Registration Rights Agreement


    Exhibit
      4.2

     

    REGISTRATION
      RIGHTS AGREEMENT 

     

    THIS
      REGISTRATION RIGHTS AGREEMENT (this “Agreement”)
      is
      made and entered into as of May 24, 2007, by and among Strasbaugh, a
      California corporation (the “Company”),
      and
      each of the investors identified on the Schedule of Investors attached
      hereto as Exhibit A
      (individually an “Investor”
and
      collectively, the “Investors”).

     

    This
      Agreement is being entered into pursuant to the Securities Purchase Agreement,
      dated as of the date hereof between the Company and the Investors (the
“Purchase
      Agreement”).

     

    The
      Company and the Investors hereby agree as follows:

     

    1.    Definitions.
      Capitalized terms used and not otherwise defined herein shall have the meanings
      given such terms in the Purchase Agreement. Unless otherwise defined in the
      Purchase Agreement, capitalized terms used in this Agreement shall have the
      following meanings:

     

    “Additional
      Registration Statement”
shall
      mean one or more registration statements of the Company filed under the
      Securities Act covering any Cut-Back Shares.

     

    “Advice”
shall
      have meaning set forth in Section 3(k).

     

    “Closing
      Date”
shall
      mean the date of the closing under the Purchase Agreement.

     

    “Cut-Back
      Shares”
shall
      have the meaning set forth in Section 2(a).

     

    “Effectiveness
      Period”
shall
      have the meaning set forth in Section 2(b).

     

    “Event”
shall
      have the meaning set forth in Section 3(a)(iii).

     

    “Event
      Date”
shall
      have the meaning set forth in Section 3(a)(iii).

     

    “Exchange
      Act Registration Statement”
shall
      mean a registration statement on Form 8-A under the Exchange
      Act.

     

    “Holder”
or
      “Holders”
shall
      mean the holder or holders, as the case may be, from time to time, whether
      direct or beneficially, of Registrable Securities pursuant to this Agreement,
      including, without limitation, the Investors and any of their permitted
      transferees.

     

    “Indemnified
      Party”
shall
      have the meaning set forth in Section 5(c).

     

    “Indemnifying
      Party”
shall
      have the meaning set forth in Section 5(c).

     

    “Losses”
shall
      have the meaning set forth in Section 5(a).

     

    “Person”
shall
      mean an individual or a corporation, partnership, trust, incorporated or
      unincorporated association, joint venture, limited liability company, joint
      stock company, government (or an agency or political subdivision thereof) or
      other entity of any kind.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Placement
      Agent”
shall
      mean B. Riley & Co.

     

    “Placement
      Warrants”
shall
      mean a warrant to acquire up to an aggregate of 385,434 shares of Common Stock
      issued to the Placement Agent and/or its Affiliates.

     

    “Placement
      Warrant Shares”
shall
      mean shares of Common Stock issuable upon exercise of or otherwise pursuant
      to
      the Placement Warrants.

     

    “Proceeding”
shall
      mean an action, claim, suit, investigation or proceeding (including, without
      limitation, an investigation or partial proceeding, such as a deposition),
      whether commenced or threatened.

     

    “Prospectus”
shall
      mean the final prospectus filed with respect to the Registration Statement
      (including, without limitation, a prospectus that includes any information
      previously omitted from a prospectus filed as part of an effective registration
      statement in reliance upon Rule 430A promulgated under the Securities Act),
      as
      amended or supplemented by any prospectus supplement, with respect to the terms
      of the offering of any portion of the Registrable Securities covered by the
      Registration Statement, and all other amendments and supplements to the
      Prospectus, including one or more other final prospectuses filed with respect
      to
      post-effective amendments, and all material incorporated by reference in such
      Prospectus.

     

    “Registrable
      Securities”
shall
      mean: (i) the Conversion Shares; (ii) Warrant Shares; and (iii) any
      securities issued or issuable with respect to such Conversion Shares or Warrant
      Shares by way of a stock dividend or stock split or in connection with a
      combination of shares, recapitalization, merger, consolidation or other
      reorganization with respect to any of the securities referenced
      above.

     

    “Registration
      Statement”
shall
      mean the registration statements contemplated by Section 2,
      including the Prospectus, amendments and supplements to such registration
      statement or Prospectus, including pre- and post-effective amendments, all
      exhibits thereto, and all material incorporated by reference in such
      registration statement.

     

    “Restriction
      Termination Date”
shall
      have the meaning set forth in Section 3(a)(iii).
      

     

    “Rule
      144”
shall
      mean Rule 144 promulgated by the SEC pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the SEC having substantially the same effect as such
      Rule.

     

    “Rule
      415”
shall
      mean Rule 415 promulgated by the SEC pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the SEC having substantially the same effect as such
      Rule.

     

    
      
        
        

      

      
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    2.    Mandatory
      Registration.
      

     

    (a)    Within
      sixty (60) days after the Closing Date, the Company shall prepare and file
      with
      the SEC (i) a Registration Statement covering all Registrable Securities for
      an
      offering pursuant to Rule 415, and (ii) the Exchange Act Registration Statement;
      provided;
      however,
      that if
      the SEC takes the position that the offering of some or all of the Registrable
      Securities in a Registration Statement is not eligible to be made on a delayed
      or continuous basis under the provisions of Rule 415, the Company shall amend
      the Registration Statement prior to its effectiveness to remove from the
      Registration Statement such portion of the Registrable Securities (the
“Cut-Back
      Shares”)
      and/or
      agree to such restrictions and limitations on the registration and resale of
      the
      Registrable Securities as the SEC may require to assure the Company’s compliance
      with the requirements of Rule 415 (collectively, the “SEC
      Restrictions”).
      Any
      cut-back of the Registrable Securities pursuant to this Section
      2(a)
      shall be
      allocated first to the Placement Warrant Shares and if such allocation does
      not
      result in a sufficient reduction in the amount of Registrable Securities, then
      among the Investors on a pro rata basis, unless the SEC Restrictions require
      otherwise. In the event that upon effectiveness of the Registration Statement
      less than all Registrable Securities are contained therein, upon the request
      of
      any Holder, the Company will prepare and file with the SEC, at such time or
      times as the SEC allows the Company to make such filings, one or more Additional
      Registration Statements covering the maximum amount of Cut-Back Shares allowed
      by the SEC at the time of such filing until such time as all Registrable
      Securities have been registered for resale under the Securities
      Act.

     

    (b)    The
      Registration Statement and any Additional Registration Statement shall be on
      Form SB-2 (except if the Company is not then eligible to register for resale
      the
      Registrable Securities on Form SB-2, in which case such registration shall
      be on
      another appropriate form). The Company shall use its commercially reasonable
      efforts to cause the Registration Statement and any Additional Registration
      Statement to be declared effective under the Securities Act and the Exchange
      Act
      Registration Statement to be declared effective under the Exchange Act, each
      as
      promptly as reasonably possible after the filing thereof and to keep the
      Registration Statement and any Additional Registration Statement continuously
      effective under the Securities Act until such date as is the earlier of: (i)
      the
      date when all Registrable Securities and any Additional Registrable Securities
      covered by such Registration Statement and any Additional Registration
      Statement, as the case may be, have been sold; and (ii) the date on which all
      Registrable Securities may be sold during a period of 90 days without any
      restriction pursuant to Rule 144 as determined by counsel to the Company
      pursuant to a written opinion letter, addressed to the Company’s transfer agent
      to such effect (the “Effectiveness
      Period”).
      

     

    3.    Registration
      Procedures.
      In
      connection with the Company’s registration obligations hereunder, the Company
      shall:

     

    (a)    (i)    Prepare
      and file with the SEC within sixty (60) days after the Closing Date, (x) a
      Registration Statement on Form SB-2 (or if the Company is not then eligible
      to
      register for resale the Registrable Securities on Form SB-2 such registration
      shall be on another appropriate form) in accordance with the method or methods
      of distribution thereof as specified in the Purchase Agreement and, (y) the
      Exchange Act Registration Statement, and use its commercially reasonable efforts
      to cause the Registration Statement and the Exchange Act Registration Statement
      to become effective as soon as reasonably possible and to remain effective
      as
      provided herein. The Company shall provide a copy of the Registration Statement
      and the Exchange Act Registration Statement, and any amendments or supplements
      thereto, to the Holder by facsimile, e-mail or other method of communication
      acceptable to the Holder, at least five (5) Business Days prior to filing the
      same with the SEC and shall incorporate into the same any revisions or changes
      therein regarding the Holder as the Holder shall reasonably request at least
      one
      (1) Business Day prior to filing. The Company shall promptly notify the Holders
      via facsimile or email of the effectiveness of the Registration Statement and
      the Exchange Act Registration Statement by the third Business Day after the
      Company receives notification of the effectiveness from the SEC. 

     

    
      
        
        

      

      
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    (ii)    In
      the
      event the SEC does not permit the Company to include all Registrable Securities
      on the Registration Statement filed pursuant to Section 3(a)(i),
      prepare
      and file with the SEC at such time or times as the SEC allows the Company to
      make such filing or filings, one or more Additional Registration Statements
      on
      Form SB-2 (or if the Company is not then eligible to register for resale
      the Registrable Securities on Form SB-2 such registration shall be on another
      appropriate form) in accordance with the method or methods of distribution
      thereof as specified by the Holders, and use its commercially reasonable efforts
      to cause any Additional Registration Statement to become effective as soon
      as
      possible and to remain effective as provided herein. The Company shall provide
      a
      copy of any Additional Registration Statement, and any amendments or supplements
      thereto, to the Holder by facsimile, e-mail or other method of communication
      acceptable to the Holder, at least five (5) Business Days prior to filing the
      same with the SEC and shall incorporate into the same any revisions or changes
      therein regarding the Holder as the Holder shall reasonably request at least
      one
      (1) Business Day prior to filing. The Company shall promptly notify the Holders
      via facsimile or email of the effectiveness of any Additional Registration
      Statement by the third Business Day after the Company receives notification
      of
      the effectiveness from the SEC. 

     

    (iii)    Subject
      to the limitations contained in Section 2(a),
      if:
      (A) the Registration Statement is not filed within sixty (60) days after
      the Closing Date, (B) the Company fails to file with the SEC a request for
      acceleration in accordance with Rule 461 promulgated under the Securities Act,
      within five (5) Business Days after the date that the Company is notified
      (orally or in writing, whichever is earlier) by the SEC that the Registration
      Statement will not be “reviewed,” or is not subject to further review, or
      (C) the Registration Statement filed is not declared effective by the SEC
      within ninety (90) days after the Closing Date (one hundred thirty-five (135)
      days after the Closing Date if the SEC comments on the Registration Statement)
      (any such failure or breach being referred to as an “Event,”
and
      for purposes of clause (A) or (C) the Business Day on which such Event occurs,
      or for purposes of clause (B), the date on which such five (5) Business Day
      period is exceeded being referred to as “Event
      Date”),
      then
      on each such Event Date and on each monthly anniversary of each such Event
      Date
      (if the applicable Event shall not have been cured by such date) until the
      applicable Event is cured, the Company shall pay to each Holder an amount in
      cash, as liquidated damages and not as a penalty, equal to 1.0% of the aggregate
      amount paid by such Holder for any Registrable Securities then held by such
      Holder and requested to be included in such Registration Statement; provided,
      however,
      that
      the total amount of payments pursuant to this Section 3(a)(iii)
      shall
      not exceed ten percent (10%) of the aggregate amount paid by such Holder under
      the Purchase Agreement. The foregoing liquidated damages shall be calculated
      as
      of each monthly anniversary of each such Event Date if the applicable Event
      shall not have been cured by such date. If the Company fails to pay any
      liquidated damages pursuant to this Section in full within seven (7)
      Business Days after the date payable, the Company will pay interest thereon
      at a
      rate of 10% per annum (or such lesser maximum amount that is required to comply
      with applicable law) to the Holder, accruing daily from the date such liquidated
      damages are due until such amounts, plus all such interest thereon, are paid
      in
      full. The liquidated damages pursuant to the terms hereof shall apply on a
      daily
      pro rata basis for any portion of a month prior to the cure of an
      Event. The
      foregoing notwithstanding, no liquidated damages pursuant to this Section 3(a)(iii)
      shall
      accrue on or as to any Cut-Back Shares until such time as the Company is able
      to
      effect the registration of some or all of the Cut-Back Shares in accordance
      with
      any SEC Restrictions (such date, the “Restriction
      Termination Date”).
      From
      and after the Restriction Termination Date, all of the provisions of this
Section
      3
      (including the liquidated damages provision) shall again be applicable to that
      portion of the Cut-Back Shares allowed to be contained on the applicable
      Additional Registration Statement; provided,
      however,
      that
      for such purposes the Closing Date shall be deemed to be the Restriction
      Termination Date.

     

    
      
        
        

      

      
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    (b)    Prepare
      and file with the SEC such amendments, including post-effective amendments,
      to
      the Registration Statement or any Additional Registration Statement as may
      be
      necessary to keep the Registration Statement or any Additional Registration
      Statement continuously effective as to the applicable Registrable Securities
      for
      the Effectiveness Period; (ii) cause the related Prospectus to be amended or
      supplemented by any required Prospectus supplement, and as so supplemented
      or
      amended to be filed pursuant to Rule 424 (or any similar provisions then in
      force) promulgated under the Securities Act; (iii) respond as promptly as
      reasonably possible to any comments received from the SEC, and in any event
      within fifteen (15) Business Days (except to the extent that the Company
      reasonably requires additional time to respond to accounting comments), with
      respect to the Registration Statement or any Additional Registration Statement
      or any amendments thereto; and (iv) comply in all material respects with the
      provisions of the Securities Act and the Exchange Act with respect to the
      disposition of all Registrable Securities covered by the Registration Statement
      or any Additional Registration Statement during the applicable period in
      accordance with the intended methods of disposition by the Holders thereof
      set
      forth in the Registration Statement or any Additional Registration Statement,
      as
      amended, or in such related Prospectus, as supplemented.

     

    (c)    Notify
      the Holders of Registrable Securities to be sold as promptly as reasonably
      possible: (i) of any comments of the SEC with respect to, or any request by
      the
      SEC or any other federal or state governmental authority for amendments or
      supplements to, the Registration Statement and any Additional Registration
      Statement or related Prospectus or the Exchange Act Registration Statement;
      (ii)
      of the issuance by the SEC of any stop order suspending the effectiveness of
      the
      Registration Statement or any Additional Registration Statement covering any
      or
      all of the Registrable Securities or the initiation of any Proceedings for
      that
      purpose; (iii) of the receipt by the Company of any notification with respect
      to
      the suspension of the qualification or exemption from qualification of any
      of
      the Registrable Securities for sale in any jurisdiction, or the initiation
      or
      threatening of any Proceeding for such purpose; and (iv) of the occurrence
      of
      any event that makes any statement made in the Registration Statement or any
      Additional Registration Statement and any related Prospectus, the Exchange
      Act
      Registration Statement or any document incorporated or deemed to be incorporated
      in any of the foregoing by reference untrue in any material respect or that
      requires any revisions to the Registration Statement or any Additional
      Registration Statement or related Prospectus or other documents so that, in
      the
      case of the Registration Statement or any Additional Registration Statement
      or
      the related Prospectus or the Exchange Act Registration Statement, as the case
      may be, it will not contain any untrue statement of a material fact or omit
      to
      state any material fact required to be stated therein or necessary to make
      the
      statements therein, in the light of the circumstances under which they were
      made, not misleading.

     

    (d)    Use
      its
      reasonable efforts to avoid the issuance of, or, if issued, obtain the
      withdrawal of: (i) any order suspending the effectiveness of the Registration
      Statement or any Additional Registration Statement; or (ii) any suspension
      of
      the qualification (or exemption from qualification) of any of the Registrable
      Securities for sale in any jurisdiction, at the earliest practicable
      moment.

     

    (e)    Promptly
      deliver to each Holder, without charge, to the extent requested by such Person,
      at least one conformed copy of each Registration Statement, any Additional
      Registration Statement or Exchange Act Registration Statement and each amendment
      thereto, including financial statements and schedules, all documents
      incorporated or deemed to be incorporated therein by reference and all exhibits
      (including those previously furnished or incorporated by reference) after the
      filing of such documents with the SEC.

     

    (f)    On
      the
      effective date of the Registration Statement or any Additional Registration
      Statement (and any post-effective amendment thereto) or Exchange Act
      Registration Statement, notify the Holder and promptly, but in any event within
      two (2) Business Days, deliver to each Holder, without charge, as many copies
      of
      the related Prospectus or Prospectuses (including each form of prospectus)
      and
      each amendment or supplement thereto as such Person may reasonably request;
      and
      the Company hereby consents to the use of such related Prospectus and each
      amendment or supplement thereto, during periods in which such related Prospectus
      and each amendment or supplement thereto are effective, by each Holder in
      connection with the offering and sale of the Registrable Securities covered
      by
      such related Prospectus and any amendment or supplement thereto.

     

    
      
        
        

      

      
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    (g)    Prior
      to
      any public offering of Registrable Securities, use its reasonable efforts to
      register or qualify or cooperate with the Holders in connection with the
      registration or qualification (or exemption from such registration or
      qualification) of such Registrable Securities for offer and sale under the
      securities or Blue Sky laws of such jurisdictions within the United States
      as
      any Holder requests in writing, to keep each such registration or qualification
      (or exemption therefrom) effective during the Effectiveness Period and to do
      any
      and all other acts or things necessary or advisable to enable the disposition
      in
      such jurisdictions of the Registrable Securities covered by a Registration
      Statement or any Additional Registration Statement; provided,
      however,
      that
      the Company shall not be required to qualify generally to do business in any
      jurisdiction where it is not then so qualified or to take any action that would
      subject it to general service of process in any such jurisdiction where it
      is
      not then so subject or subject the Company to any material tax in any such
      jurisdiction where it is not then so subject.

     

    (h)    Cooperate
      with the Holders to facilitate the timely preparation and delivery of
      certificates representing Registrable Securities to be sold pursuant to the
      Registration Statement or any Additional Registration Statement.

     

    (i)    Upon
      the
      occurrence of any event contemplated by Section 3(c),
      as
      promptly as reasonably possible, prepare a supplement or amendment, including
      a
      post-effective amendment, to the Registration Statement or any Additional
      Registration Statement or a supplement to the related Prospectus or any document
      incorporated or deemed to be incorporated therein by reference, and file any
      other required document so that, as thereafter delivered, neither the
      Registration Statement, any Additional Registration Statement nor such related
      Prospectus will contain an untrue statement of a material fact or omit to state
      a material fact required to be stated therein or necessary to make the
      statements therein, in the light of the circumstances under which they were
      made, not misleading.

     

    (j)    
During
      the Effectiveness Period, maintain the listing of such Registrable Securities
      on
      a Trading Market; 

     

    (k)    If
      the
      Registration Statement or any Additional Registration Statement refers to any
      Holder by name or otherwise as the holder of any securities of the Company,
      then
      such Holder shall have the right to require (if such reference to such Holder
      by
      name or otherwise is not required by the Securities Act or any similar federal
      statute then in force) the deletion of the reference to such Holder in any
      amendment or supplement to the Registration Statement or any Additional
      Registration Statement filed or prepared subsequent to the time that such
      reference ceases to be required.

     

    
      
        
        

      

      
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    Each
      Holder covenants and agrees that: (i) it will not sell any Registrable
      Securities pursuant to the Registration Statement or any Additional Registration
      Statement until it has received copies of the related Prospectus as then amended
      or supplemented as contemplated in Section 3(f)
      and
      written notice from the Company that such Registration Statement or any
      Additional Registration Statement and any post-effective amendments thereto
      have
      become effective as contemplated by Section 3(f);
      (ii) it
      and its officers, directors or Affiliates, if any, will comply with the
      prospectus delivery and all other requirements of the Securities Act as
      applicable to them in connection with sales of Registrable Securities pursuant
      to the Registration Statement or any Additional Registration Statement; and
      (iii) it will furnish to the Company information regarding such Holder and
      the
      distribution of such Registrable Securities as is required by law to be
      disclosed in the Registration Statement or any Additional Registration
      Statement, and the Company may exclude from such registration the Registrable
      Securities of any such Holder who fails to furnish such information prior to
      the
      earlier of the time the Registration Statement or any Additional Registration
      Statement is filed or a reasonable time after receiving such
      request.

     

    Each
      Holder agrees by its acquisition of such Registrable Securities that, upon
      receipt of a notice from the Company of the occurrence of any event of the
      kind
      described in Section 3(c)(i),
      3(c)(ii),
      3(c)(iii),
      or
3(c)(iv),
      such
      Holder will forthwith discontinue disposition of such Registrable Securities
      under the Registration Statement or any Additional Registration Statement until
      such Holder’s receipt of the copies of the supplemented Prospectus and/or
      amended Registration Statement or any Additional Registration Statement
      contemplated by Section 3(i),
      or
      until it is advised in writing (the “Advice”)
      by the
      Company that the use of the related Prospectus may be resumed, and, in either
      case, has received copies of any additional or supplemental filings that are
      incorporated or deemed to be incorporated by reference in such related
      Prospectus or Registration Statement or any Additional Registration
      Statement.

     

    (l)    Not
      sell,
      offer for sale or solicit offers for sale or to buy, and shall use its best
      efforts to ensure that no Affiliate of the Company shall, sell, offer for sale
      or to buy or otherwise negotiate in respect of any security (as defined in
      Section 2 of the Securities Act) that would be integrated with the offer or
      sale of the Registrable Securities in a manner that would require the
      registration under the Securities Act of the sale of the Securities to the
      Holders or that would be integrated with the offer or sale of the Securities
      for
      purposes of the rules and regulations of any Trading Market.

     

    (m)    Not
      permit any of its security holders (other than the Holder in such capacity
      pursuant hereto and the Placement Agent) to include securities of the Company
      in
      the Registration Statement other than the Registrable Securities and the
      Placement Warrant Shares, and the Company shall not after the date hereof enter
      into any agreement providing any such right to any of its security holders.
      

     

    
      
        
        

      

      
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    (n)    Notwithstanding
      anything to the contrary in this Section 3,
      if
at
      any
      time after the date the Registration Statement or
      any
      Additional Registration Statement is
      declared effective the Company furnishes to the Holder a certificate signed
      by
      the Company’s chief executive officer stating that in the good faith judgment of
      the Company’s Board of Directors it would be materially detrimental to the
      Company and its shareholders for such Registration Statement or
      any
      Additional Registration Statement to
      remain
      effective for as long as such Registration Statement or
      any
      Additional Registration Statement otherwise
      would be required to remain effective, because such action would (i) materially
      interfere with a significant acquisition, corporate reorganization, or other
      similar transaction involving the Company; (ii) require premature disclosure
      of
      material non-public information that the Company has a bona fide business
      purpose for preserving as confidential; or (iii) render the Company unable
      to comply with requirements under the Securities Act or Exchange
      Act,
      then the
      Company shall have the right to suspend
      effectiveness of a Registration Statement or any Additional Registration
      Statement for a period not to exceed fifteen (15) consecutive Business Days;
      provided,
      however,
      that
      the Company may not suspend its obligation under this Section 3(n)
      for more
      than thirty (30) Business Days in the aggregate during any twelve (12)-month
      period; and provided,
      further,
      that no
      such postponement or suspension shall be permitted for consecutive fifteen
      (15)
      Business Day periods arising out of the same set of facts, circumstances or
      transactions.

     

    4.    Registration
      Expenses.
      All
      fees and expenses incident to the performance of or compliance with this
      Agreement by the Company, except as and to the extent specified in this
Section 4,
      shall
      be borne by the Company whether or not the Registration Statement or any
      Additional Registration Statement is filed or becomes effective and whether
      or
      not any Registrable Securities are sold pursuant to the Registration Statement
      or any Additional Registration Statement. The fees and expenses referred to
      in
      the foregoing sentence shall include, without limitation: (i) all registration
      and filing fees; (ii) printing expenses (including, without limitation,
      expenses of printing certificates for Registrable Securities and of printing
      prospectuses if the printing of prospectuses is requested by the holders of
      a
      majority of the Registrable Securities included in the Registration Statement
      or
      any Additional Registration Statement); (iii) messenger, telephone and
      delivery expenses; (iv) fees and disbursements of counsel for the Company;
      (v) Securities Act liability insurance, if the Company so desires such
      insurance; and (vi) fees and expenses of all other Persons retained by the
      Company in connection with the consummation of the transactions contemplated
      by
      this Agreement, including, without limitation, the Company’s independent public
      accountants (including the expenses of any comfort letters or costs associated
      with the delivery by independent public accountants of a comfort letter or
      comfort letters). In addition, the Company shall be responsible for all of
      its
      internal expenses incurred in connection with the consummation of the
      transactions contemplated by this Agreement (including, without limitation,
      all
      salaries and expenses of its officers and employees performing legal or
      accounting duties), the expense of any annual audit, and the fees and expenses
      incurred in connection with the listing of the Registrable Securities on any
      securities exchange as required hereunder. Except as otherwise expressly
      provided in Section 5
      below,
      any fees or expenses incurred by Holder or its legal counsel or Holder’s other
      advisors or consultants in connection with any review of the Registration
      Statement or any Additional Registration Statement or with respect to any other
      matters related to this Agreement shall be borne solely by Holder; provided,
      however,
      that
      any legal counsel fees incurred by each of the Lead Investors with respect
      to
      the foregoing shall be paid by the Company up to a maximum amount of $5,000
      per
      Lead Investor.

     

    
      
        
        

      

      
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    5.    Indemnification.

     

    (a)    Indemnification
      by the Company.
      The
      Company shall, notwithstanding any termination of this Agreement, indemnify
      and
      hold harmless the Holder, the officers, directors, agents, brokers (including
      brokers who offer and sell Registrable Securities as principal as a result
      of a
      pledge or any failure to perform under a margin call of Common Stock),
      investment advisors and employees of each of them, each Person who controls
      the
      Holder (within the meaning of Section 15 of the Securities Act or
      Section 20 of the Exchange Act) and the officers, directors, agents and
      employees of each such controlling Person, to the fullest extent permitted
      by
      applicable law, from and against any and all losses, claims, damages,
      liabilities, costs (including, without limitation, costs of preparation and
      attorneys’ fees) and expenses (collectively, “Losses”)
      (as
      determined by a court of competent jurisdiction in a final judgment not subject
      to appeal or review), as incurred, arising out of or based upon any untrue
      or
      alleged untrue statement of a material fact contained in the Registration
      Statement or any Additional Registration Statement, any related Prospectus
      or
      any form of prospectus or in any amendment or supplement thereto or in any
      preliminary prospectus, or arising solely out of or based upon any omission
      or
      alleged omission of a material fact required to be stated therein or necessary
      to make the statements therein (in the case of any related Prospectus or form
      of
      prospectus or supplement thereto, in the light of the circumstances under which
      they were made) not misleading, except to the extent, but only to the extent,
      that such untrue statements or omissions are based upon information regarding
      the Holder furnished in writing to the Company by the Holder expressly for
      use
      therein. The Company shall notify the Holder promptly of the institution, threat
      or assertion of any Proceeding of which the Company is aware in connection
      with
      the transactions contemplated by this Agreement.

     

    (b)    Indemnification
      by Holder.
      The
      Holder shall indemnify and hold harmless the Company, the directors, officers,
      agents and employees, each Person who controls the Company (within the meaning
      of Section 15 of the Securities Act and Section 20 of the Exchange
      Act), and the directors, officers, agents or employees of such controlling
      Persons, to the fullest extent permitted by applicable law, from and against
      all
      Losses (as determined by a court of competent jurisdiction in a final judgment
      not subject to appeal or review), as incurred, arising solely out of or based
      solely upon any untrue statement or alleged untrue statement of a material
      fact
      contained in the Registration Statement or any Additional Registration
      Statement, any related Prospectus, or any form of prospectus or form of
      prospectus or in any amendment or supplement thereto or in any preliminary
      prospectus, or arising solely out of or based solely upon any omission of a
      material fact required to be stated therein or necessary to make the statements
      therein (in the case of any related Prospectus or supplement thereto, in the
      light of the circumstances under which they were made) not misleading, to the
      extent, but only to the extent, that such untrue statement or omission or
      alleged untrue statement or omission is contained in information so furnished
      by
      the Holder in writing to the Company expressly for inclusion in the Registration
      Statement or any Additional Registration Statement or such related Prospectus.
      In no event shall the liability of any selling Holder hereunder be greater
      in
      amount than the dollar amount of the net proceeds received by such Holder upon
      the sale of the Registrable Securities giving rise to such indemnification
      obligation.

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

     

    (c)    Conduct
      of Indemnification Proceedings.
      If any
      Proceeding shall be brought or asserted against any Person entitled to indemnity
      hereunder (an “Indemnified
      Party”),
      such
      Indemnified Party promptly shall notify the Person from whom indemnity is sought
      (the “Indemnifying
      Party”)
      in
      writing, and the Indemnifying Party shall assume the defense thereof, including
      the employment of counsel reasonably satisfactory to the Indemnified Party
      and
      the payment of all fees and expenses incurred in connection with defense
      thereof; provided,
      however,
      that
      the failure of any Indemnified Party to give such notice shall not relieve
      the
      Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
      except to the extent that such failure shall have proximately and materially
      adversely prejudiced the Indemnifying Party.

     

    An
      Indemnified Party shall have the right to employ separate counsel in any such
      Proceeding and to participate in the defense thereof, but the fees and expenses
      of such counsel shall be at the expense of such Indemnified Party or Parties
      unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
      expenses; or (2) the Indemnifying Party shall have failed promptly to assume
      the
      defense of such Proceeding and to employ counsel reasonably satisfactory to
      such
      Indemnified Party in any such Proceeding; or (3) the named parties to any such
      Proceeding (including any impleaded parties) include both such Indemnified
      Party
      and the Indemnifying Party, and such Indemnified Party shall have been advised
      by counsel that a conflict of interest is likely to exist if the same counsel
      were to represent such Indemnified Party and the Indemnifying Party (in which
      case, if such Indemnified Party notifies the Indemnifying Party in writing
      that
      it elects to employ separate counsel at the expense of the Indemnifying Party,
      the Indemnifying Party shall not have the right to assume the defense thereof
      and such counsel shall be at the expense of the Indemnifying Party). The
      Indemnifying Party shall not be liable for any settlement of any such Proceeding
      effected without its written consent, which consent shall not be unreasonably
      withheld or delayed. No Indemnifying Party shall, without the prior written
      consent of the Indemnified Party, effect any settlement of any pending
      Proceeding in respect of which any Indemnified Party is a party, unless such
      settlement includes an unconditional release of such Indemnified Party from
      all
      liability on claims that are the subject matter of such Proceeding.

     

    All
      fees
      and expenses of the Indemnified Party (including reasonable fees and expenses
      to
      the extent incurred in connection with investigating or preparing to defend
      such
      Proceeding in a manner not inconsistent with this Section 5)
      shall
      be paid to the Indemnified Party, as incurred, within ten (10) Business Days
      of
      written notice thereof to the Indemnifying Party (regardless of whether it
      is
      ultimately determined that an Indemnified Party is not entitled to
      indemnification hereunder; provided,
      however,
      that
      the Indemnifying Party may require such Indemnified Party to undertake to
      reimburse all such fees and expenses to the extent it is finally judicially
      determined that such Indemnified Party is not entitled to indemnification
      hereunder).

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

     

    (d)    Contribution.
      If a
      claim for indemnification under Section 5(a)
      or
Section 5(b)
      is
      unavailable to an Indemnified Party (by reason of public policy or otherwise),
      then each Indemnifying Party, in lieu of indemnifying such Indemnified Party,
      shall contribute to the amount paid or payable by such Indemnified Party as
      a
      result of such Losses, in such proportion as is appropriate to reflect the
      relative fault of the Indemnifying Party and Indemnified Party in connection
      with the actions, statements or omissions that resulted in such Losses as well
      as any other relevant equitable considerations. The relative fault of such
      Indemnifying Party and Indemnified Party shall be determined by reference to,
      among other things, whether any action in question, including any untrue or
      alleged untrue statement of a material fact or omission or alleged omission
      of a
      material fact, has been taken or made by, or relates to information supplied
      by,
      such Indemnifying, Party or Indemnified Party, and the parties’ relative intent,
      knowledge, access to information and opportunity to correct or prevent such
      action, statement or omission. The amount paid or payable by a party as a result
      of any Losses shall be deemed to include, subject to the limitations set forth
      in Section 5(c),
      any
      reasonable attorneys’ or other reasonable fees or expenses incurred by such
      party in connection with any Proceeding to the extent such party would have
      been
      indemnified for such fees or expenses if the indemnification provided for in
      this Section was available to such party in accordance with its
      terms.

     

    The
      parties hereto agree that it would not be just and equitable if contribution
      pursuant to this Section 5(d)
      were
      determined by pro rata allocation or by any other method of allocation that
      does
      not take into account the equitable considerations referred to in the
      immediately preceding paragraph. Notwithstanding
      the provisions of this Section 5(d),
      no
      Holder shall be required to contribute, in the aggregate, any amount in excess
      of the amount of the proceeds actually received by such Holder from the sale
      of
      the Registrable Securities subject to the proceeding. No
      Person
      guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
      of the Securities Act) shall be entitled to contribution from any Person who
      was
      not guilty of such fraudulent misrepresentation.

     

    The
      indemnity and contribution agreements contained in this Section are in
      addition to any other liability that the Indemnifying Parties may have to the
      Indemnified Parties. Notwithstanding the foregoing, the obligations of the
      Holders herein shall be the several, and not joint, obligation of each Holder
      as
      to itself and not as to any other Holder.

     

    6.    Miscellaneous.

     

    (a)    Remedies.
      

     

    (i)    In
      the
      event of a breach by the Company or by the Holder, of any of their obligations
      under this Agreement, the Holder or the Company, as the case may be, in addition
      to being entitled to exercise all rights granted by law and under this
      Agreement, including recovery of damages, will be entitled to specific
      performance of its rights under this Agreement.

     

    (ii)    The
      Company and the Holder agree that monetary damages would not provide adequate
      compensation for any losses incurred by reason of a breach by it of any of
      the
      provisions of this Agreement and hereby further agrees that, in the event of
      any
      action for specific performance in respect of such breach, it shall waive the
      defense that a remedy at law would be adequate.

     

    (iii)    The
      remedies provided herein are cumulative and not exclusive of any remedies
      provided by law.

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

     

    (b)    No
      Inconsistent Agreements.
      Neither
      the Company nor any of its Subsidiaries has, as of the date hereof entered
      into
      and currently in effect, nor shall the Company or any of its subsidiaries,
      on or
      after the date of this Agreement, enter into any agreement with respect to
      its
      securities that is inconsistent with the rights granted to the Holder in this
      Agreement or otherwise conflicts with the provisions hereof. 

     

    (c)    Amendments
      and Waivers.
      The
      provisions of this Agreement, including the provisions of this sentence, may
      not
      be amended, modified or supplemented, and waivers or consents to departures
      from
      the provisions hereof may not be given, unless the same shall be in writing
      and
      signed by the Company and each of the Holders.

     

    (d)    Piggy-Back
      Registrations.
      If at
      any time during the Effectiveness Period there is not an effective Registration
      Statement or any Additional Registration Statement covering all of the
      Registrable Securities and the Company shall determine to prepare and file
      with
      the SEC a registration statement relating to an offering for its own account
      or
      the account of others under the Securities Act of any of its equity securities,
      other than on Form S-4 or Form S-8 (each as promulgated under the
      Securities Act) or their then equivalents relating to equity securities to
      be
      issued solely in connection with any acquisition of any entity or business
      or
      equity securities issuable in connection with the stock option or other employee
      benefit plans, then the Company shall send to each Holder written notice of
      such
      determination and, if within fifteen (15) days after receipt of such notice,
      any
      such Holder shall so request in writing, the Company shall include in such
      registration statement all or any part of such Registrable Securities such
      holder requests to be registered, subject to customary underwriter cutbacks
      applicable to all holders of registration rights.

     

    (e)    Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be in writing and shall be deemed given and effective
      on the earlier of: (i) the date of transmission, if such notice or communication
      is delivered via facsimile at the facsimile telephone number specified for
      notice prior to 5:00 p.m., California time, on a Business Day; (ii) the Business
      Day after the date of transmission, if such notice or communication is delivered
      via facsimile at the facsimile telephone number specified for notice later
      than
      5:00 p.m., California time, on any date and earlier than 11:59 p.m., California
      time, on such date; (iii) the Business Day following the date of mailing, if
      sent by nationally recognized overnight courier service; and (iv) actual receipt
      by the party to whom such notice is required to be given. The addresses,
      facsimile numbers and email addresses for such notices and communications are
      those set forth on the signature page hereof, or such other address or facsimile
      number as may be designated in writing hereafter, in the same manner, by any
      such Person.

     

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

     

    (f)    Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and permitted assigns and shall inure to the benefit of the
      Holder and its successors and permitted assigns. Holder may assign its rights
      hereunder in the manner and to the Persons as permitted under this Agreement
      and
      the Purchase Agreement. The Company may assign its rights and obligations
      hereunder in connection with a sale of all or substantially all of its assets
      or
      in connection with a merger, consolidation or other similar corporate
      transaction.

     

    (g)    Assignment
      of Registration Rights.
      The
      rights of the Holder hereunder, including the right to have the Company register
      for resale Registrable Securities in accordance with the terms of this
      Agreement, shall be automatically assignable by the Holder to any Person to
      whom
      the Holder transfers all or a portion of the Registrable Securities if: (i)
      the
      Holder agrees in writing with the transferee or assignee to assign such rights,
      and a copy of such agreement is furnished to the Company within a reasonable
      time after such assignment; (ii) the Company is, within a reasonable time after
      such transfer or assignment, furnished with written notice of (x) the name
      and
      address of such transferee or assignee, and (y) the securities with respect
      to
      which such registration rights are being transferred or assigned; (iii)
      following such transfer or assignment the further disposition of such securities
      by the transferee or assignees is restricted under the Securities Act and
      applicable state securities laws; (iv) at or before the time the Company
      receives the written notice contemplated by clause (ii) of this Section, the
      transferee or assignee agrees in writing with the Company to be bound by all
      of
      the provisions of this Agreement through a joinder agreement or another form
      of
      agreement reasonably acceptable to the Company; (v) such transfer shall
      have been made in accordance with the applicable requirements of the Purchase
      Agreement and the Warrants; and, upon the Company’s request, Holder and any
      proposed transferee shall provide the Company with such written representations,
      warranties, assurances and information requested by the Company so as to allow
      the Company to verify compliance with the Securities Act and qualification
      under
      such exemption in connection with such proposed transfer. In addition, each
      Holder shall have the right to assign its rights hereunder to any other Person
      with the prior written consent of the Company, which consent shall not be
      unreasonably withheld. The rights to assignment shall apply to the Holders
      (and
      to subsequent) successors and assigns.

     

    (h)    Counterparts.
      This
      Agreement may be executed in any number of counterparts, each of which when
      so
      executed shall be deemed to be an original and, all of which taken together
      shall constitute one and the same Agreement. In the event that any signature
      is
      delivered by facsimile transmission, such signature shall create a valid binding
      obligation of the party executing (or on whose behalf such signature is
      executed) the same with the same force and effect as if such facsimile signature
      were the original thereof.

     

    (i)    Governing
      Law.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of California, without regard to principles of conflicts of law
      thereof.

     

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

     

    (j)    Severability.
      If any
      term, provision, covenant or restriction of this Agreement is held to be
      invalid, illegal, void or unenforceable in any respect, the remainder of the
      terms, provisions, covenants and restrictions set forth herein shall remain
      in
      full force and effect and shall in no way be affected, impaired or invalidated,
      and the parties hereto shall use their reasonable efforts to find and employ
      an
      alternative means to achieve the same or substantially the same result as that
      contemplated by such term, provision, covenant or restriction. It is hereby
      stipulated and declared to be the intention of the parties that they would
      have
      executed the remaining terms, provisions, covenants and restrictions without
      including any of such that may be hereafter declared invalid, illegal, void
      or
      unenforceable.

     

    (k)    Headings.
      The
      headings herein are for convenience only, do not constitute a part of this
      Agreement and shall not be deemed to limit or affect any of the provisions
      hereof.

     

    (l)    Independent
      Nature of Holders’ Obligations and Rights.
      The
      obligations of each Holder hereunder are several and not joint with the
      obligations of any other Holder hereunder, and no Holder shall be responsible
      in
      any way for the performance of the obligations of any other Holder hereunder.
      Nothing contained herein or in any other agreement or document delivered at
      any
      closing, and no action taken by any Holder pursuant hereto or thereto, shall
      be
      deemed to constitute the Holders as a partnership, an association, a joint
      venture or any other kind of entity, or create a presumption that the Holders
      are in any way acting in concert with respect to such obligations or the
      transactions contemplated by this Agreement. Each Holder shall be entitled
      to
      protect and enforce its rights, including without limitation the rights arising
      out of this Agreement, and it shall not be necessary for any other Holder to
      be
      joined as an additional party in any proceeding for such purpose.

     

    [SIGNATURE
      PAGES TO FOLLOW]

     

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the parties hereto have executed this Registration Rights
      Agreement effective as of the date indicated above.

     

     

    
      	 	
              STRASBAUGH

            
	 	 
	 	
              By:
                /s/ Richard Nance        

               

              Name:
                Richard Nance

               

              Title:
                Chief Financial Officer

               

              Address
                for Notice:

              825
                Buckley Road

              San
                Luis Obispo, CA 93401

              Facsimile
                No.: (805) 541-6425

              Telephone
                No.: (805) 541-6424

              Attn:
                President

            
	 	 
	 	 
	
              With
                a copy to:

            	
              Rutan
                & Tucker, LLP

            
	 	
              611
                Anton Boulevard, Suite 1400

              Costa
                Mesa, CA 92626

              Facsimile:
                (714) 546-9035

              Telephone:
                (714) 641-5100

              Attn:
                Larry A. Cerutti, Esq.

            


    

     

    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

      

    

     

    Investor
      Signature Page

     

    By
      its
      execution and delivery of this signature page, the undersigned Investor hereby
      joins in and agrees to be bound by the terms and conditions of the Registration
      Rights Agreement dated as of May __, 2007 (the “Registration
      Rights Agreement”)
      by and
      among Strasbaugh and the Investors (as defined therein) and authorizes this
      signature page to be attached to the Registration Rights Agreement or
      counterparts thereof. 

     

     

    
      	 	
              Name
                of Investor:

            
	 	 
	 	
              ___________________________________

               

              
                By:______________________________________

                 

                Name:____________________________________

                 

                Title:_____________________________________

                 

                Address:__________________________________

                _________________________________________

                _________________________________________

                 

                Telephone
                  No.:_____________________________

                 

                
                  Facsimile
                    No.:______________________________

                   

                  
                    Email
                      Address:_____________________________

                  

                

              

            


    

     

    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A

     

    SCHEDULE
      OF INVESTORS

    
      	
              Lloyd
                I. Miller, III

            
	
              Milfam
                II L.P.

            
	
              Harvey
                SMidCap Fund LP

            
	
              Bryant
                Riley

            
	
              The
                Robert A Lichtenstein & Annette Lichtenstein Revocable
                Trust

            
	
              Kayne
                Anderson Capital Income Partners (QP), LP

            
	
              Catalysis
                Offshore, Ltd.

            
	
              PTR
                Fund L.P.

            
	
              Jonathan
                Stanton Company

            
	
              Palm
                Beach Trading

            
	
              Newport
                Micro Fund II, LLC

            
	
              Spector
                & Bennet Profit Sharing Plan

            
	
              Nanci
                S. Munck

            
	
              Michael
                C. Munck

            
	
              Mike
                Crawford

            
	
              Kenneth
                W. Tang

            
	
              R.
                Gregg Hillman

            
	
              Harvey
                SMidCap Offshore Fund LTD

            
	
              Kayne
                Anderson Income Partners, LP

            
	
              Kayne
                Anderson Capital Income Fund, Ltd.

            
	
              Catalysis
                Partners, LLC

            


    

     

    -1-