Document:

Unassociated Document

    Exhibit
      10.3

     

    INDEMNIFICATION
      AGREEMENT

     

    THIS
      INDEMNIFICATION AGREEMENT (“Agreement”)
      is
      made as of the date set forth on the signature page to this Agreement, by and
      between Strasbaugh, a California corporation (“Company”),
      and
      the individual named on the signature page to this Agreement (“Indemnitee”),
      an
      officer and/or a director of the Company.

     

    R
      E C I T A L S

     

    A.    The
      Indemnitee is concerned about serving, or continuing to serve, the Company
      as an
      officer and/or a director without assurance that indemnities available to him
      are, and will be, adequate to protect him against the risks associated with
      his
      service to the Company.

     

    B.    The
      Company has investigated whether additional protective measures are warranted
      to
      adequately protect its directors and officers against various legal risks and
      potential liabilities to which such individuals are subject due to their
      position with the Company and has concluded that additional protective measures
      are warranted.

     

    C.    In
      order
      to induce and encourage highly experienced and capable persons such as the
      Indemnitee to serve, or to continue to serve, as an officer and/or a director,
      the Board of Directors of the Company has determined, after due consideration,
      that this Agreement is not only reasonable and prudent, but necessary to promote
      and ensure the best interests of the Company and its shareholders.

     

    D.    The
      Company wishes to provide in this Agreement for the indemnification of and
      the
      advancing of expenses to the Indemnitee to the fullest extent permitted by
      law
      and as provided for in this Agreement.

     

    E.    The
      Company’s execution of this Agreement has been approved by the Board of
      Directors of the Company.

     

    F.    Indemnitee
      has indicated to the Company that but for the Company’s agreement to enter into
      this Agreement, Indemnitee would decline to serve, or to continue to serve,
      as
      an officer and/or a director of the Company.

     

    A
      G R E E M E N T

     

    NOW,
      THEREFORE, in consideration of the recitals set forth above and the continued
      services of the Indemnitee, and as an inducement to the Indemnitee to serve,
      or
      to continue to serve, as an officer and/or a director of the Company, the
      Company and the Indemnitee do hereby agree as follows:

     

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

     

    (a)    “Proceeding”
shall
      mean any threatened, pending or completed action, suit or proceeding, whether
      brought in the name of the Company or otherwise and whether of a civil,
      criminal, administrative or investigative nature, by reason of the fact that
      the
      Indemnitee is or was an officer and/or a director of the Company, or is or
      was
      serving at the request of the Company as a director, officer, employee or agent
      of another enterprise, whether or not he is serving in such capacity at the
      time
      any liability, Expense (as defined in subparagraph (b) below) or Loss (as
      defined in subparagraph (c) below) is incurred for which indemnification or
      advancement of Expenses or Losses is to be provided under this
      Agreement.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (b)    “Expenses”
means
      all costs, charges and expenses incurred in connection with a Proceeding,
      including, without limitation, attorneys’ fees, disbursements and retainers,
      accounting and witness fees, travel and deposition costs, expenses of
      investigations, judicial or administrative proceedings or appeals, and any
      expenses of establishing a right to indemnification pursuant to this Agreement
      or otherwise, including reasonable compensation for time spent by the Indemnitee
      in connection with the investigation, defense or appeal of a Proceeding or
      action for indemnification for which he is not otherwise compensated by the
      Company or any third party; provided,
      however,
      that
      the term “Expenses”
does
      not include Losses.

     

    (c)    “Losses”
means
      any amount which Indemnitee pays or is obligated to pay in connection with
      a
      Proceeding, including, without limitation, (i) the amount of damages, judgments,
      amounts paid in settlement, fines or penalties relating to any Proceeding,
      (ii)
      sums paid in respect of any deductible under any applicable D&O Insurance
      (as defined in Section 12(a))
      or
      (iii) excise taxes under the Employee Retirement Income Security Act of 1974,
      as
      amended (“ERISA”),
      relating to any Proceeding, either of which are actually levied against the
      Indemnitee or paid by or on behalf of the Indemnitee; provided,
      however,
      that
      the term “Losses”
does
      not include Expenses.

     

    2.    Agreement
      to Serve.
      The
      Indemnitee agrees to continue to serve as an officer and/or a director of the
      Company at the will of the Company for so long as Indemnitee is duly elected
      or
      appointed or until such time as Indemnitee tenders a resignation in writing
      or
      is terminated as an officer and/or removed as a director by the Company. Nothing
      in this Agreement shall be construed to create any right in Indemnitee to
      continued employment with the Company or any subsidiary or affiliate of the
      Company. Nothing in this Agreement shall affect or alter any of the terms of
      any
      otherwise valid employment agreement or other agreement between Indemnitee
      and
      the Company relating to Indemnitee’s conditions and/or terms of employment or
      service.

     

    3.    Indemnification
      in Third Party Actions.
      The
      Company shall indemnify the Indemnitee in accordance with the provisions of
      this
Section 3
      if the
      Indemnitee is a party to or threatened to be made a party to or is otherwise
      involved in any Proceeding (other than a Proceeding by or in the right of the
      Company to procure a judgment in its favor), by reason of the fact that the
      Indemnitee is or was an officer and/or a director of the Company, or is or
      was
      serving at the request of the Company as a director, officer, employee or agent
      of another enterprise, or by reason of anything done or not done by Indemnitee
      in any such capacity, against all Expenses and Losses actually and reasonably
      incurred by the Indemnitee in connection with the defense or settlement of
      such
      Proceeding, to the fullest extent permitted by California law, whether or not
      the Indemnitee was the successful party in any such Proceeding; provided,
      however,
      that
      any settlement shall be approved in writing by the Company.

     

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

     

    4.    Indemnification
      In Proceedings By or In the Right of the Company.
      The
      Company shall indemnify the Indemnitee in accordance with the provisions of
      this
      Section 4 if the Indemnitee is a party to or threatened to be made a party
      to or is otherwise involved in any Proceeding by or in the right of the Company
      to procure a judgment in its favor by reason of the fact that the Indemnitee
      is
      or was an officer and/or a director of the Company, or is or was serving at
      the
      request of the Company as a director, officer, employee or agent of another
      enterprise, or by reason of anything done or not done by Indemnitee in any
      such
      capacity, against all Expenses actually and reasonably incurred by Indemnitee
      in
      connection with the defense or settlement of such Proceeding, to the fullest
      extent permitted by California law, whether or not the Indemnitee is the
      successful party in any such Proceeding. The Company shall further indemnify
      the
      Indemnitee for any Losses actually and reasonably incurred by the Indemnitee
      in
      any such Proceeding described in the immediately preceding sentence, provided
      that either (i) the Proceeding is settled with the approval of a court of
      competent jurisdiction, or (ii) indemnification of such amounts is otherwise
      ordered by a court of competent jurisdiction in connection with such
      Proceeding.

     

    5.    Conclusive
      Presumption Regarding Standard of Conduct.
      The
      Indemnitee shall be conclusively presumed to have met the relevant standards
      of
      conduct required by California for indemnification pursuant to this Agreement,
      unless a determination is made that the Indemnitee has not met such standards
      (i) by the Board of Directors of the Company by a majority vote of a quorum
      thereof consisting of directors who were not parties to such Proceeding, (ii)
      by
      the shareholders of the Company by a majority vote, or (iii) in a written
      opinion of the Company’s independent legal counsel. Further, the termination of
      any Proceeding by judgment, order, settlement, conviction or upon a plea of
      nolo
      contendere or its equivalent, shall not, of itself, rebut such presumption
      that
      the Indemnitee met the relevant standards of conduct required for
      indemnification pursuant to this Agreement. 

     

    6.    Indemnification
      of Expenses of Successful Party.
      Notwithstanding any other provision of this Agreement, to the extent that the
      Indemnitee has been successful on the merits or otherwise in defense of any
      Proceeding or in defense of any claim, issue or matter therein, the Indemnitee
      shall be indemnified against all Expenses incurred in connection therewith
      to
      the fullest extent permitted by California law. For purposes of this paragraph,
      the Indemnitee will be deemed to have been successful on the merits if the
      Proceeding is terminated by settlement or is dismissed with
      prejudice.

     

    7.    Advances
      of Expenses.
      The
      Expenses incurred by the Indemnitee in connection with any Proceeding shall
      be
      paid by the Company in advance of the final disposition of the Proceeding at
      the
      written request of the Indemnitee, and within ten (10) business days of such
      request, to the fullest extent permitted by California law; provided that the
      Indemnitee shall undertake in writing to repay such amount to the extent that
      it
      is ultimately determined that the Indemnitee is not entitled to indemnification
      by the Company.

     

    8.    Partial
      Indemnification.
      If the
      Indemnitee is entitled under any provision of this Agreement to indemnification
      by the Company for some or a portion of the Expenses or Losses actually and
      reasonably incurred by Indemnitee in the investigation, defense, appeal or
      settlement of any Proceeding but not, however, for the total amount thereof,
      the
      Company shall nevertheless indemnify the Indemnitee for the portion of such
      Expenses and Losses to which the Indemnitee is entitled.

     

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

     

    9.    Indemnification
      Procedure; Determination of Right to Indemnification.
      

     

    (a)    Promptly
      after receipt by the Indemnitee of notice of the commencement of any Proceeding
      with respect to which the Indemnitee intends to claim indemnification or
      advancement of Expenses or Losses pursuant to this Agreement, the Indemnitee
      will notify the Company of the commencement thereof. The omission to so notify
      the Company will not relieve the Company from any liability which it may have
      to
      the Indemnitee under this Agreement or otherwise.

     

    (b)    The
      Company shall give prompt notice of the commencement of such Proceeding to
      the
      insurers on the D&O Insurance in accordance with the procedures set forth in
      the respective policies in favor of Indemnitee. The Company shall thereafter
      take all necessary or desirable action to cause such insurers to pay, on behalf
      of Indemnitee, all amounts payable as a result of such Proceeding in accordance
      with the terms of such policies.

     

    (c)    If
      a
      claim for indemnification or advancement of Expenses or Losses under this
      Agreement is not paid by or on behalf of the Company within thirty (30) days
      of
      receipt of written notice thereof, Indemnitee may at any time thereafter bring
      suit in any court of competent jurisdiction against the Company to enforce
      the
      right to indemnification or advancement of Expenses or Losses provided by this
      Agreement. It shall be a defense to any such action (other than an action
      brought to enforce a claim for Expenses incurred in defending any Proceeding
      in
      advance of its final disposition where the required undertaking, if any is
      required, has been tendered to the Company) that the Indemnitee has failed
      to
      meet the standard of conduct that makes it permissible under California law
      for
      the Company to indemnify the Indemnitee for the amount claimed. The burden
      of
      proving by clear and convincing evidence that indemnification or advancement
      of
      Expenses or Losses is not appropriate shall be on the Company. The failure
      of
      the directors or shareholders of the Company or independent legal counsel to
      have made a determination prior to the commencement of such Proceeding that
      indemnification or advancement of Expenses or Losses are proper in the
      circumstances because the Indemnitee has met the applicable standard of conduct
      shall not be a defense to the action or create a presumption that the Indemnitee
      has not met the applicable standard of conduct.

     

    (d)    The
      Indemnitee’s Expenses incurred in connection with any action concerning
      Indemnitee’s right to indemnification or advancement of Expenses or Losses in
      whole or in part pursuant to this Agreement shall also be indemnified in
      accordance with the terms of this Agreement by the Company regardless of the
      outcome of such action, unless a court of competent jurisdiction determines
      that
      each of the material claims made by the Indemnitee in such action was not made
      in good faith or was frivolous.

     

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

     

    (e)    With
      respect to any Proceeding for which indemnification is requested, the Company
      will be entitled to participate therein at its own expense and, except as
      otherwise provided below, to the extent that it may wish, the Company may assume
      the defense thereof, with counsel satisfactory to the Indemnitee. After notice
      from the Company to the Indemnitee of its election to assume the defense of
      a
      Proceeding, the Company will not be liable to the Indemnitee under this
      Agreement for any Expenses subsequently incurred by the Indemnitee in connection
      with the defense thereof, other than reasonable costs of investigation or as
      otherwise provided below. The Company shall not settle any Proceeding in any
      manner that would impose any penalty or limitation on the Indemnitee, or include
      an admission of wrongdoing by the Indemnitee, without the Indemnitee’s prior
      written consent. The Indemnitee shall have the right to employ counsel in any
      such Proceeding, but the Expenses of such counsel incurred after notice from
      the
      Company of its assumption of the defense thereof and the Indemnitee’s approval
      of the Company’s counsel shall be at the expense of the Indemnitee, unless (i)
      the employment of counsel by the Indemnitee has been authorized by the Company,
      (ii) the Indemnitee shall have reasonably concluded that there may be a conflict
      of interest between the Company and the Indemnitee in the conduct of the defense
      of a Proceeding, or (iii) the Company shall not in fact have employed counsel
      to
      assume the defense of a Proceeding, in each of which cases the Expenses of
      the
      Indemnitee’s counsel shall be at the expense of the Company. Notwithstanding the
      foregoing, the Company shall not be entitled to assume the defense of any
      Proceeding brought by or on behalf of the Company or as to which the Indemnitee
      has concluded that there may be a conflict of interest between the Company
      and
      the Indemnitee.

     

    (f)    With
      respect to any Proceeding that is other than by or in the right of the Company,
      the Indemnitee may require the Company to defend him. In the event that
      Indemnitee requires the Company to defend him, the Company shall promptly
      undertake to defend any such Proceeding at the Company’s sole expense, employing
      counsel satisfactory to the Indemnitee.

     

    (g)    If
      the
      Company fails timely to defend, contest or otherwise protect the Indemnitee
      against any Proceeding which is not by or in the right of the Company, the
      Indemnitee shall have the right to do so, including without limitation, the
      right to make any compromise or settlement thereof, and to recover from the
      Company all Expenses and Losses and amounts paid as a result
      thereof.

     

    10.    Retroactive
      Effect.
      Notwithstanding anything to the contrary contained in this Agreement, the
      Company’s obligation to indemnify the Indemnitee and advance Expenses and Losses
      to the Indemnitee shall be deemed to be in effect since the date that the
      Indemnitee first commenced serving in any of the capacities covered by this
      Agreement.

     

    11.    Limitations
      on Indemnification.
      No
      payments pursuant to this Agreement shall be made by the Company:

     

    (a)    to
      indemnify or advance Expenses to the Indemnitee with respect to actions
      initiated or brought voluntarily by the Indemnitee and not by way of defense,
      except with respect to actions brought to establish or enforce a right to
      indemnification or advancement of Expenses or Losses under this Agreement or
      any
      other statute or law or otherwise as required under California law, but such
      indemnification or advancement of Expenses or Losses may be provided by the
      Company in specific cases if approved by the Board of Directors by a majority
      vote of a quorum thereof consisting of directors who are not parties to such
      action;

     

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

     

    (b)    to
      indemnify the Indemnitee for any Expenses or Losses for which payment is
      actually made to the Indemnitee under a valid and collectible insurance policy,
      except in respect of any excess beyond the amount paid under such
      insurance;

     

    (c)    to
      indemnify the Indemnitee for any Expenses or Losses for which the Indemnitee
      has
      been or is indemnified by the Company or any other party otherwise than pursuant
      to this Agreement; or

     

    (d)    to
      indemnify the Indemnitee for any Expenses or Losses sustained in any Proceeding
      for an accounting of profits made from the purchase or sale by Indemnitee of
      securities of the Company pursuant to the provisions of Section 16(b) of
      the Securities Exchange Act of 1934 and the rules and regulations promulgated
      thereunder or similar provisions of any federal, state or local statutory
      law.

     

    12.    Maintenance
      of Directors’ and Officers’ Insurance.

     

    (a)    Upon
      the
      Indemnitee’s request, the Company hereby agrees to maintain in full force and
      effect, at its sole cost and expense, directors’ and officers’ liability
      insurance (“D&O
      Insurance”)
      by an
      insurer, in an amount and with a deductible reasonably acceptable to the
      Indemnitee, covering the period during which the Indemnitee is serving in any
      of
      the capacities covered by this Agreement and for so long thereafter as the
      Indemnitee shall be subject to any possible claim or threatened, pending or
      completed Proceeding by reason of the fact that the Indemnitee is serving in
      any
      of the capacities covered by this Agreement. Upon receipt of any D&O
      Insurance policy, or any endorsement to any D&O Insurance policy, the
      Company shall promptly provide the Indemnitee with a complete copy
      thereof.

     

    (b)    In
      all
      policies of D&O Insurance to be maintained pursuant to Section 12(a),
      the
      Indemnitee shall be named as an insured in such a manner as to provide
      Indemnitee with the greatest rights and benefits available under such
      policy.

     

    (c)    The
      Company will, within ten (10) days of request of the Indemnitee and upon each
      subsequent renewal date of the D&O Insurance, furnish the Indemnitee with a
      certificate of insurance naming the Indemnitee as an insured and otherwise
      meeting the requirements of this Section 12
      and will
      not make any changes to such insurance without the prior consent of the
      Indemnitee, which consent will not be unreasonably withheld. Upon receipt by
      the
      Company of notice, in any form, of cancellation or termination or proposed
      cancellation or termination or any restriction or limitation of any D&O
      Insurance, the Company shall, within five (5) days of receipt of such notice,
      provide like notice to the Indemnitee.

     

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

     

    (d)    Any
      approval by the Indemnitee of the D&O Insurance will not release the Company
      of its obligations under this Agreement.

     

    13.    Indemnification
      Hereunder Not Exclusive; Term.
      The
      indemnification and advancement of Expenses and Losses provided by this
      Agreement shall not be deemed to limit or preclude any other rights to which
      the
      Indemnitee may be entitled under the Company’s articles of incorporation or
      bylaws, any agreement, any vote of shareholders or disinterested directors
      of
      the Company, California law, or otherwise. The indemnification under this
      Agreement shall continue as to the Indemnitee, even though he may have ceased
      to
      be an officer and/or a director of the Company, for so long as the Indemnitee
      shall be subject to any possible Proceeding.

     

    14.    Primary
      Indemnity.
      The
      Company’s obligation to provide indemnification to the Indemnitee under this
      Agreement is primary to any other source of indemnification or insurance that
      may be available to the Indemnitee for matters covered by the indemnification
      under this Agreement. The Company agrees that it shall have no right of
      subrogation with respect to any such other right of recovery of the
      Indemnitee.

     

    15.    Successors
      and Assigns.
      This
      Agreement shall be binding upon, and shall inure to the benefit of (i) the
      Indemnitee and Indemnitee’s heirs, devisees, legatees, personal representatives,
      executors, administrators and assigns and (ii) the Company and its successors
      and assigns, including any transferee of all or substantially all of the
      Company’s assets and any successor or assign of the Company by merger or by
      operation of law.

     

    16.    Severability.
      Each
      provision of this Agreement is a separate and distinct agreement and independent
      of the other, so that if any provision hereof shall be held to be invalid or
      unenforceable for any reason, such invalidity or unenforceability shall not
      affect the validity or enforceability of the other provisions hereof. To the
      extent required, any provision of this Agreement may be modified by a court
      of
      competent jurisdiction to preserve its validity and to provide the Indemnitee
      with the broadest possible indemnification and advancement of Expenses and
      Losses permitted under California law. If this Agreement or any portion thereof
      is invalidated on any ground by any court of competent jurisdiction, then the
      Company shall nevertheless indemnify Indemnitee as to Expenses and Losses with
      respect to any Proceeding to the fullest extent permitted by any applicable
      portion of this Agreement that shall not have been invalidated or by any
      applicable provision of California law or any other applicable law.

     

    17.    Headings.
      The
      headings used herein are for convenience only and shall not be used in
      construing or interpreting any provision of the Agreement.

     

    18.    Governing
      Law.
      This
      Agreement shall be construed, interpreted and enforced in accordance with the
      laws of the State of California, without giving effect to the principles of
      conflicts of laws thereunder which would specify the application of the law
      of
      another jurisdiction. 

     

    19.    Amendments
      and Waivers.
      No
      amendment, waiver, modification, termination or cancellation of this Agreement
      shall be effective unless in writing and signed by the party against whom
      enforcement is sought. The indemnification rights afforded to the Indemnitee
      hereby are contract rights and may not be diminished, eliminated or otherwise
      affected by amendments to the Company’s articles of incorporation, bylaws or
      agreements, including any D&O Insurance policies, whether the alleged
      actions or conduct giving rise to indemnification hereunder arose before or
      after any such amendment. No waiver of any provision of this Agreement shall
      be
      deemed or shall constitute a waiver of any other provision hereof, whether
      or
      not similar, nor shall any waiver constitute a continuing waiver.

     

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

     

    20.    Counterparts.
      This
      Agreement may be executed in one or more counterparts, all of which shall be
      considered one and the same agreement and shall become effective when one or
      more counterparts have been signed by each party and delivered to the
      other.

     

    21.    Notices.
      All
      notices and communications shall be in writing and shall be deemed duly given
      on
      the date of delivery or on the date of receipt of refusal indicated on the
      return receipt if sent by first class mail, postage prepaid, registered or
      certified, return receipt requested, to the following addresses, unless notice
      of a change of address is duly given by one party to the other, in which case
      notices shall be sent to such changed address:

     

    If
      to the
      Company:

     

    Strasbaugh

    825
      Buckley Road

    San
      Luis
      Obispo, CA 93401

    Attn:
      Chuck Schillings, President

     

    with
      a
      copy, which shall not constitute notice to the Company, to:

     

    Rutan
      & Tucker, LLP

    611
      Anton
      Boulevard, Suite 1400

    Costa
      Mesa, CA 92626

    Attn:
      Larry A. Cerutti, Esq.

     

    If
      to the
      Indemnitee, to the address set forth on the signature page to this
      Agreement.

     

    22.    Subject
      Matter and Parties.
      The
      intended purpose of this Agreement is to provide for indemnification and
      advancement of Expenses and Losses, and this Agreement is not intended to affect
      any other aspect of any relationship between the Indemnitee and the Company
      and
      is not intended to and shall not create any rights in any person as a third
      party beneficiary hereunder.

     

    (Signature
      page follows)

     

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

     

    IN
      WITNESS WHEREOF, the parties have executed this Agreement as of ____________,
      2007.

     

    
      	
              “Indemnitee”

            	
              Signature:________________________________

               

              Print Name:_______________________________

               

              Address For
                Notices:________________________

               

              ________________________________________

               

              
                ________________________________________

              

            
	 	 
	 	 
	
              “Company”

            	
              STRASBAUGH,

              
                a
                  California corporation

                 

                By:______________________________________

                 

                Name:____________________________________

                 

                Its:______________________________________

              

            

    

     

     

     

     

    -9-Executive Employment Agreement - Chuck Schillings

    Exhibit
      10.4

     

     

     

    EXECUTIVE
      EMPLOYMENT AGREEMENT

     

    STRASBAUGH

     

    AND

     

    CHUCK
      SCHILLINGS

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    TABLE
      OF CONTENTS

     

    
      	
               

            	 	
              Page 

            
	 	 	 
	
              1. 

            	
              General
                Duties of Employer and Executive

            	
              1

            
	 	 	 
	
              2. 

            	
              Compensation
                and Benefits

            	
              2

            
	 	 	 
	
              3. 

            	
              Preservation
                of Business; Fiduciary Responsibility 

            	
              3

            
	 	 	 
	
              4. 

            	
              Term 

            	
              3

            
	 	 	 
	
              5. 

            	
              Termination
                Other Than by Expiration of the Term 

            	
              3

            
	 	 	 
	
              6. 

            	
              Effect
                of Termination

            	
              4

            
	 	 	 
	
              7. 

            	
              Covenants
                of Confidentiality, Nondisclosure and Noncompetition

            	
              7

            
	 	 	 
	
              8. 

            	
              Inventions

            	
              8

            
	 	 	 
	
              9. 

            	
              No
                Violation 

            	
              9

            
	 	 	 
	
              10. 

            	
              Return
                of Employer’s Property 

            	
              9

            
	 	 	 
	
              11. 

            	
              Injunctive
                Relief 

            	
              9

            
	 	 	 
	
              12. 

            	
              Dispute
                Resolution 

            	
              9

            
	 	 	 
	
              13. 

            	
              Miscellaneous 

            	
              10

            
	 	 	 
	
              APPENDIX I
                - Certain Definitions  

            	 

    

     

    
      
        
        

      

      
        -i-

        
          

        

      

      
        
        

      

    

     

    EXECUTIVE
      EMPLOYMENT AGREEMENT

     

    THIS
      EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”),
      is
      made and entered into as of May 24, 2007 (the “Effective
      Date”)
      by and
      between STRASBAUGH, a California corporation (“Employer”),
      and
      CHUCK SCHILLINGS (“Executive”).

     

    RECITALS

     

    Employer
      desires that the Executive enter into an employment relationship with Employer
      in order to provide the necessary leadership and senior management skills that
      are important to the success of Employer. Employer believes that obtaining
      the
      Executive’s services as an employee of Employer and the benefits of his business
      experience are of material importance to Employer and Employer’s
      stockholders.

     

    NOW,
      THEREFORE, in consideration of Executive’s employment by Employer and the mutual
      promises and covenants contained herein, the receipt and sufficiency of which
      is
      hereby acknowledged, Employer and Executive intend by this Agreement to specify
      the terms and conditions of Executive’s employment relationship with
      Employer.

     

    1.    General
      Duties of Employer and Executive.

     

    1.1  Employer
      agrees to employ Executive and Executive agrees to accept employment by Employer
      and to serve Employer in an executive capacity upon the terms and conditions
      set
      forth herein. Employer hereby employs Executive as the President and Chief
      Executive Officer of Employer as of the Effective Date, reporting to the Board
      of Directors of Employer (the “Board”).
      Executive’s duties and responsibilities shall be those normally assumed by the
      President and Chief Executive Officer of a publicly-owned company similarly
      situated to Employer, as well as such other or additional duties, as may from
      time-to-time be assigned to Executive by the Board. Such other or additional
      duties shall be consistent with the senior executive functions referenced above.
      Executive shall be provided with an office and the administrative support
      reasonably necessary to fulfill the responsibilities assumed by Executive under
      this Agreement.

     

    1.2  While
      employed hereunder, Executive shall use his best efforts to obey the lawful
      directions of the Board. Executive shall also use his best efforts to promote
      the interests of Employer and to maintain and to promote the reputation of
      Employer. While employed hereunder, Executive shall devote his full business
      time, efforts, skills and attention to the affairs of Employer and faithfully
      perform his duties and responsibilities hereunder.

     

    1.3  While
      this Agreement is in effect, Executive may from time to time engage in any
      activities that do not compete directly with Employer, provided that such
      activities do not interfere with his performance of his duties. Executive shall
      be permitted to (i) invest his personal assets as a passive investor in such
      form or manner as Executive may choose in his discretion, (ii) participate
      in
      various charitable efforts, and (iii) serve as a member of the Board of
      Directors of other corporations which are not competitors of
      Employer.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    2.    Compensation
      and Benefits.

     

    2.1  As
      compensation for his services to Employer, Employer shall pay to Executive
      an
      annual base salary of $245,000 during the first 12-month period that this
      Agreement is in effect, payable in equal semimonthly payments or in accordance
      with the Employer’s regular payroll policy for salaried employees (the
“Salary”).
      Thereafter, or earlier from time to time in the discretion of the Compensation
      Committee of the Board, but not less frequently than annually, the Compensation
      Committee shall perform a review of the Executive’s Salary based on Executive’s
      performance of his duties and the Employer’s other compensation policies. The
      Compensation Committee may, in its sole discretion, increase (but not decrease)
      the Salary following such review.

     

    2.2  In
      addition, Executive shall be entitled to receive a cash bonus not to exceed
      forty percent (40%) of his base salary to be paid based upon performance
      criteria to be established by the Board of Directors of Employer on an annual
      basis (“Incentive
      Bonus”).

     

    2.3  Upon
      Executive’s furnishing to Employer customary and reasonable documentary support
      (such as receipts or paid bills) evidencing costs and expenses incurred by
      him
      in the performance of his services and duties hereunder (including, without
      limitation, for gifts, travel and entertainment and cellular telephone expenses)
      and containing sufficient information to establish the amount, date, place
      and
      essential character of the expenditure, Executive shall be reimbursed for such
      costs and expenses in accordance with Employer’s normal expense reimbursement
      policy.

     

    2.4  As
      long
      as this Agreement is in effect, Executive shall be entitled to participate
      in
      the medical (including hospitalization), dental, life and disability insurance
      plans, to the extent offered by Employer, and in amounts consistent with the
      Employer’s policy, for other senior executive officers of Employer, with
      premiums for all such insurance for Executive to be paid by Employer and all
      or
      a portion of the premiums for Executive’s dependants to be paid in accordance
      with Employer’s policy.

     

    2.5  Executive
      shall have the right to participate in any additional compensation, benefit,
      pension, stock option, stock purchase, 401(k) or other plan or arrangement
      of
      Employer now or hereafter existing for the benefit of other senior executive
      officers of Employer. Executive’s participation in Employer’s stock option plan
      shall be developed in relative proportion to Executive’s position with
      Employer.

     

    2.6  Executive
      shall be entitled to vacation (but in no event less than five (5) weeks per
      year), holiday and other paid or unpaid leaves of absence consistent with
      Employer’s normal policies for other senior executive officers of Employer or as
      otherwise approved by the Board. Executive shall be entitled to accrue vacation
      time for one year. If he does not take the accrued vacation during the next
      year, he shall be paid for the unused vacation at his Salary rate then in
      effect.

     

    2.7  On
      the
      Effective Date, Executive shall be issued options to purchase an aggregate
      of
      200,000 shares of Employer’s common stock pursuant to an Employer’s 2007 Share
      Incentive Plan. The options will vest as follows: (i) options to purchase
      66,666 shares shall vest on the first anniversary of the Effective Date;
      (ii) options to purchase 66,666 shares will vest on the second anniversary
      of the Effective Date; and (iii) 66,668 shares will vest on the third
      anniversary of the Effective Date.

     

    
      
        
        

      

      
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    3.    Preservation
      of Business; Fiduciary Responsibility.
      Executive shall use his best efforts to preserve the business and organization
      of Employer and to preserve the business relations of Employer. So long as
      the
      Executive is employed by Employer, Executive shall observe and fulfill proper
      standards of fiduciary responsibility attendant upon his service and
      office.

     

    4.    Term.
      The
      term of this Agreement shall commence on the Effective Date and shall end on
      the
      third (3rd)
      anniversary of the Effective Date; provided,
      however,
      that
      this Agreement shall automatically renew for successive one (1) year periods
      unless, at least 90 days prior to the expiration of the initial term or any
      renewal term, either party gives written notice to the other of his or its
      intention not to renew.

     

    5.    Termination
      Other Than by Expiration of the Term.
      Employer or Executive may terminate Executive’s employment under this Agreement
      at any time, but only on the following terms:

     

    5.1  Either
      Executive or Employer may terminate this Agreement in accordance with
Section 4.

     

    5.2  Employer
      may terminate Executive’s employment under this Agreement at any time for “Due
      Cause” (as defined in Appendix I
      attached
      hereto and incorporated herein by this reference) upon the good faith
      determination by the Board that Due Cause exists for the termination of the
      employment relationship.

     

    5.3  If
      Executive is incapacitated by accident, sickness or otherwise so as to render
      Executive mentally or physically incapable of performing the services required
      under Section 1
      of this
      Agreement for a period of 180 consecutive days, and the incapacity is confirmed
      by the written opinion of two practicing medical doctors licensed by and in
      good
      standing in the State of California (one selected by Employer and one by
      Executive), upon the expiration of that period or at any time reasonably
      thereafter, Employer may terminate Executive’s employment under this Agreement
      upon giving Executive or his legal representative written notice at least 30
      days prior to the termination date, subject to the provisions of Section 6.2.
      Executive agrees, after written notice by the Board, to submit to examinations
      by the practicing medical doctors. If the medical doctors do not agree as to
      whether Executive is disabled, they shall promptly select a mutually acceptable
      third practicing medical doctor to further evaluate Executive, whose conclusion
      shall be rendered, in writing, within ten days of his or her selection. The
      conclusion of the third practicing medical doctor shall be final and binding
      on
      Employer and Executive.

     

    5.4  This
      Agreement shall terminate immediately upon Executive’s death, subject to the
      provisions of Section 6.2.

     

    
      
        
        

      

      
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    5.5  Subject
      to the provisions of Section 6.3,
      Employer may terminate Executive’s employment under this Agreement at any time
      for any reason whatsoever, even without Due Cause, by giving a written notice
      of
      termination to Executive, in which case the employment relationship shall
      terminate immediately upon the giving of the notice. If Employer terminates
      the
      employment of Executive other than (i) pursuant to Section 4,
      (ii)
      pursuant to Section 5.2
      for Due
      Cause, (iii) due to incapacity pursuant to Section 5.3
      or due
      to Executive’s death pursuant to Section 5.4,
      or (iv)
      Executive’s resignation (other than for Good Reason) or retirement, then the
      action by Employer, unless consented to in writing by Executive, shall be deemed
      to be a constructive termination by Employer of Executive’s employment (a
“Constructive
      Termination”),
      and,
      in that event, Executive shall be entitled to receive the compensation set
      forth
      in Section 6.3.

     

    5.6  Executive
      may terminate this Agreement at any time for “Good Reason” (as defined in
Appendix I
      attached
      hereto and incorporated herein by this reference) within 30 days after Executive
      learns of the event or condition constituting “Good Reason” and, in that event,
      shall be entitled to receive the compensation set forth in Section 6.3.

     

    5.7  Executive
      may terminate this Agreement at any time for any reason whatsoever, even without
      Good Reason, upon giving Employer written notice at least 30 days prior to
      the
      termination date, and, in that event, Executive shall be entitled to receive
      the
      compensation set forth in Section 6.1.

     

    6.    Effect
      of Termination.

     

    6.1  If
      the
      employment relationship is terminated (a) by Employer or Executive upon 90
      days’
written notice pursuant to Section 4,
      (b) by
      Employer for Due Cause pursuant to Section 5.2,
      or (c)
      by Executive pursuant to Section
      5.7
      or by
      Executive breaching this Agreement by refusing to continue his employment and
      failing to give the requisite 90 days’ written notice, all compensation and
      benefits shall cease as of the date of termination, other than: (i) those
      benefits that are provided by retirement and benefit plans and programs
      specifically adopted and approved by Employer for Executive that are earned
      and
      vested by the date of termination; (ii) Executive’s pro rata annual Salary (as
      in effect as of the date of termination, payable in the manner as prescribed
      in
      the first sentence of Section 2.1)
      through
      the date of termination; (iii) any restricted stock awards which have vested
      as
      of the date of termination pursuant to the terms of the agreement granting
      the
      awards; and (iv) accrued vacation as required by California law.

     

    6.2  If
      Executive’s employment relationship is terminated due to Executive’s incapacity
      pursuant to Section 5.3
      or due
      to Executive’s death pursuant to Section 5.4,
      Executive or Executive’s estate or legal representative, will be entitled to (i)
      those benefits that are provided by retirement and benefits plans and programs
      specifically adopted and approved by Employer for Executive that are earned
      and
      vested at the date of termination, a prorated Incentive Bonus for the fiscal
      year in which incapacity or death occurs, and, even though no longer employed
      by
      Employer, Executive shall continue to receive the annual Salary compensation
      (as
      in effect as of the date of termination, payable in the manner as prescribed
      in
      the first sentence of Section 2.1)
      for six
      (6) months following the date of termination, offset, however, by any payments
      received by Executive as a result of any disability insurance maintained by
      Employer for Executive’s benefit.

     

    
      
        
        

      

      
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    6.3  In
      the
      event of a termination of this Agreement by Executive for Good Reason or by
      Employer pursuant to Section
      5.5,
      then
      Employer shall:

     

    (a)  pay
      to
      Executive on the date of termination his Salary in effect as of the date of
      termination through the end of the month during which the termination occurs
      plus credit for any vacation earned but not taken;

     

    (b)  pay
      to
      Executive, as severance pay, six (6) months of Executive’s Salary in effect as
      of the date of termination, with such amount payable in equal semimonthly
      payments in accordance with the Employer’s regular payroll policy (including
      standard payroll deductions and withholdings) for salaried employees, it being
      understood that each payment made pursuant to this Section
      6.3(b)
      is
      intended to be a separate payment (as defined in Treasury Regulations Section
      1.409A-2(b)(2) from any other payments made pursuant to this Section 6.3(b)
      for
      purposes of the “short-term deferral rule” under Treasury Regulations Section
      1.409-A-1(b)(4);

     

    (c)  pay
      to
      Executive the prorated Incentive Bonus for the fiscal year during which
      termination occurs; and

     

    (d)  maintain,
      at Employer’s expense, in full force and effect, for Executive’s continued
      benefit, all medical and life insurance to which Executive was entitled
      immediately prior to the date of termination (or at the election of Executive
      in
      the event of a Change in Control, immediately prior to the date of the Change
      in
      Control) until the earliest of (i) 12 months or (ii) the date or dates that
      Executive’s continued participation in Employer’s medical and/or life insurance
      plans, as applicable, is not possible under the terms of the plans (the earliest
      of (i) and (ii) is referred to herein as the “Benefits
      Date”).
      If
      Employer’s medical and/or life insurance plans do not allow Executive’s
      continued participation in the plan or plans, then Employer will pay to
      Executive, in monthly installments, from the date on which Executive’s
      participation in the medical and/or life insurance, as applicable, is prohibited
      until the date that is 12 months after the date of termination, the monthly
      premium or premiums which had been payable by Employer with respect to Executive
      for the discontinued medical and/or life insurance, as applicable.

     

    6.4  If
      the
      Company determines that any of the severance benefit payments fail to satisfy
      the distribution requirement of Section 409A(a)(2)(A) of the Code as a result
      of
      Section 409A(a)(2)(B)(i) of the Code, the payment of such benefit shall be
      accelerated to the minimum extent necessary so that the benefit is not subject
      to the provisions of Section 409A(a)(1) of the Code. (It is the intention of
      the
      preceding sentence to apply the short-term deferral provisions of Section 409A
      of the Code, and the regulations and other guidance thereunder, to the severance
      benefit payments, and the payment schedule as revised after the application
      of
      the preceding sentence shall be referred to as the “Revised
      Payment Schedule.”)
      However, if there is no Revised Payment Schedule that would avoid the
      application of Section 409A(a)(1) of the Code, the payment of such benefits
      shall not be paid pursuant to a Revised Payment Schedule and instead shall
      be
      delayed to the minimum extent necessary so that such benefits are not subject
      to
      the provisions of Section 409A(a)(1) of the Revenue Code. The Board may attach
      conditions to or adjust the amounts paid pursuant to this Section 6.4
      to
      preserve, as closely as possible, the economic consequences that would have
      applied in the absence of this Section 6.4;
      provided,
      however,
      that no
      such condition or adjustment shall result in the payments being subject to
      Section 409A(a)(1) of the Code.

     

    
      
        
        

      

      
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    6.5  Anything
      in this Agreement to the contrary notwithstanding, if the Auditors (as defined
      in Appendix I
      attached
      hereto and incorporated herein by this reference) determine that any payment
      or
      distribution by Employer to or for the benefit of Executive, whether paid or
      payable (or distributed or distributable) pursuant to the terms of this
      Agreement or otherwise (a “Payment”),
      would
      be nondeductible by Employer for federal income tax purposes because of the
      application of Section 280G of the Code (as defined in Appendix I
      attached
      hereto and incorporated herein by this reference), or because of the application
      of any federal or state income tax law enacted after the date hereof which
      restricts or limits the deductibility of compensation paid to an Executive
      (a
“Subsequent
      Law”),
      then
      the aggregate present value of the amounts payable or distributable to or for
      the benefit of Executive pursuant to this Agreement (the “Payments”)
      shall
      be reduced (but not below zero) to the Reduced Amount. For purposes of this
      Section 6.5,
      the
“Reduced
      Amount”
shall
      be an amount which maximizes the aggregate amount of Payments without causing
      any Payment to be nondeductible by Employer because of the application of
      Subsequent Law, or which maximizes the aggregate present value of Payments
      without causing any Payment to be nondeductible by Employer because of the
      application of Section 280G of the Code. For purposes of this Section 6.5,
      present
      value shall be determined in accordance with Section 280G(d)(4) of the Code
      and Income Tax Regulations promulgated thereunder.

     

    6.6  If
      the
      Auditors determine that any Payment would be nondeductible by Employer because
      of the application of Section 280G of the Code, or because of the
      application of Subsequent Law, then Employer shall promptly give notice to
      that
      effect and a copy of the detailed calculation thereof and of the Reduced Amount,
      and Executive may then elect, in his sole discretion, which and how much of
      the
      Payments shall be eliminated or reduced (as long as after the election the
      aggregate present value of the Payments equals the Reduced Amount) and shall
      advise Employer in writing of his election within 20 days of his receipt of
      notice. If no election is made by Executive within such 20 day period, then
      Employer may elect which and how much of the Payments shall be eliminated or
      reduced (as long as after the election the aggregate present value of Executive
      Payments equals the Reduced Amount) and shall notify Executive promptly of
      the
      election. All determinations made by the Auditors under this Section 6.6
      and
Section 6.5
      shall be
      binding upon Employer and Executive and shall be made within 60 days of
      Executive’s termination of employment. As promptly as practicable following the
      determination and the elections hereunder, Employer shall pay to or distribute
      to or for the benefit of Executive the amounts then due to him under this
      Agreement, as modified by Section 6.5
      and this
Section 6.6,
      and
      shall promptly pay to or distribute for the benefit of Executive in the future
      the amounts that become due to him under this Agreement.

     

    6.7  If
      the
      Auditors determine that Payments have been made by Employer which should not
      have been made (“Overpayments”)
      or
      that additional Payments which will not have been made by Employer could be
      due
      (“Underpayments”),
      consistent in each case with the calculation of the Reduced Amount pursuant
      to
Section 6.5,
      then
      the following actions are to be taken: If the Auditors, based upon the assertion
      of a deficiency by the Internal Revenue Service against Employer or Executive
      which the Auditors believe has a high probability of success, determine that
      an
      Overpayment has been made, the Overpayment shall be treated for all purposes
      as
      a loan to Executive which he shall repay to Employer, together with interest
      at
      the applicable federal rate provided for in Section 7872(f)(2)(A) of the
      Code. If the Auditors, based upon controlling precedent, determine that an
      Underpayment has occurred, the Underpayment shall promptly be paid by Employer
      to or for the benefit of Executive, together with interest at the applicable
      federal rate provided for in Section 7872(f)(2)(A) of the
      Code.

     

    
      
        
        

      

      
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    6.8  Executive
      shall not be required to mitigate damages or the amount of any payment provided
      for under this Agreement by seeking other employment or otherwise, nor shall
      the
      amount of any payment provided for under this Agreement be reduced by any
      compensation earned by Executive as the result of employment by another Employer
      after the date of termination, or otherwise.

     

    6.9  Except
      as
      expressly provided herein, the provisions of this Agreement, and any payment
      or
      benefit provided for hereunder, shall not reduce any amounts otherwise payable,
      or in any way diminish Executive’s existing rights, or rights which would accrue
      solely as a result of the passage of time, under any Employer benefit plan,
      employment agreement or other contract, plan or arrangement.

     

    6.10  Except
      as
      may be required pursuant to Section 6.5,
      the
      amount of any payment provided under this Agreement shall not be reduced by
      reason of any present value calculation.

     

    6.11  Upon
      termination of this Agreement, compensation and benefits shall be paid to the
      Executive as set forth in the applicable subsection of this Section 6
      and
      restricted stock awards granted to Executive, if any, shall be governed by
      the
      provisions of all restricted stock award agreements between Employer and
      Executive. In the event of a termination of this Agreement by Executive for
      Good
      Reason, all other rights and benefits Executive may have under the employee
      and/or executive benefit plans and arrangements of Employer generally shall
      be
      determined in accordance with the terms and conditions of those plans and
      arrangements.

     

    7.    Covenants
      of Confidentiality, Nondisclosure and Noncompetition.

     

    7.1  During
      the term of this Agreement, Employer will provide to Executive certain
      confidential and proprietary information owned by Employer as more fully
      described below. Executive acknowledges that he occupies or will occupy a
      position of trust and confidence with Employer, and that Employer would be
      irreparably damaged if Executive were to breach the covenants set forth in
      this
Section 7.1.
      Accordingly, Executive agrees that he will not, without the prior written
      consent of Employer, at any time during the term of this Agreement or any time
      thereafter, except as may be required by competent legal authority or as
      required by Employer to be disclosed in the course of performing Executive’s
      duties under this Agreement for Employer, use or disclose to any person, firm
      or
      other legal entity, any confidential records, secrets or information obtained
      by
      Executive during his employment hereunder related to Employer or any parent,
      subsidiary or affiliated person or entity (collectively, “Confidential
      Information”).
      Confidential Information shall include, without limitation, information about
      Employer’s Inventions (as defined in Section 8.1),
      customer lists and product pricing, data, know-how, formulae, processes, ideas,
      past, current and planned product development, market studies, computer software
      and programs, database and network technologies, strategic planning and risk
      management. Executive acknowledges and agrees that all Confidential Information
      of Employer and/or its affiliates will be received in confidence and as a
      fiduciary of Employer. Executive will exercise utmost diligence to protect
      and
      guard the Confidential Information.

     

    
      
        
        

      

      
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    7.2  Executive
      agrees that he will not, without the express written consent of the Board,
      take
      with him upon the termination of this Agreement, any document or paper, or
      any
      photocopy or reproduction or duplication thereof, relating to any Confidential
      Information.

     

    7.3  For
      purposes of this Section 7,
      “Employer”
shall
      include any of Strasbaugh’s direct or indirect subsidiaries.

     

    8.    Inventions.

     

    8.1  Any
      and
      all inventions, product, discoveries, improvements, processes, formulae,
      manufacturing methods or techniques, designs or styles, software applications
      or
      programs (collectively, “Inventions”)
      made,
      developed or created by Executive, alone or in conjunction with others, during
      regular hours of work or otherwise, during the term of Executive’s employment
      with Employer and for a period of two years thereafter that may be directly
      or
      indirectly related to the business of, or tests being carried out by, Employer,
      or any of its subsidiaries, shall be promptly disclosed by Executive to Employer
      and shall be Employer’s exclusive property. The following provisions of the
      California Labor Code shall supplement this Section 8.1:

     

    SECTION 2870
      OF THE CALIFORNIA LABOR CODE

     

    Application
      of Provisions Providing that Employee Shall Assign or Offer to Assign Rights
      in
      Invention to Employer.

     

    (a)    Any
      provision in an employment agreement which provides that an employee shall
      assign, or offer to assign, any of his or her rights in an invention to his
      or
      her employer shall not apply to an invention that the employee developed
      entirely on his or her own time without using employer’s equipment, supplies,
      facilities, or trade secret information except for those inventions that
      either:

     

    (1)    Relate
      at
      the time of conception or reduction to practice of the invention to employer’s
      business, or actual or demonstrably anticipated research or development of
      employer, or

     

    
      
        
        

      

      
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    (2)    Result
      from any work performed by the employee for employer.

     

    (b)    To
      the
      extent a provision in an employment agreement purports to require an employee
      to
      assign an invention otherwise excluded from being required to be assigned under
      subdivision (a), the provision is against the public policy of this state and
      is
      unenforceable.

     

    8.2  Executive
      will, upon Employer’s request and without additional compensation, execute any
      documents necessary or advisable in the opinion of Employer’s legal counsel to
      direct the issuance of patents to Employer with respect to Inventions that
      are
      to be Employer’s exclusive property under this Section 8
      or to
      vest in Employer title to the Inventions; the expense of securing any patent,
      however, shall be borne by Employer.

     

    8.3  Executive
      will hold for Employer’s sole benefit any Invention that is to be Employer’s
      exclusive property under this Section 8
      for
      which no patent is issued.

     

    9.    No
      Violation.
      Executive represents that he is not bound by any Agreement with any former
      employer or other party that would be violated by Executive’s employment by
      Employer.

     

    10.        
      Return
      of Employer’s Property.
      Upon
      the termination of this Agreement or whenever requested by Employer, Executive
      shall immediately deliver to Employer all property in his possession or under
      his control belonging to Employer, in good condition, ordinary wear and tear
      excepted.

     

    11.        
      Injunctive
      Relief.
      Executive acknowledges that the breach, or threatened breach, by Executive
      of
      the provisions of this Agreement shall cause irreparable harm to Employer,
      which
      harm cannot be fully redressed by the payment of damages to Employer.
      Accordingly, Employer shall be entitled, in addition to any other right or
      remedy it may have at law or in equity, to seek an injunction or restraining
      Executive from any violation or threatened violation of this
      Agreement.

     

    12.        
      Dispute
      Resolution.
      Subject
      to Section 11,
      all
      claims, disputes and other matters in controversy (“dispute”)
      arising, directly or indirectly out of or related to this Agreement, or the
      breach thereof, whether contractual or noncontractual, and whether during the
      term or after the termination of this Agreement, shall be resolved exclusively
      according to the procedures set forth in this Section 12,
      and not
      through resort to any judicial proceedings.

     

    12.1  Neither
      party shall commence an arbitration proceeding pursuant to the provisions of
      Section 12.2
      unless
      that party first gives a written notice (a “Dispute
      Notice”)
      to the
      other party setting forth the nature of the dispute. The parties shall attempt
      in good faith to resolve the dispute by mediation under the American Arbitration
      Association Commercial Mediation Rules in effect on the date of the Dispute
      Notice. If the parties cannot agree on the selection of a mediator within 20
      days after delivery of the Dispute Notice, the mediator will be selected by
      the
      American Arbitration Association. If the dispute has not been resolved by
      mediation within 60 days after delivery of the Dispute Notice, then the dispute
      shall be determined by arbitration in accordance with the provisions
      below.

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

       

    

    12.2  Any
      dispute that is not settled by mediation as provided in Section 12.1
      shall be
      resolved by arbitration before a single arbitrator appointed by the American
      Arbitration Association or its successor in San Luis Obispo, California. The
      determination of the arbitrator shall be final and absolute. The arbitrator
      shall be governed by the duly promulgated rules and regulations of the American
      Arbitration Association or its successor then in effect, and the pertinent
      provisions of the laws of the State of California relating to arbitration.
      The
      decision of the arbitrator may be entered as a final judgment in any court
      of
      the State of California or elsewhere. The prevailing party in any such
      arbitration shall also be entitled to recover reasonable attorneys’,
      accountants’ and experts’ fees and costs of suit in addition to any other relief
      awarded the prevailing party.

     

    13.         
      Miscellaneous.

     

    13.1  If
      any
      provisions contained in this Agreement is for any reason held to be totally
      invalid or unenforceable, such provision will be fully severable, and in lieu
      of
      such invalid or unenforceable provision there will be added automatically as
      part of this Agreement a provision as similar in terms as may be valid and
      enforceable.

     

    13.2  All
      notices and other communications required or permitted hereunder or necessary
      or
      convenience in connection herewith shall be in writing and shall be deemed
      to
      have been given when mailed by registered mail or certified mail, return receipt
      requested or hand delivered, as follows (provided that notice of change of
      address shall be deemed given only when received):

     

    If
      to
      Employer:          Strasbaugh 

                825
      Buckley
      Road

                San
      Luis Obispo,
      California 93401

                Attention:
      Compensation Committee

     

    If
      to
      Executive:         Chuck
      Schillings

                3300
      San Fernando
      Road

                Atascadero,
      CA
      93422

     

    or
      to
      such other names or addresses as Employer or Executive, as the case may be,
      shall designate by notice to the other party hereto in the manner specified
      in
      this Section 13.2.

     

    13.3  This
      Agreement shall be binding upon and inure to the benefit of Employer, its
      successors, legal representatives and assigns, and Executive, his heirs,
      executors, administrators, representatives, legatees and permitted assigns.
      Executive agrees that his rights and obligations hereunder are personal to
      him
      and may not be assigned without the express written consent of Employer. If
      Executive should die while any amounts are due to him pursuant to this
      Agreement, all such amounts shall be paid to Executive’s devisee, legatee or
      other designee, or if there be no such designee, to Executive’s estate. Employer
      will require any successor or assign (whether direct or indirect, by purchase,
      merger, consolidation or otherwise) to all or substantially all of the business
      and/or assets of Employer, by Agreement in form and substance satisfactory
      to
      Executive and his legal counsel, expressly, absolutely and unconditionally
      to
      assume and agree to perform this Agreement in the same manner and to the same
      extent that Employer would be required to perform each of them if no such
      succession or assignment had taken place. Any failure of Employer to obtain
      such
      Agreement prior to the effectiveness of any such succession or assignment shall
      be a material breach of this Agreement and shall entitle Executive to terminate
      Executive’s employment for Good Reason. As used in this Agreement, “Employer”
means
      Strasbaugh and any successor or assign to its business and/or assets which
      executes and delivers the Agreement provided for in this Section or which
      otherwise becomes bound by all the terms and provisions of this Agreement by
      operation of law. If at any time during the term of this Agreement Executive
      is
      employed by any company a majority of the voting securities of which is then
      owned by Employer, “Employer”
as
      used
      in this Agreement shall in addition include that subsidiary company. In that
      event, Employer agrees that it shall pay or shall cause the subsidiary company
      to pay any amounts owed to Executive pursuant to this Agreement.

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

       

    

    13.4  Except
      as
      expressly provided in this Section, this Agreement replaces and merges all
      previous agreements and discussions relating to the same or similar subject
      matters between Executive and Employer with respect to the subject matter of
      this Agreement. This Agreement may not be modified in any respect by any verbal
      statement, representation or agreement made by any employee, officer, or
      representative of Employer or by any written agreement unless signed by an
      officer of Employer who is expressly authorized by Employer to execute that
      document.

     

    13.5  The
      laws
      of the State of California will govern the interpretation, validity and effect
      of this Agreement without regard to principles of conflicts of law, the place
      of
      execution or the place for performance thereof. Employer and Executive agree
      that the state and federal courts situated in San Luis Obispo County, California
      shall have personal jurisdiction over Employer and Executive to hear all
      disputes arising under this Agreement. This Agreement is to be at least
      partially performed in San Luis Obispo County, California and, as such, Employer
      and Executive agree that venue shall be proper with the state or federal courts
      in San Luis Obispo County, California to hear such disputes.

     

    13.6  Executive
      and Employer shall execute and deliver any and all additional instruments and
      agreements that may be necessary or proper to carry out the purposes of this
      Agreement.

     

    13.7  The
      descriptive headings of the several sections of this Agreement are inserted
      for
      convenience only and do not constitute a party of this Agreement.

     

    13.8  This
      Agreement may be executed in one or more counterparts, all of which shall be
      considered one and the same Agreement.

     

    13.9  Executive
      acknowledges that Executive has had the opportunity to read this Agreement
      and
      discuss it with advisors and legal counsel, if Executive has so chosen.
      Executive also acknowledges the importance of this Agreement and that Employer
      is relying on this Agreement in entering into an employment relationship with
      Executive.

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

     

    The
      undersigned, intending to be legally bound, have executed this Agreement on
      the
      date first written above.

     

    
      	EMPLOYER: 	
              STRASBAUGH 

            
	 	 
	 	
              By: /s/Richard
                Nance                                                                  
                

              
                        Richard
                  Nance, Chief Financial Officer

              

            
	 	 
	
              EXECUTIVE:    

            	/s/ Chuck
              Schillings                                                     
              
	 	Chuck
              Schillings 

    

     

    

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

     

    APPENDIX I

     

    Additional
      Definitions

     

    For
      purposes of this Agreement, the following additional capitalized terms shall
      have the respective definitions set forth below:

     

    Auditors.
      The
      term “Auditors”
means
      Employer’s independent registered public accounting firm.

     

    Benefit
      Plan.
      The
      term “Benefit
      Plan”
means
      any benefit plan or arrangement (including, without limitation, Employer’s
      profit sharing or stock incentive plans, if any, and medical, disability and
      life insurance plans) in which Executive is participating (or any other plans
      providing Executive with substantially similar benefits).

     

    Change
      in Control.
      A
“Change
      in Control”
of
      Employer shall be deemed to have occurred if, in a single transaction or series
      of related transactions: (i) any person (as such term is used in Section 13(d)
      and 14(d) of the Securities Exchange Act of 1934 (“Exchange Act”)), or persons
      acting as a group, other than a trustee or fiduciary holding securities under
      an
      employment benefit program, is or becomes a “beneficial owner” (as defined in
      Rule 13-3 under the Exchange Act), directly or indirectly of securities of
      Employer representing 51% or more of the combined voting power of Employer,
      (ii)
      there is a merger, consolidation or other business combination transaction
      of
      Employer with or into another corporation, entity or person, other than a
      transaction in which the holders of at least a majority of the shares of voting
      capital stock of Employer outstanding immediately prior to such transaction
      continue to hold (either by such shares remaining outstanding or by their being
      converted into shares of voting capital stock of the surviving entity) a
      majority of the total voting power represented by the shares of voting capital
      stock of Employer (or the surviving entity) outstanding immediately after such
      transaction, or (iii) all or substantially all of Employer’s assets are
      sold.

     

    Code.
      The
      term “Code”
means
      the Internal Revenue Code of 1986, as amended.

     

    Due
      Cause.
      The
      term “Due
      Cause”
means
      any of the following events:

     

    (a)  any
      intentional misapplication by Executive of Employer’s funds or other material
      assets, or any other act of dishonesty injurious to Employer committed by
      Executive; or

     

    (b)  Executive’s
      conviction of (i) a felony or (ii) a crime involving moral turpitude;
      or

     

    (c)  Executive’s
      use or possession of any controlled substance or chronic abuse of alcoholic
      beverages, which use or possession the Board reasonably determines renders
      Executive unfit to serve in his capacity as a senior executive of Employer;
      or

     

    (d)  Executive’s
      breach, nonperformance or nonobservance of any of the terms of this Agreement,
      including but not limited to Executive’s failure to adequately perform his
      duties or comply with the reasonable directions of the Board. Notwithstanding
      anything in the foregoing subsections (c) or (d) to the contrary, Employer
      shall
      not 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    terminate
      Executive unless the Board first provides Executive with a written memorandum
      describing in detail how his performance hereunder is not satisfactory and
      Executive is given a reasonable period of time (not less than 30 days) to remedy
      the unsatisfactory performance related by the Board to Executive in that
      memorandum. A determination of whether Executive has satisfactorily remedied
      the
      unsatisfactory performance shall be promptly made by a majority of the
      disinterested directors of the Board (or the entire Board, but not including
      Executive, if there are no disinterested directors) at the end of the period
      provided to Executive for remedy, and their determination shall be
      final.

     

    Good
      Reason.
      The
      term “Good
      Reason”
as
      used
      in this Agreement shall mean any of the following which occur without
      Executive’s express written consent:

     

    (a)  a
      general
      assignment by Employer for the benefit of creditors or filing by Employer of
      a
      voluntary bankruptcy petition or the filing against Employer of any involuntary
      bankruptcy which remains undismissed for thirty days or more or if a trustee,
      receiver or liquidator is appointed;

     

    (b)  any
      material changes in Executive’s titles, duties or responsibilities;
      or

     

    (c)  Executive
      is not paid the compensation and benefits required under this
      Agreement;

     

    provided,
      however,
      that
      any of the foregoing actions shall not be considered to be Good Reason if the
      action is undertaken by Employer as a termination for Due Cause.

     

    
       

      -2-

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