be received upon
such exercise, the kind and amount of securities of the Company, cash or other property that
they would have been entitled to receive had this Warrant been exercised (without use of the
cashless exercise provisions) for shares of Common Stock immediately prior to such event and
had they thereafter, during the period from the date of such event to and including the
exercise date, retained such securities, giving application to all adjustments called for
during such period under this paragraph with respect to the rights of the Registered Holder.




     (c) Adjustment for Merger or Reorganization, etc. If there shall occur any
reorganization, recapitalization, reclassification, consolidation or merger involving the
Company in which the Common Stock is converted into or exchanged for securities, cash or other
property (other than a transaction covered by Subsections 2(a) or 2(b)), then, following any
such reorganization, recapitalization, reclassification, consolidation or merger, this Warrant
shall be exercisable into the kind and amount of securities, cash or other property that a
holder of the number of shares of Common Stock of the Company issuable upon exercise of this
Warrant immediately prior to such reorganization, recapitalization, reclassification,
consolidation or merger would have been entitled to receive pursuant to such transaction; and,
in such case, appropriate adjustment (as



-4-









 






determined in good faith by the Board) shall be made in the application of the provisions
in this Warrant with respect to the rights and interests thereafter of the Registered Holder,
to the end that the provisions set forth in this Warrant (including provisions with respect to
changes in and other adjustments of the Purchase Price) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any securities or other property thereafter
deliverable upon the exercise of this Warrant.




(d) Rounding of Calculations. All calculations under this Warrant shall be made
to the nearest whole number of shares, with five tenths (0.5) of a share rounded up. The
number of shares of Common Stock outstanding at any given time shall not include shares owned
or held by or for the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.




(e) Certificate as to Adjustments. Upon the occurrence of each adjustment
pursuant to this Warrant, the Company at its expense will promptly compute such adjustment in
accordance with the terms hereof and prepare a certificate describing in reasonable detail
such adjustment and the transactions giving rise thereto, including all facts upon which such
adjustment is based. The Company will promptly deliver a copy of each such certificate to the
Registered Holder and to the Company’s Transfer Agent. The Company shall, as promptly as
reasonably practicable after the written request at any time of any Registered Holder (but in
any event not later than ten (10) days thereafter), furnish or cause to be furnished to such
Registered Holder a certificate setting forth (i) the Purchase Price then in effect, and (ii)
the number of shares of Common Stock and the amount, if any, of other securities, cash or
property that then would be received upon the exercise of this Warrant.




(f) No Impairment. The Company shall at all times in good faith assist in the
carrying out of all terms and taking of all actions as may be necessary or appropriate,
pursuant to this Section 2, in order to protect the rights of the Registered Holder against
impairment.



     3. Fractional Shares. The Company shall not be required upon the exercise
of this Warrant to issue any fractional shares, but shall pay the value thereof to the Registered
Holder in cash on the basis of the Fair Market Value per share of Common Stock.



     4. Compliance with Securities Laws; Investment Representations.




     (a) The Registered Holder is acquiring the Warrant for investment and not with a view to
the resale or distribution of the Warrant or the Warrant Shares, or any interest therein,
without prejudice, however, to the Registered Holder’s right, subject to compliance with the
Transaction Documents, including the Investor Rights Agreement (as each are defined in that
certain Securities Purchase Agreement dated ___, 2005 by and among the Company and the
several purchasers named as “Purchasers” in Schedule A thereto), at all times to sell
or otherwise dispose of all or any part of such Warrant or Warrant Shares pursuant to an
effective registration statement under the Securities Act or under an exemption from such
registration and in compliance with applicable federal and state securities laws. Nothing
contained herein shall be deemed a representation or warranty by the Registered Holder to hold
any of the Warrant or Warrant Shares for any period of time. The Registered Holder is
acquiring the Warrant hereunder in the ordinary course of business. Except as contemplated by
the Investor Rights Agreement, the Registered Holder



-5-









 






has no agreement, undertaking, arrangement, obligation or commitment providing for the
disposition of such Warrant or Warrant Shares. The Registered Holder has not been organized,
reorganized or recapitalized specifically for the purpose of investing in the Purchased
Securities. At all times since the time the Registered Holder was initially offered the
Warrant, such Purchaser has been an “accredited investor” as such term is defined in
Regulation D under the Securities Act of 1933, as amended.




     (b) The Registered Holder 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. The Registered Holder will bear the economic risk of
this investment until the Warrant or Warrant Shares are registered pursuant to the Securities
Act, or an exemption from registration is available.




     (c) Unless a registration statement under the Act is effective with respect to the
Warrant Shares to be issued upon the exercise of this Warrant, the certificate representing
such Warrant Shares shall bear the following legend, in addition to any legend imposed by
applicable state securities laws:



THE SHARES OF COMMON STOCK EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
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 SAID ACT AND APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO MTI TECHNOLOGY
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.




     (d) Upon the exercise of this Warrant, the Registered Holder shall become a party to
the Investor Rights Agreement, to the extent not already a party thereto, and shall be
entitled to all of the benefits and subject to all of the burdens of such agreement.



     5. Transfers, etc.




     (a) The Company shall maintain a register containing the name and address of the
Registered Holder of this Warrant. The Registered Holder may change its address as shown on
the warrant register by written notice to the Company requesting such change.




     (b) Subject to the provisions of this Section 5 and the Investor Rights Agreement, this
Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this
Warrant with a properly executed assignment (in the form of Exhibit II hereto) at the
principal office of the Company (or, if another office or agency has been designated by the
Company for such purpose, then at such other office or agency); provided, however, that any
such transfer must be in compliance with all applicable federal and state securities laws and
must include the delivery to the Company of representations of the transferee substantially
similar to those set forth in Section 4 hereof and, if this Warrant or any rights hereunder
are sold, pledged or hypothecated in whole or in part, legal opinions with respect



-6-









 






thereto in a form reasonably satisfactory to the Company, if such are requested by the
Company.



     6. Remedies. Nothing herein shall limit a Registered Holder’s right to
pursue any other remedies available to it hereunder, at law or in equity, including a decree of
specific performance and/or injunctive relief with respect to the Company’s failure to timely
deliver certificates representing shares of Common Stock upon exercise of this Warrant as required
pursuant to the terms hereof.



     7. Notices of Record Date, etc. In the event:




	 	(a)	 	the Company shall take a record of the holders of its Common Stock (or
other stock or securities at the time deliverable upon the exercise of this Warrant)
for the purpose of entitling or enabling them to receive any dividend or other
distribution, or to receive any right to subscribe for or purchase any shares of
stock of any class or any other securities, or to receive any other right; or
	 
	 	(b)	 	of any capital reorganization of the Company, any reclassification of the
Common Stock of the Company, any consolidation or merger of the Company with or into
another entity (other than a consolidation or merger in which the Company is the
surviving entity and its Common Stock is not converted into or exchanged for any
other securities or property), or any transfer of all or substantially all of the
assets of the Company; or
	 
	 	(c)	 	of the voluntary or involuntary dissolution, liquidation or winding-up of
the Company,




then, and in each such case, the Company will send or cause to be sent to the Registered Holder a
notice specifying, as the case may be, (i) the record date for such dividend, distribution or
right, and the amount and character of such dividend, distribution or right, or (ii) the effective
date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution,
liquidation or winding-up is to take effect, and the time, if any is to be fixed, as of which the
holders of record of Common Stock (or such other stock or securities at the time deliverable upon
the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such
other stock or securities) for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall be sent at least ten (10) days prior to the record date or effective date for the
event specified in such notice.




     8. Charges, Taxes and Expenses. The Company shall pay any and all issue and
other similar taxes that may be payable in respect of any issuance or delivery of shares of Common
Stock upon exercise of this Warrant. The Company shall not, however, be required to pay any tax
that may be payable in respect of any transfer involved in the issuance and delivery of Warrant
Shares or Warrants in a name other than that in which this Warrant is registered.



     9. Reservation of Stock. The Company shall at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant, such number of
Warrant Shares and other securities, cash and/or property, as from time to time shall be issuable
upon the



-7-










 




exercise of this Warrant. If the number of shares of Common Stock so reserved is
insufficient, in addition to any other remedy available to the Registered Holder, the Company shall
take any corporate action that is necessary to make available a sufficient number of authorized but
unissued and otherwise unreserved shares of Common Stock within sixty (60) days after the
occurrence of such deficiency.




     10. Obtaining Approvals and Listings. The Company will, at its own expense,
obtain and keep effective any and all permits, consents and approvals of governmental agencies and
authorities which may from time to time be required of the Company in order to issue shares of
Common Stock upon the exercise of the Warrants and otherwise to perform its obligations hereunder,
except, in each case, for any such permits, consents and approvals (other than those relating to
blue sky laws) required as a result of the status of a Registered Holder of the Warrants. The
Company will, at its expense, obtain promptly and maintain the approval for listing on the Nasdaq
SmallCap Market or any successor thereto or comparable system, upon official notice of issuance,
the shares of Common Stock issuable upon exercise of the then outstanding Warrants and maintain the
listing or quoting of such shares after their issuance so long as the Common Stock is so listed or
quoted.



     11. Exchange or Replacement of Warrants




     (a) Upon the surrender by the Registered Holder, properly endorsed, to the Company at the
principal office of the Company, the Company shall, subject to the provisions of Section 5
above, issue and deliver to or upon the order of the Registered Holder, at the Company’s
expense, a new Warrant or Warrants of like tenor, in the name of the Registered Holder or as
the Registered Holder (upon payment by the Registered Holder of any applicable transfer taxes)
may direct, calling in the aggregate on the face or faces thereof for the number of shares of
Common Stock (or other securities, cash and/or property) then issuable upon exercise of this
Warrant.




     (b) Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon
delivery of an indemnity agreement to the Company, or (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.



     12. Notices. All notices and other communications from the Company to the
Registered Holder in connection herewith shall be mailed by certified or registered mail, postage
prepaid, or sent via a reputable nationwide overnight courier service guaranteeing next business
day delivery, to the address last furnished to the Company in writing by the Registered Holder.
All notices and other communications from the Registered Holder to the Company in connection
herewith shall be mailed by certified or registered mail, postage prepaid, or sent via a reputable
nationwide overnight courier service guaranteeing next business day delivery, to the Company at its
principal office. If the Company should at any time change the location of its principal office to
a place other than its current principal office, it shall give prompt written notice to the
Registered Holder and thereafter all references in this Warrant to the location of its principal
office at the particular time shall be as so specified in such notice. All such notices and
communications shall be deemed delivered (a) two (2) business days after being sent by certified



-8-









 




or registered mail, return receipt requested, postage prepaid, or (b) one (1) business day
after being sent via a reputable nationwide overnight courier service guaranteeing next business
day delivery.




     13. No Rights as Stockholder. Subject to Section 2 and Section
7 hereof, the Registered Holder shall not be entitled to vote or receive dividends or be deemed
the holder of Common Stock or any other securities of the Company that may at any time be issuable
on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer
upon the Registered Holder, as such, any of the rights of a stockholder of the Company or any right
to vote for the election of directors or upon any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization,
issuance of stock, reclassification of stock, change of par value, or change of stock to no par
value, consolidation, merger, conveyance, or otherwise) or to receive notice of meetings, or to
receive dividends or otherwise until and to the extent the Warrant shall have been exercised as
provided herein.



     14. Amendment. This Warrant may be amended only by a writing signed by both
the Company and the Registered Holder (or their respective successors or assigns).



     15. Construction. The section headings in this Warrant are for the
convenience of the parties and in no way alter, modify, amend, limit or restrict the contractual
obligations of the parties. The word “including” as used herein shall not be construed so as to
exclude any other thing not referred to or described. In case any one or more of the provisions of
this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Warrant shall not in any way be affected or impaired
thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision
which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.



     16. Governing Law; Waiver of Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be governed by and
construed and enforced in accordance with the internal laws of the State of Delaware. Each party
hereby irrevocably waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in effect for notices
to it under this Warrant and agrees that such service shall constitute good and sufficient service
of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law. Each of the Company and the Registered
Holder hereby waives all rights to a trial by jury.



     17. Facsimile Signature. This Warrant may be executed by facsimile
signature.



[signature page follows]




-9-









 





     Executed as of the Date of Issuance indicated above.



	 	 	 	 	 	 	 
	 	 	MTI TECHNOLOGY CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 





	 	 	 
	Attest:

	 	 
	 
	 	 
	 

	 	 







 









 








Exhibit I




PURCHASE FORM






	To: MTI Technology Corporation	Dated: ____________





     The
undersigned is the Registered Holder of Warrant No. WB-___ (the “Warrant”) issued by MTI
Technology Corporation, a Delaware corporation (the “Company”). Capitalized terms used herein and
not otherwise defined have the respective meanings set forth in the Warrant.




	 	a.	 	The Warrant is currently exercisable to purchase a total of
___ Warrant
Shares.
	 
	 	b.	 	The Registered Holder hereby exercises its right to purchase ___
Warrant Shares pursuant to the Warrant. Following this exercise, the Warrant shall be
exercisable to purchase a total of ___ shares.
	 
	 	c.	 	The Registered Holder intends that payment of the Purchase Price shall be made as
(check one):
	 
	 	 	 	___“Cash Exercise” under Subsection 1(a) of the Warrant
	 
	 	 	 	___“Cashless Exercise” under Subsection 1(b) of the Warrant
	 
	 	d.	 	If the holder has elected a Cash Exercise, the Registered Holder shall pay the
sum of $___ to the Company in accordance with the terms of the Warrant.
	 
	 	e.	 	Pursuant to this exercise, the Company shall deliver to the Registered Holder
___ Warrant Shares in accordance with the terms of the Warrant.





     The undersigned hereby represents and warrants to the Company that: (i) the Warrant Shares
acquired hereby are being acquired solely for the Registered Holder’s own account and not as a
nominee for any other party, and solely for investment, and the Registered Holder will not offer,
sell or otherwise dispose of any Warrant Shares acquired hereby except under circumstances that
will not result in a violation of the Securities Act of 1933, as amended (the “Act”), or any
applicable state securities laws; (ii) it is an “accredited investor” within the meaning of Rule
501 promulgated under the Act; (iii) it has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of its investment in the Warrant Shares
acquired hereby and has the ability to bear the economic risks of its investment in the Warrant
Shares acquired hereby; and (iv) it has made such inquiry of and concerning the Company and its
business and personnel as it has deemed appropriate.



     The undersigned hereby agrees to be bound by the terms and conditions of the Investor Rights
Agreement with respect to all Warrant Shares received upon said exercise of the Warrant.




	 	 	 	 	 	 	 	 	 
	Dated: ____________, ____	 	Registered Holder:	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 

	 	 
	 

	 	Name:	 	 	 	 	 	 
	 	 	 

	 	 
	 

	 	Title:	 	 	 	 	 	 
	 	 	 

	 	 
	 	 	(Signature must conform in all respects to name
of holder as specified on the face of the
Warrant)	 	 







I-1









 








Exhibit I




ASSIGNMENT FORM




     For
Value Received, _________ hereby sells, assigns and
transfers all of the rights of the undersigned under the attached Warrant (No. WB-___) with
respect to the number of shares of Common Stock of MTI Technology Corporation. covered thereby set
forth below, unto:



	 	 	 	 	 
	Name of Assignee	 	Address	 	No. of Shares
	 
	Dated:

	 	Registered Holder:	 	 
	 

	 	By:	 	 
	 

	 	Name:	 	 
	 

	 	Title:	 	 
	 	 	(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)






Signature Guaranteed:




	 	 	 	 	 
	By:

	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	     The signature should be guaranteed by an
eligible guarantor institution (banks,
stockbrokers, savings and loan associations and
credit unions with membership in an approved
signature guarantee medallion program) pursuant
to Rule 17Ad-15 under the Securities Exchange Act
of 1934.	 	 







II-1









 







     Exhibit C



INDEMNIFICATION AGREEMENT 




     This INDEMNIFICATION AGREEMENT (the “Agreement”) is made and entered into as of
_________, 2005 (the “Effective Date”) by and between MTI Technology Corporation, a
Delaware corporation (the “Company”),
_________ (the “Indemnitee”).



     WHEREAS, it is essential to the Company to retain and attract as directors the most capable
persons available;



     WHEREAS, Indemnitee is a director of the Company;




     WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other
claims being asserted against directors of public companies in today’s environment;



     WHEREAS, the Company’s Amended and Restated Bylaws (the “Bylaws”) require the Company to
indemnify and advance expenses to its directors to the fullest extent permitted by law, and the
Indemnitee has agreed to serve as a director of the Company in part in reliance on the Bylaws; and



     WHEREAS, in recognition of Indemnitee’s need for (i) substantial protection against personal
liability based on Indemnitee’s reliance on the Bylaws, (ii) specific contractual assurance that
the protection promised by the Bylaws will be available to Indemnitee, regardless of, among other
things, any amendment to or revocation of the Bylaws or any change in the composition of the
Company’s Board of Directors or acquisition transaction relating to the Company, and (iii) an
inducement to provide effective services to the Company as a director thereof, the Company wishes
to provide for the indemnification of Indemnitee and to advance expenses to Indemnitee to the
fullest extent permitted by law and as set forth in this Agreement, and, to the extent insurance is
maintained, to provide for the continued coverage of Indemnitee under the Company’s directors’ and
officers’ liability insurance policies.



     NOW, THEREFORE, in consideration of the premises contained herein and of Indemnitee continuing
to serve the Company directly or, at its request, with another enterprise, and intending to be
legally bound hereby, the parties hereto agree as follows:



     1. Certain
Definitions:



          (a) “Affiliate”: any corporation that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with, the person
specified.




          (b) “Change in Control”: shall be deemed to have occurred if




Page 1 of 9









 








               (i) any “person,” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934 (the “Exchange Act”), as amended, other than (a) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, (b) a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, or (c) any current beneficial stockholder or group, as defined
by Rule 13d-5 of the Exchange Act, including the heirs, assigns and successors thereof of
beneficial ownership, within the meaning of Rule 13d-3 of the Exchange Act, of securities
possessing more than fifty percent (50%) of the total combined voting power of the Company’s
outstanding securities, hereafter becomes the “beneficial owner,” as defined in Rule 13d-3 under
the Exchange Act, directly or indirectly, of securities of the Company representing twenty percent
(20%) or more of the total voting power represented by the Company’s then outstanding Voting
Securities, or



               (ii) during any period of two consecutive years, individuals who at the beginning of such
period constitute the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company’s stockholders was approved by a vote
of at least two-thirds (2/3) of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof, or



               (iii) the stockholders of the Company approve a merger or consolidation of the Company with
any other corporation, other than a merger or consolidation which would result in the Voting
Securities of the Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the surviving entity) at
least eighty percent (80%) of the total voting power represented by the Voting Securities of the
Company or such surviving entity outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company, in one transaction or a series of transactions, of all
or substantially all of the Company’s assets.



          (c) “Expense”: includes attorneys’ fees and all other costs, expenses and obligations
paid or incurred in connection with investigating, defending, being a witness in or participating
in (including on appeal), or preparing to defend, be a witness in or participate in any Proceeding
relating to any Indemnifiable Event.



          (d) “Indemnifiable Event”: any event or occurrence that takes place either prior to
or after the execution of this Agreement, related to the fact that Indemnitee is or was a director
of the Company, or while a director is or was serving at the request of the Company as a director,
officer, employee, trustee, agent or fiduciary of another corporation, partnership, joint venture,
employee benefit plan, trust or other enterprise or by reason of anything done or not done by
Indemnitee in any such capacity.



          (e) “Potential Change in Control”: shall be deemed to have occurred if



Page 2 of 9









 





               (i) the Company enters into an agreement or arrangement, the consummation of which would
result in the occurrence of a Change in Control,



               (ii) any person, including the Company, publicly announces an intention to take or to consider
taking actions which if consummated would constitute a Change in Control,



               (iii) any person, other than (x) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity, (y) a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, or (z) any current beneficial stockholder or group, as defined
by Rule 13d-5 of the Exchange Act, holding in excess of fifty percent (50%) of the combined voting
power of the Company’s outstanding securities, including the heirs, assigns and successors thereof
of beneficial ownership, within the meaning of Rule 13d-3 of the Exchange Act, of securities
possessing more than fifty percent (50%) of the total combined voting power of the Company’s
outstanding securities, hereafter becomes the beneficial owner, directly or indirectly, of
securities of the Company representing ten percent (10%) or more of the combined voting power of
the Company’s then outstanding Voting Securities, increases his beneficial ownership of such
securities by five percent (5%) or more over the percentage so owned by such person on the date
hereof, or



               (iv) the Board adopts a resolution to the effect that, for purposes of this Agreement, a
Potential Change in Control has occurred.



          (f) “Proceeding”: any threatened, pending or completed action, suit or proceeding, or
any inquiry, hearing or investigation, whether conducted by the Company or any other party, that
Indemnitee in good faith believes might lead to the institution of any such action, suit or
proceeding, whether civil, criminal, administrative, investigative or other.



          (g) “Reviewing Party”: any appropriate person or body consisting of a member or
members of the Company’s Board of Directors or any other person or body appointed by the Board
(including the special, independent counsel referred to in Section 3) who is not a party to the
particular Proceeding with respect to which Indemnitee is seeking Indemnification.



          (h) “Voting Securities”: any securities of the Company which vote generally in the
election of directors.



     2. Agreement
to Indemnify.



          (a) In the event Indemnitee was, is or becomes a party to or witness or other participant in,
or is threatened to be made a party to or witness or other participant in, a Proceeding by reason
of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee to
the fullest extent permitted by law, as soon as practicable but in any event no later than thirty
(30) days after written demand is presented to the Company, against any and all Expenses,
judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and
other charges paid or payable in connection with or in respect of such



Page 3 of 9









 




Expenses, judgments, fines, penalties or amounts paid in settlement) of such Proceeding and
any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or
deemed receipt of any payments under this Agreement, including the creation of the Trust pursuant
to Section 4 hereof. Notwithstanding anything in this Agreement to the contrary and except as
provided in Section 5, Indemnitee shall not be entitled to indemnification pursuant to this
Agreement in connection with any Proceeding initiated by Indemnitee against the Company or any
director or officer of the Company unless the Company has joined in or consented to the initiation
of such Proceeding. If so requested by Indemnitee, the Company shall advance, within ten (10)
business days of such request, any and all Expenses to Indemnitee (an “Expense Advance”); provided,
however, that such Expenses shall be advanced only upon delivery to the Company of an undertaking
by or on behalf of the Indemnitee to repay such amount if it is ultimately determined that
Indemnitee is not entitled to be indemnified by the Company; provided further, that the Company
shall make such advances only to the extent permitted by law.




          (b) Notwithstanding the foregoing, (i) the obligations of the Company under Section 2(a) shall
be subject to the condition that the Reviewing Party shall not have determined (in a written
opinion, in any case in which the special, independent counsel referred to in Section 3 hereof is
involved) that Indemnitee would not be permitted to be indemnified under applicable law, and (ii)
the obligation of the Company to make an Expense Advance pursuant to Section 2(a) shall be subject
to the condition that, if, when and to the extent that the Reviewing Party determines that
Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such
amounts theretofore paid; provided, however, that if Indemnitee has commenced legal proceedings in
a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified
under applicable law, any determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be
required to reimburse the Company for any Expense Advance until a final judicial determination is
made with respect thereto (as to which all rights of appeal therefrom have been exhausted or have
lapsed). Indemnitee’s obligation to reimburse the Company for Expense Advances shall be unsecured
and no interest shall be charged thereon, to the extent permitted by law. If there has not been a
Change in Control, the Reviewing Party shall be selected by the Board of Directors, and if there
has been such a Change in Control, other than a Change in Control which has been approved by a
majority of the Company’s Board of Directors who were directors immediately prior to such Change in
Control, the Reviewing Party shall be the special, independent counsel referred to in Section 3
hereof. If there has been no determination by the Reviewing Party or if the Reviewing Party
determines that Indemnitee substantively would not be permitted to be indemnified in whole or in
part under applicable law, Indemnitee shall have the right to commence litigation in any court in
the States of California or Delaware having subject matter jurisdiction thereof and in which venue
is proper seeking an initial determination by the court or challenging any such determination by
the Reviewing Party or any aspect thereof, and the Company hereby consents to service of process
and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and Indemnitee.



Page 4 of 9









 





     3. Change
in Control. The Company agrees that if there is a Change in Control of the Company,
other than a Change in Control which has been approved by a majority of the Company’s Board of
Directors who were directors immediately prior to such Change in Control, then with respect to all
matters thereafter arising concerning the rights of Indemnitee to indemnity payments and Expense
Advances under this Agreement or any other agreement or under applicable law or the Company’s
Certificate of Incorporation or Bylaws now or hereafter in effect relating to indemnification for
Indemnifiable Events, the Company shall seek legal advice only from special, independent counsel
selected by Indemnitee and approved by the Company, which approval shall not be unreasonably
withheld. Such special, independent counsel shall not have otherwise performed services for the
Company or the Indemnitee, other than in connection with such matters, within the last five (5)
years. Such independent counsel shall not include any person who, under the applicable standards
of professional conduct then prevailing, would have a conflict of interest in representing either
the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. Such
counsel, among other things, shall render its written opinion to the Company and Indemnitee as to
whether and to what extent the Indemnitee would be permitted to be indemnified under applicable
law. The Company agrees to pay the reasonable fees of the special, independent counsel referred to
above and to indemnify fully such counsel against any and all expenses (including attorneys’ fees),
claims, liabilities and damages arising out of or relating to this Agreement or the engagement of
special, independent counsel pursuant hereto.



     4. Establishment
of Trust. In the event of a Potential Change in Control, the Company shall,
upon written request by Indemnitee, create a trust for the benefit of the Indemnitee (the “Trust”)
and from time to time upon written request of Indemnitee shall fund such Trust, to the extent
permitted by law, in an amount sufficient to satisfy any and all Expenses reasonably anticipated at
the time of each such request to be incurred in connection with investigating, preparing for and
defending any Proceeding relating to an Indemnifiable Event, and any and all judgments, fines,
penalties and settlement amounts of any and all Proceedings relating to an Indemnifiable Event from
time to time actually paid or claimed, reasonably anticipated or proposed to be paid. The amount
or amounts to be deposited in the Trust pursuant to the foregoing funding obligation shall be
determined by the Reviewing Party, in any case in which the special, independent counsel referred
to above is involved. The terms of the Trust shall provide that upon a Change in Control (i) the
Trust shall not be revoked or the principal thereof invaded, without the written consent of the
Indemnitee, (ii) the trustee shall advance, within ten (10) business days of a request by the
Indemnitee, upon Indemnitee’s having made the undertaking required under Section 2(a) hereof, any
and all Expenses to the Indemnitee, to the extent permitted by law (and the Indemnitee hereby
agrees to reimburse the Trust under the circumstances under which the Indemnitee would be required
to reimburse the Company under Section 2(b) of this Agreement), (iii) the Trust shall continue to
be funded by the Company in accordance with the funding obligation set forth above, (iv) the
trustee shall promptly pay to the Indemnitee all amounts for which the Indemnitee shall be entitled
to indemnification pursuant to this Agreement or otherwise, and (v) all unexpended funds in such
Trust shall revert to the Company upon a final determination by the Reviewing Party or a court of
competent jurisdiction, as the case may be, that the Indemnitee has been fully indemnified under
the terms of this Agreement. The trustee shall be chosen by the Indemnitee. Nothing in this
Section 4 shall



Page 5 of 9









 




relieve the Company of any of its obligations under this Agreement. All income earned on the
assets held in the Trust shall be reported as income by the Company for federal, state, local and
foreign tax purposes.




     5. Indemnification for Expenses Incurred in Enforcing this Agreement. The Company shall
indemnify Indemnitee against any and all expenses (including attorneys’ fees), and, if requested by
Indemnitee, shall, within ten (10) business days of such request, advance such expenses to
Indemnitee, to the extent permitted by law, which are incurred by Indemnitee in connection with any
claim asserted against or action brought by Indemnitee for (i) indemnification or advance payment
of Expenses by the Company under this Agreement or any other agreement or relating to
indemnification for Indemnifiable Events and/or (ii) recovery under any directors’ and officers’
liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately
is determined to be entitled to such indemnification, advance expense payment or insurance
recovery, as the case may be. Expenses shall be advanced, however, only upon delivery to the
Company of an undertaking by or on behalf of the Indemnitee to repay such amount if it is
ultimately determined that Indemnitee is not entitled to be indemnified by the Company.



     6. Partial Indemnity. If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of the Expenses, judgments, fines, penalties
and amounts paid in settlement of a Proceeding but not, however, for all of the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of this Agreement, to the
extent that Indemnitee has been successful on the merits or otherwise in defense of any or all
Proceedings relating in whole or in part to an Indemnifiable Event or in defense of any issue or
matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all
Expenses incurred in connection therewith.



     7. Defense to Indemnification, Burden of Proof and Presumptions. It shall be a defense to any
action brought by the Indemnitee against the Company to enforce this Agreement (other than an
action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its
final disposition where the required undertaking has been tendered to the Company) that the
Indemnitee has not met the standards of conduct that make it permissible under the Delaware General
Corporation Law for the Company to indemnify the Indemnitee for the amount claimed. In connection
with any determination by the Reviewing Party or otherwise as to whether the Indemnitee is entitled
to be indemnified hereunder, the burden of proving such right to indemnification shall be on the
Indemnitee. Neither the failure of the Company (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the commencement of such
action by the Indemnitee that indemnification of the claimant is proper under the circumstances
because he has met the applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Company (including its Board of Directors, independent
legal counsel, or its stockholders) that the Indemnitee had not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met
the applicable standard of conduct. For purposes of this Agreement, the termination of any claim,
action, suit or proceeding, by



Page 6 of 9









 




judgment, order, settlement (whether with or without court approval) or conviction, or upon a
plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not
meet any particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.




     8. Non-exclusivity. The rights of the Indemnitee hereunder shall be in addition to any other
rights Indemnitee may have under the Company’s Certificate of Incorporation or Bylaws or the
Delaware General Corporation Law or otherwise; provided, however, that this Agreement shall
supersede any prior indemnification by agreement between the Company and the Indemnitee. To the
extent that a change in the Delaware General Corporation Law (whether by statute or judicial
decision) permits greater indemnification by agreement than would be afforded currently under the
Company’s Certificate of Incorporation and Bylaws and this Agreement, it is the intent of the
parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change.



     9. Liability Insurance. To the extent the Company maintains an insurance policy or policies
providing directors’ and officers’ liability insurance, Indemnitee shall be covered by such policy
or policies, in accordance with its or their terms, to the maximum extent of the coverage available
for any Company director or officer.



     10. Period of Limitations. No legal action shall be brought and no cause of action shall be
asserted by or on behalf of the Company or any affiliate of the Company against Indemnitee,
Indemnitee’s spouse, heirs, executors or personal or legal representatives after the expiration of
two years from the date of accrual of such cause of action, or such longer period as may be
required by state law under the circumstances, and any claim or cause of action of the Company or
its affiliate shall be extinguished and deemed released unless asserted by the timely filing of a
legal action within such period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action, such shorter period shall govern.



     11. Amendment of this Agreement. No supplement, modification or amendment of this Agreement
shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. Except as
specifically provided herein, no failure to exercise or any delay in exercising any right or remedy
hereunder shall constitute a waiver thereof.



     12. Subrogation. In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall
execute all papers required and shall do everything that may be necessary to secure such rights,
including the execution of such documents necessary to enable the Company effectively to bring suit
to enforce such rights.



     13. No Duplication of Payments. The Company shall not be liable under this Agreement to make
any payment in connection with any claim made against Indemnitee to the



Page 7 of 9









 




extent Indemnitee has otherwise actually received payment (under any insurance policy, Bylaw
or otherwise) of the amounts otherwise indemnifiable hereunder.




     14. Settlement of Claims. The Company shall not be liable to indemnify Indemnitee under this
Agreement for any amounts paid in settlement of any action or claim effected without the Company’s
written consent. The Company shall not settle any action or claim in any manner which would impose
any penalty or limitation on Indemnitee without Indemnitee’s written consent. Neither the Company
nor the Indemnitee will unreasonably withhold their consent to any proposed settlement. The
Company shall not be liable to indemnify the Indemnitee under this Agreement with regard to any
judicial award if the Company was not given a reasonable and timely opportunity, at its expense, to
participate in the defense of such action.



     15. Binding Effect. This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of
the business and/or assets of the Company, spouses, heirs, and personal and legal representatives.
The Company shall require and cause any successor (whether direct or indirect by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance satisfactory to the
Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform if no such succession had taken place.
This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a
director or officer of the Company or of any other enterprise at the Company’s request.



     16. Severability. The provisions of this Agreement shall be severable in the event that any
of the provisions hereof (including any provision within a single section, paragraph or sentence)
is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and
the remaining provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this agreement (including, without
limitation, each portion of this Agreement containing any provision held to be invalid, void or
otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so
as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.



     17. Governing Law. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware applicable to contracts made and to be performed
in such State without giving effect to the principles of conflicts of laws.



     18. Counterparts. This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and the same
instrument.



Page 8 of 9









 






     19. Notices. All notices, demands, and other communications required or permitted hereunder
shall be made in writing and shall be deemed to have been duly given if delivered by hand, against
receipt, or mailed, postage prepaid, certified or registered mail, return receipt requested, and
addressed to the Company at:



	 	 	 	 	 
	 

	 	MTI Technology Corporation
	 	 
	 

	 	14661 Franklin Avenue	 	 
	 

	 	Tustin, California 92780	 	 
	 

	 	Attention: Corporate Secretary	 	 
	 
	 	 	 	 
	and to Indemnitee at:
	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	75 State Street	 	 
	 

	 	Boston, MA 02109	 	 






     Notice of change of address shall be effective only when done in accordance with this Section.
All notices complying with this Section shall be deemed to have been received on the date of
delivery or on the third business day after mailing.



     IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of
the day first set forth above.



	 	 	 	 	 	 	 
	 

	 	MTI
	TECHNOLOGY CORPORATION
	 	 
	 
	 	 	 	 	 	 
	 

	 	By: 	 	 	 	 
	 

	 	 	 	 	 
	 

	 	 	 Thomas P. Raimondi, Jr.

 President and Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	 	 [                      ]	 	 
	 

	 	 	 Indemnitee	 	 





MTI
Technology Corporation



Page 9 of 9










 







Exhibit D




FORM OF




AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT




     THIS INVESTOR RIGHTS AGREEMENT (this “Agreement”) dated ___, 2005 by and among MTI
TECHNOLOGY CORPORATION, a Delaware corporation (the “Company”), and the entities listed on the
signature pages hereto (the “Investors”) amends and restates the Investor Rights Agreement, dated
as of June 17, 2004, as amended by Amendment No. 1 to Investor Rights Agreement, dated as of August
30, 2004, and as further amended by Amendment No. 2 to Investor Rights Agreement, dated as of
November 30, 2004, by and among the Company and the Investors (the original agreements and such
amendments, collectively the “Original IRA”).



BACKGROUND




     A. The Company sold and the Investors purchased Series A Stock and Warrants (defined below)
pursuant to a Securities Purchase Agreement, dated as of June 17, 2004. The Company and the
Investors entered into the Original IRA in connection with the issuance of the Series A Stock and
associated Warrants.



     B. The Company and the Investors have entered into another Securities Purchase Agreement,
dated as of _________, pursuant to which such Investors are acquiring shares of Series B Convertible
Preferred Stock, par value $0.001 per share, and Warrants as provided for therein, of the Company
contemporaneously with the execution and delivery of this Agreement.



     B. Under Sections 7.01(p) and 7.02(c) of such Purchase Agreement, the delivery of this
Agreement is a condition to the Investors’ acquisition, and the Company’s sale, of such shares of
Series B Convertible Preferred Stock and Warrants.



AGREEMENT




     NOW THEREFORE, in consideration of the mutual covenants and agreements set forth
herein, the parties hereto hereby amend and restate the Original IRA in its entirety to be follows:



     1. Definitions. As used in this Agreement, the following terms shall have the
indicated meanings:




     “Advent” means Advent International Corporation, a Delaware corporation.




     “Adverse Disclosure” means public disclosure of material non-public information, which
disclosure in the good faith judgment of the Board of Directors (after consultation with
external legal counsel) (i) would be required to be made in any Registration Statement so that
such Registration Statement would not be materially misleading, (ii) would not be required to
be made at such time but for the filing, effectiveness or continued use of such Registration
Statement, and (iii) would be materially detrimental to the Company’s ability to effect a
material proposed merger, acquisition, disposition, financing, reorganization,



 









 






recapitalization, or similar transaction, or otherwise be materially detrimental to the
Company.




     “Board of Directors” means the Board of Directors of the Company.




     “Certificate” means the Series A Certificate and/or the Series B Certificate as the
context may require.




     “Commission” means the Securities and Exchange Commission.




     “Common Stock” means the common stock, par value $0.001 per share, of the Company, or any
common stock or other securities issued in respect of such Common Stock, or into which such
Common Stock is converted, due to stock splits, stock dividends or other distributions,
merger, consolidation, reclassifications, recapitalizations or otherwise.




     “Company” has the meaning ascribed to it in the introductory paragraph hereto.




     “Company Election Notice” has the meaning ascribed to it in Section 3.2(a) below.




     “Company Policies” means the Company’s (a) Insider Trading Policy (Control No.
10-010-R2), (b) Pre-Clearance and Blackout Policy (Control No. 10-011-R3) and (c) Section 16
Compliance Program (Control No. 10-012-R3), as such policies may be amended or modified from
time to time.




     “Director” means the Series A Director and/or the Series B Director as the context may
require.




     “DMC III” means Digital Media & Communications III Limited Partnership, a Delaware
limited partnership.




     “EMC” means EMC Corp., a Massachusetts corporation.




     “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.




     “GAAP” means U.S. generally accepted accounting principles consistently applied and
maintained throughout the applicable periods.




     “Increased Maximum Vote Allowed” has the meaning ascribed to it in Section 4.4(a) below.




     “Indemnified Person” means a Person entitled to indemnification pursuant to Sections
2.6(a) or (b).




     “Indemnifying Person” means a Person obligated to provide indemnification pursuant to
Sections 2.6(a) or (b).




     “Investor”has the meaning ascribed to it in the introductory paragraph hereto.



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     “Investor Indemnified Person” has the meaning ascribed to it in Section 2.6(a) below.




     “Original IRA” has the meaning set forth in the introductory paragraph hereto.




     “Other Registration Rights” means written agreements under which the Company has agreed
to include securities of the Company (other than Registrable Shares) in a Registration
Statement.




     “Other Registration Rights Holders” means holders of securities subject to Other
Registration Rights.




     “Person” means an individual or a corporation, partnership, limited liability company,
association, trust, or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.




     “Preferred Stock” means the Series A Stock and Series B Stock.




     “Prospectus” means the prospectus included in any Registration Statement, as amended or
supplemented by an amendment or prospectus supplement, including post-effective amendments,
and all material incorporated by reference or deemed to be incorporated by reference in such
Prospectus.




     “Purchase Agreement” means the Securities Purchase Agreement, dated as of
_________, by and among the Company and the Investors.




     “Registrable Shares” means (a) the Series A Registrable Shares, (b) the Series B
Registrable Shares, (c) any other shares of Common Stock issued or issuable upon the
conversion or exercise of any other securities held by an Investor, including the Warrants,
and (d) any other shares of Common Stock held by an Investor; provided, however, that shares
of Common Stock that are Registrable Shares shall cease to be Registrable Shares upon any sale
pursuant to a Registration Statement or Rule 144 or at such time at which such Registrable
Shares may be sold pursuant to paragraph (k) of Rule 144.




     “Registration Expenses” means all expenses incurred by the Company in complying with the
provisions of Section 2, including all registration and filing fees, exchange listing fees,
printing expenses, fees and expenses of counsel for the Company and the fees and expenses of
Registration Selling Investor Counsel, state Blue Sky fees and expenses, and the expense of
any special audits incident to or required by any such registration, but excluding
underwriting discounts, selling commissions and the fees and expenses of Registration Selling
Investors’ own counsel (other than the Registration Selling Investor Counsel).




     “Registration Initiating Investors” means the Investors initiating a request for
registration pursuant to Section 2.1(a).




     “Registration Selling Investor” means any Investor owning Registrable Shares included in
a Registration Statement.



-3-









 






     “Registration Selling Investor Counsel” means, if Investors are participating as
Registration Selling Investors with respect to a registration, counsel selected by Advent to
represent all Registration Selling Investors with respect to such registration. Any notice or
other delivery requirement deliverable by the Company to the Registration Selling Investor
Counsel shall be made to such person at such address as Advent may reasonably request from
time to time through written notice to the Company.




     “Registration Statement” means a registration statement filed by the Company with the
Commission for a public offering and sale of securities of the Company, other than (a) a
registration statement on Form S-4 or Form S-8, or their successors, or any other form for a
similar limited purpose, or (b) any registration statement covering only securities proposed
to be issued in exchange for securities or assets of another corporation.




     “Registration Threshold Amount” has the meaning ascribed to it in Section 2.1(a) below.




     “Rule 144” means Rule 144 promulgated under the Securities Act, and any successor rule or
regulation thereto, and in the case of any referenced section of such rule, any successor
section thereto, collectively and as from time to time amended and in effect.




     “Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002, as amended, and the rules and
regulations promulgated thereunder.




     “Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.




     “Series A Certificate” means the Certificate of Designations of Series A Convertible
Preferred Stock forming a part of the Certificate of Incorporation of the Company, as amended
from time to time in accordance with the terms thereof.




     “Series A Director” means the member of the Board of Directors designated by the holders
of shares of Series A Stock pursuant to the Series A Certificate.




     “Series A Nominator ”has the meaning ascribed to it in Section 3.2(b) below.




     “Series A Registrable Shares” means (a) the shares of Common Stock issued or issuable
upon conversion of the Series A Stock held by an Investor from time to time, and (b) the
shares of Common Stock issued or issuable upon the exercise of the Warrants issued
contemporaneously with the Series A Stock and held by an Investor from time to time.




     “Series A Stock” means the Series A Convertible Preferred Stock of the Company issued
pursuant to a Securities Purchase Agreement, dated June 17, 2004, between the Investors and
the Company.




     “Series B Certificate” means the Certificate of Designations of Series B Convertible
Preferred Stock forming a part of the Certificate of Incorporation of the Company, as amended
from time to time in accordance with the terms thereof.



-4-









 






     “Series B Director” means the member of the Board of Directors designated by the holders
of shares of Series B Stock pursuant to the Series B Certificate.




     “Series B
Nominator ” has the meaning ascribed to it in Section 3.2(b) below.




     “Series B Registrable Shares” means (a) the shares of Common Stock issued or issuable
upon conversion of the Series B Stock held by an Investor from time to time, (b) the shares of
Common Stock issued or issuable upon the exercise of the Warrants issued contemporaneously
with the Series B Stock and held by an Investor from time to time.




     “Series B Stock” means the Series B Convertible Preferred Stock of the Company issued
pursuant to the Purchase Agreement.




     “Shares” means the shares of Series A Stock and Series B Stock held by the Investors.




     “Shelf Registration Statement” means the Registration Statement filed by the Company with
the Commission pursuant to Section 2.3 covering the resale of all Registrable Shares for an
offering to be made on a continuous basis pursuant to Rule 415 promulgated under the
Securities Act.




     “Subsidiary” means any corporation or other entity of which the capital stock or other
ownership interests having ordinary voting power to elect a majority of the board of directors
or other Persons performing similar functions is at the time directly or indirectly owned by
the Company.




     “Trading Day” means (a) any day on which the Common Stock is listed or quoted and traded
on the Nasdaq National Market, the New York Stock Exchange, the American Stock Exchange or the
Nasdaq SmallCap Market or (b) if the Common Stock is not traded on any such market, then a day
on which trading occurs on the New York Stock Exchange (or any successor thereto).




     “Transfer” means, as the context requires, (a) any sale, transfer, distribution or other
disposition, whether voluntarily or by operation of law, or (b) the act of effecting such a
sale, transfer, distribution or other disposition.




     “Warrants” means the warrants to purchase shares of Common Stock, par value $0.001 per
share, originally issued to an Investor in connection with the issuance of either the Series A
Stock or Series B Stock.



     2. Registration Rights




2.1. Demand Registrations




     (a) Investors holding in the aggregate at least a majority of the shares of
Preferred Stock then outstanding may, at any time, request, in writing, that the Company
file a Registration Statement on Form S-3 (or any successor form) to effect the
registration of an offering of Registrable Shares owned by such Investor(s) and having an
aggregate value of at least $5,000,000, based on the last reported sale price of the
Common Stock on the trading day immediately preceding the date of such



-5-









 






request (the “Registration Threshold Amount”); provided, however, that, if at the
time of such request the Company is not eligible to register for resale the Registrable
Shares on Form S-3, the Company shall register the Registrable Shares on such other form
as the Company is eligible to use. The Company shall set forth in such Form S-3 any
information that may be required in a registration that is filed on Form S-1 and that the
lead underwriter managing the offering reasonably requests be expressly included in the
Registration Statement.




     (b) Upon receipt of any request for registration pursuant to this Section 2, the
Company shall promptly (but in any event within 10 days) give written notice of such
proposed registration to all other Investors. Such other Investors shall have the right,
by giving written notice to the Company within 20 days after the Company provides its
notice, to elect to have included in such registration such of their Registrable Shares
as such Investors may request in such notice of election, subject in the case of an
underwritten offering to the terms of Section 2.1(c). Thereupon, the Company shall, as
expeditiously as possible, use its best efforts to effect the registration on an
appropriate registration form of all Registrable Shares that the Company has been
requested to so register.




     (c) If the Registration Initiating Investors intend to distribute the Registrable
Shares covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to Section 2.1(a) and the Company shall
include such information in its written notice referred to in Section 2.1(b). In such
event, (i) the right of any other Investor to include its Registrable Shares in such
registration pursuant to Section 2.1(a) shall be conditioned upon such other Investor’s
participation in such underwriting on the terms set forth herein, and (ii) all Investors
including Registrable Shares in such registration shall enter into an underwriting
agreement upon customary terms with the underwriter or underwriters managing the
offering; provided that such underwriting agreement shall not provide for indemnification
or contribution obligations on the part of the Investors materially greater than the
obligations of the Investors pursuant to Section 2.6.




     If the Company and the Registration Initiating Investors are unable to mutually
agree on the managing underwriter(s) for any underwritten offering pursuant to Section
2.1(a) within 15 days after the Company receives the Registration Initiating Investors’
request, the Company shall select an underwriter out of a pool of three underwriting
firms chosen by the Registration Initiating Investors, each of which firms shall have a
national reputation and shall have prior experience with software companies.




     If any Investor that has requested inclusion of its Registrable Shares in such
registration as provided above disapproves of the terms of the underwriting, such Person
may elect, by written notice to the Company, to withdraw its Registrable Shares from such
Registration Statement and underwriting; provided, however, that, if Registration Selling
Investors holding a majority of the remaining Registrable Shares mutually agree, the
Company shall continue to effect the registration of such remaining Registrable Shares
regardless of whether the aggregate value of the remaining Registrable Shares is less
than the Registration Threshold Amount, in which case the




-6-










 







registration, once effective, shall be counted as a registration for the purposes of
Section 2.1(d).




     If the lead managing underwriter advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, the number of
Registrable Shares to be included in the Registration Statement and underwriting shall be
allocated first among Investors holding the Series B Registrable Shares, in proportion,
as nearly as practicable, to the respective number of Series B Registrable Shares each
Investor has requested be included in such registration. In the event all Series B
Registrable Shares have been included, then the number of Registrable Shares to be
included in the Registration Statement and underwriting shall be allocated second among
Investors holding the Series A Registrable Shares, in proportion, as nearly as
practicable, to the respective number of Series A Registrable Shares each Investor has
requested be included in such registration. In the event all Series A Registrable Shares
have been included, then the number of remaining Registrable Shares to be included in the
Registration Statement and underwriting shall be allocated finally among Investors
holding of the remaining Registrable Shares, in proportion, as nearly as practicable, to
the respective number of Registrable Shares each Investor has requested be included in
such registration.




     (d) The Company shall not be required to effect more than a total of three (3)
registrations requested pursuant to Section 2.1(a). The Investors shall not deliver a
notice pursuant to Section 2.1(a) requesting registration of any underwritten offering
until at least 6 months after the closing of any prior underwritten offering registered
pursuant to a request under Section 2.1(a). For purposes of this Section 2.1(d), a
Registration Statement shall not be counted until such time as such Registration
Statement has been declared effective by the Commission. Notwithstanding the foregoing,
any request for registration that is withdrawn by the Registration Initiating Investors
primarily as a result of material adverse information concerning the business or
financial condition of the Company, where such information is made known to the
Registration Initiating Investors after the date on which such registration statement was
filed, shall not count as a Registration Statement.




     (e) If, at the time of any request to register Registrable Shares by Registration
Initiating Investors pursuant to this Section 2.1, such registration would require
Adverse Disclosure, or the Company is engaged or has plans to engage in a registered
public offering or is engaged in a material proposed merger, acquisition, disposition,
financing, reorganization, recapitalization or similar transaction that, in the good
faith determination of the Board of Directors, could be adversely affected by the
requested registration, then the Company may at its option direct that such request be
delayed for a period not in excess of 90 days from the date of such request, such right
to delay a request to be exercised by the Company not more than once in any 12-month
period.



     2.2. Incidental Registrations




     (a) Whenever the Company proposes to file a Registration Statement covering shares
of Common Stock (other than a Registration Statement filed (i) pursuant to



-7-









 







Section 2.1 or 2.3 or (ii) in accordance with the requirements of a written
agreement entered into prior to the date hereof, except in any such case to the extent
expressly permitted therein) at any time and from time to time, it shall, prior to such
filing, give written notice to all Investors of its intention to do so; provided that no
such notice need be given if no Registrable Shares are to be included therein as a result
of a written notice from the managing underwriter pursuant to Section 2.2(b). Upon the
written request of an Investor or Investors given within 10 days after the Company
provides such notice (which request shall state the intended method of disposition of
such Registrable Shares), the Company shall use its best efforts to cause all Registrable
Shares that the Company has been requested by such Investor or Investors to register to
be registered under the Securities Act to the extent necessary to permit their sale or
other disposition in accordance with the intended methods of distribution specified in
the request of such Investor or Investors; provided that the Company shall have the right
to postpone or withdraw any registration effected pursuant to this Section 2.2 without
obligation upon 10 days’ advance written notice to the Investors. Upon receipt of any
such notice, the Investors may elect to exercise their right to demand a registration in
accordance with Section 2.1.




     (b) If the registration for which the Company gives notice pursuant to Section
2.2(a) is a registered public offering involving an underwriting, the Company shall so
advise the Investors as a part of the written notice given pursuant to Section 2.2(a).
In such event, (i) the right of any Investor to include its Registrable Shares in such
registration pursuant to this Section 2.2 shall be conditioned upon such Investor’s
participation in such underwriting on the terms set forth herein and (ii) all Investors
including Registrable Shares in such registration shall enter into an underwriting
agreement upon customary terms with the underwriter or underwriters selected for the
underwriting by the Company. If any Investor who has requested inclusion of its
Registrable Shares in such registration as provided above disapproves of the terms of the
underwriting, such Investor may elect, by written notice to the Company, to withdraw its
            shares from such Registration Statement and underwriting.




     If the managing underwriter advises the Company in writing that marketing factors
require a limitation on the number of shares to be underwritten, the shares held by
Persons other than the Investors shall be excluded from such Registration Statement and
underwriting to the extent deemed advisable by the managing underwriter, and if a further
reduction of the number of shares is required, the number of shares that may be included
in such Registration Statement and underwriting shall be allocated first among Investors
holding Series B Registrable Shares requesting registration in proportion, as nearly as
practicable, to the respective number of shares of Common Stock (on an as converted basis
that are Series B Registrable Shares) held by them on the date the Company gives the
notice specified in Section 2.2(a). If all such Series B Registrable Shares are
included, then the number of shares that may be included in such Registration Statement
and underwriting shall be allocated second among Investors holding Series A Registrable
Shares requesting registration in proportion, as nearly as practicable, to the respective
number of shares of Common Stock (on an as converted basis that are Series A Registrable
Shares) held by them on the date the Company gives the notice specified in Section
2.2(a). If all such Series A Registrable



-8-









 






Shares are included, then the number of shares that may be included in such
Registration Statement and underwriting shall be allocated finally among Investors
holding any remaining Registrable Shares requesting registration in proportion, as nearly
as practicable, to the respective number of shares of Common Stock (on an as converted
basis) held by them on the date the Company gives the notice specified in Section 2.2(a).
If any Investor would be entitled to include more shares than such holder has requested
to be registered, the excess shall be allocated among other requesting Investors pro rata
in the manner described in the preceding sentences. In no event shall the number of
shares permitted to be offered by the Company be reduced pursuant to the terms of this
paragraph.



     2.3. Shelf Registration. The Company shall prepare and file with the Commission
a Shelf Registration Statement as promptly as practicable after the date hereof (and in any
event by no later than 30 days after the Closing Date), and shall use its best efforts to take
such steps as are necessary to enable the Shelf Registration to be declared effective by the
Commission as promptly as practicable after the date hereof. The Shelf Registration Statement
shall be on Form S-3 (except if the Company is not then eligible to register for resale the
Registrable Shares on Form S-3, in which case such Shelf Registration Statement shall be on
such other form as the Company is eligible to use). The Company shall notify Registration
Selling Investor Counsel in writing promptly (in any event within one Trading Day) after
receiving notification from the Commission that the Shelf Registration Statement has been
declared effective.



     2.4. Registration Procedures




     (a) If and whenever the Company is required by the provisions of this Agreement to
use its best efforts to effect the registration of any Registrable Shares under the
Securities Act, the Company shall:




	 	(i)	 	prepare and file with the Commission a Registration
Statement with respect to such Registrable Shares and use its best efforts
to cause that Registration Statement to become effective as soon as
possible;
	 
	 	(ii)	 	not less than (a) five (5) Trading Days prior to the
filing of the Shelf Registration Statement or any related Prospectus or
any amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), or (b)
ten (10) Trading Days prior to the filing of any other Registration
Statement or any related Prospectus or any amendment or supplement thereto
(including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall (i) furnish to
Registration Selling Investor Counsel copies of all such documents
proposed to be filed, which documents (other than those incorporated or
deemed to be incorporated by reference) will be subject to the review of
each Registration Selling Investor and its counsel, and (ii) cause its
officers and directors, counsel and independent certified public
accountants to respond to such inquiries as shall be necessary, in the




-9-









 






	 	 	 	reasonable opinion of respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act; and the Company
shall not file any Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Registration Selling
Investors holding a majority of the Registrable Shares to be registered
thereunder and their counsel shall reasonably object, provided that such
objection is communicated to the Company within three (3) Trading Days of
receipt of such documents;






	 	(iii)	 	as expeditiously as possible prepare and file with
the Commission any amendments and supplements to the Registration
Statement and the prospectus included in the Registration Statement as may
be necessary to comply with the provisions of the Securities Act
(including the anti-fraud provisions thereof) and use its best efforts to
keep the Registration Statement continuously effective:






	 	(A)	 	in the case of the Shelf Registration
Statement filed pursuant to Section 2.3, until the earliest of (1)
the date on which all of the Registrable Shares covered by the Shelf
Registration Statement have been sold, and (2) the date on which all
of such Registrable Shares may be sold pursuant to paragraph (k) of
Rule 144, as determined by the Company after consultation with legal
counsel; provided that if the Company ceases to keep the Registration
Statement effective by reason of clause 2 herein, the Company must
certify to the Investors, by delivery of a certificate to that effect
to each Registration Selling Investor, that the Registrable Shares
may be sold pursuant to paragraph (k) of Rule 144; and
	 
	 	(B)	 	in the case of all other registrations, for
(1) 180 days from the effective date or such greater period, up to
360 days, as an underwriter may require, or (2) such lesser period
until all such Registrable Shares are sold; provided that the number
of days specified in this clause (B) shall not include any day on
which a Registration Selling Investor is restricted from offering or
selling Registrable Shares pursuant to Sections 2.4(b) or (c) below;






	 	(iv)	 	in all cases respond as promptly as possible to any
comments received from the Commission with respect to any Registration
Statement or any amendment thereto;
	 
	 	(v)	 	as expeditiously as possible furnish to each
Registration Selling Investor, without charge, at least one conformed copy
of the applicable Registration Statement and each amendment thereto,
including financial statements and schedules, all documents incorporated
or deemed to be incorporated therein by reference, and all exhibits to the
extent requested by such Person (including those previously furnished or




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	 	 	 	incorporated by reference) promptly after the filing of such documents
with the Commission;






	 	(vi)	 	as expeditiously as possible furnish to each
Registration Selling Investor such reasonable numbers of copies of the
Prospectus, including any preliminary Prospectus, in conformity with the
requirements of the Securities Act, and such other documents as such
Registration Selling Investor may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares
owned by such Registration Selling Investor; and the Company hereby
consents to the use of any such Prospectus and each amendment or
supplement thereto by each Registration Selling Investor in connection
with the offering and sale of the Registrable Securities covered by such
Prospectus and any amendment or supplement thereto;
	 
	 	(vii)	 	use its best efforts to avoid the issuance of or, if
issued, obtain the withdrawal of (x) any order suspending the
effectiveness of any Registration Statement or (y) any suspension of the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction as soon as reasonably practicable;
	 
	 	(viii)	 	as expeditiously as possible (and in the case of the Shelf Registration
Statement, prior to the public offering of Registrable Securities pursuant
thereto) use its best efforts to register or qualify the Registrable
Shares covered by the Registration Statement under the securities or Blue
Sky laws of such states as the Registration Selling Investors shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the Registration Selling Investors to
consummate the public sale or other disposition in such states of the
Registrable Shares owned by the Registration Selling Investors; provided,
however, that the Company shall not be required in connection with this
paragraph (viii) to qualify as a foreign corporation or execute a general
consent to service of process in any jurisdiction; as expeditiously as
possible, cause all such Registrable Shares to be listed on each
securities exchange or automated quotation system on which the same
securities issued by the Company are then listed;
	 
	 	(ix)	 	promptly provide a transfer agent and registrar for
all such Registrable Shares not later than the effective date of such
registration statement;
	 
	 	(x)	 	cooperate with the Registration Selling Investors to
facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be delivered to a transferee
pursuant to an effective Registration Statement, which certificates shall
be free, to the extent permitted hereunder and in compliance with
applicable law, of all restrictive legends, and to enable such Registrable
Securities to be in




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	 	 	 	such denominations and registered in such names as any such Registration
Selling Investors may request;






	 	(xi)	 	promptly make available for inspection by the
Registration Selling Investors, any managing underwriter participating in
any disposition pursuant to such Registration Statement, and any attorney
or accountant or other agent retained by any such underwriter or selected
by the Registration Selling Investors, all financial and other records,
pertinent corporate documents and properties of the Company and cause the
Company’s officers, directors, employees and independent accountants to
supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such
Registration Statement; provided that, unless otherwise mutually agreed by
the Company and the recipient Investor, the Company will not make any
material nonpublic information available to an Investor; and
	 
	 	(xii)	 	in connection with an underwritten disposition of
Registrable Shares, provide such reasonable assistance in the marketing of
the Registrable Shares as is customary of issuers in primary underwritten
public offerings (including participation by its senior management in
“road shows”).






     (b) At any time when a Prospectus is required to be delivered under the Securities
Act, the Company shall promptly notify each Registration Selling Investor of any of the
following events: (i) the Commission notifies the Company whether there will be a
“review” of the Registration Statement; (ii) the Commission comments in writing on the
Registration Statement (in which case the Company shall deliver to each Registration
Selling Investor a copy of such comments and of all written responses thereto); (iii) the
Registration Statement or any post-effective amendment is declared effective or a
supplement to any Prospectus forming a part of such Registration Statement has been
filed; (iv) the Commission or any other Federal or state governmental authority requests
any amendment or supplement to the Registration Statement or Prospectus or requests
additional information related thereto; (v) the Commission issues any stop order
suspending the effectiveness of the Registration Statement or initiates any Suit (as
defined in the Purchase Agreement) for that purpose; (vi) the Company receives notice of
any suspension of the qualification or exemption from qualification of the Registrable
Securities for sale in any jurisdiction, or the initiation or threat of any Suit for such
purpose; or (vii) the financial statements included in the Registration Statement become
ineligible for inclusion therein or any statement made in the Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by reference
is untrue in any material respect or any revision to the Registration Statement,
Prospectus or other document is required so that it will not contain any untrue statement
of a material fact or omit to state any 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. If requested, the Registration Selling Investors shall
immediately cease making offers of Registrable Shares pursuant to the Registration
Statement until their



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receipt of the copies of the supplemented or amended Prospectus. Following receipt
of the revised Prospectuses, the Registration Selling Investors shall be free to resume
making offers of the Registrable Shares.




     (c) In the event that it is advisable to suspend use of a Prospectus included in a
Registration Statement because continued use would require Adverse Disclosure, the
Company shall notify each Registration Selling Investor to such effect, and, upon receipt
of such notice, each such Registration Selling Investor shall immediately discontinue any
sales of Registrable Shares pursuant to such Registration Statement until such
Registration Selling Investor has received copies of a supplemented or amended Prospectus
or until such Registration Selling Investor is advised in writing by the Company that the
then current Prospectus may be used and has received copies of any additional or
supplemental filings that are incorporated or deemed incorporated by reference in such
Prospectus. Notwithstanding anything to the contrary herein, the Company shall not
exercise its rights under this Section 2.4(c) to suspend sales of Registrable Shares for
a period in excess of 60 consecutive days or a total of 90 days in any 365-day period;
provided that the Company may suspend such sales for a period of up to 90 consecutive
days (and a total of 120 days in a 365-day period) if the reason for the continued
suspension beyond 60 days relates solely to the preparation of financial statements
required to be filed in accordance with Item 9.01 of Form 8-K under the Exchange Act (in
which event the Company shall use its best efforts to cause such financial statements to
be prepared as promptly as reasonably practicable in the circumstances), and such
suspension period shall automatically terminate two Trading Days after the filing of such
financial statements. In no event shall the Company’s right under this Section 2.4(c) be
exercised to suspend sales of Registrable Shares beyond the period during which sales of
Registrable Shares would require Adverse Disclosure. After the end of any suspension
period under this Section 2.4, the Company shall use its best efforts (including filing
any required supplemental prospectus) to restore, as promptly as reasonably possible, the
effectiveness of the Registration Statement and the ability of the Registration Selling
Investors to publicly resell their Registrable Securities pursuant to such effective
Registration Statement.



     2.5. Payment of Expenses. The Company will pay all Registration Expenses for all
registrations under this Agreement.



     2.6. Indemnification and Contribution




     (a) In the event of any registration of any of the Registrable Shares under the
Securities Act pursuant to this Agreement, the Company shall indemnify and hold harmless
each Registration Selling Investor and each underwriter of such Registrable Shares, their
respective partners, members, agents, directors, officers, fiduciaries, investment
advisors, brokers (including brokers who offer and sell Registrable Securities as
principal as a result of a pledge or any failure to perform under a margin call of Common
Stock) and employees of each of them, and each other Person, if any, who controls such
Registration Selling Investor or underwriter within the meaning of the Securities Act or
the Exchange Act and the officers, directors, partners, members, agents and employees of
each such controlling Person (each such Person an “Investor



-13-









 







Indemnified Person”), to the fullest extent permitted by applicable law, from and
against any and all losses, claims, damages, liabilities, settlement costs and expenses,
as incurred, joint or several, that arise out of, relate to or are based upon (i) any
untrue statement or alleged untrue statement of any material fact contained in any
Registration Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement or any amendment or supplement to such Registration Statement or
Prospectus, (ii) the omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Securities Act, the Exchange Act,
any state securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the Registration
Statement or the offering contemplated thereby; and the Company will reimburse such
Investor Indemnified Person for any legal or any other expenses reasonably incurred by
such Investor Indemnified Person in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the Company will not be
liable to any Investor Indemnified Person, in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any untrue statement or
omission made (x) in such Registration Statement, preliminary prospectus or prospectus,
or any such amendment or supplement, in reliance upon and in conformity with information
furnished to the Company, in writing, by such Person specifically for use in the
preparation thereof, or (y) in any Registration Statement, preliminary prospectus or
prospectus, or any amendment or supplement thereto, which was corrected in a subsequent
prospectus, or any amendment or supplement thereto, and such Investor Indemnified Person
failed to deliver or provide a copy of such subsequent prospectus, or amendment or
supplement thereto, to a purchaser of Registrable Shares at or prior to the confirmation
of the sale of such Registrable Shares in any case where such delivery is required by the
Securities Act, provided that the limitation on indemnification provided by this
paragraph shall not apply if such Investor Indemnified Person’s failure to deliver or
provide a copy of the prospectus resulted from the Company’s failure to furnish such
Investor Indemnified Person such prospectus, or amendment or supplement thereto, on a
timely basis to permit such delivery or provision.




     (b) In the event of any registration of any of the Registrable Shares under the
Securities Act pursuant to this Agreement, each Registration Selling Investor, severally
and not jointly, will indemnify and hold harmless the Company, each of its directors and
officers and each underwriter (if any) and each Person, if any, who controls the Company
or any such underwriter within the meaning of the Securities Act or the Exchange Act,
against any and all losses, claims, damages, liabilities, settlement costs and expenses
arising solely out of (i) any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement under which such Registrable Shares were
registered under the Securities Act, any preliminary prospectus or final prospectus
contained in the Registration Statement, or any amendment or supplement to the
Registration Statement or Prospectus, or (ii) any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements therein
not misleading, if and to the extent (and only



-14-









 







to the extent) that the statement or omission was made in reliance upon and in
conformity with information relating to such Registration Selling Investor furnished in
writing to the Company by such Registration Selling Investor specifically for use in
connection with the preparation of such Registration Statement, prospectus, amendment or
supplement; provided, however, that the obligations of a Registration Selling Investor
hereunder shall be limited to an amount equal to the net proceeds to such Registration
Selling Investor of Registrable Shares sold in connection with such registration.




     (c) Each Indemnified Person shall give notice to the Indemnifying Person promptly
after such Indemnified Person has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Person to assume the defense of any such
claim or any litigation resulting therefrom; provided, that counsel for the Indemnifying
Person, who shall conduct the defense of such claim or litigation, shall be approved by
the Indemnified Person (whose approval shall not be unreasonably withheld, conditioned or
delayed); and provided further, that the failure of any Indemnified Person to give notice
as provided herein shall not relieve the Indemnifying Person of its obligations under
this Section 2.6 except to the extent that the Indemnifying Person is actually prejudiced
by such failure. The Indemnified Person may participate in such defense at such party’s
expense; provided, however, that the Indemnifying Person shall pay such expense if the
Indemnified Person reasonably concludes that representation of such Indemnified Person by
the counsel retained by the Indemnifying Person would be inappropriate due to actual or
potential conflicts of interests between the Indemnified Person and any other party
represented by such counsel in such proceeding; and provided further, that in no event
shall the Indemnifying Person be required to pay the expenses of more than one law firm
per jurisdiction as counsel for the Indemnified Person. The Indemnifying Person also
shall be responsible for the expenses of such defense if the Indemnifying Person does not
elect to assume such defense. No Indemnifying Person, in the defense of any such claim
or litigation shall, except with the consent of each Indemnified Person, consent to entry
of any judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Person of a
release from all liability in respect of such claim or litigation, and no Indemnified
Person shall consent to entry of any judgment or settle such claim or litigation without
the prior written consent of the Indemnifying Person, which consent shall not be
unreasonably withheld, conditioned or delayed.




     (d) In order to provide for just and equitable contribution in circumstances in
which the indemnification provided for in this Section 2.6 is due in accordance with its
terms but for any reason is held to be unavailable to an Indemnified Person in respect to
any losses, claims, damages and liabilities referred to herein, then the Indemnifying
Person shall, in lieu of indemnifying such Indemnified Person, contribute to the amount
paid or payable by such Indemnified Person as a result of such losses, claims, damages or
liabilities to which such party may be subject in such proportion as is appropriate to
reflect the relative fault of the Company on the one hand and the Registration Selling
Investors on the other in connection with the statements or omissions that resulted in
such losses, claims, damages or liabilities. The relative fault



-15-









 







of the Company and the Registration Selling Investors shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement of
material fact related to information supplied by the Company or the Registration Selling
Investors and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and the
Registration Selling Investors agree that it would not be just and equitable if
contribution pursuant to this Section 2.6(d) were determined by pro rata allocation or by
any other method of allocation that does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this Section 2.6(d), in no case
shall any one Registration Selling Investor be liable or responsible for any amount in
excess of the net proceeds received by such Registration Selling Investor from the
offering of Registrable Shares; provided, however, that no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any Person who was not guilty of such fraudulent
misrepresentation. Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties under this
Section 2.6(d), notify such party or parties from whom contribution may be sought, but
the omission so to notify such party or parties from whom contribution may be sought
shall not relieve such party from any other obligation it or they may have thereunder or
otherwise under this Section 2.6(d). No party shall be liable for contribution with
respect to any action, suit, proceeding or claim settled without its prior written
consent, which consent shall not be unreasonably withheld, conditioned or delayed.




     (e) The indemnity and contribution agreements contained in this Section 2.6 are in
addition to any other liability that any Indemnifying Person may have to any Indemnified
Person.



     2.7. Other Matters with Respect to Underwritten Offerings. In the event that
Registrable Shares are sold pursuant to a Registration Statement in an underwritten offering
pursuant to Section 2.1, the Company agrees to (a) enter into an underwriting agreement
containing customary representations and warranties with respect to the business and
operations of the Company and customary covenants and agreements to be performed by the
Company, including customary provisions with respect to indemnification by the Company of the
underwriters of such offering; (b) use its best efforts to cause its legal counsel to render
customary opinions to the underwriters with respect to the Registration Statement; and (c) use
its best efforts to cause its independent public accounting firm to issue customary “cold
comfort letters” to the underwriters with respect to the Registration Statement.



     2.8. Information by Holder. Each holder of Registrable Shares included in any
registration shall furnish to the Company such customary information regarding such holder and
the distribution proposed by such holder as the Company may reasonably request in writing and
that is required under applicable laws, rules and regulations. Each holder of Registrable
Shares included in any registration shall provide the Company with written



-16-









 







notice within 10 business days of the sale of any Registrable Shares pursuant to such
registration.



     2.9. Termination. The rights and obligations under this Section 2 shall
terminate with respect to an Investor on the earlier of (a) the date on which all of the
Registrable Shares owned by that Investor and covered by the Shelf Registration Statement or
another Registration Statement have been sold, and (b) the date on which all of the
Registrable Shares owned by that Investor may be sold within a single 90-day period under Rule
144 (as determined by such Investor after consultation with legal counsel). Notwithstanding
the foregoing, the right and obligations of the Company and the Registration Selling Investors
under Section 2.6 (relating to indemnification) shall survive any termination of this
Agreement or any part thereof.



3. Board of Directors.




     3.1. Series B Director and Series A Director.




     (a) If the Series B Director was named prior to the Closing, then the Company
confirms that, effective contemporaneously with the execution and delivery of this
Agreement, such individual has become a director of the Company, pursuant to the right of
the Investors holding Series B Stock to designate the Series B Director and that Michael
Pehl is the Series A Director, pursuant to the right of the Investors holding Series A
Stock to designate the Series A Director. If the Series B Director was not so named in
advance of the Closing, then the Company shall take all necessary action to cause such
person, promptly but in no event later than fifteen days after his designation, to become
a member of the Board.




     (b) The Company agrees that, if at any time (i) Series A Shares are outstanding and
the Investors holding the Series A Stock are unable to designate a Director under Section
3(b) of the Series A Certificate by reason of the operation of the formula set forth
therein, or (ii) Series B Shares are outstanding and the Investors holding the Series B
Stock are unable to designate a Director under Section 3(b) of the Series B Certificate
by reason of the operation of the formula set forth therein the Board of Directors shall,
to the extent permitted by the Bylaws of the Company, increase the size of the Board of
Directors to such number as will then enable the Investors to designate the Series A
Director or Series B Director, as applicable (in either case, such number of Directors is
referred to herein as the “Required Number of Directors”). If at any time the Bylaws of
the Company prevent the Board of Directors from increasing the size of the Board of
Directors to the Required Number of Directors, the Board of Directors shall submit to the
Company’s stockholders for their approval an amendment to the Bylaws that will allow an
increase in the size of the Board of Directors to at least the Required Number of
Directors.




     (c) In the event that the board of directors of any Subsidiary is expanded beyond
the number of members existing as of the date hereof (for reasons other than compliance
with local law), the Company shall cause the Directors to be elected to the board of
directors of such Subsidiary and to provide to the Directors the same rights



-17-









 







with respect to such Subsidiary as provided by the Company to the Series B Director
and the Series A Director hereunder.




     (d) The Company and the Investors agree to take any such further actions as may be
necessary or desirable to effect the election, from time to time in the future, of the
Directors to (i) the Board of Directors and (ii), if and when applicable, the board of
directors of each Subsidiary.




     (e) No individual designated to serve on the Board of Directors as a Director shall
be deemed to be the deputy of or otherwise required to discharge his or her duties under
the direction of, or with special attention to the interests of, the Investors.



     3.2. Designation of Series B Director and Series A Director.




     (a) The Company shall provide each Investor with at least 20 days’ prior written
notice (a “Company Election Notice”) of any intended mailing of a notice to stockholders
for a meeting or other action relating to an election of directors. The Company Election
Notice shall specify (i) the date of such meeting, (ii) the date on which such mailing is
intended to be made, and (iii) the name or names of the directors of the Company whose
terms are to expire at such meeting.




     (b) If (i) the term of the Series B Director is expiring as indicated in the Company
Election Notice and (ii) DMC III (the “Series B Nominator”) owns any shares of Series B
Stock on the record date for such election, then the Series B Nominator shall confer with
the other Investors holding shares of Series B Stock regarding the individual to be
nominated for election as the Series B Director, and after such discussion shall have the
right to nominate, in its sole discretion, the individual who shall be presented for
election by the holders of the Series B Stock, in accordance with the Certificate
relating to the Series B Stock, as the Series B Director. If (i) the term of the Series
A Director is expiring as indicated in the Company Election Notice and (ii) DMC III (the
“Series A Nominator” owns any shares of Series A Stock on the record date for such
election, then the Series A Nominator shall confer with the other Investors holding
shares of Series A Stock regarding the individual to be nominated for election as the
Series A Director, and after such discussion shall have the right to nominate, in its
sole discretion, the individual who shall be presented for election by the holders of the
Series A Stock, in accordance with the Certificate relating to the Series A Stock, as the
Series A Director. The Series B Nominator or the Series A Nominator, as the case may be,
shall give written notice to the other Investors and the Company, no later than 15 days
after receipt of the applicable Company Election Notice, of such individual to be
nominated for election as the Series B Director or the Series A Director, respectively,
for election to the Board of Directors as of the date of such meeting.




     (c) If (i) a Director is one of the directors whose term is indicated in Company
Election Notice as expiring and (ii) DMC III does not own any shares of Series B Stock or
Series A Stock, as applicable, on the record date for such election, the Investors
holding in the aggregate at least a majority of the shares of Series B Stock or Series A
Stock, as the case may be, on the record date for such election shall give



-18-









 







written notice to the other Investors and the Company, no later than 15 days after
receipt of the Company Election Notice, of the individual to be designated by them for
election to the Board of Directors as of the date of such meeting.




     (d) If the Company fails to receive notice from either the Series B Nominator or the
Series A Nominator, or other applicable Investors as provided in Section 3.2(b) or
3.2(c), respectively, then the individual then serving as the Series B Director or the
Series A Director, as the case may be, shall be deemed to have been designated for
reelection.




     (e) The Investors agree to vote any Shares or Common Stock owned or controlled by
them in favor of the election of the individuals designated pursuant to Section 3.2(b),
3.2(c) or 3.2(d), as the case may be, or otherwise in accordance with the applicable
Certificate, to the Board of Directors as the Series B Director or the Series A Director,
as the case may be, at such meeting or in any consent in lieu of a meeting of the
shareholders that is the subject of a Company Election Notice.



     3.3. Observer Rights. The Company shall give EMC written notice of each meeting
of the Board of Directors and each committee thereof at least at the same time and in the same
manner as notice is given to the directors, and the Company shall permit a representative of
EMC to attend as a non-voting observer all meetings of the Board of Directors and all
committees thereof. The Company shall deliver to the representative of EMC all written
materials and other information (including without limitation copies of meeting minutes) given
to directors in connection with such meetings at the same time such materials and information
are given to the directors. EMC understands and acknowledges that the Board of Directors (or
a committee of the Board of Directors, as the case may be) shall have and reserve the right to
exclude the observer from all or any portion of a meeting to the extent (i) necessary to
preserve attorney client privilege or (ii) the Board of Directors (or such committee), in its
sole discretion, deems the presence of such observer to be inconsistent with the Company’s
goal of adhering to best practices of corporate governance or otherwise inadvisable under
then-current laws, rules, regulations, including any guidelines and interpretations thereof
set forth or proposed by the Nasdaq Stock Market or any exchange on which the Common Stock is
then traded. The Company shall use its best efforts to provide such observer with as much
advance notice as is reasonably practicable of such need for exclusion. If any action is
proposed to be taken by written consent in lieu of a meeting of the Board of Directors or any
committee thereof, the Company shall give written notice thereof to EMC on or before the
effective date of such consent describing in reasonable detail the nature and substance of
such proposed action. If and to the extent that the board of directors of a Subsidiary shall
be expanded and include the Series B Director and the Series A Director, pursuant to Section
3.1(c), then the Company shall cause the applicable Subsidiary to provide to EMC the same
rights with respect to such Subsidiary as provided by the Company to EMC hereunder.
Notwithstanding the foregoing, (a) the observer rights granted pursuant to this Section 3.3
shall be subject to EMC and the observer complying with the Company Policies, and (b) EMC
agrees, and any EMC observer will agree, to hold in confidence all confidential information
concerning the Company provided to EMC or learned by EMC in connection with its rights under
this Section 3.3, using the same degree of care as EMC uses to protect its own confidential



-19-









 







information, except to the extent otherwise required by law and any other regulatory
process to which EMC is subject. The Company agrees to grant Advent or any affiliate thereof
observer rights for one individual under the same terms and conditions set forth above for EMC
upon receipt of written notice from Advent requesting observer rights for itself or any
affiliate.



     3.4. Other Covenants.




     (a) For so long as any Director is serving on the Board of Directors:




	 	(i)	 	The Company shall reimburse the Director for his or
her respective reasonable out-of-pocket expenses incurred in attending
meetings of the Board of Directors or any committee thereof, to the extent
provided in, and in accordance with, the Company’s reimbursement policy in
effect from time to time with respect to other directors who are not
employees of the Company or a Subsidiary. A Director shall be entitled to
receive such fees or other compensation as may be paid by the Company from
time to time to directors who are not employees of the Company or a
Subsidiary.
	 
	 	(ii)	 	The Company’s Certificate of Incorporation shall at
all times provide for the indemnification of the members of the Board of
Directors to the fullest extent provided by the Delaware General
Corporation Law and to the maximum extent provided in any indemnification
agreement entered into between the Company and any of its directors and
officers. In the event that the Company or any of its successors or
assigns (i) consolidates with or merges into any other entity and shall
not be the continuing or surviving corporation in such consolidation or
merger or (ii) transfers all or substantially all of its properties and
assets to any entity, then, and in each such case, to the extent
necessary, proper provision shall be made so that the successors and
assigns of the Company assume the obligations of the Company with respect
to indemnification of members of the Board of Directors as contained in
the Company’s Certificate of Incorporation.
	 
	 	(iii)	 	The Company shall use its best efforts to carry and
maintain any insurance against directors’ and officers’ liability to cover
each Director to the same extent as directors elected by the holders of
Common Stock; provided, however, that the amount of such coverage shall
not be less than $15,000,000.






     (b) For so long as the representative of EMC attends as a non-voting observer all
meetings of the Board of Directors and all committees thereof, the Company shall
reimburse the representative of EMC for his or her reasonable out-of-pocket expenses
incurred in attending meetings of the Board of Directors or any committee thereof, to the
extent provided in, and in accordance with, the Company’s reimbursement policy in effect
from time to time with respect to directors who are not employees of the Company or a
Subsidiary.



-20-









 






     (c) By executing the signature page to this Agreement, each of the Investors hereby
(i) acknowledges the receipt of a copy of each Company Policy as in effect on the date
hereof, and (ii) agrees to comply with such Company Policies.



4. Additional Covenants.




     4.1. Compliance with Federal Securities Laws. With a view to making available to
the Investors the benefits of Rule 144 and any other rule or regulation of the Commission that
may at any time permit a Holder to sell securities of the Company to the public without
registration, and with a view to making it possible for Investors to have the Registrable
Shares registered for resale pursuant to a registration on Form S-3 (or any successor form),
the Company shall:




     (a) use its best efforts to make and keep current public information about the
Company available, as those terms are understood and defined in Rule 144, at all times;




     (b) use its best efforts to file with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the Exchange
Act;




     (c) use its best efforts to comply with the applicable provisions of the
Sarbanes-Oxley Act that are currently in effect and to comply with any other applicable
provisions of the Sarbanes-Oxley Act not currently in effect as such provisions become
effective; and




     (d) furnish to any Investor upon request (i) a written statement by the Company as
to its compliance with the reporting requirements of Rule 144 and (ii) such other reports
and documents of the Company as such Investor may reasonably request to avail itself of
any similar rule or regulation of the Commission allowing it to sell any Registrable
Shares without registration.



     4.2. Other Registration Rights. Subsequent to the date hereof, the Company shall
not enter into any Other Registration Rights with any Other Registration Rights Holder unless
such Other Registration Rights do not conflict in any material respect with the provisions of
this Agreement. Other Registration Rights shall not be deemed to conflict with this Agreement
solely as a result of a grant of incidental registration rights to the Other Registration
Rights Holders with respect to a Registration Statement filed pursuant to Section 2.1;
provided that:




	 	(i)	 	Investors are granted the right to exercise
incidental registration rights with respect to any registration required
by such Other Registration Rights Holders to be made by the Company;
	 
	 	(ii)	 	if a managing underwriter advises the Company that
marketing factors require a limitation on the number of shares to be
underwritten in an offering made at the request of the Other Registration
Rights Holders,




-21-









 






	 	 	 	the shares held by such Other Registration Rights Holders shall be
excluded first, before any shares of the Investors are excluded; and






	 	(iii)	 	if a managing underwriter advises the Company that
marketing factors require a limitation on the number of shares to be
underwritten in an offering requested under Section 2.1, the shares held
by such Other Registration Rights Holders shall be excluded first, before
any shares of the Investors are excluded.





     4.3. Financial and Business Information. From and after the date hereof, the
Company shall deliver to each Investor:




     (a) Annual Statements. As soon as practicable after the end of each fiscal
year of the Company, and in any event within ninety (90) days thereafter:




	 	(i)	 	consolidated and consolidating balance sheets of the

Company and any subsidiaries at the end of such year;
	 
	 	(ii)	 	consolidated and consolidating statements of income,
stockholders’ equity and cash flows of the Company and any subsidiaries
for such year, setting forth in each case in comparative form the figures
for the previous fiscal year, all in reasonable detail and accompanied by
an opinion thereon of independent certified public accountants of
recognized national standing selected by the Company, which opinion shall
state that such financial statements fairly present the financial position
of the Company and any subsidiaries on a consolidated basis and have been
prepared in accordance with GAAP (except as described in the notes thereto
and for changes in application in which such accountants concur) and that
the examination of such accountants in connection with such financial
statements has been made in accordance with generally accepted auditing
standards, and accordingly included such tests of the accounting records
and such other auditing procedures as were considered necessary in the
circumstances; and
	 
	 	(iii)	 	comparisons of each pertinent item in (i) and (ii)
above to the operating and capital budget referred to in Section 4.3(b)
below.






     (b) Quarterly Statements. As soon as practicable after the close of each of
the first three (3) fiscal quarters of each fiscal year of the Company, a consolidated
balance sheet, statement of income and statement of cash flows of the Company and any
subsidiaries as at the close of such quarter and covering operations for such quarter and
the portion of the Company’s fiscal year ending on the last day of such quarter, all in
reasonable detail and prepared in accordance with GAAP, subject to audit and year-end
adjustments, setting forth in each case in comparative form the figures for the
comparable period of the previous fiscal year, and a summary written analysis of such
comparison.



-22-









 






     (c) Audit Reports. As soon as practicable after receipt thereof, a copy of
any financial report and internal control letter submitted to the Company by independent
accountants in connection with any annual, interim or special audit made by them of the
books of the Company.




     (d) Other Reports. As soon as practicable after receipt thereof, one copy
of each financial statement, report, notice of proxy statement, if any, sent by the
Company to stockholders generally, of each written communication received by the Company
from any domestic or foreign securities exchange, the Commission or any foreign
regulatory authority performing functions similar to the Commission.




     (e) Corporate Governance. The Investors and the Company agree that the
preparation and discussion of the information set forth in Section 4.3(e)(i), (ii) and
(iii) below are in the best interests of the Company and that the Company will (x)
prepare such information and make it available to any member of the Board of Directors
and (y) discuss the information with its Board of Directors unless otherwise directed by
the Board of Directors. The Company shall deliver such information to an Investor upon
an investors written request only after compliance with Section 5 hereof by such Investor
and the Company.




	 	(i)	 	Business Plans and Budgets. At least thirty
(30) days prior to the end of each fiscal year, (A) an annual business
plan setting forth the anticipated strategic business activities and
goals, including an expected operating budget, of the Company and
projections of operating results, prepared on a quarterly basis, and (B)
an annual capital budget describing the intended capital investment
strategy of the Company that has been approved and adopted by the Board.
	 
	 	(ii)	 	Quarterly Statements. As soon as practicable
after the close of each of the first three (3) fiscal quarters of each
fiscal year of the Company, the Company shall also provide comparisons of
each pertinent item required by 4.3(b) to the operating and capital budget
referred to in Section 4.3(e)(i) above.
	 
	 	(iii)	 	Monthly Statements. Within thirty (30) days
after the end of each month, a consolidated balance sheet, statement of
income and statement of cash flows of the Company and any subsidiaries as
at the close of such month and covering operations for such month and the
portion of the Company’s fiscal year ending on the last day of such
quarter, all in reasonable detail and prepared in accordance with GAAP,
subject to audit and year-end adjustments, setting forth in each case in
comparative form the figures for the comparable period of the previous
fiscal year, and a summary written analysis of such comparison. The
Company shall also provide comparisons of each pertinent item to the
operating and capital budget referred to in Section 4.3(e)(i) above.




-23-









 












     (f) Company Policies. The business and financial information rights granted
pursuant to this Section 4.3 shall be subject to the Investors’ continuing compliance
with the Company Policies.




     4.4. Amendments to Series B Certificate and Series A Certificate.




     (a) If, due to a future change in the applicable rules or regulations of the Nasdaq
Stock Market or other applicable market or exchange, shares of Series A Stock and/or
Series B Stock may be afforded a greater number of votes (the “Increased Maximum Vote
Allowed”) than the Maximum Per Share Preferred Vote (as defined in the applicable Series
A Certificate and Series B Certificate) without requiring approval of the stockholders of
the Company, the Company and the Investors shall take such actions as may be necessary to
amend Section 3(a) of the Series A Certificate and Series B Certificate to increase the
Maximum Per Share Preferred Vote to equal the Increased Maximum Vote Allowed.




     (b) If, due to a future change in the applicable rules or regulations of the Nasdaq
Stock Market or other applicable market or exchange, the Series A Stock may be converted
into a greater number of shares of Common Stock (the “Increased Conversion Threshold
Allowed”) than the Conversion Threshold (as defined in the Series A Certificate) without
requiring approval of the stockholders of the Company, the Company and the Investors
shall take such actions as may be necessary to amend Section 4(a)(ii) of the Series A
Certificate to increase the Conversion Threshold to equal the Increased Conversion
Threshold Allowed.




     4.5. Available Copy. The Secretary of the Company shall maintain an original
copy of this Agreement, duly executed by each of the parties hereto, at the principal
executive office of the Company and shall make such copy available for inspection by any
Person requesting it.



     5. Nonpublic Information. Neither the Company nor any Person acting on its behalf
shall provide any Investor with any material, nonpublic information about the Company unless, in
advance of the delivery of such information, the Investor consents to the receipt of such
information and agrees to maintain the confidentiality of such information in writing, regardless
of whether the delivery of such information is otherwise required pursuant to the terms of this
Agreement or any other Transaction Document (as defined in the Purchase Agreement). The Company
understands and confirms that each of the Investors will rely on the foregoing covenant in
effecting transactions in securities of the Company.



     6. General.




     6.1. Use of Best Efforts. Where this Agreement requires the “best efforts” of
the Company, it is understood and agreed that the Company shall not be required by its
obligation to undertake “best efforts” to incur any extraordinary and material expense or
undertake or engage in any litigation.




     6.2. Notices. All notices, certificates, deliverables required by this
Agreement, requests and other communications to any party hereunder shall be in writing
(including



-24-









 







facsimile or similar writing) and shall be given to such party at its address or
facsimile number set forth on the signature page hereof, or such other address or facsimile
number as such party may hereinafter specify for the purpose of this Section 6.2 to the party
giving such notice. Each such notice, request or other communication shall be effective (a)
if given by facsimile transmission, when such facsimile is transmitted to the facsimile number
specified on the signature pages of this agreement and the appropriate confirmation is
received or, (b) if given by mail, 72 hours after such communication is deposited in the mails
with first class postage prepaid, addressed as aforesaid or, (c) if given by any other means,
when delivered at the address specified on the signature pages of this Agreement. Copies of
anything sent pursuant to this Agreement to any party shall be sent at the same time to the
address or facsimile number of the persons designated on the signature page hereof to receive
copies, or such other person, address or facsimile number as such party may hereinafter
specify for the purpose of this Section 6.2 to the party giving such notice.




     6.3. Amendments and Waivers. Other than with regard to the provisions of Section
2, this Agreement may be amended or terminated and the observance of any term of this
Agreement may be waived with respect to all parties to this Agreement (either generally or in
a particular instance and either retroactively or prospectively), with the written consent of
the Company and Investors holding at least a majority of the Series A Stock and Series B
Stock, each voting as a separate class, then held by Investors. The provisions of Section 2
may be amended or terminated and the observance of any term of Section 2 may be waived with
respect to all parties to this Agreement (either generally or in a particular instance and
either retroactively or prospectively), with the written consent of the Company and Investors
holding at least a eighty-five percent (85%) of the Series B Stock and Series A Stock, each
voting as a separate class, then held by Investors. Notwithstanding the foregoing, this
Agreement may not be amended or terminated and the observance of any term hereunder may not be
waived with respect to any Investor without the written consent of such Investor unless such
amendment, termination or waiver applies to all Investors in the same fashion. The Company
shall give prompt written notice of any amendment or termination of this Agreement or waiver
hereunder to any party hereto that did not consent in writing to such amendment, termination
or waiver. Any amendment, termination or waiver effected in accordance with this Section 6.3
shall be binding on all parties hereto, even if they do not execute such consent. No waivers
of or exceptions to any term, condition or provision of this Agreement, in any one or more
instances, shall be deemed to be, or construed as, a further or continuing waiver of any such
term, condition or provision.




     6.4. Successors and Assigns. The provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective successors and
assigns; provided that the Company may not assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the written consent of Investors holding at
least a majority of the Series B Stock and Series A Stock, each voting as a separate class,
then held by Investors.




     6.5. Transfer of Rights. Provided that the Company is given written notice by
the Investor at the time of each transfer stating the name and address of the transferee and
identifying the securities with respect to which the rights under this Agreement are being
assigned, the rights under this Agreement may be transferred in whole or in part in



-25-









 







connection with the transfer of Registrable Shares, Series A Stock, Series B Stock or
Warrants. Notwithstanding the foregoing, if such transfer is subject to covenants, agreements
or other undertakings restricting transferability of the rights under this Agreement shall not
be transferred in connection with such transfer unless such transfer unless such transfer
complies with all such covenants, agreements and other undertakings. In all cases, such
rights shall not be transferred unless the transferee thereof executes a Counterpart. If any
Investor transfers to another Person and such Person becomes a party to this Agreement, such
Person shall be deemed an Investor for all purposes hereof.




     6.6. Governing Law; Venue; Waiver of Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of Delaware.
Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the State of Delaware, for the adjudication of any dispute hereunder or in
connection with any transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that
it is not personally subject to the jurisdiction of any such court, or that such suit, action
or proceeding is improper. Each party hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of delivery) to
such party at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. Each of the parties hereby waives all rights to a trial by jury.




     6.7. Entire Agreement. This Agreement constitutes the entire agreement and
understanding among the parties hereto with respect to the subject matter of this Agreement
and supersedes any and all prior agreements and understandings, written or oral, relating to
such subject matter, including without limitation the Original IRA.




     6.8. Severability. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision of this
Agreement.




     6.9. Headings. The headings in this Agreement are included for convenience of
reference only and shall be ignored in the construction or interpretation hereof.




     6.10. Counterparts; Facsimile Signatures; Effectiveness. This Agreement may be
executed in any number of counterparts (including facsimile signature) each of which shall be
an original with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall have received a
counterpart hereof signed by the other party hereto.



[signature pages follow]






-26-









 








     IN WITNESS WHEREOF, the parties hereto have caused this Investor Rights Agreement to be
duly executed by their respective authorized signatories as of the date first above written.



	 	 	 	 	 
	MTI TECHNOLOGY CORPORATION	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 	 	 
	Name:	 	 
	Title:	 	 






	 
	Address for notices:

	 

	MTI Technology Corporation

	14661 Franklin Avenue

	Tustin, California 92780

	Attention:

	Facsimile:

	 

	with a copy to:

	Morrison & Foerster LLP

	19900 MacArthur Boulevard, 12th Floor

	Irvine, California 92612

	Attention: Tamara Tate, Esq.

	Facsimile: (949) 251-0900







[Investor signature pages follow]




S-1









 








	 
	INVESTORS:

	 

	DIGITAL MEDIA & COMMUNICATIONS III LIMITED PARTNERSHIP

	DIGITAL MEDIA & COMMUNICATIONS III-A LIMITED PARTNERSHIP

	DIGITAL MEDIA & COMMUNICATIONS III-B LIMITED PARTNERSHIP

	DIGITAL MEDIA & COMMUNICATIONS III-C LIMITED PARTNERSHIP

	DIGITAL MEDIA & COMMUNICATIONS III-D C.V.

	DIGITAL MEDIA & COMMUNICATIONS III-E C.V.







	 
	By: Advent International Limited Partnership, General Partner

	By: Advent International Corporation, General Partner







	 	 	 	 	 
	By:

	 	 	 	 
	 

	 	 	 	 
	Name: Michael Pehl	 	 
	Title: Partner	 	 






	 
	Address for notices:

	 

	c/o Advent International Corporation

	 

	75 State Street

	Boston, Massachusetts 02109

	Attention: Michael Pehl

	                  Partner

	Facsimile: 617.951.0566

	 

	With a copy to:

	 

	Pepper Hamilton LLP

	3000 Two Logan Square

	18th and Arch Streets

	Philadelphia, Pennsylvania 19103

	Attention: Julia D. Corelli, Esquire

	Facsimile: 215.981.4750







Investor Signature Page to Investor Rights Agreement




 









 








	 
	ADVENT PARTNERS DMC III LIMITED PARTNERSHIP

	ADVENT PARTNERS II LIMITED PARTNERSHIP

	 

	By: Advent International Corporation, General Partner







	 	 	 	 	 
	By:

	 	 	 	 
	 

	 	 	 	 
	Name: Michael Pehl	 	 
	Title: Partner	 	 






	 
	Address for notices:

	 

	c/o Advent International Corporation

	 

	75 State Street

	Boston, Massachusetts 02109

	Attention: Michael Pehl

	               Partner

	Facsimile: 617.951.0566

	 

	With a copy to:

	 

	Pepper Hamilton LLP

	3000 Two Logan Square

	18th and Arch Streets

	Philadelphia, Pennsylvania 19103

	Attention: Julia D. Corelli, Esquire

	Facsimile: 215.981.4750







Investor Signature Page to Investor Rights Agreement




 









 








	 	 	 	 	 
	EMC CORP.	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	By:

	 	 	 	 
	 

	 	 	 	 
	Name: 	 	 
	Title:	 	 






	 
	Address for notices:

	 
	176 South Street

	Hopkinton, Massachusetts 01748

	Attention: C. Matthew Olton, Esquire

	                  Senior Corporate Counsel

	Facsimile: 508.497.6915

	 

	With a copy to:

	 

	Pepper Hamilton LLP

	3000 Two Logan Square

	18th and Arch Streets

	Philadelphia, Pennsylvania 19103

	Attention: Julia D. Corelli, Esquire

	Facsimile: 215.981.4750







Investor Signature Page to Investor Rights Agreement




 









 








Exhibit E




MTI Technology Corporation




14661 Franklin Avenue

Tustin, California 92780




___________, 2005




	 	 	 
	To:

	 	Digital Media & Communications III Limited Partnership
	 

	 	c/o Advent International Corporation
	 

	 	75 State Street
	 

	 	Boston, Massachusetts 02109






          This letter is being issued in connection with the acquisition by Digital Media &
Communications III Limited Partnership (“DMC III”) of
_________ shares of Series B Convertible
Preferred Stock (“Series B Preferred Stock”) issued by MTI Technology Corporation (“MTI” or the
“Company”), pursuant to the terms and conditions set forth in that certain Securities Purchase
Agreement, dated as of _________ (“Purchase Agreement”). Unless otherwise stated, capitalized
terms used but not otherwise defined herein shall have the meaning set forth in the Amended and
Restated Investor Rights Agreement among the Company and the purchasers of the Series B Preferred
Stock dated the date hereof. On June 27, 2004, DMC III entered into a substantially similar letter
(the “2004 Letter”) with the Company in connection with its acquisition of Series A Convertible
Preferred Stock (the “Series A Preferred Stock”) issued by the Company. This letter amends and
restates the 2004 Letter. DMC III desires to actively assist the Company in developing, reviewing
and considering certain proposals and suggestions relating to the management of the Company’s
business and the Company desires such assistance. In order to facilitate DMC III’s input with
respect to the management of the business of the Company, the Company agrees:




          1. For so long as DMC III owns shares of Series B Preferred Stock, Series A Preferred Stock or
Warrants (or shares of Common Stock issued upon the exercise of any of them) representing, or that
would represent upon exercise, conversion or otherwise, one (1%) of the Company’s voting securities
then issued and outstanding, the Company hereby grants to DMC III the management rights described
below and further agrees that it will give due consideration to such input as may be provided by
DMC III in exercise of such rights:




            a) the right to receive financial statements, operating reports and budgets and other
financial reports on a regular basis describing MTI’s financial performance, material
developments or events and significant proposals, and to consult with and advise the
management of MTI on matters materially affecting the business and affairs of MTI;



            b) the right to submit business proposals or suggestions to MTI’s management from time to time
with the requirement that MTI’s management agree to discuss such proposals or suggestions with DMC
III within a reasonable period after such submission, the right to call a meeting with management
in order to discuss such proposals or suggestions, and the right to submit such proposals or
suggestions to the Board of Directors of MTI if not adopted or implemented by management;



            c) the right to discuss the business operations, properties and financial and other



 









 





Digital Media & Communication III Limited Partnership

c/o Advent International Corporation

_________, 2005

Page 2 of 4


conditions
of MTI with MTI’s officers, employees and directors; and




            d) the right to examine the books and records of MTI and inspect MTI’s business premises and
other properties during normal business hours and on reasonable notice;



            e) the right to visit the Company’s business premises and other properties during normal
business hours and on reasonable notice; and



            f) the right to request such other information at reasonable times and intervals in light of
the Company’s normal business operations concerning the general status of the Company’s business,
financial condition and operations but only to the extent such information is reasonably available
to the Company and in a format consistent with how the Company maintains such information.



          2. For so long as DMC III owns shares of Series B Preferred Stock, Series A Preferred Stock
or Warrants (or shares of Common Stock issued upon exercise of any of them) representing, or that
would represent upon exercise, conversion or otherwise, one (1%) of the Company’s voting securities
then issued and outstanding, then DMC III shall have the following rights, subject, in all cases,
to paragraph 3 below:




            a) in the event that DMC III and/or its affiliates have the right under the Series A
Certificate, the Series B Certificate or the Amended and Restated Investor Rights Agreement to
appoint a Series B Director or a Series A Director, the right to send such director to all meetings
of committees of the Board of Directors of the Company to which the Series B Director or a Series A
Director has not been appointed, in a non-voting observer capacity; and



            b) in the event that DMC III and its affiliates no longer have the right under the Series A
Certificate, the Series B Certificate or the Amended and Restated Investor Rights Agreement to
appoint a Series B Director or a Series A Director, (i) the right to send one representative to
attend all meetings of the Company’s Board of Directors, and all meetings of each committee of the
Board of Directors, in a non-voting observer capacity, and (ii) the right to receive copies of all
notices, minutes, consents and other materials the Company provides to its directors in connection
with any meeting, except for materials pertaining to the portion of any meeting from which a
representative of DMC III is excluded pursuant to paragraph 3 below.



     3. DMC III understands and acknowledges that the Board of Directors (or a committee of the
Board of Directors, as the case may be) shall have and reserve the right to
exclude the director (with respect to committee meetings attended pursuant to paragraph 2(a)
above, or other representative attending a meeting under paragraph 2(b) above (in either case, a
“Representative”) from all or any portion of a meeting to the extent (i) necessary to preserve
attorney client privilege or (ii) the Board of Directors (or such committee), in its sole
discretion, deems the presence of such Representative to be inconsistent with the Company’s goal of
adhering to best practices of corporate governance or otherwise inadvisable under then-current
laws, rules, regulations, including any



 









 





Digital Media & Communication III Limited Partnership

c/o Advent International Corporation

_________, 2005

Page 3 of 4


guidelines and interpretations thereof set forth or
proposed by Nasdaq or any exchange on which the Common Stock is then traded.




          4. Neither the Company nor any Person acting on its behalf shall provide DMC III and any
representative of DMC III with any material, nonpublic information about the Company unless, in
advance of the delivery of such information, DMC III and any representative of DMC III consents to
the receipt of such information and agrees to maintain the confidentiality of such information in
writing, regardless of whether the delivery of such information is otherwise required pursuant to
the terms of this Agreement. The Company understands and confirms that DMC III and any
representative of DMC III will rely on the foregoing covenant in effecting transactions in
securities of the Company. The rights granted pursuant to this letter agreement shall be subject
to DMC III and any representative of DMC III complying with the Company Policies.





          5. The rights described herein shall terminate and be of no further force or effect when DMC
III no longer holds securities of the Company representing, or that would represent upon exercise,
conversion or otherwise, one (1%) of the Company’s voting securities then issued and outstanding.




            The rights afforded by this letter agreement shall be assignable to any other Advent Fund (as
defined in the Purchase Agreement); provided that such assignee shall be bound by the obligations
and restrictions set forth in this letter agreement.



            Please acknowledge your agreement by signing below and returning a copy to the Company.



	 	 	 	 	 
	 	Sincerely,





MTI TECHNOLOGY CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 



 









 








Digital Media & Communication III Limited Partnership

c/o Advent International Corporation

_________, 2005

Page 4 of 4


Acknowledged and agreed to as of the date first set forth above by:




	 	 	 
	DIGITAL

	 	MEDIA & COMMUNICATIONS III LIMITED PARTNERSHIP
	 
	 	 
	By:

	 	Advent International Limited Partnership,
	 

	 	General Partner
	By:

	 	Advent International Corporation,
	 

	 	General Partner






	 	 	 
	By:
	 	 
	 

	 	 
	Name: Michael Pehl
	Title: Partner







 









 






Exhibit F




[LETTERHEAD OF MORRISON & FOERSTER LLP]




__________ __, 2005




To the Purchasers listed on

Schedule A to the MTI Technology Corporation

Securities Purchase Agreement

dated as of [___], 2005


RE: MTI Technology Corporation



Ladies and Gentlemen:



We have acted as counsel for MTI Technology Corporation, a Delaware corporation (the “Company”), in
connection with the issuance and sale of up to [___] shares of the Company’s Series B
Convertible Preferred Stock, par value $0.001 per share (the “Series B Shares” and warrants to
purchase an aggregate of [___] shares of Common Stock (the “Warrants,” and together with the
“Series B Shares,” the “Purchased Securities”), pursuant to the Securities Purchase Agreement dated
as of [___], 2005 (the “Purchase Agreement”), among the Company and the purchasers listed on
Schedule A thereto. This opinion is furnished to you pursuant to Section 7.01(j) of the Purchase
Agreement. Unless otherwise defined herein, capitalized terms used herein shall have the same
meanings as set forth in the Purchase Agreement.



We have examined originals or copies of the following documents (individually a “Document” and
collectively the “Transaction Documents”), all dated as of [___], 2005, unless otherwise indicated:



(i) the Purchase Agreement;



(ii) the Certificate of Designation;



(iii) the form of Warrant attached as Exhibit B to the Purchase Agreement;



(iv) the form of Indemnification Agreement attached as Exhibit C to the Purchase Agreement;



(v) the Investor Rights Agreement;



(vi) the Management Rights Letter;



(vii) the form of Certificate of Amendment of Series A Convertible Preferred Stock Certificate of
Designation attached as Exhibit G to the Purchase Agreement; and



(viii) the form of Consent and Waiver attached as Exhibit H to the Purchase Agreement.




 









 







In addition, we have examined the certificate of incorporation of the Company, as in effect on the
date hereof, and such records, documents and certificates, including certificates of public
officials and a certificate executed by the Chief Executive Officer and Chief Financial Officer of
the Company, dated the date hereof (the “Opinion Certificate”), made such inquiries of certain
officers of the Company and considered such questions of law as we have deemed necessary for the
purpose of rendering the opinions set forth herein. In rendering the opinions herein, we have
relied upon the Opinion Certificate as to certain factual matters. We have made no independent
investigation of the accuracy or completeness of such matters, but we have no actual knowledge of
any such inaccuracy or incompleteness.



We have assumed the genuineness of all signatures (other than signatures of officers of the
Company), the authenticity of all items submitted to us as originals and the conformity to
originals of all items submitted to us as copies. In making our examination of the Transaction
Documents, we have assumed that each party to one or more of such Transaction Documents (other than
the Company) has capacity (with respect to any party that is an individual) and the power and
authority (with respect to any party that is not an individual) to enter into the Transaction
Documents and perform all of its obligations thereunder, and has duly authorized, executed and
delivered such Transaction Documents, and that such Transaction Documents constitute the legal,
valid and binding obligations of such party, enforceable against such party in accordance with
their respective terms.



Our opinions in paragraphs 1 and 2 below as to the good standing and/or qualification of the
Company are based solely on certificates of public officials of the states named in such
paragraphs. We have made no independent investigations as to whether such certificates are
accurate or complete, but we have no actual knowledge of any such inaccuracy or incompleteness.



For our opinions in paragraphs 3 and 4(iv) below, other than matters covered by the General
Corporation Law of the State of Delaware which are required to enable us to give such opinions, as
to agreements which by their terms are or may be governed by the laws of a jurisdiction other than
California, we have assumed that such agreements are governed by the law of California for purposes
of such opinion. In addition, we exclude from the scope of any such opinion any potential
violation of financial covenants contained in such agreements.



Our opinion in paragraph 4(ii) is based on a review of those laws, rules and regulations which, in
our experience, are normally applicable to transactions of the type contemplated by the Agreement.



Our opinions in paragraphs 5(iii), 5(iv) and 8 below are based solely upon our review of the
orders, judgments, writs, decrees and Material Contracts described in the Opinion Certificate, if
any.



In rendering our opinion expressed in paragraphs 10 and 11 below, we have also relied upon (i) the
representations and warranties of the Purchasers contained in the Purchase Agreement, which we have
assumed to be true and correct in all respects as of the date hereof, and (ii) the Opinion
Certificate.



Our opinion in paragraph 9 below is based solely upon the Opinion Certificate and the actual
knowledge of Tamara P. Tate, John T. Mitchell and Steven M. Sandberg. We have not conducted a
docket search in any jurisdiction with respect to litigation that may be pending against the
Company or any of its officers or directors or undertaken any further inquiry.




 









 







Our opinion in paragraph 12 below is based solely upon a certificate of the Inspector of Elections
that served as such at the annual meeting of stockholders of the
Company held on [   ], 2005. We have made no independent investigations as to whether such certificate is accurate
or complete, but we have no actual knowledge of any such inaccuracy or incompleteness.



We have made no independent investigation as to whether any of the aforementioned certificates are
accurate or complete, but we have no actual knowledge of any such inaccuracy or incompleteness.



Whenever our opinion herein with respect to the existence or absence of facts is indicated to be
based on our knowledge, it is intended to signify that, in the course of our representation of the
Company in connection with the transactions referred to in the first paragraph hereof, none of
Tamara P. Tate, John T. Mitchell or Steven M. Sandberg has acquired actual knowledge of the
existence or absence of such facts. Please be advised that the above named persons are the only
attorneys of this firm who have been actively engaged in the representation of the Company in
connection with that matter (although other attorneys of the firm have represented and continue to
represent the Company on other matters). We have not undertaken any independent investigation to
determine the existence or absence of such facts, and no inference as to our knowledge of the
existence or absence of such facts should be drawn from the fact of our representation of the
Company.



The opinions hereinafter expressed are subject to the following further qualifications and
exceptions:



(i) The effect of bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar
laws relating to or affecting the rights of creditors, including, without limitation, laws relating
to fraudulent transfers or conveyances, preferences and equitable subordination;



(ii) Limitations imposed by general principles of equity upon the availability of equitable
remedies or the enforcement of provisions of the Transaction Documents, and the effect of judicial
decisions which have held that certain provisions are unenforceable where their enforcement would
violate the implied covenant of good faith and fair dealing or would be commercially unreasonable,
or where a default under a Transaction Document is not material;



(iii) Except to the extent encompassed by an opinion set forth below with respect to the Company,
we express no opinion as to the effect on the opinions expressed herein of (a) the compliance or
non-compliance of any party to the Transaction Documents with any law, regulation or order
applicable to it, or (b) the legal or regulatory status or the nature of the business of any such
party;



(iv) The effect of judicial decisions which may permit the introduction of extrinsic evidence to
modify the terms or the interpretation of the Transaction Documents;



(v) The enforceability of provisions of the Transaction Documents providing for indemnification or
contribution, to the extent such indemnification or contribution is against public policy, and the
effect of California law which provides that an indemnity provision may not be enforceable in the
absence of negligence on the part of the indemnitor or if a loss was caused by the indemnitee’s
negligence;




 









 







(vi) The enforceability of provisions of the Transaction Documents expressly or by implication
waiving broadly or vaguely stated rights, or waiving rights granted by law where such waivers are
against public policy;



(vii) The enforceability of provisions of the Transaction Documents providing that rights or
remedies are not exclusive, that every right or remedy is cumulative, or that the election of a
particular remedy or remedies does not preclude recourse to one or more other remedies;



(viii) Our opinion is based upon current statutes, rules, regulations, cases and official
interpretive opinions, and it covers certain items that are not directly or definitively addressed
by such authorities;



(ix) Other than as expressly stated herein, we express no opinion as to compliance with applicable
antifraud statutes, rules or regulations of applicable state and federal laws concerning the
issuance or sale of securities;



(x) We express no opinion as to the enforceability of provisions of the Transaction Documents under
which the Company agrees to submit to the jurisdiction of, or that disputes arising under the
Transaction Documents are to be determined by, a particular court or courts;



(xi) We express no opinion as to the fairness of the transactions contemplated by the Purchase
Agreement to the Company or its stockholders;



(xii) We have assumed that the directors of the Company have acted and will act in accordance with
their fiduciary duties in authorizing the Transaction Documents and taking corporate action
thereunder; and



(xiii) We express no opinion as to the enforceability of any provision of the Transaction Documents
waiving the right to a jury trial.



Based upon and subject to the foregoing, we are of the opinion that:



1. The Company is a corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. The Company has the requisite corporate power to own its properties
and to conduct its business as it is currently being conducted.



2. The Company is qualified to do business as a foreign corporation and is in good standing in the
State of California.



3. The Company has the corporate power and authority to execute and deliver and to perform and
observe its obligations under the Transaction Documents. The Transaction Documents have been duly
authorized, executed and delivered by the Company and constitute valid and binding obligations of
the Company, enforceable against the Company in accordance with their respective terms. The
Certificate of Designation has been duly authorized by all necessary corporate action and is in
effect.



4. The execution, delivery and performance by the Company of the Transaction Documents, and the
consummation of the transactions contemplated thereby, including the issuance of the Purchased
Securities as contemplated by the Purchase Agreement, do not (i) violate the Certificate of
Incorporation or Bylaws of the Company as in effect immediately prior to the Closing Date, (ii)
violate any material law, rule or regulation applicable to the Company, including applicable Nasdaq
rules and regulations, (iii) violate or constitute a default under the provisions of any order,
judgment, writ or decree applicable to the Company, or (iv) to our knowledge, except for approvals
required that result from the filings referred to in Section 3.03 of the Purchase Agreement or as
set forth on Schedule 3.04 of the


 









 






Disclosure Letter to the Purchase Agreement, require any consent or other action by any Person
under, constitute a default under, or give rise to termination, cancellation or acceleration of any
material right or obligation of the Company or to a loss of any material benefit to which the
Company is entitled under, any provision of any Material Contract binding upon the Company.



5. The execution, delivery and performance by the Company of the Transaction Documents, and the
consummation of the transactions contemplated thereby, require no consent, approval, order or
authorization of, or any qualification, registration or filing with, any governmental body, agency
or official by the Company other than (a) the filing of the Certificate of Designation with the
Secretary of State of the State of Delaware, (b) the filing by the Company with the Commission of
such reports and other documents under the Securities Act or the Exchange Act, and filings pursuant
to the rules of Nasdaq, as may be required in connection with the Transaction Documents and the
transactions contemplated thereby to be effected at or prior to the Closing, and (c) any filings
required by the securities or blue sky laws of the various states and filings under the Securities
Act, the Exchange Act and/or pursuant to Nasdaq rules in connection with a registration of
securities pursuant to the Investor Rights Agreement.



6. The authorized capital stock of the Company consists of (i) 80,000,000 authorized shares of
Common Stock and (ii) 5,000,000 authorized shares of Preferred Stock, of which (i) 567,000 shares
have been designated as “Series A Convertible Preferred Stock” and (ii) [___] shares have
been designated as “Series B Convertible Preferred Stock.” The Purchased Securities to be received
by each Purchaser pursuant to the Purchase Agreement have been duly authorized and, upon issuance
and delivery against payment therefor in accordance with the terms of the Purchase Agreement, will
be validly issued, fully paid and nonassessable. The Common Stock issuable upon the conversion of
the Series B Shares and upon the exercise of the Warrants has been duly authorized for issuance and
validly reserved by all necessary corporate action of the Company and, when issued in accordance
with the certificate of incorporation and the terms of the Warrants, as applicable, will be duly
authorized, validly issued, fully paid and nonassessable. The Series B Convertible Preferred Stock
has the respective rights, preferences and privileges stated in the Certificate of Designation.



7. Except as set forth in Section 3.05 of the Purchase Agreement or on Schedule 3.05(c) of the
Disclosure Letter to the Purchase Agreement, and except for the rights granted to the Purchasers in
the Purchase Agreement, to the best of our knowledge there are no obligations of the Company to
repurchase, redeem or otherwise acquire any outstanding Company Securities.



8. Except as set forth in the Purchase Agreement, the Amended and Restated Investor Rights
Agreement, and with respect to the Series A Convertible Preferred Stock, to our knowledge the
issuance of any of the Purchased Securities will not trigger anti-dilution adjustments under, or be
subject to any preemptive rights or right of first refusal or similar right under, any provision of
the General Corporation Law of the State of Delaware, the Company’s certificate of incorporation or
bylaws, or any Material Contract to which the Company is bound (and which will be in effect
immediately following the Closing).



9. Except as set forth on Schedule 3.10 of the Disclosure Letter to the Purchase Agreement, to our
knowledge there are no Suits pending or threatened against the Company which, if adversely
determined, could reasonably be expected to have a material adverse effect on the Company or its
business or properties (taken as a whole).




 









 







10. Assuming the filing of a Form D in accordance with Regulation D under the Securities Act, the
offer and sale of the Purchased Securities pursuant to the terms of the Purchase Agreement are
exempt from registration under the Securities Act.



11. All consents, approvals, orders or authorizations of, and all qualifications, registrations or
filings with, any federal or State of California governmental authority on the part of the Company
required in connection with the consummation of the transactions contemplated by the Purchase
Agreement have been obtained or made, except for any filings required to be made after closing.
The Company’s definitive proxy statement on Schedule 14A (the “Definitive Proxy Statement”), as
amended or supplemented from time to time, and filed in connection with the sale and issuance of
the Series B Preferred Stock and the Warrants, to our knowledge complied as to form in all material
respects with the requirements of Regulation 14A and Schedule 14A under the Securities Exchange Act
of 1934, as amended.



12. The sale and issuance of the Series B Preferred Stock and the Warrants in accordance with the
terms and conditions of the Purchase Agreement, and as set forth in the Definitive Proxy Statement,
has been duly approved by the stockholders of the Company.



We express no opinion as to matters governed by any laws other than the substantive laws of the
State of California, the General Corporation Law of the State of Delaware and the federal laws of
the United States of America, in each case without reference to choice of law rules and in each
case which are in effect on the date hereof. We express no opinion as to whether the laws of any
particular jurisdiction apply, and no opinion to the extent the laws of any jurisdiction, other
than those identified above, are applicable to the subject matter hereof.



This opinion is solely for your benefit and may not be relied on by, nor may copies be delivered
to, any other person without our prior written consent.



Very truly yours,





 









 








EXHIBIT G




MTI TECHNOLOGY CORPORATION




 






CERTIFICATE OF AMENDMENT OF

CERTIFICATE OF DESIGNATION

OF

SERIES A CONVERTIBLE PREFERRED STOCK

(Pursuant to Section 151 of the Delaware General Corporation Law)




     MTI Technology Corporation, a corporation organized and existing under the General Corporation
Law of the State of Delaware, does hereby certify that:



     I. The name of the corporation is MTI Technology Corporation (the “Corporation”).



     II. The Corporation’s Certificate of Designation of Series A Convertible Preferred Stock (the
“Series A Certificate of Designation”), which was filed with the Secretary of State of the State of
Delaware on June 17, 2004, is hereby amended as set forth herein.



     III. The amendments to the Series A Certificate of Designation as set forth herein have been
duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the
State of Delaware and have been consented to in writing by all holders of the Corporation’s Series
A Convertible Preferred Stock in accordance with Section 228 of the General Corporation Law of the
State of Delaware.



     IV. Section 2(a)(i) of the Series A Certificate of Designation is hereby amended and restated
to read in its entirety as follows:




“(i) In the event of any Liquidation (as defined below), the Corporation
shall pay the holders of shares of Series A Preferred Stock then
outstanding out of the assets of the Corporation available for distribution
to its stockholders, before any payment shall be made to the holders of
Junior Stock by reason of their ownership thereof and after any payment
shall be made to the holders of any other class or series of stock of the
Corporation ranking on liquidation senior to the Series A Preferred Stock
(including the Corporation’s Series B Convertible Preferred Stock, par
value $0.001 per share (the “Series B Preferred Stock”)), an amount per
share (the “Series A Liquidation Amount”) equal to subparagraph A or B
below, as determined by the vote of a majority of the shares of the Series
B Preferred Stock outstanding immediately prior to such Liquidation or, if
no such shares are outstanding, then the greater of:




	 	(A)	 	the sum of (x) the Stated
Value plus (y) any accumulated but unpaid dividends (the
“Liquidation A Amount”) and (z)




 









 






	 	 	 	such amount per share as would
be payable if each such share (excluding any accumulated but
unpaid dividends thereon) (the “A Stated Value Shares”) had
been converted into Common Stock pursuant to Section 4 below
immediately prior to such Liquidation and participated in
distributions to holders of Common Stock in connection with
such Liquidation (for purposes of this calculation, after
payment of the Liquidation A Amount, the assets available for
distribution to the Corporation’s stockholders shall be
multiplied by a fraction the numerator of which is the A
Stated Value Shares and the denominator of which is the sum of
the following: the outstanding Common Stock, the A Stated
Value Shares and one of the B Stated Value Shares or the B
Stated Value Interest Shares (as each are defined in the
Series B Certificate of Designation), as applicable based on
the choice of the holders of the Series B Preferred Stock)
after only the payment to the holders of
Series A Preferred Stock of the Liquidation A Amount; or
	 
	 	(B)	 	the sum of (x) the Stated
Value (the “Liquidation B Amount”) plus (y) such amount per
share as would be payable if each such share (including any
accumulated but unpaid dividends thereon) (the “A Stated Value
Interest Shares”) had been converted into Common Stock
pursuant to Section 4 below immediately prior to such
Liquidation and participated in distributions to holders of
Common Stock in connection with such Liquidation (for purposes
of this calculation, after payment of the Liquidation B
Amount, the assets available for distribution to the
Corporation’s stockholders shall be multiplied by a fraction
the numerator of which is the A Stated Value Interest Shares
and the denominator of which is the sum of the following: the
outstanding Common Stock, the A Stated Value Interest Shares
and one of the B Stated Value Shares or the B Stated Value
Interest Shares (as each are defined in the Series B
Certificate of Designation), as applicable based on the choice
of the holders of the Series B Preferred Stock) after only the
payment to the holders of Series A Preferred Stock of the
Liquidation B Amount.
	 
	 	(C)	 	In the event of any dispute
with holders of any class of the Company’s stock, or the
Company, regarding the calculation of the Series A Liquidation
amount, any reasonable interpretation of the above that is
agreed to by a majority of the holders of the Series B
Preferred Stock shall govern.”




-2-









 











     V. Section 4(a)(i) through Section 4(a)(v) of the Series A Certificate of Designation are
hereby amended and restated to read in their entirety as follows:




     (i) The “Conversion Price” initially shall be $2.64645, and such initial Conversion Price, and the rate
at which shares of Series A Preferred Stock may be converted into shares of Common Stock, shall be
subject to adjustment as provided below.




     (ii) In the event of a notice of redemption of any shares of Series A Preferred Stock pursuant to
Section 5 or 6 below, the Conversion Rights of the shares of Series A Preferred Stock designated
for redemption shall terminate at 5:00 p.m., Pacific time, on the last full day preceding the
applicable Redemption Date (as defined below), unless the Redemption Price (as defined below) is
not paid or tendered for payment on the Redemption Date, in which case the Conversion Rights for
such shares shall continue until such price is paid, or tendered for payment, in full.




     (iii) In the event of a Liquidation, the Conversion Rights shall terminate at 5:00 p.m., Pacific time, on
the tenth (10th) business day following the receipt of the notice of the Liquidation by the holders
of the Series A Preferred Stock; provided, however, that if
such Liquidation is not consummated within ninety (90) days after the mailing of such notice, the
Conversion Rights shall be deemed to have not terminated and shall thereafter continue in full
force and effect.




     (iv) For the purposes of this Section 4(a), “Redemption Date” shall mean any Call Date (as defined
below) or Put Date (as defined below) and “Redemption Price” shall mean, as applicable, the Call
Price (as defined below) or the Put Price (as defined below).



     VI. Section 4(d)(ii) of the Series A Certificate of Designation is hereby amended and restated
to read in its entirety as follows:




     “(ii) No Adjustment of Conversion Price. No adjustment in the
Conversion Price shall be made as the result of the issuance of Additional Shares
of Common Stock if the consideration per share (determined pursuant to Section
4(d)(v) below) for such Additional Shares of Common Stock issued or deemed to be
issued by the Corporation is equal to or greater than the applicable Conversion
Price in effect immediately prior to the issuance or deemed issuance of such
Additional Shares of Common Stock. In addition, no adjustment in the Conversion
Price shall be made, or a lesser adjustment than otherwise required may be made,
if, prior to such issuance or deemed issuance of Additional Shares of Common Stock,
the Corporation receives written notice from the holders of at least a majority of
the shares of Series A Preferred Stock then outstanding agreeing that no such
adjustment, or a lesser adjustment, shall be made as a result of such issuance or
deemed issuance.”



-3-









 





     VII. Section 7 of the Series A Certificate of Designation is hereby amended and restated to
read in its entirety as follows:



   “7.
Preemptive Rights.




     (a) Definitions. For purposes of this Section 7, the following definitions
shall apply:




     (i) “Acceptance” means a written notice from a holder of Preferred Stock to the Corporation containing
the information specified in Section 7(b)(ii).




     (ii) “Available Unsubscribed Amount” means the difference between the total of all of the Basic Amounts
available for purchase by holders of Preferred Stock pursuant to Section 7(b)(i) and the Basic
Amounts subscribed for pursuant to Section 7(b)(ii).




     (iii) “Basic Amount” means, with respect to a holder of Preferred Stock, its pro rata portion of the
Securities, determined by multiplying the number of Securities by a fraction, the numerator of
which is the aggregate number of shares of Common Stock then held by such holder (giving effect to
the conversion into Common Stock of all shares of convertible preferred stock and exercise of all
warrants (assuming cashless exercise) then held by such holder) and the denominator of which is the
total number of shares of Common Stock then outstanding (giving effect to the conversion into
Common Stock of all shares of convertible preferred stock or other convertible securities and
exercise of all options, warrants (assuming cashless exercise) or other rights to purchase
Securities of the Corporation then outstanding).




     (iv) “Offer” means a written notice of any proposed issuance, sale or exchange of Securities containing
the information specified in Section 7(b)(i).




     (v) “Preferred Stock” means the Series A Preferred Stock and the Series B Convertible Preferred Stock,
par value $0.001 per share, of the Corporation.




     (vi) “Refused Securities” means those Securities as to which an Acceptance has not been given by holders
of Preferred Stock pursuant to Section 7(b)(ii).




     (vii) “Securities” means (a) any shares of Common Stock, (b) any other equity securities of the
Corporation, including shares of preferred stock, (c) any option, warrant or other right to
subscribe for, purchase or otherwise acquire any equity securities of the Corporation, or (d) any
debt securities convertible into capital stock of the Corporation.




     (viii) “Unsubscribed Amount” means, with respect to a holder of Preferred Stock, any additional portion
of the Securities attributable to the Basic Amounts of other holders of Preferred Stock as such
holder indicates it will



-4-









 






purchase or acquire should the other holders subscribe for less than their
Basic Amounts.




     (b) Rights of Investors.




     (i) The Corporation shall not issue, sell or exchange, agree to issue, sell or exchange, or reserve or
set aside for issuance, sale or exchange, any Securities, unless in each such case the Corporation
shall have first complied with this Section 7. The Corporation shall deliver to each holder of
Preferred Stock an Offer, which shall (a) identify and describe the Securities, (b) describe the
price (expressed in either a fixed dollar amount or a definitive formula pursuant to which the only
variable is the market price of the Common Stock at or near the time of the proposed issuance, sale
or exchange) and other terms upon which they are to be issued, sold or exchanged, and the number or
amount of the Securities to be issued, sold or exchanged, (c) identify the offerees or purchasers
(if known) to which or with which the Securities are to be offered, issued, sold or exchanged, and
(d) offer to issue and sell to or exchange with such holder of Preferred Stock (1) such holder’s
Basic Amount and (2) such holder’s Unsubscribed Amount.




     (ii) To accept an Offer, in whole or in part, a holder of Preferred Stock must deliver to the
Corporation, on or prior to the date fifteen (15) days after the date of delivery of the Offer, an
Acceptance indicating the portion of the holder’s Basic Amount that such holder elects to purchase
and, if such holder shall elect to purchase all of its Basic Amount, the Unsubscribed Amount (if
any) that such holder elects to purchase. If the Basic Amounts subscribed for by all holders of
Preferred Stock are less than the total of all of the Basic Amounts available for purchase, then
each holder who has set forth an Unsubscribed Amount in its Acceptance shall be entitled to
purchase, in addition to the Basic Amounts subscribed for, the Unsubscribed Amount it has
subscribed for; provided, however, that if the Unsubscribed Amounts subscribed for exceed the
Available Unsubscribed Amount, each holder who has subscribed for any Unsubscribed Amount shall be
entitled to purchase only that portion of the Available Unsubscribed Amount as the Unsubscribed
Amount subscribed for by such holder bears to the total Unsubscribed Amounts subscribed for by all
holders of Preferred Stock, subject to rounding by the Board to the extent it deems reasonably
necessary.




     (iii) The Corporation shall have ninety (90) days from the expiration of the period set forth in Section
7(b)(ii) to issue, sell or exchange all or any part of the Refused Securities, but only to the
offerees or purchasers described in the Offer (if so described therein) and only upon terms and
conditions (including unit prices and interest rates) that are not more favorable, in the
aggregate, to the offerees or purchasers than those set forth in the Offer.




     (iv) In the event the Corporation shall propose to sell less than all the Refused Securities, then each
holder of Preferred Stock may, at its sole option and in its sole discretion, reduce the number or
amount of the Securities specified in



-5-









 






its Acceptance to an amount that shall be not less than the
number or amount of the Securities that the holder elected to purchase pursuant to Section 7(b)(ii)
multiplied by a fraction, (i) the numerator of which shall be the number or amount of Securities
the Corporation actually proposes to issue, sell or exchange (including Securities to be issued or
sold to holders of Preferred Stock pursuant to Section 7(b)(ii) prior to such reduction) and (ii)
the denominator of which shall be the original amount of the Securities. In the event that any
holder so elects to reduce the number or amount of Securities specified in its Acceptance, the
Corporation may not issue, sell or exchange more than the reduced number or amount of the
Securities unless and until such securities have again been offered to the holders of Preferred
Stock in accordance with Section 7(b)(ii).




     (v) Upon (a) the closing of the issuance, sale or exchange of all or less than all of the Refused
Securities or (b) such other date agreed to by the Corporation and the holders of Series A
Preferred Stock who have subscribed for a majority of the Securities subscribed for by the holders
of Series A Preferred Stock, such holder or holders shall acquire from the Corporation and the
Corporation shall issue to such holder or holders, the number or amount of Securities specified in
the Acceptances, as reduced pursuant to Section 7(b)(iv) if any of the holders has so elected, upon
the terms and conditions specified in the Offer.




     (vi) The purchase by the holders of Preferred Stock of any Securities is subject in all cases to the
preparation, execution and delivery by the Corporation and the holders of Preferred Stock of a
purchase agreement relating to such Securities reasonably satisfactory in form and substance to the
holders of Preferred Stock and their respective counsel.




     (vii) Securities not acquired by the holders of Preferred Stock in accordance with Section 7(b)(ii) and
not sold pursuant to Section 7(b)(iii) may not be issued, sold or exchanged until they are again
offered to the holders of Preferred Stock under the procedures specified in this Section 7.




     (c) Excluded Transactions. The rights of the holders of Preferred Stock under this Section 7
shall not apply to:




     (i) any issuance of securities of the Corporation for consideration other than cash, including the
issuance of shares (a) as a stock dividend to holders of Common Stock, Series A Preferred Stock or
any other Corporation securities, or upon any subdivision or combination of shares of Common Stock,
Series A Preferred Stock or any other Corporation securities; (b) upon exercise or conversion of
preferred stock, options, warrants or debt securities exercisable or convertible for Common Stock
pursuant to their terms; and (c) in connection with a transaction described in Section 3(c)(x) so
long as any required consent or vote is first obtained by the Corporation; and



-6-









 






     (ii) any issuance of securities of the Corporation if such issuance is excluded from the definition of
“Additional Shares of Common Stock” under clauses (I) through (V) of Section 4(d)(i)(D) above.”



***




     In witness whereof, MTI Technology Corporation has caused this Certificate to be signed this
___day of _________, 2005.



	 	 	 	 	 
	 	MTI Technology Corporation

 	 
	 	By:  	 	 
	 	Name:  	 	 
	 	Title:  	 	 



-7-









 






	 	 	 	 	 



EXHIBIT H




CONSENT AND WAIVER



 







     THIS CONSENT AND WAIVER (this “Agreement”) is dated and effective as of ______, 2005, by
and between MTI Technology Corporation, a Delaware corporation (the “Company”), and each of the
undersigned holders of Series A Convertible Preferred Stock (“Series A Convertible Preferred
Stock”), par value $0.001 per share, of the Company (each an “Investor” and collectively the
“Investors”).



RECITALS




     WHEREAS, under the Company’s Certificate of Designation of Series A Convertible Preferred Stock
(the “Series A Certificate of Designation”), the holders of the Series A Convertible Preferred
Stock have certain rights, including, without limitation: (i) certain series voting rights as set
forth in Section 3(c) thereof; (ii) certain preemptive rights as set forth in Section 7 thereof;
and (iii) certain notice rights as set forth in Section 12 thereof;



     WHEREAS, pursuant to that certain letter agreement (the “MDB Side Letter”), dated June 17, 2004, by
and among the Company and the Investors, each Investor has certain rights, including, without
limitation, certain rights to receive additional shares of Series A Convertible Preferred Stock;



     WHEREAS, each Investor intends to participate in the contemplated Series B Convertible
Preferred Stock financing (the “Series B Transaction”) of the Company, as contemplated in and
pursuant to the terms of that certain Securities Purchase Agreement (the “Securities Purchase
Agreement”), dated as of ______, 2005, by and among the Company and the purchasers set forth on
Schedule A thereof, pursuant to which the Investor
contemplates purchasing shares of the Company’s Series B Convertible Preferred Stock (the
“Series B Convertible Preferred Stock”), par value $0.001 per share; and



     WHEREAS, the Investor acknowledges that the Company would not consummate the Series B Transaction
as contemplated in and pursuant to the terms of the Securities Purchase Agreement but for the
undersigned’s willingness to execute this Agreement in connection with the Series B Transaction.



AGREEMENT




     NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, and
contingent upon the closing of the Series B Transaction as contemplated in the Securities Purchase
Agreement, the Investor and the Company hereby agree as follows:



 









 





          1. Consent to Certain Actions. The undersigned hereby
consents to and ratifies the following in satisfaction of the Company’s
obligations under Section 3(c) and Section 12 of the Series A Certificate
of Designation with respect thereto:




               a. The consummation of the Series B Transaction, including,
without limitation, the designation of the Series B Convertible
Preferred Stock, substantially on the terms set forth in the
Securities Purchase Agreement or as may otherwise be agreed to by
and among the Company and the Investors;



               b. The amendment of the Company’s bylaws to eliminate the
classification of the Company’s board of directors, as more fully
described in the Company’s definitive proxy statement which was
filed with the Securities and Exchange Commission on August 9, 2004
and as set forth in the Company’s Second Amended and Restated
Bylaws, which amendment was approved by the Company’s board of
directors at a meeting thereof held on June 21, 2004, and approved
by the Company’s stockholders at an annual meeting thereof held on
September 8, 2004, such consent and ratification to be deemed
effective as of September 8, 2004;



               c. The transactions contemplated by and in that certain
Security Agreement, dated as of December 30, 2004, by and between
the Company and EMC Corporation, whereby, among other things, EMC
Corporation increased the Company’s purchasing credit limit under
its existing supply agreements with EMC Corporation to $20,000,000,
such consent and ratification to be deemed effective as of December
30, 2004.



               d. The transactions contemplated by and in that certain Letter
of Credit, dated June 23, 2004, by and between the Company and
Comerica Bank, in the amount of $6,000,000, such consent and
ratification to be deemed effective as of June 23, 2004.



          2. Waiver of Certain Rights. The undersigned
hereby waives:




               a. Any right or entitlement it may have to receive any “MDB
Adjustment Securities” pursuant to the terms of and as defined in
the MDB Side Letter.



               b. Any preemptive or notice rights it may have in connection
with the Series B Transaction pursuant to Section 7 and Section 12,
respectively, of the Series A Certificate of Designations.



          3. Adjustment of Conversion Price Upon Issuance of Series B
Convertible Preferred Stock. As a result of or in connection with only
(i) the issuance on the date of first issuance of shares of the Company’s
Series B Convertible Preferred Stock and warrants issued in connection
therewith on such date, (ii) the issuance of any such Series B Convertible
Preferred Stock and warrants pursuant to Section 8.04 of the Securities
Purchase Agreement or (iii) upon the conversion or exercise of such Series
B Convertible Preferred Stock and warrants (and solely as a result of such
conversion or exercise), the Conversion Price (as defined in the Series A
Certificate of Designation) of







 









 







the Series A Convertible Preferred Stock
shall not be adjusted to less than $1.95 with respect only to such
issuance, conversion or exercise.




          4. No Modification of Other Rights. Except as expressly
modified hereby, all of the Investor’s rights, preferences and privileges
as a holder of Series A Convertible Preferred Stock as set forth in the
Series A Certificate of Designation, as may be amended from time to time,
shall continue in full force and effect to the extent that such rights,
preferences and privileges have not been otherwise modified, amended or
waived prior to the date hereof. In the event of any inconsistency or
conflict between the Series A Certificate of Designation and this
Agreement, the terms, conditions and provisions of this Agreement shall
govern and control.




          5. Entire Agreement. This Agreement constitutes the entire
and exclusive agreement between the parties with respect to the subject
matter hereof. All previous discussions and agreements with respect to
this subject matter are superseded by this Agreement.




          6. Governing Law. This Agreement shall be governed in all
respects by the laws of the State of Delaware as applied to contracts made
and to be fully performed entirely within that state between residents of
that state. The parties agree that any and all actions arising out of this
Agreement shall be filed only in the appropriate federal or state court in
Orange County, California. The parties consent to the jurisdiction of such
courts for any such action.




          7. Counterparts. This Agreement may be executed in any number
of counterparts (including facsimile signature) each of which shall be an
original with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement
shall become effective, subject to the terms hereof, when each party
hereto shall have received a counterpart hereof signed by each other party
hereto.




[Remainder of the Page Intentionally Left Blank]







 









 








     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed
by their respective authorized signatories as of the date first above written.



	 	 	 	 	 	 
	 	 	MTI TECHNOLOGY CORPORATION
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 
	 

	 	Title:	 	 
	 
	 	 	 	 
	 	 	INVESTORS:
	 
	 	 	 	 
	 	 	DIGITAL MEDIA &
COMMUNICATIONS 
   III LIMITED PARTNERSHIP
	 	 	DIGITAL MEDIA &
COMMUNICATIONS 
   III-A LIMITED PARTNERSHIP
	 	 	DIGITAL MEDIA &
COMMUNICATIONS
    III-B LIMITED PARTNERSHIP
	 	 	DIGITAL MEDIA &
COMMUNICATIONS 
    III-C LIMITED PARTNERSHIP
	 	 	DIGITAL MEDIA &
COMMUNICATIONS
    III-D C.V.
	 	 	DIGITAL MEDIA &
COMMUNICATIONS 
    III-E C.V.
	 
	 	 	 	 
	 

	 	By:
	 	Advent International Limited Partnership, General Partner
	 

	 	By:
	 	Advent International Corporation,

General Partner
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 
	 

	 	Title:	 	 






 









 






	 	 	 	 	 	 
	 	 	ADVENT PARTNERS DMC III
LIMITED 
   PARTNERSHIP
	 	 	ADVENT PARTNERS II
LIMITED 
   PARTNERSHIP
	 
	 	 	 	 
	 

	 	By:
	 	Advent International Corporation,

   General Partner
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 
	 

	 	Title:	 	 
	 
	 	 	 	 
	 	 	EMC CORPORATION
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 
	 

	 	Title: