Exhibit 4.1

                                TEGAL CORPORATION

                           UNIT SUBSCRIPTION AGREEMENT
                             CONVERTIBLE DEBENTURES
                                  AND WARRANTS


                  UNIT SUBSCRIPTION AGREEMENT (the "AGREEMENT") dated as of ____
__, 2003 among TEGAL CORPORATION, a Delaware corporation ("COMPANY"), and the
persons who execute this agreement as investors (the "INVESTORS").

BACKGROUND: The Company desires to sell to the Investors, and the Investors
desire to purchase up to $7,200,000 in principal amount of 2% Convertible
Secured Debentures, in substantially the form attached hereto as Exhibit 1 (the
"DEBENTURES") and up to 4,114,224 eight-year warrants (equivalent to
approximately 20% of the Debenture Underlying Shares), each exercisable to
purchase one share of common stock, $.01 par value per share, of the Company
(the "Common Stock"), in substantially the form attached hereto as EXHIBIT 2
(the "WARRANTS"). It is anticipated there will be two closings since the Company
is unable to issue more than 19.9% of its outstanding shares without stockholder
approval. The proceeds are necessary for the development and continuance of the
business of the Company and each of its Subsidiaries.

CERTAIN DEFINITIONS:

         "COMMON STOCK" shall mean stock of the Company of any class (however
designated) whether now or hereafter authorized, which generally has the right
to participate in the voting and in the distribution of earnings and assets of
the Company without limit as to amount or percentage, including the Company's
Common Stock, $.01 par value per share.

         "COMPANY" includes the Company and any corporation or other entity
which shall succeed to or assume, directly or indirectly, the obligations of the
Company hereunder. The term "CORPORATION" shall include an association, joint
stock company, business trust, limited liability company or other similar
organization.

         "COMPANY DISCLOSURE LETTER" means the disclosure letter delivered to
the Investors prior to the execution of this Agreement, which letter is
incorporated in this Agreement.

         "FIRST CLOSING FACTOR" shall be equal to the quotient of (i) the
product of (x) .199 multiplied by (y) 16,091,762, the number of shares of Common
Stock outstanding as on the Subscription Date divided by (ii) the number of
Underlying Shares of the Securities for which Agreements have been entered into
on the Subscription Date.

         "MATERIAL ADVERSE CHANGE" shall mean any change in the facts
represented by the Company in the Agreement or the business, financial
condition, results of operation, prospects, properties or operations of the
Company and its Subsidiaries taken as a whole which may have a material adverse
effect on the value of the Common Stock of the Company.

         "OWN" means own beneficially, as that term is defined in the rules and
regulations of the SEC.

<PAGE>

         "PERSON" means any individual, sole proprietorship, partnership,
corporation, limited liability company, business trust, unincorporated
association, joint stock corporation, trust, joint venture or other entity, any
university or similar institution, or any government or any agency or
instrumentality or political subdivision thereof.

         "SEC" means the Securities and Exchange Commission.

         "SECOND CLOSING CONDITIONS" shall mean: (i) the receipt of approval of
the stockholders of the Company to the issuance of all the Securities and the
Second Closing as required by the applicable rules of The Nasdaq Stock Market,
(ii) the amendment of the Company's Certificate of Incorporation to provide for
an increase of the Company's authorized Common Stock to 100,000,000 shares (the
"AMENDMENT"), (iii) the receipt of approval of the stockholders of the Company
to effect a reverse stock split of Tegal's common stock, whereby each
outstanding 2, 3, 5, 10 or 15 shares would be combined, converted and changed
into one share of common stock, provided that Tegal's board of directors will
retain discretion as to which amendment will be filed superseding the action of
the stockholders on April 28, 2003 and as to when and whether any amendment is
filed and (iv) the absence of any Material Adverse Change since the First
Closing Date.

         "SUBSIDIARY" shall mean any corporation of which stock or other
interest having ordinary power to elect a majority of the Board of Directors (or
other governing body) of such entity (regardless of whether or not at the time
stock or interests of any other class or classes of such corporation shall have
or may have voting power by reason of the happening of any contingency) is at
the time directly or indirectly owned by the Company or by one or more
Subsidiaries.

         "SUBSCRIPTION DATE" shall mean the date, but no later than June 25,
2003 (unless extended up to 15 days by written consent of the Company and
Investors who have entered into Agreements providing for the purchase of at
least 140 Units), as of which the Company has executed the Agreement with
Investors for the purchase of at least $3 million of Securities and has notified
the Investors in writing that it is no longer accepting subscription to the
Agreement from additional potential Investors.

         "UNDERLYING SHARES" shall mean the shares of Common Stock issued or
from time to time issuable upon conversion of the Debentures and exercise of the
Warrants.

                  In consideration of the mutual covenants contained herein, the
parties agree as follows:

                                       2

<PAGE>

                  1. PURCHASE AND SALE OF STOCK.

                           1.1. SALE AND ISSUANCE OF SECURITIES. The Company
         shall sell to the Investors and the Investors shall purchase from the
         Company, up to 144 units (the "UNITS"), each Unit consisting of (i)
         $50,000 in principal amount of Debentures and (ii) Warrants to purchase
         28,571 shares of Common Stock, at a price of $50,000 per Unit, or a
         total of at least $7,000,000 in principal amount of Debentures (the
         "PURCHASED DEBENTURES") and Warrants to purchase up to 4,114,224 shares
         of Common Stock (the "PURCHASED WARRANTS"), for an aggregate purchase
         price of at least $7,000,000, up to $7,200,000. The Purchased
         Debentures and Purchased Warrants are referred to herein collectively
         as the "SECURITIES". The number of Purchased Debentures and Purchased
         Warrants to be purchased by each Investor from the Company is set forth
         opposite the name of such Investor on the signature page hereof,
         subject to acceptance, in whole or in part, by the Company.

                           1.2. CLOSINGS. The closings of the purchase and sale
         of the Securities hereunder (each a "CLOSING") shall take place on (x)
         within three business days after the Subscription Date, but no later
         than June 30, 2003, unless extended up to 15 days by written consent of
         the Company and Investors who have entered into Agreements providing
         for the purchase of at least 140 Units (the "FIRST CLOSING"), and (y) a
         date within three business days of notice by the Company of
         satisfaction of the Second Closing Conditions, but no later than August
         29, 2003, unless extended up to 15 days by written consent of the
         Company and Investors who have entered into Agreements providing for
         the purchase of at least 70 Units (the "SECOND CLOSING"). Any date on
         which a Closing occurs is referred to herein as the "CLOSING DATE." The
         date on which the First Closing takes place is referred to herein as
         the "FIRST CLOSING DATE." The date on which the Second Closing takes
         place is referred to herein as the "SECOND CLOSING DATE." Each Closing
         shall take place at the offices of Hahn & Hessen LLP, the Investors'
         counsel, in New York, New York, or at such other location as is
         mutually acceptable to the Investors and the Company.

                                    (a) The First Closing shall take place
                  within  three  business  days  after  the  Subscription  Date,
                  subject to  fulfillment of the conditions of closing set forth
                  in the Agreement. At the First Closing:

                                            (i) each Investor purchasing
                           Securities at the First Closing shall deliver to the
                           Company or its designees by wire transfer or such
                           other method of payment as the Company shall approve,
                           an amount equal to the product of (A) the purchase
                           price of the Securities purchased by such Investor
                           hereunder, as set forth opposite such Investor's name
                           on the signature pages hereof, multiplied by the (B)
                           First Closing Factor;

                                            (ii) the Company shall issue and
                           deliver to each Investor purchasing Securities at the
                           First Closing (x) Debentures in principal amount
                           equal to the amount paid pursuant to Section
                           1.2(a)(i) above, and (y) Warrants for the product of
                           (A) the portion of the Purchased Warrants to be
                           issued by the Company and purchased by such Investor,
                           as set forth opposite such Investor's name on the
                           signature pages hereof, multiplied by (B) the First
                           Closing Factor.


                                       3
<PAGE>


                                    (b) The Second Closing shall take place
                  within five business days after the Company's notice to the
                  Investors of satisfaction of the Second Closing Conditions. At
                  the Second Closing:

                                            (i) each Investor purchasing
                           Securities at the Second Closing shall deliver to the
                           Company or its designees by wire transfer or such
                           other method of payment as the Company shall approve,
                           an amount equal to the difference between (A) the
                           purchase price of the Securities purchased by such
                           Investor hereunder, as set forth opposite such
                           Investor's name on the signature pages hereof, less
                           (B) the amount paid for Securities by such Investor
                           at the First Closing;

                                            (ii) the Company shall issue and
                           deliver to each Investor purchasing Securities at the
                           Closing (x) Debentures in principal amount equal to
                           the amount paid pursuant to Section 1.2(b)(i) above,
                           and (y) Warrants for the product of (A) the portion
                           of the Purchased Warrants to be issued by the Company
                           and purchased by such Investor, as set forth opposite
                           such Investor's name on the signature pages hereof,
                           multiplied by (B) the First Closing Factor.

                                    (c)     The Company has determined that
                  each of the Purchased Warrants will have a value of $0.1175.

                           1.3. CONDITIONS OF FIRST CLOSING. The obligations of
         the Investors to complete the purchase of the Securities at the First
         Closing is subject to fulfillment of the following conditions:

                                    (a) the Company and the Investors shall
                  execute and deliver a Registration Rights Agreement, dated the
                  First Closing Date, in the form attached as EXHIBIT 3 with
                  respect to the Underlying Shares (the "REGISTRATION RIGHTS
                  AGREEMENT");

                                    (b) the Company and Orin Hirschman shall
                  execute and deliver a Financial Advisory Agreement, dated the
                  First Closing Date, in the form attached as EXHIBIT 4 (the
                  "FINANCIAL ADVISORY AGREEMENT");

                                    (c) each Subsidiary shall execute and
                  deliver to the Investors a Guaranty Agreement, dated the First
                  Closing Date, in the form attached as EXHIBIT 5 (the
                  "SUBSIDIARY GUARANTY");

                                    (d) the Company, the Subsidiaries and the
                  Investors shall enter into the Security Agreement, dated the
                  First Closing Date, in the form attached hereto as EXHIBIT 6
                  (the "SECURITY AGREEMENT", and with the Agreement, the



                                       4
<PAGE>


                  Debentures, the Warrants, the Registration Rights Agreements,
                  the Financial Advisory Agreement, the Subsidiary Guaranties
                  and other documents required in connection with the
                  transactions contemplated in the Agreement, the "TRANSACTION
                  DOCUMENTS");

                                    (e) the Company shall deliver to the
                  Investors an Opinion of Counsel, dated the First Closing Date
                  and reasonably satisfactory to counsel for the Investors, with
                  respect to the matters set forth on EXHIBIT 7;

                                    (f) the Company shall have obtained all
                  consents to the Transaction Documents required under its
                  existing credit facilities in form and substance satisfactory
                  to the investors (including, without limitation, as to lack of
                  contractual subordination and standstill requirements with
                  respect to remedies and the collateral under the Security
                  Agreement) and a related release of any security interest in
                  the Collateral (as defined in the Security Agreement);

                                    (g) the representation and warranties of the
                  Company set forth in this Agreement shall be true and correct
                  as of the date of this Agreement and (except to the extent
                  such representations and warranties speak as of an earlier
                  date) as of the First Closing Date as though made on and as of
                  the First Closing Date, and the Company shall have performed
                  in all material respects all covenants and other obligations
                  required to be performed by it under this Agreement at or
                  prior to the First Closing Date, and the Investors shall have
                  received a certificate signed on behalf of the Company by the
                  President and Secretary of the Company, in such capacities, to
                  such effect;

                                    (h) the Company shall have executed and
                  delivered all documents, such as financing statements and
                  assignments, reasonably requested by counsel for the
                  Investors; and

                                    (i) All Securities delivered at the First
                  Closing shall have all necessary stock transfer tax stamps
                  (purchased at the expense of the Company) affixed.

                                    (j) The Company shall have entered into
                  agreements with the Investors for the sale of Securities with
                  an aggregate purchase price of at least $7,000,000.

                           1.4. CONDITIONS OF SECOND CLOSING. The obligations of
         the Investors to complete the purchase of the Securities at the Second
         Closing is subject to fulfillment of the following conditions:

                                    (a)     the Company shall pay the Investors'
                  expenses to the extent set forth in Section 6.9 hereof;


                                       5
<PAGE>


                                    (b) the Investors shall have received a
                  certificate signed on behalf of the Company by the President
                  and Secretary of the Company, in such capacities, to the
                  effect that the Second Closing Conditions have been met;

                                    (c) the Company shall deliver to the
                  Investors an Opinion of Counsel, dated the Second Closing Date
                  and reasonably satisfactory to counsel for the Investors, with
                  respect to the matters set forth on EXHIBIT 7; and

                                    (d) All Securities delivered at the Second
                  Closing shall have all necessary stock transfer tax stamps
                  (purchased at the expense of the Company) affixed.

                 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
         hereby represents and warrants to each of the Investors as follows:

                           2.1. CORPORATE ORGANIZATION; AUTHORITY; DUE
                  AUTHORIZATION.

                                    (a) The Company (i) is a corporation duly
                  organized, validly existing and in good standing under the
                  laws of the jurisdiction of its incorporation, (ii) has the
                  corporate power and authority to own or lease its properties
                  as and in the places where such business is now conducted and
                  to carry on its business as now conducted and (iii) is duly
                  qualified and in good standing as a foreign corporation
                  authorized to do business in every jurisdiction where the
                  failure to so qualify, individually or in the aggregate, would
                  have a material adverse effect on the operations, prospects,
                  assets, liabilities, financial condition or business of the
                  Company (a "MATERIAL ADVERSE EFFECT"). Set forth in the
                  Company Disclosure Letter is a complete and correct list of
                  all Subsidiaries. Each Subsidiary is duly incorporated,
                  validly existing and in good standing under the laws of its
                  jurisdiction of incorporation and is qualified to do business
                  as a foreign corporation in each jurisdiction in which
                  qualification is required, except where failure to so qualify
                  would not have a Material Adverse Effect.

                                    (b) Each of the Company and each Subsidiary
                  (i) has the requisite corporate power and authority to
                  execute, deliver and perform the Amendment, this Agreement and
                  the other Transaction Documents to which it is a party and to
                  incur the obligations herein and therein and (ii) has been
                  authorized by all necessary corporate action to execute,
                  deliver and perform the Amendment, this Agreement and the
                  other Transaction Documents to which it is a party and to
                  consummate the transactions contemplated hereby and thereby
                  (the "CONTEMPLATED TRANSACTIONS"). Each of the Amendment, this
                  Agreement and the other Transaction Documents is a valid and
                  binding obligation of the Company and the applicable
                  Subsidiaries enforceable in accordance with its terms except
                  as limited by applicable bankruptcy, reorganization,
                  insolvency, moratorium or similar laws affecting the
                  enforcement of creditors' rights and the availability of
                  equitable remedies (regardless of whether such enforceability
                  is considered in a proceeding at law or equity).


                                       6
<PAGE>


                           2.2. CAPITALIZATION. As of June 6, 2003, the
         authorized capital stock of the Company consisted of (i) 35,000,000
         shares of Common Stock, $.01 par value, of which 16,091,762 shares of
         Common Stock are outstanding and (ii) 5,000,000 shares of Preferred
         Stock, $.01 par value, authorized of which none are outstanding. All
         outstanding shares were issued in compliance with all applicable
         Federal and state securities laws, and the issuance of such shares was
         duly authorized. Except as contemplated by this Agreement or as set
         forth in the Company Disclosure Letter, there are (i) no outstanding
         subscriptions, warrants, options, conversion privileges or other rights
         or agreements obligating the Company to purchase or otherwise acquire
         or issue any shares of capital stock of the Company (or shares reserved
         for such purpose), (ii) no preemptive rights contained in the Company's
         Certificate of Incorporation, as amended (the "CERTIFICATE OF
         INCORPORATION"), By-Laws of the Company or contracts to which the
         Company is a party or rights of first refusal with respect to the
         issuance of additional shares of capital stock of the Company,
         including without limitation the Securities and the Underlying Shares,
         and (iii) no commitments or understandings (oral or written) of the
         Company to issue any shares, warrants, options or other rights. Except
         as set forth in the Company Disclosure Letter, none of the shares of
         Common Stock are subject to any stockholders' agreement, voting trust
         agreement or similar arrangement or understanding. Except as set forth
         in the Company Disclosure Letter, the Company has no outstanding bonds,
         debentures, notes or other obligations the holders of which have the
         right to vote (or which are convertible into or exercisable for
         securities having the right to vote) with the stockholders of the
         Company on any matter. The Company currently shall not within the next
         twelve months take any action or agree to take any action providing for
         an increase in the number of shares reserved for issuance for equity
         incentives under the Company's Amended 1998 Equity Participation Plan
         (the "PLAN") or any other employee incentive plan, or any new such
         plan, by an aggregate of more than 4,000,000 shares of Common Stock.
         With respect to each Subsidiary, (i) all the issued and outstanding
         shares of the Subsidiary's capital stock have been duly authorized and
         validly issued, are fully paid and nonassessable, have been issued in
         compliance with applicable federal and state securities laws, were not
         issued in violation of or subject to any preemptive rights or other
         rights to subscribe for or purchase securities, and (ii) there are no
         outstanding options to purchase, or any preemptive rights or other
         rights to subscribe for or to purchase, any securities or obligations
         convertible into, or any contracts or commitments to issue or sell,
         shares of the Subsidiary's capital stock or any such options, rights,
         convertible securities or obligations. Except as disclosed in the
         Company Disclosure Letter, the Company owns 100% of the outstanding
         equity of each Subsidiary.

                           2.3. VALIDITY OF SECURITIES. The issuance of the
         Securities has been duly authorized.

                           2.4. UNDERLYING SHARES. The issuance of the
         Underlying Shares upon conversion of the Purchased Debentures or
         exercise of the Purchased Warrants has been duly authorized, and the
         Underlying Shares have been, and at all times prior to such exercise
         will have been, duly reserved for issuance upon such exercise and, when
         so issued, will be validly issued, fully paid and non-assessable.



                                       7
<PAGE>



                           2.5. PRIVATE OFFERING. Neither the Company nor anyone
         acting on its behalf has within the last 12 months issued, sold or
         offered any security of the Company (including, without limitation, any
         Securities) to any Person under circumstances that would cause the
         issuance and sale of the Securities, as contemplated by this Agreement,
         to be subject to the registration requirements of the Securities Act of
         1933, as amended (the "SECURITIES ACT"). The Company agrees that
         neither the Company nor anyone acting on its behalf will offer the
         Securities or any part thereof or any similar securities for issuance
         or sale to, or solicit any offer to acquire any of the same from,
         anyone so as to make the issuance and sale of the Securities subject to
         the registration requirements of Section 5 of the Securities Act.

                           2.6. BROKERS AND FINDERS. The Company has not
         retained any investment banker, broker or finder in connection with the
         Contemplated Transactions, except that (i) Bentley Securities
         Corporation shall be entitled to a cash fee of up to 5% of the gross
         proceeds of the Contemplated Transactions, and (ii) TSD Trading, LLC
         shall be entitled to a cash fee of up to 1.65% of the gross proceeds of
         the Contemplated Transactions, plus cash or warrants with an exercise
         price of $0.35 representing up to 3.75% of the gross proceeds of the
         Contemplated Transactions and actual expenses plus $75,000 (not to
         exceed $100,000 in the aggregate); provided that the Company shall not
         be obliged to make any payment of any fees or expenses to any
         investment banker, broker or finder in connection with the Contemplated
         Transactions (including the fees mentioned above) unless and until the
         Second Closing has been consummated.

                           2.7. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.

                                    (a) The execution, delivery and performance
                  of the Amendment, this Agreement and the other Transaction
                  Documents by the Company and its Subsidiaries do not, and the
                  consummation by the Company of the Contemplated Transactions
                  will not, (i) conflict with or violate the Certificate of
                  Incorporation or By-Laws of the Company or such Subsidiaries,
                  (ii) conflict with or violate any law, rule, regulation,
                  order, judgment or decree applicable to the Company or such
                  subsidiaries or by which any property or asset of the Company
                  or such Subsidiaries is bound or affected, (iii) result in any
                  breach of or constitute a default (or an event which with
                  notice or lapse of time or both would become a default) under,
                  result in the loss of a material benefit under, or give to
                  others any right of purchase or sale, or any right of
                  termination, amendment, acceleration, increased payments or
                  cancellation of, or result in the creation of a lien or other
                  encumbrance on any property or asset of the Company or of any
                  of its Subsidiaries pursuant to, any note, bond, mortgage,
                  indenture, contract, agreement, lease, license, permit,
                  franchise or other instrument or obligation to which the
                  Company or of any of its Subsidiaries is a party or by which
                  the Company or of any of its Subsidiaries or any property or
                  asset of the Company or of any of its Subsidiaries is bound or
                  affected (other than the lien under the Security Agreement) or
                  (iv) cause any or all of the Investors to be deemed an
                  Acquiring Person within the meaning of the Company's Preferred
                  Shares Rights Agreement with ChaseMellon Shareholder Services,
                  L.L.C., dated June 11, 1996 and amended on January 15, 1999,
                  or in any way trigger the distribution of Rights


                                       8
<PAGE>



                  thereunder or other such event  thereunder which may be deemed
                  adverse to the interest of the Investors;  except, in the case
                  of  clauses  (ii) and  (iii)  above,  for any such  conflicts,
                  violations,  breaches,  defaults  or other  occurrences  which
                  would  not  prevent  or  delay  consummation  of  any  of  the
                  Contemplated  Transactions  in any  material  respect,  have a
                  material adverse effect on the liens and security  intended to
                  be granted  pursuant to the  Security  Agreement  or otherwise
                  prevent the Company from performing its obligations under this
                  Agreement  or any of the other  Transaction  Documents  in any
                  material  respect,  and  would  not,  individually  or in  the
                  aggregate, have a Material Adverse Effect.

                                    (b) The execution and delivery of this
                  Agreement and the other Transaction Documents by the Company
                  and its Subsidiaries do not, and the performance of this
                  Agreement and the other Transaction Documents and the
                  consummation by the Company and its Subsidiaries of the
                  Contemplated Transactions will not, require any consent,
                  approval, authorization or permit of, or filing with or
                  notification to, any Governmental Body (as hereinafter
                  defined) except for the filing of a Form D with the Securities
                  and Exchange Commission and applicable requirements, if any,
                  of the Securities Exchange Act of 1934, as amended (the
                  "EXCHANGE ACT") or any state securities or "blue sky" laws
                  ("BLUE SKY LAWS"), any approval required by applicable rules
                  of The Nasdaq Stock Market with respect to the Second Closing,
                  filings of Uniform Commercial Code financing statements and
                  filings with the Patent and Trademark Office and the Copyright
                  Office to perfect the liens granted under the Security
                  Agreement. For purposes of this Agreement, "GOVERNMENTAL BODY"
                  shall mean any: (a) nation, state, commonwealth, province,
                  territory, county, municipality, district or other
                  jurisdiction of any nature; (b) federal, state, local,
                  municipal, foreign or other government; or (c) governmental or
                  quasi-governmental authority of any nature (including any
                  governmental division, department, agency, commission,
                  instrumentality, official, organization, unit, body or entity
                  and any court or other tribunal).

                           2.8. COMPLIANCE. Except as set forth in the Company
         Disclosure Letter, neither the Company nor any Subsidiary is in
         conflict with, or in default or violation of (i) any law, rule,
         regulation, order, judgment or decree applicable to the Company or such
         subsidiary or by which any property or asset of the Company or such
         subsidiary is bound or affected ("LEGAL REQUIREMENT"), or (ii) any
         note, bond, mortgage, indenture, contract, agreement, lease, license,
         permit, franchise or other instrument or obligation to which the
         Company or such subsidiary is a party or by which the Company or such
         subsidiary or any property or asset of the Company or such subsidiary
         is bound or affected, in each case except for any such conflicts,
         defaults or violations that would not, individually or in the
         aggregate, have a Material Adverse Effect. Neither the Company nor any
         Subsidiary has received any notice or other communication from any
         Governmental Body regarding any actual or possible violation of, or
         failure to comply with, any Legal Requirement.



                                       9
<PAGE>

                           2.9. SEC DOCUMENTS; FINANCIAL STATEMENTS.

                                    (a) The information contained in the
                  following documents, did not, as of the date of the applicable
                  document, include 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 the light of
                  the circumstances in which they were made, not misleading, as
                  of their respective filing dates or, if amended, as so amended
                  (the following documents, collectively, the "SEC DOCUMENTS"),
                  provided that the representation in this sentence shall not
                  apply to any misstatement or omission in any SEC Document
                  filed prior to the date of this Agreement which was superseded
                  by a subsequent SEC Document filed prior to the date of this
                  Agreement:

                                             (i)  the Company's Annual Report
                           on Form 10-K for the year ended March 31, 2003; and

                                            (ii) the Company's definitive Proxy
                           Statement with respect to its 2003 Special Meeting
                           of Stockholders,  filed with the Commission  on April
                           3, 2003; and

                                    (b) In addition, as of the date of this
                  Agreement, the Company Disclosure Letter, when read together
                  with the information, qualifications and exceptions contained
                  in this Agreement, does not include any untrue statement of a
                  material fact or omit to state any material fact necessary to
                  make the statements therein, in the light of the circumstances
                  in which they were made, not misleading.

                                    (c) The Company has filed all forms, reports
                  and documents required to be filed by it with the SEC since
                  March 31, 2001, including without limitation the SEC
                  Documents. As of their respective dates, the SEC Documents
                  filed prior to the date hereof complied as to form in all
                  material respects with the applicable requirements of the
                  Securities Act, the Exchange Act, and the rules and
                  regulations thereunder.

                                    (d) The Company's Quarterly Report on Form
                  10-Q for the quarter ended December 31, 2002, includes
                  consolidated balance sheets as of December 31, 2001 and 2002
                  and consolidated statements of income for the three month and
                  nine month periods then ended (collectively, the "FINANCIAL
                  STATEMENTS").

                                    (e) Each of the consolidated balance sheets
                  of the Company included in or incorporated by reference into
                  the SEC Documents (including the related notes and schedules)
                  and the Financial Statements fairly presents in all material
                  respects the consolidated financial position of the Company as
                  of the date of such, and each of the consolidated statements
                  of income, retained earnings and cash flows of Company
                  included in or incorporated by reference into the SEC
                  Documents (including any related notes and schedules) and the
                  Financial Statements fairly presents in all material respects
                  the results of operations, retained earnings or cash flows, as
                  the case may be, of the Company for the periods set forth
                  therein (subject, in the case of unaudited statements, to
                  normal year-end audit adjustments that would not be material
                  in amount or effect), in each case in accordance with
                  generally accepted accounting principles consistently applied
                  during the periods involved, except as may be noted therein.


                                       10
<PAGE>



                           2.10. LITIGATION. Except as set forth in the SEC
         Documents or the Company Disclosure Letter, there are no claims,
         actions, suits, investigations, inquiries or proceedings (each, an
         "ACTION") pending against the Company or any of its Subsidiaries or, to
         the knowledge of the Company, threatened against the Company or any of
         its Subsidiaries, at law or in equity, or before or by any court,
         tribunal, arbitrator, mediator or any federal or state commission,
         board, bureau, agency or instrumentality, that, individually or in the
         aggregate, would reasonably be expected to have a Material Adverse
         Effect. Neither the Company nor any of its Subsidiaries is a party to
         or subject to the provisions of any order, writ, injunction, judgment
         or decree of any court or government agency or instrumentality.

                           2.11. ABSENCE OF CERTAIN CHANGES. Except as
         specifically contemplated by this Agreement or set forth in the Company
         Disclosure Letter, the SEC Documents, or the Financial Statements,
         since December 31, 2002, there has not been (i) any Material Adverse
         Change; (ii) any return of any capital or other distribution of assets
         to stockholders of Company (except to Company); (iii) any acquisition
         (by merger, consolidation, acquisition of stock and/or assets or
         otherwise) of any Person; or (iv) any transactions, other than in the
         ordinary course of business, consistent with past practices and
         reasonable business operations ("ORDINARY COURSE OF BUSINESS"), with
         any of its officers, directors, principal stockholders or employees or
         any Person affiliated with any of such persons.

                           2.12. PROPRIETARY ASSETS.

                                    (a) For purposes of this Agreement,
                  "PROPRIETARY ASSETS" shall mean all right, title and interest
                  of the Company and the Subsidiaries party to the Security
                  Agreement in and to the following items or types of property:
                  (i) every patent, patent application, trademark (whether
                  registered or unregistered), trademark application, trade
                  name, fictitious business name, service mark (whether
                  registered or unregistered), service mark application,
                  copyright (whether registered or unregistered), copyright
                  application, maskwork, maskwork application, trade secret,
                  know-how, customer list, franchise, system, computer software,
                  computer program, invention, design, blueprint, engineering
                  drawing, proprietary product, technology, proprietary right or
                  other intellectual property right or intangible asset; and
                  (ii) all licenses and other rights to use or exploit any of
                  the foregoing.

                                    (b) The Company Disclosure Letter sets
                  forth, with respect to each Proprietary Asset of the Company
                  and the Subsidiaries party to the Security Agreement
                  registered with any Governmental Body in the U.S., or for
                  which an application has been filed with any Governmental Body
                  in the U.S., (i) a brief description of such Proprietary Asset
                  and (ii) the names of the jurisdictions covered by the
                  applicable registration or application. The Company Disclosure
                  Letter identifies and provides a brief description of all
                  other material Proprietary Assets owned by the Company and the
                  Subsidiaries party to the Security Agreement, and identifies
                  and provides a brief description of each material Proprietary
                  Asset that is



                                       11
<PAGE>

                  registered with any Governmental Body in the U.S., or each
                  material asset for which an application has been filed with
                  any Governmental Body in the U.S., or source code version of
                  any software licensed to the Company or any Subsidiary party
                  to the Security Agreement by any Person (except for any
                  Proprietary Asset that is licensed to the Company or any
                  Subsidiary party to the Security Agreement under any third
                  party software license generally available to the public at a
                  cost of less than $10,000), and identifies such license
                  agreement under which such Proprietary Asset is being licensed
                  to the Company or any Subsidiary party to the Security
                  Agreement. Except as set forth in the Company Disclosure
                  Letter, the Company or its Subsidiaries have good, valid and
                  marketable title to each of the Proprietary Assets identified
                  in the Company Disclosure Letter as owned by it, free and
                  clear of all liens and other encumbrances (other than the
                  liens under the Company's existing credit facility (which
                  shall be cleared at the First Closing) and under the Security
                  Agreement); has a valid right to use all Proprietary Assets of
                  third parties identified in the Company Disclosure Letter; and
                  is not obligated to make any payment to any Person for the use
                  of any Proprietary Asset except as set forth in the applicable
                  license agreement. Except as set forth in the Company
                  Disclosure Letter, neither the Company nor any of its
                  Subsidiaries has developed jointly with any other Person any
                  material Proprietary Asset with respect to which such other
                  Person has any rights.

                                    (c) Each of the Company and the Subsidiaries
                  party to the Security Agreement has taken commercially
                  reasonable and customary measures and precautions to protect
                  and maintain the confidentiality and secrecy of all
                  Proprietary Assets of the Company and its Subsidiaries (except
                  Proprietary Assets whose value would be unimpaired by public
                  disclosure) and otherwise to maintain and protect the value of
                  all Proprietary Assets of the Company and its Subsidiaries.
                  Except as set forth in the Company Disclosure Letter, neither
                  the Company nor any of its Subsidiaries has (other than
                  pursuant to license agreements identified in the Company
                  Disclosure Letter) disclosed or delivered to any Person, or
                  permitted the disclosure or delivery to any Person of, (i) the
                  source code, or any portion or aspect of the source code, of
                  any Proprietary Asset, (ii) the object code, or any portion or
                  aspect of the object code, of any Proprietary Asset of the
                  Company and its Subsidiaries, except in the ordinary course of
                  its business or (iii) any patent applications (except as
                  required by law).

                                    (d) To the knowledge of the Company, (i)
                  none of the Proprietary Assets of the Company and its
                  Subsidiaries infringes or conflicts with any Proprietary Asset
                  owned or used by any other Person; (ii) neither the Company
                  nor any Subsidiary is infringing, misappropriating or making
                  any unlawful use of any Proprietary Asset owned or used by any
                  other Person; and (iii) no other Person is infringing,
                  misappropriating or making any unlawful use of, and no
                  Proprietary Asset owned or used by any other Person infringes
                  or conflicts with, any Proprietary Asset of the Company or any
                  of its Subsidiaries.


                                       12
<PAGE>



                                    (e) Except as set forth in the Company
                  Disclosure Letter, excluding warranty claims received by
                  Company or any of its Subsidiaries in the ordinary course of
                  business, there has not been any claim by any customer or
                  other Person alleging that any Proprietary Asset of the
                  Company or any of its Subsidiaries (including each version
                  thereof that has ever been licensed or otherwise made
                  available by the Company to any Person) does not conform in
                  all material respects with any specification, documentation,
                  performance standard, representation or statement made or
                  provided by or on behalf of the Company.

                                    (f) To the knowledge of the Company, the
                  Proprietary Assets of the Company and its Subsidiaries
                  constitute all the Proprietary Assets necessary to enable the
                  Company and its Subsidiaries to conduct their respective
                  businesses in the manner in which such businesses have been
                  and are being conducted. Except as set forth in the Company
                  Disclosure Letter (i) neither the Company nor any Subsidiary
                  has licensed any of its Proprietary Assets to any Person on an
                  exclusive, semi-exclusive or royalty-free basis, and (ii)
                  neither the Company nor any Subsidiary has entered into any
                  covenant not to compete or contract limiting such entity's
                  ability to exploit fully any of such entity's material
                  Proprietary Assets or to transact business in any material
                  market or geographical area or with any Person.

                                    (g) Except as set forth in the Company
                  Disclosure Letter, neither the Company nor any of its
                  Subsidiaries has at any time received any notice or other
                  communication (in writing or otherwise) of any actual,
                  alleged, possible or potential infringement, misappropriation
                  or unlawful use of, any Proprietary Asset owned or used by any
                  other Person.

                           2.13. NO ADVERSE ACTIONS. Except as set forth in the
         Company Disclosure Letter, there is no existing, pending or, to the
         knowledge of the Company, threatened termination, cancellation,
         limitation, modification or change in the business relationship of the
         Company or any of its Subsidiaries, with any supplier, customer or
         other Person except such as would not reasonably be expected,
         individually or in the aggregate, to have a Material Adverse Effect.

                           2.14. REGISTRATION RIGHTS. Except as set forth in the
         Registration Rights Agreement, the SEC Documents, or in the Company
         Disclosure Letter, the Company is not under any obligation to register
         under the Securities Act any of its currently outstanding securities or
         any securities issuable upon exercise or conversion of its currently
         outstanding securities nor is the Company obligated to register or
         qualify any such securities under any state securities or blue sky
         laws.

                           2.15. CORPORATE DOCUMENTS. The Company's Certificate
         of Incorporation and Bylaws, each as amended to date, which have been
         requested and previously provided to the Investors are true, correct
         and complete and contain all amendments thereto; provided that the
         Amendment will be filed prior to the Second Closing Date.

                           2.16. DISCLOSURE. No representation or warranty of
         the Company herein, no exhibit or schedule hereto, and no information
         contained or referenced in the SEC Documents, when read together,
         contains or will contain any untrue statement of a material fact or
         omits or will omit to state a material



                                       13
<PAGE>

         fact necessary in order to make the statements contained herein or
         therein, in light of the circumstances under which they were made, not
         misleading. On or before 9:00 a.m., New York City Time, on the first
         business day after the First Closing, the Company shall file a Current
         Report on Form 8-K describing the material terms of the transactions
         contemplated by this Agreement, and disclosing such portions of the
         Transaction Documents as contain material nonpublic information with
         respect to the Company that has not previously been publicly disclosed
         by the Company, and attaching as an exhibit to such Form 8-K a form of
         this Agreement.

                           2.17. USE OF PROCEEDS. The net proceeds received by
         the Company from the sale of the Securities shall be used by the
         Company for working capital and general corporate purposes, including
         without limitation to support the operations of each of the
         Subsidiaries.

                  3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each
Investor represents and warrants to the Company as follows:

                           3.1. AUTHORIZATION. Such Investor (i) has full power
         and authority to execute, deliver and perform this Agreement and the
         other Transaction Documents to which it is a party and to incur the
         obligations herein and therein and (ii) if applicable has been
         authorized by all necessary corporate or equivalent action to execute,
         deliver and perform the Amendment, this Agreement and the other
         Transaction Documents and to consummate the Contemplated Transactions.
         Each of the Amendment, this Agreement and the other Transaction
         Documents is a valid and binding obligation of such Investor
         enforceable in accordance with its terms, except as limited by
         applicable bankruptcy, reorganization, insolvency, moratorium or
         similar laws affecting the enforcement of creditors' rights and the
         availability of equitable remedies (regardless of whether such
         enforceability is considered in a proceeding at law or equity).

                           3.2. BROKERS AND FINDERS. Such Investor has not
         retained any investment banker, broker or finder in connection with the
         Contemplated Transactions.

                  4. SECURITIES LAWS.

                           4.1. SECURITIES LAWS REPRESENTATIONS AND COVENANTS OF
         INVESTORS.

                                    (a) This Agreement is made with each
                  Investor in reliance upon such Investor's representation to
                  the Company, which by such Investor's execution of this
                  Agreement such Investor hereby confirms, that the Securities
                  to be received by such Investor will be acquired for
                  investment for such Investor's own account, not as a nominee
                  or agent, and not with a view to the resale or distribution of
                  any part thereof such that such Investors would constitute an
                  "underwriter" under the


                                       14
<PAGE>



                  Securities Act; provided that this representation and warranty
                  shall not limit the Investor's right to sell the Underlying
                  Shares pursuant to the Registration Rights Agreement or in
                  compliance with an exemption from registration under the
                  Securities Act or the Investor's right to indemnification
                  under this Agreement or the Registration Rights Agreement.

                                    (b) Each Investor understands and
                  acknowledges that the offering of the Securities pursuant to
                  this Agreement will not be registered under the Securities Act
                  or qualified under any Blue Sky Laws on the grounds that the
                  offering and sale of the Securities are exempt from
                  registration and qualification, respectively, under the
                  Securities Act and the Blue Sky Laws.

                                    (c) Each Investor covenants that, unless the
                  Purchased Debentures, the Purchased Warrants, the Underlying
                  Shares or any other shares of capital stock of the Company
                  received in respect of the foregoing have been registered
                  pursuant to the Registration Rights Agreement being entered
                  into among the Company and the Investors, such Investor will
                  not dispose of such securities unless and until such Investor
                  shall have notified the Company of the proposed disposition
                  and shall have furnished the Company with an opinion of
                  counsel reasonably satisfactory in form and substance to the
                  Company to the effect that (x) such disposition will not
                  require registration under the Securities Act and (y)
                  appropriate action necessary for compliance with the
                  Securities Act and any applicable state, local or foreign law
                  has been taken; PROVIDED, HOWEVER, that an Investor may
                  dispose of such securities without providing the opinion
                  referred to above if the Company has been provided with
                  adequate assurance that such disposition has been made in
                  compliance with Rule 144 under the Securities Act (or any
                  similar rule).

                                    (d) Each Investor represents that (i) such
                  Investor is able to fend for itself in the Contemplated
                  Transactions; (ii) such Investor has such knowledge and
                  experience in financial and business matters as to be capable
                  of evaluating the merits and risks of such Investor's
                  prospective investment in the Securities; (iii) such Investor
                  has the ability to bear the economic risks of such Investor's
                  prospective investment and can afford the complete loss of
                  such investment; (iv) such Investor has been furnished with
                  and has had access to such information as is in the Company
                  Disclosure Letter together with the opportunity to obtain such
                  additional information as it requested to verify the accuracy
                  of the information supplied; (v) such Investor has had access
                  to officers of the Company and an opportunity to ask questions
                  of and receive answers from such officers and has had all
                  questions that have been asked by such Investor satisfactorily
                  answered by the Company; and (vi) such Investor has read and
                  understands the Risk Factors set forth on Exhibit 8.

                                    (e) Each Investor further represents by
                  execution of this Agreement that such Investor qualifies as an
                  "accredited investor" as such term is defined under Rule 501
                  promulgated under the Securities Act. Any Investor that is a
                  corporation, a partnership, a limited liability company, a
                  trust or other business entity further represents by execution
                  of this Agreement that it has not been organized for the
                  purpose of purchasing the Securities.


                                       15
<PAGE>



                                    (f) By acceptance hereof, each Investor
                  agrees that the Purchased Debentures, the Purchased Warrants,
                  the Underlying Shares and any shares of capital stock of the
                  Company received in respect of the foregoing held by it may
                  not be sold by such Investor without registration under the
                  Securities Act or an exemption therefrom, and therefore such
                  Investor may be required to hold such securities for an
                  indeterminate period.

                           4.2. LEGENDS. All certificates for the Purchased
         Debentures, Purchased Warrants and the Underlying Shares, and each
         certificate representing any shares of capital stock of the Company
         received in respect of the foregoing, whether by reason of a stock
         split or share reclassification thereof, a stock dividend thereon or
         otherwise and each certificate for any such securities issued to
         subsequent transferees of any such certificate (unless otherwise
         permitted herein) shall bear the following legend:

                    "THE SECURITIES  REPRESENTED BY THIS  INSTRUMENT  HAVE  BEEN
                  ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
                  SECURITIES  ACT OF 1933.  SUCH  SECURITIES  MAY NOT BE SOLD OR
                  TRANSFERRED  IN THE ABSENCE OF  REGISTRATION  OR AN  EXEMPTION
                  THEREFROM UNDER SAID ACT."

                  5. ADDITIONAL COVENANTS OF THE COMPANY.

                           5.1. REPORTS, INFORMATION, SHARES.

                                    (a) The Company shall cooperate with each
                  Investor in supplying such information as may be reasonably
                  requested by such Investor to complete and file any
                  information reporting forms presently or hereafter required by
                  the SEC as a condition to the availability of an exemption,
                  presently existing or hereafter adopted, from the Securities
                  Act for the sale of any of the Purchased Debentures, the
                  Purchased Warrants, the Underlying Shares and shares of
                  capital stock of the Company received in respect of the
                  foregoing.

                                    (b) For so long as an Investor (or the
                  successor or assign of such Investor) holds either Securities
                  or Underlying Shares, the Company shall deliver to such
                  Investor (or the successor or assign of such Investor),
                  contemporaneously with delivery to other holders of Common
                  Stock, a copy of each report of the Company delivered to
                  holders of Common Stock.

                                    (c) The Company shall keep reserved for
                  issuance a sufficient number of authorized but unissued shares
                  of Common Stock (or other securities into which the Purchased
                  Debentures are convertible or for which the Purchased Warrants
                  are then exercisable) so that the Purchased Debentures and
                  Purchased Warrants may be converted or exercised to purchase
                  Common Stock (or such other securities) at any time.


                                       16
<PAGE>



                           5.2. EXPENSES; INDEMNIFICATION.

                                    (a) The Company agrees to pay on each
                  Closing Date and save the Investors harmless against liability
                  for the payment of any stamp or similar taxes (including
                  interest and penalties, if any) that may be determined to be
                  payable in respect of the execution and delivery of this
                  Agreement, the issue and sale of any Securities and the
                  Underlying Shares, the expense of preparing and issuing the
                  Securities and the Underlying Shares, the cost of delivering
                  the Securities and the Underlying Shares of each Investor to
                  such Investor's address, insured in accordance with customary
                  practice, and the costs and expenses incurred in the
                  preparation of all certificates and letters on behalf of the
                  Company and of the Company's performance and compliance with
                  all agreements and conditions contained herein on its part to
                  be performed or complied with. Each Investor shall be
                  responsible for its out-of-pocket expenses arising in
                  connection with the Contemplated Transactions, except that, at
                  the Second Closing, the Company shall pay fees and
                  disbursements of counsel to the Investors as set forth in
                  Section 6.9.

                                    (b) The Company hereby agrees and
                  acknowledges that the Investors have been induced to enter
                  into this Agreement and to purchase the Securities hereunder,
                  in part, based upon the representations, warranties and
                  covenants of the Company contained herein. The Company hereby
                  agrees to pay, indemnify and hold harmless the Investors and
                  any director, officer or employee of any Investor against all
                  claims, losses and damages resulting from any and all legal or
                  administrative proceedings, including without limitation,
                  reasonable attorneys' fees and expenses incurred in connection
                  therewith (collectively, "LOSS"), resulting from a breach by
                  the Company of any representation or warranty of the Company
                  contained herein or the failure of the Company to perform any
                  covenant made herein.

                                    (c) As soon as reasonably practicable after
                  receipt by an Investor of notice of any Loss in respect of
                  which the Company may be liable under this Section 5.2, the
                  Investor shall give notice thereof to the Company. Each
                  Investor may, at its option, claim indemnity under this
                  Section 5.2 as soon as a claim has been threatened by a third
                  party, regardless of whether an actual Loss has been suffered,
                  so long as counsel for such Investor shall in good faith
                  determine that such claim is not frivolous and that such
                  Investor may be liable or otherwise incur a Loss as a result
                  thereof and shall give notice of such determination to the
                  Company. Each Investor shall permit the Company, at the
                  Company's option and expense, to assume the defense of any
                  such claim by counsel mutually and reasonably satisfactory to
                  the Company and the Investors who are subject to such claim,
                  and to settle or otherwise dispose of the same; PROVIDED,
                  HOWEVER, that each Investor may at all times participate in
                  such defense at such Investor's expense; and PROVIDED,
                  FURTHER, that the Company shall not, in defense of any such
                  claim, except with the prior written consent of each Investor
                  subject to such claim, (i) consent to the entry of any
                  judgment that does not include as an unconditional term
                  thereof the giving by the claimant or plaintiff in question to
                  each Investor and its affiliates of a release of all
                  liabilities in respect of such claims, or (ii) consent to any
                  settlement of such claim. If

                                       17

<PAGE>


                  the Company does not promptly assume the defense of such claim
                  irrespective of whether such inability is due to the inability
                  of the afore-described Investors and the Company to mutually
                  agree as to the choice of counsel, or if any such counsel is
                  unable to represent one or more of the Investors due to a
                  conflict or potential conflict of interest, then an Investor
                  may assume such defense and be entitled to indemnification and
                  prompt reimbursement from the Company for such Investor's
                  costs and expenses incurred in connection therewith, including
                  without limitation, reasonable attorneys' fees and expenses.
                  Such fees and expenses shall be reimbursed to the Investors as
                  soon as practicable after submission of invoices to the
                  Company.

                           5.3. CONDUCT OF BUSINESS OF THE COMPANY. From the
         date of the execution of this Agreement until the Second Closing Date,
         the Company, unless otherwise expressly contemplated by this Agreement
         or consented to in writing by the Investors, will, and will cause its
         Subsidiaries to, carry on their respective businesses only in the
         Ordinary Course of Business, use their respective reasonable best
         efforts to preserve intact their business organizations and assets,
         retain the services of their officers and employees and maintain their
         relationships with customers, suppliers, licensors, licensees and
         others having business dealings with them. Without limiting the
         generality of the foregoing, from the date of the execution of this
         Agreement until the Second Closing Date, the Company shall not, and
         shall not permit its Subsidiaries to:

                                    (a) (i) increase in any manner the
                  compensation or fringe benefits of, or pay any bonus to, any
                  director, officer or employee, except for increases or bonuses
                  in the Ordinary Course of Business to employees who are not
                  directors or officers and except pursuant to existing
                  arrangements previously disclosed to or approved in writing by
                  the Investors; (ii) grant any severance or termination pay
                  (other than pursuant to the normal severance practices or
                  existing agreements of the Company or its subsidiary in effect
                  on the date of this Agreement) to, or enter into any severance
                  agreement with, any director, officer or employee, or enter
                  into any employment agreement with any director, officer or
                  employee; (iii) establish, adopt, enter into or amend any plan
                  or other arrangement, except as may be required to comply with
                  applicable law (except the execution and delivery of the
                  Amendment ); (iv) pay any benefit not provided for under any
                  plan or other arrangement; (v) grant any awards under any
                  bonus, incentive, performance or other compensation plan or
                  arrangement or plan or other arrangement (including the grant
                  of stock options, stock appreciation rights, stock-based or
                  stock-related awards, performance units or restricted stock,
                  or the removal of existing restrictions in any plan or other
                  arrangement or agreement or awards made thereunder), except
                  for grants in the Ordinary Course of Business;

                                    (b) declare, set aside or pay any dividend
                  on, or make any other distribution in respect of, outstanding
                  shares of capital stock;

                                    (c) (i) redeem, purchase or otherwise
                  acquire any shares of capital stock of the Company or any
                  securities or obligations convertible into or exchangeable for
                  any shares of capital stock of the Company, or any options,



                                       18

<PAGE>


                  warrants or conversion or other rights to acquire any shares
                  of capital stock of the Company or any such securities or
                  obligations, or any other securities thereof, other than
                  redemption and purchases from departing employees in the
                  Ordinary Course of Business; (ii) effect any reorganization or
                  recapitalization; or (iii) split, combine or reclassify any of
                  its capital stock or issue or authorize or propose the
                  issuance of any other securities in respect of, in lieu of or
                  in substitution for, shares of its capital stock;

                                    (d) except upon the exercise of Company
                  stock options in accordance with their terms, issue, deliver,
                  award, grant or sell, or authorize the issuance, delivery,
                  award, grant or sale (including the grant of any limitations
                  in voting rights or other encumbrances) of, any shares of any
                  class of its capital stock (including shares held in
                  treasury), any securities convertible into or exercisable or
                  exchangeable for any such shares, or any rights, warrants or
                  options to acquire, any such shares, or amend or otherwise
                  modify the terms of any such rights, warrants or options the
                  effect of which shall be to make such terms more favorable to
                  the holders thereof;

                                    (e) acquire or agree to acquire, by merging
                  or consolidating with, by purchasing an equity interest in or
                  a portion of the assets of, or by any other manner, any
                  business or any corporation, partnership, association or other
                  business organization or division thereof, or otherwise
                  acquire or agree to acquire any assets of any other person
                  (other than the purchase of assets from suppliers or vendors
                  in the Ordinary Course of Business);

                                    (f) sell, lease, exchange, mortgage, pledge,
                  transfer or otherwise subject to any encumbrance or dispose
                  of, or agree to sell, lease, exchange, mortgage, pledge,
                  transfer or otherwise subject to any encumbrance or dispose
                  of, any of its assets, except for sales, dispositions or
                  transfers in the Ordinary Course of Business;

                                    (g) adopt any amendments to its articles or
                  certificate of incorporation, bylaws or other comparable
                  charter or organizational documents (except the execution and
                  delivery of the Amendment );

                                    (h) pay, discharge, settle or satisfy any
                  claims, liabilities or obligations (whether absolute or
                  contingent, matured or unmatured, known or unknown), other
                  than the payment, discharge or satisfaction, in the Ordinary
                  Course of Business or in accordance with their terms, of
                  liabilities reflected or reserved against in, or contemplated
                  by, the most recent financial statement or incurred in the
                  Ordinary Course of Business, or waive any material benefits
                  of, or agree to modify in any material respect, any
                  confidentiality, standstill or similar agreements to which the
                  Company is a party (except in connection with the consent of
                  Silicon Valley Bank to the Contemplated Transactions);


                                       19
<PAGE>




                                    (i) except in the Ordinary Course of
                  Business, waive, release or assign any rights or claims, or
                  modify, amend or terminate any agreement to which the Company
                  is a party;

                                    (j) make any change in any method of
                  accounting or accounting practice or policy other than those
                  required by GAAP or a governmental entity; or

                                    (k) authorize, or commit or agree to do any
                  of the foregoing.


                           5.4. PROXY STATEMENT; STOCKHOLDERS MEETING.

                                    (a) Promptly following the execution and
                  delivery of this Agreement, the Company shall take all action
                  necessary to call a meeting of its stockholders (together with
                  any adjournments or postponements thereof, the "Stockholders
                  Meeting") for the purpose of seeking approval of the Company's
                  stockholders (the "Stockholder Approvals") for the issuance
                  and sale to the Investors of the Securities and any other
                  actions necessary to meet the Second Closing Conditions (the
                  "Proposal"). In connection therewith, the Company will
                  promptly prepare and file with the SEC proxy materials
                  (including a proxy statement(as amended or supplemented, the
                  "Proxy Statement") and form of proxy) for use at the
                  Stockholders Meeting and, after receiving and promptly
                  responding to any comments of the SEC thereon, shall promptly
                  mail such proxy materials to the stockholders of the Company.
                  Each Investor shall promptly furnish in writing to the Company
                  such information relating to such Investor and its investment
                  in the Company as the Company may reasonably request for
                  inclusion in such proxy materials; provided that no Investor
                  shall be obliged to furnish any such information if there has
                  been no change in such Investor's beneficial ownership (as
                  defined under the Exchange Act) of Common Stock since the date
                  of this Agreement. The Company will comply with Section 14(a)
                  of the Exchange Act and the rules promulgated thereunder in
                  relation to any proxy statement and any form of proxy to be
                  sent to the stockholders of the Company in connection with the
                  Stockholders Meeting, and the Proxy Statement shall not, on
                  the date the Proxy Statement (or any amendment thereof or
                  supplement thereto) is first mailed to stockholders or at the
                  time of the Stockholders Meeting, contain any statement which,
                  at the time and in the light of the circumstances under which
                  it is made, is false or misleading with respect to any
                  material fact, or which omits to state any material fact
                  necessary in order to make the statements therein not false or
                  misleading or necessary to correct any statement in any
                  earlier communication with respect to the solicitation of a
                  proxy for the Stockholders Meeting or the subject matter
                  thereof which has become false or misleading. If the Company
                  should discover at any time prior to the Second Closing any
                  event relating to the Company or any of its Subsidiaries or
                  any of their respective affiliates, officers or directors that
                  is required to be set forth in a supplement or amendment to
                  the Proxy Statement, in addition to the Company's obligations
                  under the Exchange Act, the Company will promptly inform its
                  stockholders and the Investors thereof.


                                       20
<PAGE>



                                    (b) Subject to their fiduciary obligations
                  under applicable law (as determined in good faith by the
                  Company's Board of Directors after consultation with the
                  Company's outside counsel), the Company's Board of Directors
                  shall recommend to the Company's stockholders (and not revoke
                  or amend such recommendation) that the stockholders vote in
                  favor of the Proposal and shall cause the Company to take all
                  commercially reasonable action (including, without limitation,
                  the hiring of a proxy solicitation firm of nationally
                  recognized standing) to solicit the Stockholder Approvals.
                  Whether or not the Company's Board of Directors determines at
                  any time after the date hereof that, due to its fiduciary
                  duties, it must revoke or amend its recommendation to the
                  Company's stockholders, the Company is required to, and will
                  take, in accordance with applicable law and its Certificate of
                  Incorporation and Bylaws, all action necessary to convene the
                  Stockholders Meeting as promptly as practicable to consider
                  and vote upon the approval of the Proposal.

                           (c) In the event that the Company's Board of
                  Directors has withdrawn or modified its recommendation to
                  stockholders pursuant to the provisions of Section 5.4(b),
                  upon termination of the Agreement in accordance with its terms
                  the Company shall pay to the Investors, pro rata based on
                  their pro rata share of the aggregate purchase price, a
                  breakup fee equal to the aggregate amount invested by the
                  Investors at the First Closing in cash.

                           5.5      DESIGNATED DIRECTOR.

                           (a) So long as Special Situations Fund III, L.P., and
                  its affiliates ("SSF") continue to beneficially own at least
                  5,500,000 shares of Common Stock (appropriately adjusted for
                  any stock split, reverse stock split, stock dividend or other
                  reclassification or combination of the Common Stock occurring
                  after the date hereof) SSF shall have the right to designate
                  one individual, reasonably acceptable to the Company, as a
                  member of the Company's Board of Directors (such person,
                  subject to replacement by SSF in the event of such
                  individual's death, resignation or removal, the "SSF
                  Designee"), and the Company will use its best efforts to cause
                  the SSF Designee to be elected to the Board of Directors of
                  the Company and agrees that it will recommend that the SSF
                  Designee be elected at each meeting of stockholders in which
                  the Company's stockholders elect directors.

                                    (b) Subject to any limitations imposed by
                  applicable law, the SSF Designee shall be entitled to the same
                  notices, voting rights, information and perquisites, including
                  without limitation stock options, indemnification by the
                  Company, reimbursement of expenses and other similar rights in
                  connection with such person's membership on the Board of
                  Directors of the Company, as every other non-executive member
                  of the Board of Directors of the Company.

                                    (c) The Company shall use its best efforts
                  to cause the removal forthwith of the SSF Designee when (and
                  only when) such removal is requested for any reason, with or
                  without cause, by SSF.


                                       21
<PAGE>



                  6. MISCELLANEOUS.

                           6.1. ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. This
         Agreement and the other Transaction Documents constitute the entire
         contract between the parties relative to the subject matter hereof and
         thereof, and no party shall be liable or bound to the other in any
         manner by any warranties, representations or covenants except as
         specifically set forth herein or therein. This Agreement and the other
         Transaction Documents supersede any previous agreement among the
         parties with respect to the Securities. The terms and conditions of
         this Agreement shall inure to the benefit of and be binding upon the
         respective executors, administrators, heirs, successors and assigns of
         the parties. Except as expressly provided herein, nothing in this
         Agreement, expressed or implied, is intended to confer upon any party,
         other than the parties hereto, any rights, remedies, obligations or
         liabilities under or by reason of this Agreement.

                           6.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
         Notwithstanding any right of the Investors fully to investigate the
         affairs of the Company and notwithstanding any knowledge of facts
         determined or determinable by any Investor pursuant to such right of
         investigation, each Investor has the right to rely fully upon the
         representations, warranties, covenants and agreements of the Company
         contained in this Agreement or in any documents delivered pursuant to
         this Agreement. All such representations and warranties of the Company
         shall survive the execution and delivery of this Agreement and the
         Closing hereunder and shall continue in full force and effect for one
         year after the Second Closing. The covenants of the Company set forth
         in Section 5 shall remain in effect as set forth therein.

                           6.3. GOVERNING LAW; JURISDICTION. This Agreement
         shall be governed by and construed in accordance with the laws of the
         State of New York without regard to principles of conflicts of law.
         Each party hereby irrevocably consents and submits to the jurisdiction
         of any New York State or United States Federal Court sitting in the
         State of New York, County of New York, over any action or proceeding
         arising out of or relating to this Agreement and irrevocably consents
         to the service of any and all process in any such action or proceeding
         by registered mail addressed to such party at its address specified in
         Section 6.6 (or as otherwise noticed to the other party). Each party
         further waives any objection to venue in New York and any objection to
         an action or proceeding in such state and county on the basis of FORUM
         NON conveniens. Each party also waives any right to trial by jury.

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

                           6.5. HEADINGS. The headings of the sections of this
         Agreement are for convenience and shall not by themselves determine the
         interpretation of this Agreement.


                                       22
<PAGE>



                           6.6. NOTICES. Any notice required or permitted
         hereunder shall be given in writing and shall be deemed effectively
         given upon personal delivery, (ii) delivery by fax (with answer back
         confirmed) or (iii) delivery by electronic mail (with reception
         confirmed), addressed to a party at its address or sent to the fax
         number or e-mail address shown below or at such other address, fax
         number or e-mail address as such party may designate by three days
         advance notice to the other party.

         Any notice to the Investors shall be sent to the addresses set forth on
the signature pages hereof, with a copy to:

                Hahn & Hessen LLP
                488 Madison Avenue
                New York, New York 10022
                Attention:  James Kardon, Esq.
                Fax Number:  (212) 478-7400
                e-mail:  JKARDON@HAHNHESSEN.COM

         Any notice to the Company shall be sent to:

                Tegal Corporation
                2201 South McDowell Boulevard
                Petaluma, California 94954
                Attention:  President
                Fax Number:  (707) 765-9311
                Email:  mparodi@tegal.com

                       with a copy to:

                Latham & Watkins LLP
                505 Montgomery Street, Suite 1900
                San Francisco, California 94111
                Attention:  Taitt Sato, Esq.
                Fax Number:  (415) 395-8095
                Email:  taitt.sato@lw.com

                           6.7. RIGHTS OF TRANSFEREES. Any and all rights and
         obligations of each of the Investors herein incident to the ownership
         of Securities or the Underlying Shares shall pass successively to all
         subsequent transferees of such securities until extinguished pursuant
         to the terms hereof.

                           6.8. SEVERABILITY. Whenever possible, each provision
         of this Agreement shall be interpreted in such a manner as to be
         effective and valid under applicable law, but if any provision of this
         Agreement shall be deemed prohibited or invalid under such applicable
         law, such provision shall be ineffective to the extent of such
         prohibition or invalidity, and such prohibition or invalidity shall not
         invalidate the remainder of such provision or any other provision of
         this Agreement.


                                       23
<PAGE>


                           6.9. EXPENSES. Irrespective of whether any Closing is
         effected, the Company shall pay all costs and expenses that it incurs
         with respect to the negotiation, execution, delivery and performance of
         this Agreement. Each Investor shall be responsible for all costs
         incurred by such Investor in connection with the negotiation,
         execution, delivery and performance of this Agreement including, but
         not limited to, legal fees and expenses, except that, at the Second
         Closing, the Company shall pay legal fees and expenses of $60,000 to
         Hahn & Hessen LLP, as counsel to the Investors.

                           6.10. AMENDMENTS AND WAIVERS. Unless a particular
         provision or section of this Agreement requires otherwise explicitly in
         a particular instance, any provision of this Agreement may be amended
         and the observance of any provision of this Agreement may be waived
         (either generally or in a particular instance and either retroactively
         or prospectively), only with the written consent of the Company and the
         holders of Securities convertible or exercisable into at least 75% of
         the Underlying Shares (not including for this purpose any Underlying
         Shares which have been sold to the public pursuant to a registration
         statement under the Securities Act or an exemption therefrom). Any
         amendment or waiver effected in accordance with this Section 6.10 shall
         be binding upon each holder of any Securities at the time outstanding
         (including securities into which such Securities are convertible), each
         future holder of all such Securities, and the Company.




                     [REMAINDER OF PAGE INTENTIONALLY BLANK]



                                       24
<PAGE>



                                 SIGNATURE PAGE
                                       TO
                                TEGAL CORPORATION
                             SUBSCRIPTION AGREEMENT
                              Dated _________, 2003



         IF the PURCHASER is an INDIVIDUAL, please complete the following:

         IN WITNESS WHEREOF, the undersigned has executed this Agreement this
____ day of ____, 2003.

<TABLE>
<CAPTION>
<S>                                                          <C>
Amount of Subscription:
$                                                            ------------------------------
 ------------------
                                                             Print Name

Number of Units to be Purchased:
                  , including                                ------------------------------
-------------------
$____________ principal amount of  Purchased Debentures      Signature of Investor
and ________ Purchased Warrants


                                                             ------------------------------
                                                             Social Security Number


                                                             ------------------------------
                                                             Address and Fax Number


                                                             ------------------------------
                                                             E-mail Address

ACCEPTED AND AGREED:

TEGAL CORPORATION


By:
   ---------------------------------


Dated:
      ------------------------------

</TABLE>


                                       25
<PAGE>

                                 SIGNATURE PAGE
                                       TO
                                TEGAL CORPORATION
                             SUBSCRIPTION AGREEMENT
                               Dated _______, 2003

         IF the INTERESTS will be held as JOINT TENANTS, as TENANTS IN COMMON,
or as COMMUNITY PROPERTY, please complete the following:

         IN WITNESS WHEREOF, the undersigned has executed this Agreement this
___ day of ____, 2003.


<TABLE>
<CAPTION>
<S>                                                          <C>
Amount of Subscription:                                      ----------------------------------
$                                                            Print Name of Purchaser
 ------------------

Number of Units to be Purchased:                             ----------------------------------
                  , including                                Signature of a Purchaser
$____________ principal amount of  Purchased Debentures
and ________ Purchased Warrants
                                                             -----------------------------------
                                                             Social Security Number
                                                             -----------------------------------
                                                             Print Name of Spouse or Other Purchaser

                                                             -----------------------------------
                                                             Signature of Spouse or Other Purchaser
                                                             -----------------------------------
                                                             Social Security Number

                                                             -----------------------------------
                                                             Address

                                                             -----------------------------------
                                                             Fax Number

                                                             ------------------------------------
                                                             E-mail Address
ACCEPTED AND AGREED:

TEGAL CORPORATION


By:
   --------------------------------------------------

Dated:
      --------------------------------------
</TABLE>



                                       26
<PAGE>

                                 SIGNATURE PAGE
                                       TO
                                TEGAL CORPORATION
                             SUBSCRIPTION AGREEMENT
                               Dated ______, 2003

         IF the PURCHASER is a PARTNERSHIP, CORPORATION, LIMITED LIABILITY
COMPANY, TRUST or OTHER ENTITY, please complete the following:

         IN WITNESS WHEREOF, the undersigned has executed this Agreement this
____ day of ____, 2003.



<TABLE>
<CAPTION>
<S>                                                          <C>
Number of Units to be Purchased:
                  , including
$____________ principal amount of  Purchased Debentures
and ________ Purchased Warrants

                                                             -----------------------------------
                                                             Print Full Legal Name of Partnership,
                                                             Company, Limited Liability Company,
                                                             Trust or Other Entity

                                                             By:
                                                                 -------------------------------
                                                                      (Authorized Signatory)
                                                             Name:
                                                                  ------------------------------

                                                             Title:
                                                                    ----------------------------

                                                             Address and Fax Number:
                                                                                    ------------


                                                             -----------------------------------

                                                             Taxpayer Identification Number:
                                                                                            --------------
                           Date and State of Incorporation or Organization:
                                                                            ------------------------------
                           Date on which Taxable Year Ends:
                                                           -----------------------------------------------

                                                           E-mail Address:
                                                                           -------------------------------

ACCEPTED AND AGREED:

TEGAL CORPORATION


By:
   --------------------------------------------------
Name:
      -----------------------------------------------
Title:
      -----------------------------------------------
Dated:
       ----------------------------------------------

</TABLE>

<PAGE>


                             EXHIBITS AND SCHEDULES
                       TO THE UNIT SUBSCRIPTION AGREEMENT


Exhibit 1:        Form of Debentures
Exhibit 2:        Form of Warrants
Exhibit 3:        Form of Registration Rights Agreement
Exhibit 4:        Form of Financial Advisory Agreement
Exhibit 5:        Form of Subsidiary Guaranty
Exhibit 6:        Form of Security Agreement
Exhibit 7:        Legal Opinion
Exhibit 8:        Risk Factors
Exhibit 9:        Company Disclosure Letter


<PAGE>

                                   EXHIBIT 5

                                    Form of
                               SUBSIDIARY GUARANTY

New York, New York                                                _______, 2003

         FOR VALUE RECEIVED, and in consideration of the purchase of the
Debentures by the Holders (as those terms are defined below) from TEGAL
CORPORATION (the "Corporation") and for other good and valuable consideration,
and to induce the Holders to purchase the Debentures, the undersigned (and each
of them if more than one, the liability under this Guaranty being joint and
several) (jointly and severally referred to as "Guarantor" or "the undersigned")
unconditionally guarantee to the Holders, their appointed representative or
collateral agent (the "Agent"), their successors, endorsees and assigns, the
prompt payment and performance when due (whether by acceleration or otherwise)
of all present and future obligations and liabilities of any and all kinds of
the Corporation to Agent and the Holders and of all instruments of any nature
evidencing or relating to any such obligations and liabilities upon which the
Corporation is or may become liable to Agent and the Holders, whether due or to
become due, secured or unsecured, absolute or contingent, joint or several, and
however or whenever acquired by Agent and the Holders, arising under, out of, or
in connection with those certain 2% Convertible Secured Debentures due June __,
2011 dated as of June __, 2003 (as amended, modified, restated or supplemented
from time to time, collectively, the "Debentures") made by the Corporation to
the holders listed therein (collectively, the "Holders") or any documents,
instruments or agreements relating to or executed in connection with the
Debentures (together with the Debentures, as each may be amended, modified,
restated or supplemented from time to time, the "Debenture Documents"; all of
such obligations and liabilities are herein collectively referred to as the
"Obligations"), and irrespective of the genuineness, validity, regularity or
enforceability of such Obligations, or of any instrument evidencing any of the
Obligations or of any collateral therefor or of the existence or extent of such
collateral, and irrespective of the allowability, allowance or disallowance of
any or all of the Obligations in any case commenced by or against the
Corporation under Title 11, United States Code, including, without limitation,
obligations or indebtedness of the Corporation for post-petition interest, fees,
costs and charges that would have accrued or been added to the Obligations but
for the commencement of such case. In furtherance of the foregoing, the
undersigned hereby agree as follows:

         1. NO IMPAIRMENT. Agent and Holders may at any time and from time to
time, either before or after the maturity thereof, without notice to or further
consent of the undersigned, extend the time of payment of, exchange or surrender
any collateral for, renew or extend any of the Obligations or increase or
decrease the interest rate thereon, and may also make any agreement with the
Corporation or with any other party to or person liable on any of the
Obligations, or interested therein, for the extension, renewal, payment,
compromise, discharge or release thereof, in whole or in part, or for any
modification of the terms thereof or of any agreement among Agent and/or Holders
and the Corporation, or make any election of rights Agent and/or Holders may
deem desirable under the United States Bankruptcy Code, as amended, or any other
federal or state bankruptcy, reorganization, moratorium or insolvency law
relating to or affecting the enforcement of creditors' rights generally (any of
the foregoing, an "Insolvency Law") without in any way impairing or affecting
this Guaranty. This instrument shall be effective regardless of the subsequent
reincorporation, merger or consolidation of the Corporation, or any change in

<PAGE>

the composition, nature, personnel or location of the Corporation and shall
extend to any successor entity to the Corporation, including a debtor in
possession or the like under any Insolvency Law.

         2. GUARANTY ABSOLUTE. The undersigned guarantees that the Obligations
will be paid strictly in accordance with the terms of the Debenture and/or any
other document, instrument or agreement creating or evidencing the Obligations,
regardless of any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of the Corporation with
respect thereto. Guarantor hereby knowingly accepts the full range of risk
encompassed within a contract of "continuing guaranty" which risk includes the
possibility that the Corporation will contract additional indebtedness for which
Guarantor may be liable hereunder after the Corporation's financial condition or
ability to pay its lawful debts when they fall due has deteriorated, whether or
not the Corporation has properly authorized incurring such additional
indebtedness. The undersigned acknowledge that no oral representations have been
made by Agent or Holders to induce the undersigned to enter into this Guaranty.
The liability of the undersigned under this Guaranty shall be absolute and
unconditional, in accordance with its terms, and shall remain in full force and
effect without regard to, and shall not be released, suspended, discharged,
terminated or otherwise affected by, any circumstance or occurrence whatsoever,
including, without limitation: (a) any waiver, indulgence, renewal, extension,
amendment or modification of or addition, consent or supplement to or deletion
from or any other action or inaction under or in respect of the Debentures or
any other instruments or agreements relating to the Obligations or any
assignment or transfer of any thereof, (b) any lack of validity or
enforceability of any Debenture Document or other documents, instruments or
agreements relating to the Obligations or any assignment or transfer of any
thereof, (c) any furnishing of any additional security to Agent or Holders or
their assignees or any acceptance thereof or any release of any security by
Agent or Holders or their assignees, (d) any limitation on any party's liability
or obligation under the Debenture Documents or any other documents, instruments
or agreements relating to the Obligations or any assignment or transfer of any
thereof or any invalidity or unenforceability, in whole or in part, of any such
document, instrument or agreement or any term thereof, (e) any bankruptcy,
insolvency, reorganization, composition, adjustment, dissolution, liquidation or
other like proceeding relating to the Corporation, or any action taken with
respect to this Guaranty by any trustee or receiver, or by any court, in any
such proceeding, whether or not the undersigned shall have notice or knowledge
of any of the foregoing, (f) any exchange, release or nonperfection of any
collateral, or any release, or amendment or waiver of or consent to departure
from any guaranty or security, for all or any of the Obligations or (g) any
other circumstance (other than payment and satisfaction in full of all
Obligations) which might otherwise constitute a defense available to, or a
discharge of, the undersigned. Any amounts due from the undersigned to Agent or
Holders shall bear interest until such amounts are paid in full at the highest
rate then applicable to the Obligations. Obligations include post-petition
interest whether or not allowed or allowable.

         3. WAIVERS. (a) This Guaranty is a guaranty of payment and not of
collection. Neither Agent nor Holders shall be under any obligation to institute
suit, exercise rights or remedies or take any other action against the
Corporation or any other person liable with respect to any of the Obligations or
resort to any collateral security held by it to secure any of the Obligations as
a condition precedent to the undersigned being obligated to perform as agreed
herein and Guarantor hereby waives any and all rights which the undersigned may
have by statute or otherwise which would require Agent or Holders to do any of

<PAGE>

the foregoing. Guarantor further consents and agrees that Agent and Holders
shall be under no obligation to marshal any assets in favor of Guarantor, or
against or in payment of any or all of the Obligations. The undersigned hereby
waives all suretyship defenses and any rights to interpose any defense,
counterclaim or offset of any nature and description which it may have or which
may exist between and among Agent, Holders, the Corporation and/or the
undersigned with respect to the undersigned's obligations under this Guaranty,
or which the Corporation may assert on the underlying debt, including but not
limited to failure of consideration, breach of warranty, fraud, payment (other
than cash payment in full of the Obligations), statute of frauds, bankruptcy,
infancy, statute of limitations, accord and satisfaction, and usury.

                  (b) The undersigned further waives (i) notice of the
acceptance of this Guaranty, of the purchase or issuance of any Debentures, and
of all notices and demands of any kind to which the undersigned may be entitled,
including, without limitation, notice of adverse change in the Company's
financial condition or of any other fact which might materially increase the
risk of the undersigned and (ii) presentment to or demand of payment from anyone
whomsoever liable upon any of the Obligations, protest, notices of presentment,
non-payment or protest and notice of any sale of collateral security or any
default of any sort.

                  (c) Notwithstanding any payment or payments made by the
undersigned hereunder, or any setoff or application of funds of the undersigned
by Agent or any Holder, the undersigned shall not be entitled to be subrogated
to any of the rights of Holders against the Corporation or against any
collateral or guarantee or right of offset held by Holders for the payment of
the Obligations, nor shall the undersigned seek or be entitled to seek any
contribution or reimbursement from the Corporation in respect of payments made
by the undersigned hereunder, until all amounts owing to Agent and Holders by
the Corporation on account of the Obligations are paid in full and the
Debentures have been terminated. If, notwithstanding the foregoing, any amount
shall be paid to the undersigned on account of such subrogation rights at any
time when all of the Obligations shall not have been paid in full and the
Debentures shall not have been terminated, such amount shall be held by the
undersigned in trust for Agent and Holders, segregated from other funds of the
undersigned, and shall forthwith upon, and in any event within two (2) business
days of, receipt by the undersigned, be turned over to Agent in the exact form
received by the undersigned (duly endorsed by the undersigned to Agent, if
required), to be applied against the Obligations, whether matured or unmatured,
in such order as Agent and the Holders may determine, subject to the provisions
of the Debentures. Any and all present and future debts and obligations of the
Corporation to any of the undersigned are hereby waived and postponed in favor
of, and subordinated to the full payment and performance of, all present and
future Obligations of the Corporation to Agent and Holders.

         4. SECURITY. The Obligations are secured by a pledge of all
intellectual property of Guarantor pursuant to the terms of a Security
Agreement, dated as of the date hereof, made by the Corporation and Guarantor in
favor of Agent. In addition, all sums at any time to the credit of the
undersigned and any property of the undersigned in Agent's or any Holder's
possession or in the possession of any bank, financial institution or other
entity that directly or indirectly, through one or more intermediaries, controls
or is controlled by, or is under common control with, Agent or any Holder (each
such entity, an "Affiliate") shall be deemed held by Agent, such Holder or such

<PAGE>

Affiliate, as the case may be, as security for any and all of the undersigned's
obligations to Agent and the Holders and to any Affiliate of Agent and Holders,
no matter how or when arising and whether under this or any other instrument,
agreement or otherwise.

         5. REPRESENTATIONS AND WARRANTIES. The undersigned hereby represent and
warrant (all of which representations and warranties shall survive until all
Obligations are indefeasibly satisfied in full and the Debentures have been
irrevocably terminated), that:

                  (a) CORPORATE STATUS. Each of the undersigned is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization or formation and has full power, authority and
legal right to own its property and assets and to transact the business in which
it is engaged.

                  (b) AUTHORITY AND EXECUTION. The undersigned has full power,
authority and legal right to execute and deliver, and to perform its obligations
under, this Guaranty and has taken all necessary corporate and legal action to
authorize the execution, delivery and performance of this Guaranty.

                  (c) LEGAL, VALID AND BINDING CHARACTER. This Guaranty
constitutes the legal, valid and binding obligation of the undersigned
enforceable in accordance with its terms, except as enforceability may be
limited by applicable Insolvency Law.

                  (d) VIOLATIONS. The execution, delivery and performance of
this Guaranty will not violate any requirement of law applicable to the
undersigned or any material contract, agreement or instrument to which the
undersigned is a party or by which the undersigned or any property of the
undersigned is bound or result in the creation or imposition of any mortgage,
lien or other encumbrance other than to Agent and Holders on any of the property
or assets of the undersigned pursuant to the provisions of any of the foregoing.

                  (e) CONSENTS OR APPROVALS. No consent of any other person or
entity (including, without limitation, any creditor of the undersigned) and no
consent, license, permit, approval or authorization of, exemption by, notice or
report to, or registration, filing or declaration with, any governmental
authority is required in connection with the execution, delivery, performance,
validity or enforceability of this Guaranty.

                  (f) LITIGATION. No litigation, arbitration, investigation or
administrative proceeding of or before any court, arbitrator or governmental
authority, bureau or agency is currently pending or, to the best knowledge of
the undersigned, threatened (i) with respect to this Guaranty or any of the
transactions contemplated by this Guaranty or (ii) against or affecting the
undersigned, or any property or assets of the undersigned, which, if adversely
determined, would have a material adverse effect on the business, operations,
assets or condition, financial or otherwise, of the undersigned.

                  (g) FINANCIAL BENEFIT. The undersigned has derived or expects
to derive a financial or other advantage from each and every purchase and
issuance of Debentures between the Corporation and the Holders.



<PAGE>

         6. ACCELERATION. It shall be an event of default hereunder if any Event
of Default under the Debentures shall have occurred and be continuing. Upon the
occurrence and during the continuance of any event of default, any and all
Obligations shall for purposes hereof be deemed due and payable without notice,
at Agent's option (or automatically without any action of Agent with respect to
any event of default relating to any Insolvency Law), notwithstanding that any
such Obligation is not then due and payable by the Corporation.

         7. PAYMENTS FROM GUARANTOR. Agent, in its sole and absolute discretion,
with or without notice to the undersigned, may apply on account of the
Obligations any payment from the undersigned or any other guarantor, or amounts
realized from any security for the Obligations, or may deposit any and all such
amounts realized in a non-interest bearing cash collateral deposit account to be
maintained as security for the Obligations.

         8. COSTS. The undersigned shall pay on demand all costs, fees and
expenses (including expenses for legal services of every kind) relating or
incidental to the enforcement or protection of the rights of Agent and Holders
hereunder or under any of the Obligations.

         9. NO TERMINATION. This is a continuing irrevocable guaranty and shall
remain in full force and effect and be binding upon the undersigned, and the
undersigned's successors and assigns, until all of the Obligations have been
paid in full and the Debentures have been irrevocably terminated. If any of the
present or future Obligations are guarantied by persons, partnerships or
corporations in addition to the undersigned, the death, release or discharge in
whole or in part or the bankruptcy, merger, consolidation, incorporation,
liquidation or dissolution of one or more of them shall not discharge or affect
the liabilities of the undersigned under this Guaranty.

         10. RECAPTURE. Anything in this Guaranty to the contrary
notwithstanding, if Agent or any Holder receives any payment or payments on
account of the Obligations guaranteed hereby, which payment or payments or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver, or
any other party under any Insolvency Law, common law or equitable doctrine, then
to the extent of any sum not finally retained by Agent and Holders, the
undersigned's obligations to Agent and Holders shall be reinstated and this
Guaranty shall remain in full force and effect (or be reinstated) until payment
shall have been made to Agent and Holders, which payment shall be due on demand.

         11. BOOKS AND RECORDS. The books and records of Agent and Holders
showing the account among Agent, Holders and the Corporation shall be admissible
in evidence in any action or proceeding, shall be binding upon the undersigned
for the purpose of establishing the items therein set forth and shall constitute
prima facie proof thereof.

         12. NO WAIVER. No failure on the part of Agent or Holders to exercise,
and no delay in exercising, any right, remedy or power hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise by Agent of any
right, remedy or power hereunder preclude any other or future exercise of any
other legal right, remedy or power. Each and every right, remedy and power

<PAGE>

hereby granted to Agent or Holders or allowed it by law or other agreement shall
be cumulative and not exclusive of any other, and may be exercised by Agent or
Holders at any time and from time to time.

         13. WAIVER OF JURY TRIAL. THE UNDERSIGNED DO HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR WITH RESPECT TO THIS GUARANTY OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR RELATING OR INCIDENTAL HERETO. THE UNDERSIGNED DO HEREBY
CERTIFY THAT NO REPRESENTATIVE OR AGENT OF AGENT OR ANY HOLDER HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT AGENT OR ANY HOLDER WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION.

         14. GOVERNING LAW; JURISDICTION; AMENDMENTS. THIS INSTRUMENT CANNOT BE
CHANGED OR TERMINATED ORALLY, AND SHALL BE GOVERNED, CONSTRUED AND INTERPRETED
AS TO VALIDITY, ENFORCEMENT AND IN ALL OTHER RESPECTS IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK. THE UNDERSIGNED EXPRESSLY CONSENT TO THE
JURISDICTION AND VENUE OF THE SUPREME COURT OF THE STATE OF NEW YORK, COUNTY OF
NEW YORK, AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK FOR ALL PURPOSES IN CONNECTION HEREWITH. ANY JUDICIAL PROCEEDING BY THE
UNDERSIGNED AGAINST AGENT OR ANY HOLDER INVOLVING, DIRECTLY OR INDIRECTLY ANY
MATTER OR CLAIM IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED HEREWITH
SHALL BE BROUGHT ONLY IN THE SUPREME COURT OF THE STATE OF NEW YORK, COUNTY OF
NEW YORK OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK. THE UNDERSIGNED FURTHER CONSENT THAT ANY SUMMONS, SUBPOENA OR OTHER
PROCESS OR PAPERS (INCLUDING, WITHOUT LIMITATION, ANY NOTICE OR MOTION OR OTHER
APPLICATION TO EITHER OF THE AFOREMENTIONED COURTS OR A JUDGE THEREOF) OR ANY
NOTICE IN CONNECTION WITH ANY PROCEEDINGS HEREUNDER, MAY BE SERVED INSIDE OR
OUTSIDE OF THE STATE OF NEW YORK OR THE SOUTHERN DISTRICT OF NEW YORK BY
REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR BY PERSONAL SERVICE
PROVIDED A REASONABLE TIME FOR APPEARANCE IS PERMITTED, OR IN SUCH OTHER MANNER
AS MAY BE PERMISSIBLE UNDER THE RULES OF SAID COURTS. THE UNDERSIGNED WAIVES ANY
OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREON AND SHALL
NOT ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OR BASED UPON
FORUM NON CONVENIENS.

         15. SEVERABILITY. To the extent permitted by applicable law, any
provision of this Guaranty which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

<PAGE>

         16. AMENDMENTS, WAIVERS. No amendment or waiver of any provision of
this Guaranty nor consent to any departure by the undersigned therefrom shall in
any event be effective unless the same shall be in writing executed by the
undersigned and Agent.

         17. NOTICE. All notices, requests and demands to or upon the
undersigned shall be given in the manner set forth in the Debentures, as to each
Guarantor, at its address set forth on the signature pages hereof, and as to the
Holders and the Agent, at their address appearing on the books of the
Corporation.

         18. SUCCESSORS. Agent and Holders may, from time to time, without
notice to the undersigned, sell, assign, transfer or otherwise dispose of all or
any part of the Obligations. Agent may, from time to time, without notice to the
undersigned, sell, transfer or otherwise dispose of its rights under this
Guaranty. In each such event, Agent, its Affiliates and each and every immediate
and successive purchaser, assignee, transferee or holder of all or any part of
the Obligations shall have the right to enforce this Guaranty, by legal action
or otherwise, for its own benefit as fully as if such purchaser, assignee,
transferee or holder were herein by name specifically given such right.

         19. RELEASE. Nothing except cash payment in full of the Obligations
shall release the undersigned from liability under this Guaranty.



<PAGE>



         IN WITNESS WHEREOF, this Guaranty has been executed by the undersigned
this ___ day of ____, 2003.

                                            SPUTTERED FILMS, INC.

                                            By:________________________
                                            Name:
                                            Title:

                                            Address:

                                            Sputtered Films, Inc.
                                            320 Nopal Street
                                            Santa Barbara, California 93103


                                            TEGAL GERMANY

                                            By:________________________
                                            Name:
                                            Title:

                                            Address:

                                            c/o Tegal Corporation
                                            2201 South McDowell Boulevard
                                            Petaluma, California 94954
                                            Attention:  President
                                            Fax Number:  (707) 765-9311
                                            Email:  mparodi@tegal.com


                                            TEGAL JAPAN, INC.

                                            By:________________________
                                            Name:
                                            Title:

                                            Address:

                                            c/o Tegal Corporation
                                            2201 South McDowell Boulevard
                                            Petaluma, California 94954
                                            Attention:  President
                                            Fax Number:  (707) 765-9311
                                            Email:  mparodi@tegal.com




<PAGE>

                                            TEGAL ITALY, SRL

                                            By:________________________
                                            Name:
                                            Title:

                                            Address:

                                            c/o Tegal Corporation
                                            2201 South McDowell Boulevard
                                            Petaluma, California 94954
                                            Attention:  President
                                            Fax Number:  (707) 765-9311
                                            Email:  MPARODI@TEGAL.COM
                                                    -----------------



                                            In each case with a copy to:

                                            Latham & Watkins LLP
                                            505 Montgomery Street, Suite 1900
                                            San Francisco, California 94111
                                            Attention:  Taitt Sato, Esq.
                                            Fax Number:  (415) 395-8095
                                            Email: taitt.sato@lw.com


<PAGE>


                                    EXHIBIT 7

                              FORM OF LEGAL OPINION

The  opinion  will be subject to standard  qualifications  and  exceptions,  the
standard  form of Latham & Watkins  LLP and  review and  approval  by the firm's
opinions committee.

1.   The Company is a corporation duly  incorporated  under the Delaware General
     Corporation  Law with  corporate  power  and  authority  to enter  into the
     Transaction Documents to which it is a party and to perform its obligations
     thereunder.

2.   Sputtered Films, Inc. is a corporation duly incorporated  under the laws of
     the state of California,  with  corporate  power to execute and deliver the
     Transaction Documents to which it is a party and to perform its obligations
     thereunder.

3.   Immediately  prior to the  [First/Second]  Closing,  the  total  authorized
     capital stock of the Company consists of 35,000,000  shares of Common Stock
     and 5,000,000 shares of Preferred Stock.

4.   The  Securities  to be  issued  and  sold by the  Company  pursuant  to the
     Agreement have been duly  authorized by all necessary  corporate  action on
     the part of the  Company  and,  when  issued  to and paid for by you,  upon
     conversion  of the  Purchased  Debentures  or  exercise  of  the  Purchased
     Warrants in accordance  with the Agreement,  the Underlying  Shares will be
     validly issued, fully paid and non-assessable.

5.   The  execution,  delivery and  performance of each of the Amendment and the
     Transaction  Documents have been duly authorized by all necessary corporate
     action of the Company and the Subsidiaries  party thereto,  and each of the
     Transaction  Documents have been duly executed and delivered by the Company
     and the Subsidiaries party thereto.

6.   Each  of  the  Transaction   Documents  constitutes  a  valid  and  binding
     obligation of the Company and the  applicable  Subsidiaries  party thereto,
     enforceable  against  the  Company and the  subsidiaries  party  thereto in
     accordance  with its terms,  except as limited  by  applicable  bankruptcy,
     reorganization,   insolvency  moratorium  or  similar  laws  affecting  the
     enforcement of creditors' rights and the availability of equitable remedies
     (regardless of whether such enforceability is considered in a proceeding at
     law or equity).

7.   The  Company's  and each  Subsidiary's  execution  and delivery of, and the
     consummation  by the  Company  and  each  Subsidiary  of  the  transactions
     contemplated  thereunder,   each  of  the  Amendment  and  the  Transaction
     Documents  on the date  hereof  do not (i)  violate  the  current  Delaware
     General  Corporation Law, (ii) result in the breach or default under any of
     the Material  Agreements or (iii)  violate any current  federal or New York
     statute,  rule or regulation  applicable  to the Company or any  Subsidiary
     party to the  Transaction  Documents,  except  that we  express  no opinion
     regarding the indemnification section of the Registration Rights Agreement.


                                       1
<PAGE>


8.   With your  consent  based  solely on a  certificate  of an  officer  of the
     Company as to factual  matters,  the Company is not, and immediately  after
     giving  effect  to the  sale  of the  Purchased  Debentures  and  Purchased
     Warrants in accordance with the  Transaction  Documents and the application
     of the proceeds as described in Section 2.17 of the Agreement,  will not be
     required to be registered as an "investment  company" within the meaning of
     the Investment Company Act of 1940, as amended.

9.   Assuming  that the  representations  and  warranties of the Company and the
     Investors contained in the Agreement are true and correct,  the issuance of
     the (i)  Purchased  Debentures,  (ii) shares of Common Stock  issuable upon
     conversion of the  Purchased  Debentures,  assuming  conversion on the date
     hereof,  (iii) Purchased  Warrants and (iv) shares of Common Stock issuable
     upon  exercise of the  Purchased  Warrants,  assuming  exercise on the date
     hereof,  upon  issuance  and  delivery  and payment  therefor in the manner
     described in the Agreement,  are exempt from the registration  requirements
     of the Securities  Act. We express no opinion as to the securities  laws of
     any  other  jurisdiction  or to  the  effect  of  subsequent  issuances  of
     securities of the Company or transfers of the Securities to the extent that
     such  issuances or  transfers  may be  integrated  with the issuance of the
     Securities  under  Section 4(2) of, or Rule 502 or Regulation D promulgated
     under, the Securities Act.

10.  The Security  Agreement  creates a valid security interest in favor of Orin
     Hirschman  as agent for the  Investors,  in all right title and interest of
     the Company and the Subsidiaries in the Collateral thereunder to the extent
     that a security  interest  therein can be executed  under  Article 9 of the
     Uniform  Commercial  Code  of  the  State  of  New  York  (the  "Article  9
     Collateral"). Upon filing of the attached UCC filings with the Secretary of
     State of the State of  Delaware,  the  security  interest  in the Article 9
     Collateral identified in the attached UCC filings shall be perfected to the
     extent  that it can be  perfected  by the filing of a UCC  filing  with the
     Secretary  of State of Delaware.  Upon filing of the  attached  recordation
     forms with the United  States  Patent and  Trademark  Office and the United
     States  Copyright  Office,  the security  interest in the  registered  U.S.
     patents,  trademarks, and copyrights identified in the attached recordation
     forms  shall be  perfected  to the extent that it can be  perfected  by the
     filing of a form with the United States Patent and Trademark Office and the
     United States Copyright Office.


                                       2

<PAGE>

                                   EXHIBIT 8

                         RISKS RELATED TO THIS OFFERING


SECURITIES PURCHASED IN THIS OFFERING ARE SUBJECT TO RESTRICTIONS WHICH MAY
LIMIT YOUR ABILITY TO TRANSFER SUCH SHARES AND LIQUIDATE YOUR INVESTMENT.

         In connection with your purchase of Securities in this offering, you
will be required to represent and warrant that you:

         o        are acquiring the Securities for investment and not with a
                  view to distribution or resale;

         o        understand that you must bear the economic risk of an
                  investment in our securities for an indefinite period of time
                  because the common stock has not been registered with the SEC
                  or any state or other governmental agency, and

         o        understand and agree that the Securities may not be
                  transferred or sold unless the Securities are registered or an
                  exemption from such registration is available.

         You will be prohibited from transferring Securities purchased in this
offering if such transfer would violate the Securities Act or any other
applicable federal or state securities laws, rules or regulations. You may be
prohibited from transferring the Securities purchased in the offering in the
event that a registration statement to be filed by us under the Registration
Rights Agreement is not declared effective by the SEC. In addition, you may be
prevented from transferring such Securities pursuant to such registration
statement if there is a delay in achieving the effectiveness of the registration
statement, if the SEC imposes a stop order with respect to the registration
statement, or we invoke our right to delay or suspend the effectiveness of the
registration statement.


THE OFFERING PRICE OF SHARES OF OUR COMMON STOCK SHOULD NOT BE REGARDED AS AN
INDICATION OF ANY FUTURE MARKET PRICE OF OUR COMMON STOCK, WHICH COULD DECLINE.

         The offering price of shares of our common stock (which underlie the
Securities offered hereby) has been determined by us, the Placement Agents and
certain Investors based on a number of factors, such as an assessment of our
management, our present operations and our earnings prospects, the present state
of our development, the general condition of the securities markets at the time
of the offering and the price of our common stock on the Nasdaq National Market
at the time of the offering. The price of the shares of our common stock should
not be regarded as an indication of any future market price for shares of our
common stock.


WE CANNOT ASSURE YOU THAT OUR STOCK PRICE WILL NOT DECLINE.

     The market price of our common stock could be subject to significant
fluctuations. Among the factors that could affect our stock price are:

         o        quarterly variations in our operating results;

         o        changes in revenue or earnings estimates or publication of
                  research reports by analysts;



<PAGE>

         o        failure to meet analysts' revenue or earnings estimates;

         o        speculation in the press or investment community;

         o        strategic actions by us or our competitors, such as
                  acquisitions or restructurings;

         o        actions by institutional stockholders;

         o        general market conditions; and

         o        domestic and international economic factors unrelated to our
                  performance.

         The stock markets in general, and the markets for technology stocks in
particular, have experienced extreme volatility that has often been unrelated to
the operating performance of particular companies. These broad market
fluctuations may adversely affect the trading price of our common stock. In
particular, we cannot assure you that you will be able to resell your shares at
any particular price, or at all.


SHARES ELIGIBLE FOR SALE IN THE FUTURE COULD NEGATIVELY AFFECT OUR STOCK PRICE.

         The market price of our common stock could decline as a result of sales
of a large number of shares of our common stock or the perception that these
sales could occur. This might also make it more difficult for us to raise funds
through the issuance of securities. As of June 18, 2003, we had outstanding
16,091,762 shares of common stock of which 12,705,358 shares are freely
tradeable. The remaining 3,386,404 shares of common stock outstanding are
"restricted securities" as defined in Rule 144. These shares include 642,200
issued to the Clarke Family Trust and 596,327 shares issued to the Carole Clarke
1997 Trust, both in connection with our acquisition of Sputtered Films. These
restricted securities may be sold in the future pursuant to registration
statements filed with the SEC or without registration under the Securities Act
to the extent permitted by Rule 144 or other exemptions under the Securities
Act.

         As of June 18, 2003, there were an aggregate of 4,945,018 shares of
common stock issuable upon exercise of outstanding stock options and warrants,
including 3,246,466 shares issuable upon exercise of options outstanding under
our option plans and 1,698,552 shares of common stock issuable upon exercise of
outstanding warrants (including 537,500 shares issued to Polar Global Technology
upon exercise of an outstanding warrant). In addition we have agreed to register
for resale the 1,499,987 shares of common stock issued through the Sputtered
Films acquisition. We have not entered into any agreements or understanding
regarding any future acquisitions and cannot ensure that we will be able to
identify or complete any acquisition in the future.


SHARES ELIGIBLE FOR INCLUSION IN THE INVESTORS' REGISTRATION STATEMENT COULD
NEGATIVELY AFFECT OUR STOCK PRICE.

         Approximately 5,084,956 shares of our common stock will be included in
the registration statement to be filed under your Registration Rights Agreement
covering the shares of common stock underlying the Securities. These shares may
adversely affect the price of our common stock.


<PAGE>

THE SALE OF THE SECURITIES MAY RESULT IN SUBSTANTIAL DEFERRAL OF APPLICATION OF
OUR NET OPERATING LOSS

         The sale of the Securities may adversely affect the timing of the
application of existing net operating losses to future taxable earnings, if any.

Special Note Regarding Forward Looking Statements



         These risk factors include or incorporate by reference forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Forward-looking statements, which are based on
assumptions and describe our future plans, strategies and expectations, are
generally identifiable by the use of the words "anticipate," "believe,"
"estimate," "expect," "intend," "project," or similar expressions. These
forward-looking statements are subject to risks, uncertainties and assumptions
about us. If one or more of these risks or uncertainties materialize, or if any
underlying assumptions prove incorrect, our actual results, performance or
achievements may vary materially from any future results, performance or
achievements expressed or implied by these forward-looking statements. All
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirely by the cautionary statements in this
paragraph. Certain aspects of the transaction may have tax consequences.
Investors must consult their own tax advisors.