Document:

gabriel_8k-ex1002.htm

     

    
      Exhibit
        10.2

       

      
 

       

      

      July
        19,
        2007

      

      

      Ronald
        E.
        Gillum, Jr.

      1490
        South Sky Ridge Drive

      West
        Des
        Moines, IA. 50266

      

      

      Dear
        Mr.
        Gillum:

      

      I
        have
        been authorized by the Board of Directors (the
“Board”) of Gabriel Technologies Corporation (the
“Corporation”) to offer the following
        engagement to
        you on behalf of the Corporation.  Capitalized terms not otherwise
        defined in this letter of engagement (this “Letter”)
        shall have the meaning ascribed to them in that certain Gabriel Technologies
        Corporation Employment Agreement (the “Agreement”), a
        copy of which, as signed by Mr. Gillum only, is attached hereto as Exhibit
        A.  This Letter presents the general terms and conditions of your
        employment by the Corporation as an Executive Officer of the Corporation,
        which
        engagement would take effect immediately.  Except as otherwise
        specifically provided in this Letter, the term “Gabriel” as used in the
        Agreement is hereby amended to be the Corporation.

      

      1.           This
        Letter will be for an initial term of 6 and one-half months, from July 16,
        2007
        (the “Effective Date”) through January 30, 2008 (the
“Interim Term”).  Upon the expiration
        of the
        Interim Term, unless this Letter has been terminated by you or the Corporation
        prior to such date, the term of this Letter (with the Interim Term, the
“Term”) will be renewed and continue until January
        31,
        2012 (the “Anniversary Date”).  The
        Stonebridge Transaction has fallen through and any references in the Agreement
        to the Stonebridge Transaction are hereby deleted.  Either party may
        terminate the Interim Term of this Agreement at any time by delivery of written
        notice to the other party.  The provisions of this paragraph supersede
        and replace the provisions of the first sentence of Section 2 of the
        Agreement.

      

      2.           During
        the Term of this Letter your position and duties with the Corporation will
        be as
        an Executive Officer of the Corporation in the positions of at least Executive
        Vice President and Chief Operating Officer of the Corporation.  During
        the Interim Term, your position would be as President and Chief Operating
        Officer of the Corporation and as the Secretary of the
        Corporation.  During the Term, you may also be asked to serve as an
        officer or employee one or more subsidiaries of the Corporation, including
        service as the President and Chief Operating Officer of Gabriel Technologies,
        LLC.  All such service shall be provided hereunder according to the
        terms of this Letter.  The provisions of this paragraph supersede and
        replace the provisions of the first 2 sentences of Section 1 of the
        Agreement.

       

       

      
        
          	
                  4538
                    South 140th Street

                	
                  Office:  402-614-0258

                
	
                  Omaha,
                    NE 68137

                	
                  Facsimile:  402-614-0498

                

        

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

        
          Gabriel
            Technologies Corporation – Ronald E. Gillum, Jr.

          Engagement
            Letter – July 19, 2007

          Page
            2 of
            4

           

        

         

      

      3.           The
        Corporation agrees to pay you a salary of not less than $180,000 per year
        (the
“Base Salary”) during the Term.  The
        provisions of this paragraph supersede and replace the provisions of the
        second
        sentence of Section 3.1 of the Agreement.

      

      4.           The
        Performance Bonus provisions of Section 3.4 of the Agreement shall be in
        effect
        as written.

      

      5.           The
        Initial Shares will be issued to you within 5 days of the date of you acceptance
        and redelivery of this Letter.  In lieu of the Incentive Option, the
        Corporation will issue you another 250,000 shares within 5 days of the date
        of
        you acceptance and redelivery of this Letter.  These 500,000 shares of
        GTC common stock will be issued in a certificate (the
“Certificate”) bearing the Rule 144
        Legend.  The Rule 144 Legend will be removed from the Certificate
        promptly upon submission for removal accompanied by an opinion of counsel,
        reasonably satisfactory to the Corporation’s securities counsel, to the effect
        that removal of such legend is in compliance with law.  Other than for
        the definitions utilized herein, the provisions of this paragraph supersede
        the
        provisions of Section 3.5 of the Agreement, including without limitation
        those
        relating to the Repurchase Option and Incentive Option.

      

      6.           If
        the Corporation terminates your employment for any reason for no cause or
        for
        any cause during the Interim Term, it will pay you Severance Pay of $75,000
        in
        cash or shares of GTC common stock, at the Officer’s election, within 14 days of
        the Termination Date.  If issued in GTC common stock, the shares will
        be valued at the average closing price of the shares for the last 20 trading
        days prior to the Termination Date.  In the absence of such price
        data, the shares will be issued at fair market value per share as reasonably
        determined by an independent public accounted selected by mutual agreement
        of
        the parties and paid for by the Corporation.  During the Interim Term,
        no other provisions relative to Severance Pay in the Agreement will be
        effective.  Upon the renewal of the Term as provided in paragraph 1
        above, the provisions of Section 4.2B of the Agreement will be effective
        without
        reference to the Stonebridge Transaction. The parties intend that the Letter
        and
        attached Agreement are in compliance with 409A of the Internal Revenue Code
        and
        they should be interpreted in compliance with this intent.

      

      7.           Sections
        4.2A and 4.3 of the Agreement are hereby deleted in their entirety.

      

      8.           Notwithstanding
        any other provisions hereof or of the Agreement, the inability of the
        Corporation to pay salary, benefits or reimbursements during the Interim
        Term
        due to the unavailability of sufficient cash flows will not be deemed a
        termination by the Corporation under paragraph 6 above.

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

        
          Gabriel
            Technologies Corporation – Ronald E. Gillum, Jr.

          Engagement
            Letter – July 19, 2007

          Page
            3 of
            4

           

        

         

      

      9.           All
        terms of the Agreement, except as deleted or modified by this Letter, are
        incorporated into this Letter as rights and obligations between yourself
        and the
        Corporation.

      

      10.           Your
        service up to the Effective Date has been an “At Will” engagement and the
        Corporation intends, as soon as financially able, to provide payment of all
        compensation and reimbursements that accrued to the Effective
        Date.  During the Interim Term, the Corporation intends to timely pay
        your Base Salary, benefits and reimbursements.  Notwithstanding this
        acknowledgement of the Corporation’s intent, you are not waiving any rights you
        may have to demand and pursue payment of such sums as and when you may deem
        appropriate, with or without terminating the Interim Term.

      

      If
        the
        terms of this proposal are acceptable to you, please return to us an executed
        copy of this Letter by facsimile transmission to (402) 391-6616 no later
        than
        July 18, 2007 to indicate your acceptance of this appointment and your agreement
        to the terms hereof.

      

      

      Sincerely,

      

      /s/
        Roy
        G. Breeling

      

      Roy
        G.
        Breeling, Chairman

      Compensation
        Committee

      Gabriel
        Technologies Board of Directors

      

      Attachment:
        Exhibit A

      

      [Acceptance
        signature appears on next page]

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

        
          Gabriel
            Technologies Corporation – Ronald E. Gillum, Jr.

          Engagement
            Letter – July 19, 2007

          Page 4
            of 4

           

        

      

      

      AGREED
        AND ACCEPTED THIS 19th DAY OF
        JULY, 2007
        BY:

      

      

      

      /s/
        Ronald E. Gillum, Jr.

      Ronald
        E.
        Gillum, Jr.Securities Purchase Agreement

    Exhibit
      4.1

     

    SECURITIES
      PURCHASE AGREEMENT

     

    THIS
      SECURITIES PURCHASE 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”).

     

    R
      E C I T A L S

     

    A.    The
      Company and each Investor are executing and delivering this Agreement in
      reliance upon the exemption from registration afforded by Section 4(2) of
      the Securities Act of 1933, as amended (the “Securities
      Act”),
      and
      Rule 506
      of
      Regulation D
      (“Regulation
      D”)
      as
      promulgated by the United States Securities and Exchange Commission (the
“SEC”)
      under
      the Securities Act. 

     

    B.    Each
      Investor, severally and not jointly, wishes to subscribe for and purchase,
      and
      the Company wishes to sell, upon the terms and conditions stated in this
      Agreement, (i) that aggregate number of shares of the Series A Cumulative
      Redeemable Convertible Preferred Stock, no par value per share, of the Company
      (the “Series
      A Preferred Stock”),
      set
      forth opposite such Investor’s name on the Schedule of Investors in Exhibit A
      (which
      aggregate amount for all Investors together shall be 5,909,089 shares of Series
      A Preferred Stock and shall collectively be referred to herein as the
“Series
      A Preferred Shares”),
      and
      (ii) warrants, in substantially the form attached hereto as Exhibit E
      (the
“Warrants”)
      to
      acquire up to that number of shares of the Company’s common stock, no par value
      per share (the “Common
      Stock”),
      set
      forth opposite such Investor’s name on the Schedule of Investors (the shares of
      Common Stock issuable upon exercise of or otherwise pursuant to the Warrants,
      collectively, the “Warrant
      Shares”).
      Pursuant to the Company’s Amended and Restated Articles of Incorporation (the
“Restated
      Articles”)
      in the
      form attached hereto as Exhibit F,
      the
      shares of Series A Preferred Stock are convertible into shares of Common
      Stock (the shares of Common Stock issuable upon conversion of or otherwise
      pursuant to the Series A Preferred Stock, collectively the “Conversion
      Shares”).

     

    C.    The
      Series A Preferred Shares, the Conversion Shares, the Warrants and the Warrant
      Shares issued pursuant to this Agreement are collectively are referred to herein
      as the “Securities.”

     

    NOW,
      THEREFORE, in consideration of the foregoing premises and the respective
      promises of the parties set forth herein, the parties hereto agree as
      follows:

     

    ARTICLE
      I

    DEFINITIONS

     

    For
      purposes of this Agreement, in addition to the other capitalized terms defined
      elsewhere in this Agreement, the following terms shall have the meanings
      specified or referred to in this Article I:

     

    “Action”
or
      “Actions”
shall
      mean any litigation, suits, actions, causes of actions, and proceedings or
      investigations, collectively.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Affiliate”
shall
      mean, with respect to any individual, partnership, corporation, limited
      liability company, association, business trust, joint venture, governmental
      entity or other entity (“Person”),
      any
      Person that controls, is controlled by, or is under common control with, such
      Person.

     

    “Agility
      Warrant”
shall
      mean that certain Warrant to Purchase Stock of R. H. Strasbaugh dated
      as of September 23, 2005 that entitles the Agility Warrantholder to purchase
      up
      to 4.1% of the total number of shares of R. H. Strasbaugh Common Stock
      (calculated on a fully diluted basis as of the date of the Agility
      Warrant).

     

    “Agility
      Warrantholder”
shall
      mean Agility Capital, LLC.

     

    “Agility
      Repurchase”
shall
      mean the repurchase by R. H. Strasbaugh of the Agility Warrant held by
      the Agility Warrantholder, together with the repurchase of 771,323 shares of
      R. H. Strasbaugh Common Stock owned by the Agility Warrantholder and
      the repayment of all amounts owed by R. H. Strasbaugh to Agility pursuant to
      that certain Loan Agreement dated September 23, 2005 by and between Agility
      and
      R. H. Strasbaugh.

     

    “Business”
shall
      mean the business of the Company and its Subsidiaries as of the date
      hereof.

     

    “Business
      Day”
shall
      mean any day other than Saturday, Sunday or other day on which commercial banks
      in the State of California are authorized or required by law to remain
      closed.

     

    “Buy-In”
shall
      have the meaning set forth in Section
      5.1(e).

     

    “Buy-In
      Price”
shall
      have the meaning set forth in Section
      5.1(e).

     

    “Closing”
shall
      mean the closing of the purchase and sale of the Securities pursuant to
Section
      2.1.

     

    “Closing
      Date”
shall
      mean the date and time of the Closing and shall be 1:00 p.m., California Time,
      on the date hereof.

     

    “Closing
      Price”
shall
      mean, for any date, the closing price per share of the Common Stock for such
      date (or the nearest preceding date) on the primary Trading Market or exchange
      or quotation system on which the Common Stock is then listed or
      quoted.

     

    “Common
      Shares”
shall
      mean shares of the Company’s Common Stock.

     

    “Common
      Stock”
shall
      have the meaning set forth in the Recitals.

     

    “Company
      Balance Sheet”
shall
      have the meaning set forth in Section
      3.9.

     

    “Company
      Counsel”
shall
      mean Rutan & Tucker, LLP, counsel to the Company.

     

    “Company
      Employee Benefit Plan”
shall
      have the meaning set forth in Section
      3.16(c).

     

    “Contingent
      Obligation”
shall
      mean, as to any Person: any direct or indirect liability, contingent or
      otherwise, of that Person with respect to any indebtedness, lease, dividend
      or
      other obligation of another Person if the primary purpose or intent of the
      Person incurring such liability, or the primary effect thereof, is to provide
      assurance to the obligee of such liability that such liability will be paid
      or
      discharged, or that any agreements relating thereto will be complied with,
      or
      that the holders of such liability will be protected (in whole or in part)
      against loss with respect thereto.

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

     

    “Conversion
      Shares”
shall
      have the meaning set forth in the Recitals.

     

    “Convertible
      Securities”
shall
      mean any stock or securities (other than Options) convertible into or
      exercisable or exchangeable for Common Stock. 

     

    “Disclosure
      Materials”
shall
      mean this Agreement, the Schedules attached hereto, the Offering Memorandum
      and
      the Proxy Statement.

     

    “Effective
      Date”
shall
      mean the date that the Registration Statement is first declared effective by
      the
      SEC.

     

    “Effectiveness
      Period”
shall
      have the meaning set forth in the Registration Rights Agreement.

     

    “Environmental,
      Health, and Safety Liabilities”
shall
      mean any cost, damages, expense, liability, obligation, or other responsibility
      arising from or under Environmental Law or Occupational Safety and Health Law
      and consisting of or relating to:

     

    (a)    any
      environmental, health, or safety matters or conditions (including on-site or
      off-site contamination, occupational safety and health, and regulation of
      chemical substances or products);

     

    (b)    fines,
      penalties, judgments, awards, settlements, legal or administrative proceedings,
      damages, losses, claims, demands and response, investigative, remedial, or
      inspection costs and expenses arising under Environmental Law or Occupational
      Safety and Health Law;

     

    (c)    financial
      responsibility under Environmental Law or Occupational Safety and Health Law
      for
      cleanup costs or corrective action, including any investigation, cleanup,
      removal, containment, or other remediation or response actions (“Cleanup”)
      required by applicable Environmental Law or Occupational Safety and Health
      Law
      (whether or not such Cleanup has been required or requested by any Governmental
      Body or any other Person) and for any natural resource damages; or

     

    (d)    any
      other
      compliance, corrective, investigative, or remedial measures required under
      Environmental Law or Occupational Safety and Health Law.

     

    The
      terms
“removal,”
      “remedial,”
and
      “response
      action”
include
      but are not limited to the types of activities covered by the United States
      Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C.
      Section 9601 et seq., as amended (“CERCLA”).

     

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

     

    “Environmental
      Laws”
shall
      mean any federal, state and local environmental laws, rules, regulations,
      standards and requirements, including, without limitation, those respecting
      hazardous materials and substances (including, without limitation, the
      Comprehensive Environmental Response, Compensation and Liability Act, as
      amended, 42 U.S.C. sec. 9601, et.
      seq.;
      the
      Resource Conservation and Recovery Act, as amended, 42 U.S.C. sec. 6901.
et.
      seq.;
      the
      Federal Water Pollution Control Act, as amended, 33 U.S.C sec. 1251,
et.
      seq.;
      the
      Toxic Substances Control Act, as amended, 15 U.S.C. sec. 9601, et.
      seq.;
      the
      Emergency Planning and Community Right to Know Act, 42 U.S.C. sec. 11001,
et.
      seq.;
      the
      Safe Drinking Water Act, 42 U.S.C. sec. 300f, et.
      seq.;
      the
      Solid Waste Disposal Act, as amended; and all comparable state and local laws;
      and any common law (including without limitation common law that may impose
      strict liability) that may impose liability or obligations for injuries or
      damages to, or threatened as a result of, the present of or exposure to any
      hazardous materials or substances). 

     

    “Escrow
      Agent”
shall
      mean Mellon Bank, N.A.

     

    “Escrow
      Agreement”
shall
      mean that certain Escrow Agreement dated as of May 16, 2007 by and among
      the Company, R. H. Strasbaugh and the Escrow Agent.

     

    “ERISA”
shall
      mean the Employee Retirement Income Security Act of 1974 or any successor law,
      and regulations and rules issued pursuant to that Act or any successor
      law.

     

    “Exchange
      Act”
shall
      mean the Securities Exchange Act of 1934, as amended, or any successor law,
      and
      regulations and rules issued pursuant to that Act or any successor
      law.

     

    “Exchange
      Act Registration Statement”
shall
      have the meaning set forth in the Registration Rights Agreement.

     

    “Excluded
      Investors”
shall
      mean B. Riley & Co. and its Affiliates.

     

    “Filing
      Date”
shall
      have the meaning set forth in the Registration Rights Agreement.

     

    “Financial
      Statements”
shall
      have the meaning set forth in Section 3.9.

     

    “GAAP”
shall
      mean generally accepted United States accounting principles, applied on a
      consistent basis.

     

    “Governmental
      Body”
shall
      mean any:

     

    (a)    nation,
      state, county, city, town, village, district, or other jurisdiction of any
      nature;

     

    (b)    federal,
      state, local, municipal, foreign, or other government;

     

    (c)    governmental
      or quasi-governmental authority of any nature (including any governmental
      agency, branch, department, official, or entity and any court or other
      tribunal);

     

    (d)    multi-national
      organization or body; or

     

    (e)    body
      exercising, or entitled to exercise, any administrative, executive, judicial,
      legislative, police, regulatory, or taxing authority or power of any
      nature.

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

     

    “Indebtedness”
of
      any
      Person shall mean, without duplication: (A) all indebtedness for borrowed money,
      (B) all obligations issued, undertaken or assumed as the deferred purchase
      price
      of property or services (other than trade payables entered into in the ordinary
      course of business), (C) all reimbursement or payment obligations with respect
      to letters of credit, surety bonds and other similar instruments, (D) all
      obligations evidenced by notes, bonds, debentures or similar instruments,
      including obligations so evidenced incurred in connection with the acquisition
      of property, assets or businesses, (E) all indebtedness created or arising
      under
      any conditional sale or other title retention agreement, or incurred as
      financing, in either case with respect to any property or assets acquired with
      the proceeds of such indebtedness (even though the rights and remedies of the
      seller or bank under such agreement in the event of default are limited to
      repossession or sale of such property), (F) all monetary obligations under
      any
      leasing or similar arrangement which, in connection with generally accepted
      accounting principles, consistently applied for the periods covered thereby,
      is
      classified as a capital lease, (G) all indebtedness referred to in clauses
      (A)
      through (F) above secured by (or for which the holder of such Indebtedness
      has
      an existing right, contingent or otherwise, to be secured by) any mortgage,
      lien, pledge, charge, security interest or other encumbrance upon or in any
      property or assets (including accounts and contract rights) owned by any Person,
      even though the Person which owns such assets or property has not assumed or
      become liable for the payment of such indebtedness, and (H) all Contingent
      Obligations in respect of indebtedness or obligations of others of the kinds
      referred to in clauses (A) through (G) above.

     

    “Indemnified
      Party”
shall
      have the meaning set forth in Section
      5.8(b).

     

    “Indemnifying
      Party”
shall
      have the meaning set forth in Section
      5.8(b).

     

    “Intellectual
      Property”
shall
      have the meaning set forth in Section
      3.14.

     

    “Investor
      Party”
shall
      have the meaning set forth in Section
      5.8(a).

     

    “Investors”
shall
      have the meaning set forth in the preface above. 

     

    “Lead
      Investors”
shall
      mean each of (i) Harvey Partners LLC, and (ii) Lloyd I. Miller and the
      Affiliates of Mr. Miller.

     

    “Legal
      Requirement”
shall
      mean any federal, state, local, municipal, foreign, international,
      multinational, or other administrative order, constitution, law, ordinance,
      principle of common law, regulation, statute, or treaty.

     

    “Legend
      Removal Date”
shall
      have the meaning set forth in Section
      5.1(d).

     

    “Liability”
or
      “Liabilities”
shall
      mean debts, liabilities, commitments or obligations of any nature, absolute,
      accrued, contingent or otherwise. 

     

    “Lien”
or
      “Liens”
shall
      mean any mortgage, pledge, security interest, conditional sale or other title
      retention agreement, encumbrance, lien, easement, claim, right, covenant,
      restriction, right of way, warrant, option or charge of any kind.

     

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

     

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

     

    “Material
      Adverse Effect”
shall
      mean any circumstance, change, event, fact, development or effect that (i)
      has
      had, or would have, a material adverse effect on the results of operations,
      assets, business or financial condition of the Company and the Subsidiary,
      taken
      as a whole on a consolidated basis, or (ii) materially and adversely impairs
      the
      Company’s ability to perform its obligations under any of the Transaction
      Documents, provided, that none of the following alone shall be deemed, in and
      of
      itself, to constitute a Material Adverse Effect: (i) a change in the market
      price or trading volume of the Common Stock (provided,
      however,
      that
      this clause (i) shall not exclude any underlying circumstance, change, event,
      fact, development or effect that may have caused such change in market price
      or
      trading volume) or (ii) changes in general economic conditions or changes
      affecting the industry in which the Company operates generally (as opposed
      to
      Company-specific changes) so long as such changes do not have a disproportionate
      effect on the Company and the Subsidiary taken as a whole.

     

    “Occupational
      Safety and Health Law”
shall
      mean any Legal Requirement designed to provide safe and healthful working
      conditions and to reduce occupational safety and health hazards, and any
      program, whether governmental or private (including those promulgated or
      sponsored by industry associations and insurance companies), designed to provide
      safe and healthful working conditions.

     

    “Offering
      Memorandum”
shall
      mean the Subsidiary’s Offering Memorandum dated February 2007, a copy of which
      has been delivered to each Investor.

     

    “Options”
shall
      mean any outstanding rights, warrants or options to subscribe for or purchase
      Common Stock or Convertible Securities.

     

    “OSHA”
shall
      mean the Occupational Safety and Health Administration.

     

    “OTCBB”
shall
      mean the OTC Bulletin Board.

     

    “Permit”
or
      “Permits”
shall
      mean any licenses, permits, authorizations, approvals, consents, franchises
      and
      orders required for the conduct and operation of business as presently
      conducted.

     

    “Permitted
      Liens”
shall
      mean any (i) Liens for taxes not yet due and payable or for taxes that are
      being
      contested in good faith through appropriate proceedings, (ii) Liens for purchase
      money security interests and Liens securing rental payments under capital lease
      arrangements, (iii) other Liens arising in the ordinary course of business
      and
      not incurred in connection with the borrowing of money, and (iv) Liens described
      on Schedule
      3.13.

     

    “Pink
      Sheets”
shall
      mean Pink Sheets, LLC.

     

    “Placement
      Agent”
has
      the
      meaning set forth in Section
      3.24.

     

    “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.

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

     

    “Preferred
      Stock”
shall
      mean the Company’s authorized shares of preferred stock. 

     

    “Preferred
      Repurchase”
shall
      mean the repurchase by the Subsidiary of the Subsidiary Preferred Stock from
      Lam
      Research Corporation immediately after the Closing. 

     

    “Proceeding”
shall
      have the meaning set forth in the Registration Rights Agreement.

     

    “Property”
shall
      have the meaning set forth in Section
      3.20.

     

    “Proxy
      Statement”
shall
      mean that certain Proxy Statement of the Company dated February 14,
      2007.

     

    “Registrable
      Securities”
shall
      have the meaning set forth in the Registration Rights Agreement.

     

    “Registration
      Rights Agreement”
shall
      mean the Registration Rights Agreement dated the date hereof in substantially
      the form attached hereto as Exhibit G.

     

    “Registration
      Statement”
shall
      have the meaning set forth in the Registration Rights Agreement.

     

    “Regulation
      D”
shall
      have the meaning set forth in the Recitals. 

     

    “Restated
      Articles”
shall
      have the meaning set forth in the Recitals.

     

    “R. H. Strasbaugh”
shall
      mean R. H. Strasbaugh (formerly, Strasbaugh), a California corporation and
      wholly-owned subsidiary of the Company.

     

    “Rule
      144,”
      “Rule
      415,”
and
      “Rule
      424”
shall
      mean Rule 144, Rule 415 and Rule 424, respectively, promulgated by the SEC
      pursuant to the Securities Act, as such Rules 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.

     

    “SEC”
shall
      have the meaning set forth in the Recitals.

     

    “Securities”
shall
      have the meaning set forth in the Recitals.

     

    “Securities
      Act”
shall
      mean the Securities Act of 1933, as amended, or any successor law, and
      regulations and rules issued pursuant to that Act or any successor
      law.

     

    “Series
      A Preferred Shares”
shall
      have the meaning set forth in the Recitals.

     

    “Series A
      Preferred Stock”
shall
      have the meaning set forth in the Recitals.

     

    “Share
      Exchange Agreement”
shall
      mean that certain Share Exchange Agreement dated January 31, 2007 by and between
      the Company (formerly, CTK Windup Corporation) and R. H. Strasbaugh (formerly,
      Strasbaugh) as amended by that certain Amendment No. 1 to Share Exchange
      Agreement dated as of April 30, 2007 by and between the Company and R. H.
      Strasbaugh.

     

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

     

    “Short
      Sales”
shall
      have the meaning set forth in Section 4.8.

     

    “Subsidiary”
shall
      mean R. H. Strasbaugh.

     

    “Subsidiary
      Common Stock”
shall
      mean the common stock, no par value per share, of
      R. H. Strasbaugh.

     

    “Subsidiary
      Financial Statements”
shall
      have the meaning set forth in Section 3.9.

     

    “Subsidiary
      Preferred Stock”
shall
      mean 5,769,736 shares of Series A Preferred Stock of
      R. H. Strasbaugh.

     

    “Trading
      Day”
shall
      mean a day on which the Common Stock is traded on a Trading Market; provided,
      that in the event that the Common Stock is not listed or quoted on a Trading
      Market, then Trading Day shall mean a Business Day.

     

    “Trading
      Market”
shall
      mean whichever of the New York Stock Exchange, the American Stock Exchange,
      the
      NASDAQ Global Market, the NASDAQ Capital Market, the OTCBB or the Pink Sheets,
      LLC on which the Common Stock is listed or quoted for trading on the date in
      question.

     

    “Transaction
      Documents”
shall
      mean this Agreement, the Schedules and Exhibits attached hereto, the Warrants,
      the Restated Articles, the Registration Rights Agreement and the Transfer Agent
      Instructions.

     

    “Transfer
      Agent”
shall
      mean Computershare, Inc., or any successor transfer agent for the
      Company.

     

    “Transfer
      Agent Instructions”
shall
      mean the instructions by the Company to the Transfer Agent in the form attached
      hereto as Exhibit D.

     

    “Warrants”
shall
      have the meaning set forth in the Recitals.

     

    “Warrant
      Shares”
shall
      have the meaning set forth in the Recitals.

     

    ARTICLE
      II

    PURCHASE
      AND SALE

     

    2.1    Closing.
      Subject
      to the terms and conditions set forth in this Agreement, at the Closing the
      Company shall issue and sell to each Investor, and each Investor shall,
      severally and not jointly, subscribe for and purchase from the Company, such
      number of Series A Preferred Shares and Warrants for the price set forth
      opposite such Investor’s name on Exhibit
      A
      hereto
      under the headings “Series A Preferred Shares” and “Warrants” and as set
      forth in the Investor Signature Page attached to this Agreement. The date and
      time of the Closing and shall be 1:00 p.m., California Time, on the Closing
      Date. The Closing shall take place at the offices of the Company’s Counsel.

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

     

    2.2    Closing
      Deliveries.

     

    (a)    At
      the
      Closing, the Company shall deliver or cause to be delivered to each Investor
      the
      following:

     

    (i)    one
      or
      more stock certificates, containing the restrictive legend set forth in
Section
      5.1(b),
      evidencing such number of Series A Preferred Shares set forth opposite such
      Investor’s name on Exhibit A
      hereto
      under the heading “Series A Preferred Shares,” registered in the name of
      such Investor;

     

    (ii)    a
      Warrant, issued in the name of such Investor, pursuant to which such Investor
      shall have the right to acquire such number of Warrant Shares equal to 15%
      of
      the number of Conversion Shares issuable to such Investor if such Investor
      immediately exercised its conversion rights in respect of the Series A Preferred
      Shares purchased from the Company pursuant to Section
      2.2(a)(i),
      and
      which number of Warrant Shares is set forth opposite such Investor’s name on
Exhibit A
      hereto
      under the heading “Warrant Shares”;

     

    (iii)   the
      Registration Rights Agreement between the Company and each Investor, duly
      executed by the Company;

     

    (iv)   a
      legal
      opinion of Company Counsel, reasonably acceptable to each Investor,
      substantially in the form of Exhibit C,
      executed by such counsel; 

     

    (v)    any
      and
      all consents, approvals, notices, filings or recordations of third parties
      required with respect to the execution and delivery of this Agreement or the
      transactions contemplated hereby or by any of the agreements, documents or
      instruments referred to herein;

     

    (vi)   evidence
      in form and substance reasonably satisfactory to each Investor that the Company
      has closed the transactions pursuant to the Share Exchange
      Agreement;

     

    (vii)  
evidence
      in form and substance reasonably satisfactory to each Investor that the Company
      has filed the Restated Articles with the Secretary of State of the State of
      California on or prior to the Closing;

     

    (viii)   evidence,
      in form and substance reasonably satisfactory to each Investor, that each of
      the
      Preferred Repurchase and the Agility Repurchase has closed prior to, or will
      close immediately after, the Closing and that in connection with the closing
      of
      the Agility Repurchase, any and all liens upon the assets of the Subsidiary
      held
      by the Agility Warrantholder shall terminate concurrent with or promptly after
      such closings;

     

    (ix)    
a
      certificate of the president or chief executive officer of the Company
      certifying that the representations and warranties by the Company set forth
      in
      this Agreement and in any certificate or document delivered pursuant to the
      provisions of this Agreement are true and accurate, on and as of the Closing
      Date, and that the Company has performed and complied in all material respects
      with all agreements, obligations and conditions required by this Agreement
      to be
      performed or complied with by it on or prior to the Closing Date;

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

     

    (x)    
a
      copy of
      the Articles of Incorporation and Bylaws of the Company, each as amended to
      date, and the resolutions adopted by the Board of Directors of the Company
      approving, authorizing and directing the execution of this Agreement by the
      Company and the transactions contemplated thereby, each certified by the
      Secretary of the Company as being in full force and effect on and as of the
      Closing Date; and

     

    (xi)    certificates
      of the Secretary of State of California dated within five (5) Business Days
      of
      the Closing Date to the effect that the Company and R. H. Strasbaugh are validly
      existing corporations in good standing under the laws of the State of
      California.

     

    (b)    At
      or
      prior to the Closing, each Investor shall deliver or cause to be delivered
      to
      the Company and/or the Escrow Agent, as the case may be, the following:

     

    (i)    the
      purchase price set forth on the Investor Signature Page and opposite such
      Investor’s name on Exhibit
      A
      hereto
      under the heading “Purchase Price” in United States dollars and in immediately
      available funds, by wire transfer to the escrow account with the Escrow Agent
      as
      follows:

     

    ABA
      Routing: 043000261

    Account
      No.: 000-4562

    Account
      Name: CTK Windup Corp./Strasbaugh

               
      Mellon Bank, N.A., Escrow Agent

    Attn:
      Guy
      R. Roach

    Telephone:
      (213) 553-9571

     

    (ii)   the
      Investor Signature Page attached to this Agreement evidencing such Investor’s
      subscription for, and obligation to purchase, such number of Series A Preferred
      Shares and Warrants as set forth therein, provided that the parties agree that
      the Investor may deliver the Investor Signature Page to the Company and the
      corresponding purchase price to the Escrow Agent prior to the Closing with
      the
      understanding that (A) the Company will affix the date of the Closing to this
      Agreement and the Investor Signature Page, and (B) such funds will be released
      by the Escrow Agent to the Company only if the Closing has occurred and only
      in
      accordance with the provisions of Section
      6.3;

     

    (iii)   completed
      Instruction Sheet for Investors set forth on Exhibit B
      hereto,
      duly executed by each Investor and delivered to the Company; and

     

    (iv)   the
      Registration Rights Agreement between the Company and each Investor, duly
      executed by the Investor.

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      III

    REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY

     

    The
      Company hereby represents and warrants to the Investors as follows (which
      representations and warranties shall be deemed to apply, where appropriate,
      to
      the Subsidiary of the Company), on and as of the date hereof:

     

    3.1    Organization
      and Good Standing.
      Each of
      the Company and the Subsidiary is a corporation duly organized, validly existing
      and in good standing under the laws of the jurisdiction of its incorporation
      or
      organization (as applicable), with the requisite power and authority to own,
      operate and lease its properties and to carry on its business as now conducted,
      and is duly qualified to do business and is in good standing in each
      jurisdiction where the character of its properties owned or leased or the nature
      of its activities make such qualification necessary, except where the failure
      to
      be so qualified would not have a Material Adverse Effect.

     

    3.2    Power
      and Authority.
      The
      Company has requisite power and authority to enter into this Agreement, to
      perform its obligations hereunder and to carry out the transactions contemplated
      hereby. The execution and delivery of this Agreement, the performance by the
      Company of its obligations hereunder and the consummation of the transactions
      contemplated hereby have been duly authorized by all corporate actions on the
      part of the Company required by applicable law, the Company’s Amended and
      Restated Articles of Incorporation or its Amended and Restated Bylaws. This
      Agreement constitutes the legal, valid and binding obligation of the Company,
      enforceable against it in accordance with its terms, except as may be limited
      by
      (i) applicable bankruptcy, insolvency, reorganization or other laws of general
      application relating to or affecting the enforcement of creditors rights
      generally, and (ii) the effect of rules of law governing the availability of
      specific performance and other equitable remedies.

     

    3.3    No
      Violation.
      Neither
      the execution and delivery of this Agreement nor the performance by the Company
      of its obligations hereunder nor the consummation of the transactions
      contemplated hereby will (a) contravene any provision of the Amended and
      Restated Articles of Incorporation or Amended and Restated Bylaws of the Company
      or the Subsidiary; (b) violate, be in conflict with, constitute a default under,
      permit the termination of, cause the acceleration of the maturity of any debt
      or
      obligation of the Company or the Subsidiary under, require the consent of any
      other party to, constitute a breach of, create a loss of a material benefit
      under, or result in the creation or imposition of any Lien, upon any property
      or
      assets of the Company or the Subsidiary under, any mortgage, indenture, lease,
      contract, agreement, instrument or commitment to which the Company or the
      Subsidiary is a party or by which it or he or any of its or his respective
      assets or properties may be bound; (c) to the knowledge of the Company, violate
      any statute or law or any judgment, decree, order, regulation or rule of any
      court or Governmental Body to which the Company, the Subsidiary, or the Business
      is subject or by which the Company, the Subsidiary, or any of their respective
      assets or properties are bound; or (d) result in the loss of any license,
      privilege or certificate benefiting the Company, the Subsidiary, or the
      Business.

     

    3.4    Consents
      and Approvals.
      No
      consent, approval or authorization of, or declaration, filing or registration
      with, any governmental or regulatory authority or any other third party is
      required to be made or obtained by the Company in connection with the execution,
      delivery or performance of this Agreement.

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

     

    3.5    The
      Securities.
      The
      Securities (including the Warrant Shares and Conversion Shares) are duly
      authorized and, when issued and paid for in accordance with the Transaction
      Documents, will be duly and validly issued, fully paid and nonassessable, free
      and clear of all Liens and will not be subject to preemptive or similar rights
      of shareholders (other than those imposed by the Investors). The Company has
      reserved from its duly authorized capital stock the maximum number of shares
      of
      Common Stock issuable upon exercise of the Warrants and conversion of the
      Series A Preferred Shares. The offer, issuance and sale of the
      Series A Preferred Shares, the Conversion Shares, the Warrants and the
      Warrant Shares to the Investors pursuant to the Agreement, and in the case
      of
      the Warrant Shares, pursuant to the Warrants, and in the case of the Conversion
      Shares, pursuant to the Restated Articles, are exempt from the registration
      requirements of the Securities Act or any other applicable securities laws.
      

     

    3.6    Capitalization.
      The
      aggregate number of shares and type of all authorized, issued and outstanding
      classes of capital stock, options and other securities of the Company and the
      Subsidiary (whether or not presently convertible into or exercisable or
      exchangeable for shares of capital stock of the Company or the Subsidiary,
      as
      the case may be) as of immediately preceding the Closing is set forth in
Schedule
      3.6.
      All
      outstanding shares of capital stock of the Company and the Subsidiary are duly
      authorized, validly issued, fully paid and nonassessable and have been issued
      in
      compliance in all material respects with all applicable securities laws. The
      Company did not have outstanding on the date hereof any other options, warrants,
      script rights to subscribe to, calls or commitments of any character whatsoever
      relating to, or securities, rights or obligations convertible into or
      exercisable or exchangeable for, or entered into any agreement giving any Person
      any right to subscribe for or acquire, any shares of Preferred Stock, Common
      Stock, or securities or rights convertible or exchangeable into shares of Common
      Stock. The Subsidiary did not have outstanding on the date hereof any other
      options, warrants, script rights to subscribe to, calls or commitments of any
      character whatsoever relating to, or securities, rights or obligations
      convertible into or exercisable or exchangeable for, or entered into any
      agreement giving any Person any right to subscribe for or acquire, any shares
      of
      the Subsidiary’s common stock, preferred stock, or securities or rights
      convertible or exchangeable into shares of the Subsidiary’s common stock or
      preferred stock. Except for customary adjustments as a result of stock
      dividends, stock splits, combinations of shares, reorganizations,
      recapitalizations, reclassifications or other similar events, there are no
      anti-dilution or price adjustment provisions contained in any security issued
      by
      the Company (or in any agreement providing rights to security holders) and
      the
      issuance and sale of the Securities will not obligate the Company to issue
      shares of Series A Preferred Stock or other securities of the Company to any
      Person (other than the Investors) and will not result in a right of any holder
      of securities to adjust the exercise, conversion, exchange or reset price under
      such securities. To the knowledge of the Company, except as set forth on
Schedule
      3.6,
      no
      Person or group of related Persons beneficially owns (as determined pursuant
      to
      Rule 13d-3 under the Exchange Act), or has the right to acquire, by agreement
      with or by obligation binding upon the Company, beneficial ownership of in
      excess of 5% of the outstanding Common Stock.

     

    3.7    Subsidiaries.
      The
      Company has no direct or indirect subsidiary other than the Subsidiary. The
      Company owns directly all of the capital stock of the Subsidiary free and clear
      of any Lien and all the issued and outstanding shares of capital stock of the
      Subsidiary are validly issued and are fully paid, non-assessable and free of
      preemptive and similar rights. 

     

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

     

    3.8    Litigation.
      Except
      as set forth on Schedule
      3.8,
      there
      are no Actions to which the Company or the Subsidiary is a party, including,
      without limitation, Actions for personal injury, products liability, wrongful
      death or other tortious conduct, or breach of warranty arising from or relating
      to materials, commodities, products or goods used, transferred, processed,
      manufactured, sold, distributed or shipped by the Company or the Subsidiary
      (i)
      involving or relating to the Company or the Subsidiary or any of their
      respective assets, properties or rights, or (ii) pending, or, to the Company’s
      knowledge, threatened, against the Company or the Subsidiary, or any of their
      respective assets, properties or rights, before any court, arbitrator or
      administrative or Governmental Body which, if adversely resolved, would have
      a
      Material Adverse Effect on the Business.

     

    3.9    Financial
      Statements.
      Set
      forth on Schedule 3.9
      is the
      audited balance sheet of the Company as of December 31, 2006 (the
“Company
      Balance Sheet”)
      and
      the audited balance sheets of the Subsidiary as of December 31, 2006 and 2005,
      and the related statements of income and changes in financial position or cash
      flows, as appropriate, for the periods then ended (the “Subsidiary
      Financial Statements”)
      (all
      such financial statements are hereinafter collectively referred to as the
“Financial
      Statements”).
      The
      Financial Statements, together with the notes thereto, if any, (i) were compiled
      from the books and records of the Company and the Subsidiary, as the case may
      be, regularly maintained by management and used to prepare the financial
      statements of the Company and the Subsidiary, as the case may be, (ii) were
      prepared in accordance with GAAP consistently applied throughout the period
      then
      ended and all periods prior to that period; and (iii) present fairly and
      accurately the financial condition of the Company and the Subsidiary for the
      period or as of the dates thereof, subject, where appropriate, to normal
      year-end audit adjustments, in each case in accordance with GAAP consistently
      applied during the period covered. 

     

    3.10   No
      Undisclosed Liabilities.
      The
      Company has, and on the Closing Date will have, no Liabilities other than those
      which (i) are fully reflected reserved against in the Company Balance Sheet,
      (ii) have been incurred since December 31, 2006 in the ordinary course of
      business in amounts and for terms consistent, individually and in the aggregate,
      with the past practice of the Company, or (iii) have been specifically disclosed
      in the Schedules hereto by reference to the specific section of this Agreement
      to which such disclosure relates. The Subsidiary has, and on the Closing Date
      will have, no Liabilities other than those which (i) are fully reflected
      reserved against in the Subsidiary Financial Statements, (ii) have been incurred
      since December 31, 2006 in the ordinary course of business in amounts and
      for terms consistent, individually and in the aggregate, with the past practice
      of the Subsidiary, or
      (iii)
      have been specifically disclosed in the Schedules hereto by reference to the
      specific section of this Agreement to which such disclosure
      relates.

     

    3.11   Taxes
      and Tax Returns.
      All of
      the tax returns and reports of the Company and the Subsidiary required by
      applicable law to be filed prior to the date hereof have been duly filed and
      all
      taxes shown as due thereon have been paid. There are in effect no waivers of
      the
      applicable statutes of limitations for any federal, state, local or foreign
      taxes for any period. No liability for any federal, state, local or foreign
      income, sales, use, withholding, payroll, franchise, real property or personal
      property taxes is pending, and there is no proposed liability for any such
      taxes
      to be imposed upon the properties or assets of the Company or the Subsidiary.
      Neither the Company nor the Subsidiary has any liability for any federal, state,
      local or foreign income, sales, use, withholding, payroll, franchise, real
      property or personal property taxes, assessments, amounts, interest or penalties
      of any nature whatsoever other than as shown on the Financial Statements and
      there is no basis for any additional claim or assessment other than with respect
      to liabilities for taxes which may have accrued since the date of the Financial
      Statements in the ordinary course of business and reserved against on the books
      and records of the Company or the Subsidiary compiled in accordance with
      generally accepted accounting principles which have been consistently applied
      to
      the Closing. The provisions for taxes reflected in the Financial Statements
      are
      adequate for federal, state, county and local taxes for the period ended on
      December 31, 2006 and for all prior periods, whether disputed or undisputed.
      There are no present disputes about taxes of any nature payable by the Company
      or the Subsidiary. 

     

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

     

    3.12   Absence
      of Certain Changes.
      Except
      as set forth on Schedule 3.12,
      since
      December 31, 2006, the Company and the Subsidiary have conducted the
      Business only in the ordinary course and consistent with prior practices and
      have not:

     

    (a)    suffered
      any Material Adverse Effect;

     

    (b)    paid,
      discharged or satisfied any Liability or other expenses, other than the payment,
      discharge or satisfaction of the Liabilities described in Section 3.10
      at the
      time the same were due and payable and in the ordinary course of
      business;

     

    (c)    paid
      or
      otherwise made any contribution to any profit-sharing or pension plan or other
      Company Employee Benefit Plan;

     

    (d)    mortgaged
      or pledged, or permitted the imposition of any Lien upon, any of its properties
      or assets (real, personal or mixed, tangible or intangible), other than those
      incurred in the ordinary course of business;

     

    (e)    cancelled
      or compromised any debts, or waived or permitted to lapse any material claims
      or
      rights, or sold, assigned, transferred or otherwise disposed of, other than
      in
      the ordinary course, any of its properties or assets (real, personal or mixed,
      tangible or intangible);

     

    (f)    disposed
      of or permitted to lapse any rights to the use of any patent, registered
      trademark, service mark, trade name or copyright, or disposed of or disclosed
      to
      any person any trade secret, formula, process or know-how material to the
      Business not theretofore a matter of public knowledge;

     

    (g)   granted
      any increase in the compensation of any officer, employee or consultant of
      the
      Company or the Subsidiary (including any such increase pursuant to any bonus,
      pension, profit-sharing or other plan or commitment) or any increase in the
      compensation payable or to become payable to any officer, employee or
      consultant;

     

    (h)   entered
      into any commitment or transaction not in the ordinary course of business or
      made any capital expenditure or commitment for any additions to property, plant
      or equipment, except commitments, transactions or capital expenditures which
      do
      not in any single case exceed $50,000 or in the aggregate exceed
      $100,000;

     

    (i)    made
      any
      change in any method of accounting or accounting practice (including, without
      limitation, any change in depreciation or amortization policies or
      rates);

     

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

     

    (j)    paid,
      loaned or advanced any amount to, or sold, transferred or leased any properties
      or assets (real, personal or mixed, tangible or intangible) to, or entered
      into
      any agreement or arrangement with, any of its officers, directors, employees,
      shareholders, or any family member or Affiliate of any of its officers,
      directors, employees or shareholders, or any officer, director, employee or
      shareholder of any such Affiliate;

     

    (k)    declared,
      set aside, paid or made any dividend or other distribution or payment in respect
      of the capital stock of the Company, or any direct or indirect redemption,
      purchase or other acquisition of any of its shares of capital stock, or agreed
      to do any of the foregoing;

     

    (l)    knowingly
      waived or released any right or claim of the Company or the
      Subsidiary;

     

    (m)   received
      a commencement notice or, to the knowledge of the Company or the Subsidiary,
      received any threat of commencement, of any civil or criminal litigation,
      investigation or proceeding against the Company or the Subsidiary;

     

    (n)    experienced
      any labor trouble or, to the knowledge of the Company, received any claim of
      wrongful discharge or worker’s compensation claim;

     

    (o)    agreed,
      whether in writing or otherwise, to take any action referred to in and
      prohibited by this Section 3.12;
      or

     

    (p)    become
      aware of any other event or condition that has had or would reasonably be
      expected to have a Material Adverse Effect.

     

    3.13    Title
      to Properties; Encumbrances.

     

    (a)    The
      Company and the Subsidiary have good and marketable title to all of their
      respective properties and assets (real, personal or mixed, tangible or
      intangible), including without limitation the Intellectual Property. None of
      the
      Company’s nor the Subsidiary’s properties or assets is subject to any Lien,
      except Permitted Liens, none of which adversely affects the Business or the
      continued operations of the Company or the Subsidiary.

     

    (b)    All
      material property and assets (real, personal or mixed, tangible or intangible)
      used or required by the Company and the Subsidiary in the conduct of the
      Business are fully owned by the Company and/or the Subsidiary (except to the
      extent of any Permitted Liens). All such property and assets, or the leases
      or
      licenses thereof, constitute all property, assets and contractual rights
      necessary for the conduct of the Business as presently conducted.

     

    3.14    Intellectual
      Property.
      Except
      as set forth on Schedule 3.14,
      the
      Company and the Subsidiary own all right, title and interest in, or have the
      right to use, sell or license all patent applications, patents, trademark
      applications, trademarks, service marks, trade names, copyright applications,
      copyrights, trade secrets, know-how, technology, customer lists, proprietary
      processes and formulae, all source and object code, algorithms, inventions,
      development tools and all documentation and media constituting, describing
      or
      relating to the above, including, without limitation, manuals, memoranda and
      records and other intellectual property and proprietary rights used in or
      reasonably necessary or required for the conduct of the Business (collectively,
      the “Intellectual
      Property”).

     

    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

      

    

     

    3.15    Compliance
      with Laws.
      Neither
      the Company nor the Subsidiary has been charged with, and, to the Company’s
      knowledge, neither the Company nor the Subsidiary is threatened with or under
      any investigation with respect to, any charge concerning any violation of any
      provision of any federal, state, local or foreign law, regulation, ordinance,
      order or administrative ruling affecting the Business, the Company or the
      Subsidiary, and neither Company nor the Subsidiary is in default with respect
      to
      any order, writ, injunction or decree of any court, agency or instrumentality
      affecting the Business, the Company or the Subsidiary. To the Company’s
      knowledge, neither the Company nor the Subsidiary is in violation of any
      federal, state, local or foreign law, ordinance or regulation or any other
      requirement of any Governmental Body or regulatory body, court or arbitrator
      applicable to the Business, the Company or the Subsidiary which would have
      a
      Material Adverse Effect. Without limiting the generality of the foregoing,
      the
      Company and the Subsidiary are in compliance in all material respects with
      all
      Occupational Safety and Health Laws, including those rules and regulations
      promulgated by OSHA, except where such non-compliance would not have a Material
      Adverse Effect. 

     

    3.16    Employee
      Benefit Plans.

     

    (a)    Neither
      the Company nor the Subsidiary has a formal plan or commitment, whether legally
      binding or not, to create any additional “employee benefit plan” (as defined in
      Section 3(3) of ERISA), practice or agreement or modify or change any existing
      plan, practice or agreement that would affect any of its employees or terminated
      employees. Benefits under all employee benefit plans are as represented and
      have
      not been and will not be increased subsequent to the date copies of such plans
      have been provided.

     

    (b)    Neither
      the Company nor the Subsidiary contributes to or has any obligation to
      contribute to, has not at any time contributed to or had an obligation to
      contribute to, sponsor or maintain, and has not at any time sponsored or
      maintained, a “multi-employer plan” (within the meaning of Section 3(37) of
      ERISA) for the benefit of employees or former employees of the Company or the
      Subsidiary.

     

    (c)    The
      Company and the Subsidiary have, in all material respects, performed all
      obligations, whether arising by operation of law, contract, or past custom,
      required to be performed under or in connection with the Company’s Employee
      Benefit Plans (each, a “Company
      Employee Benefit Plan”),
      and
      neither the Company nor the Subsidiary has knowledge of the default or violation
      by any other party with respect thereto.

     

    (d)    There
      are
      no Actions, suits or claims (other than routine claims for benefits) pending,
      or, to the Company’s knowledge, threatened, against any Company Employee Benefit
      Plan or against the assets funding any Company Employee Benefit
      Plan.

     

    (e)    Neither
      the Company nor the Subsidiary maintains nor contributes to any “employee
      welfare benefit” (as such term is defined in Section 3(i) of ERISA) plan
      which provides any benefits to retirees or former employees of the Company
      or
      the Subsidiary.

     

    
      
        
        

      

      
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    3.17    Employment
      Law Matters.

     

    (a)    Each
      of
      the Company and the Subsidiary (i) is in material compliance with all applicable
      laws respecting employment, employment practices, terms and conditions of
      employment and wages and hours; (ii) is in material compliance with all
      applicable laws and regulations relating to the employment of aliens or similar
      immigration matters; and (iii) is not engaged in any unfair labor practice,
      including, but not limited to, discrimination or wrongful
      discharge.

     

    (b)    Neither
      the Company nor the Subsidiary has at anytime had, nor to the Company’s
      knowledge, is there now threatened, a strike, picket, work stoppage, work
      slowdown or other labor trouble, against or directly affecting the Company
      or
      the Subsidiary that had or would reasonably be expected to have a Material
      Adverse Effect.

     

    (c)    None
      of
      the employees of the Company or the Subsidiary is represented by a labor union,
      and no petition has been filed or proceedings instituted by any employee or
      group of employees with any labor relations board seeking recognition of a
      bargaining representative. Neither the Company nor the Subsidiary is a party
      to
      any multi-employer collective bargaining agreement covering any of its
      employees.

     

    (d)    There
      are
      no controversies or disputes pending, or, to the Company’s knowledge,
      threatened, between the Company and the Subsidiary, on the one hand, and any
      employees of the Company or the Subsidiary on the other hand. No unfair labor
      practice complaints have been filed against the Company or the Subsidiary with
      the National Labor Relations Board or any other Governmental Body or
      administrative body, and neither the Company nor the Subsidiary has received
      any
      written notice or communication reflecting an intention or a threat to file
      any
      such complaint.

     

    3.18    Contracts
      and Commitments.

     

    (a)    Neither
      the Company nor the Subsidiary is a party to any written agreement that would
      restrict it from carrying on the Business anywhere in the world.

     

    (b)    Neither
      the Company nor the Subsidiary is a party to any “take-or-pay”
contracts.

     

    (c)    Except
      as
      set forth on Schedule 3.18,
      neither
      the Company nor the Subsidiary is a party to any employment agreements,
      arrangements and commitments, including severance or termination arrangements
      and commitments (whether written or oral), between the Company and/or the
      Subsidiary and any employees of the Company and/or Subsidiary.

     

    (d)    Neither
      the Company nor the Subsidiary is, and to the knowledge of the Company, no
      other
      party is, in default under or in breach or violation of, nor has the Company
      nor
      the Subsidiary received notice of any asserted claim of default by the Company,
      the Subsidiary or by any other party under, or a breach or violation of, any
      contracts that are material to the Business.

     

    
      
        
        

      

      
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    3.19    No
      Brokers.
      Except
      for amounts owed to the Placement Agent, neither the Company nor the Subsidiary
      is obligated for the payment of fees or expenses of any investment banker,
      broker or finder in connection with the origin, negotiation or execution of
      this
      Agreement.

     

    3.20    Environmental
      Matters.
      Each of
      the Company and the Subsidiary is in compliance in all material respects with
      all Environmental Laws. There is no Action pending before any court,
      Governmental Body or board or other forum or threatened by any person or entity
      (i) for noncompliance by the Company or the Subsidiary with any Environmental
      Law (ii) relating to the release into the environment by the Company or the
      Subsidiary of any pollutant, toxic or hazardous material or waste generated
      by
      the Company and the Subsidiary, whether or not occurring at or on a site owned,
      leased or operated by the Company or the Subsidiary. Except as set forth on
      Schedule
      3.20,
      there
      has not been by the Company or the Subsidiary, nor to the knowledge of the
      Company has there been at all, any past, storage, disposal, generation,
      manufacture, refinement, transportation, production or treatment of any
      hazardous materials or substances at, upon or from the facilities occupied
      or
      used by the Company or the Subsidiary and any other real property presently
      or
      formerly owned by, used by or leased to or by the Company or the Subsidiary,
      or
      any predecessor of the Company or the Subsidiary (collectively, the
“Property”).
      To
      the knowledge of the Company, neither the Company or the Subsidiary nor any
      properties owned or operated by the Company or the Subsidiary has been or is
      in
      violation or is otherwise liable under, any Environmental Law. To the knowledge
      of the Company, there are no asbestos-containing materials, underground storage
      tanks or polychlorinated biphenyls (PCBs) located on the Property. To the
      knowledge of the Company, there has been no spill, discharge, leak, emission,
      injection, disposal, escape, dumping or release of any kind on, beneath or
      above
      the Property or into the environment surrounding such Property of any hazardous
      materials or substances in violation of any Environmental Law or requiring
      any
      remedial action. To the knowledge of the Company, the Company and the Subsidiary
      have all permits, registrations, approvals and licenses required by any
      Governmental Body under any Environmental Law to be obtained by the Company
      and
      the Subsidiary in connection with the conduct of the Business.

     

    3.21    Insurance.
      All of
      the Company’s or the Subsidiary’s policies of fire, liability, worker’s
      compensation and other forms of insurance owned or held by the Company or the
      Subsidiary are in full force and effect, insure against risks and liabilities
      to
      the extent and in the manner deemed appropriate and sufficient by the Company
      and the Subsidiary in their respective reasonable business judgment, and neither
      the Company nor the Subsidiary has received any notice of cancellation with
      respect thereto. To the Company’s knowledge, neither the Company nor the
      Subsidiary is in default with respect to any provision contained in any such
      policy and has not failed to give any notice or present any claim under any
      such
      policy in a timely fashion.

     

    3.22    Suppliers
      and Customers.
      The
      Company does not have any knowledge that any supplier or customer or group
      of
      related suppliers or customers of the Company or the Subsidiary has canceled
      or
      otherwise terminated or threatened to cancel or otherwise terminate, its
      relationship with the Company or the Subsidiary, which termination would have
      a
      Material Adverse Effect, or that any such supplier or customer or group of
      related suppliers or customers expects to reduce its business with the Company
      or the Subsidiary by reason of the transactions contemplated by this Agreement
      or for any other reason whatsoever.

     

    3.23    Licenses,
      Permits and Authorizations.
      Each of
      the Company and the Subsidiary has all necessary Permits for the use and
      ownership or leasing of its properties and assets as currently operated, used,
      owned or leased, except for such Permits as to which the lack thereof does
      not
      and would not have a Material Adverse Effect on the Company, the Subsidiary,
      or
      the Business. All of the Permits are valid, in full force and effect and in
      good
      standing. There is no claim or Action pending, or, to the Company’s knowledge,
      threatened, which disputes the validity of any such Permit or threatens to
      revoke, cancel, suspend or limit any such Permit.

     

    
      
        
        

      

      
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    3.24    No
      General Solicitation; Placement Agent’s Fees.
      Neither
      the Company, nor any of its Affiliates, nor any Person acting on its or their
      behalf, has engaged in any form of general solicitation or general advertising
      (within the meaning of Regulation D) in connection with the offer or sale of
      the
      Securities. The Company shall be responsible for the payment of any placement
      agent’s fees, financial advisory fees, or brokers’ commission (other than for
      persons engaged by any Investor or its investment advisor) relating to or
      arising out of the issuance of the Securities pursuant to this Agreement. The
      Company shall pay, and hold each Investor harmless against, any liability,
      loss
      or expense (including, without limitation, reasonable attorney’s fees and
      out-of-pocket expenses) arising in connection with any such claim for fees
      arising out of the issuance of the Securities pursuant to this Agreement. The
      Company acknowledges that is has engaged B. Riley & Co. (the
“Placement
      Agent”)
      as its
      placement agent in connection with the sale of the Securities. Other than the
      Placement Agent, the Company has not engaged any placement agent or other agent
      in connection with the sale of the Securities.

     

    3.25    Private
      Placement.
      Neither
      the Company nor any of its Affiliates nor, any Person acting on the Company’s
      behalf has, directly or indirectly, at any time within the past six months,
      made
      any offer or sale of any security or solicitation of any offer to buy any
      security under circumstances that would (i) eliminate the availability of the
      exemption from registration under Regulation D under the Securities Act in
      connection with the offer and sale by the Company of the Securities as
      contemplated hereby or (ii) cause the offering of the Securities pursuant to
      the
      Transaction Documents to be integrated with prior offerings by the Company
      for
      purposes of any applicable law, regulation or stockholder approval provisions,
      including, without limitation, under the rules and regulations of any Trading
      Market. The Company is not required to be registered as, and is not an Affiliate
      of, an “investment company” within the meaning of the Investment Company Act of
      1940, as amended. The Company is not required to be registered as, a United
      States real property holding corporation within the meaning of the Foreign
      Investment in Real Property Tax Act of 1980.

     

    3.26    Registration
      Rights.
      Except
      with respect to the Registrable Securities and Placement Warrant Shares, the
      Company has not granted or agreed to grant to any Person any rights (including
      “piggy-back” registration rights) to have any securities of the Company
      registered with the SEC or any other governmental authority that have not been
      satisfied or waived.

     

    3.27    Application
      of Takeover Protections.
      There
      is no control share acquisition, business combination, poison pill (including
      any distribution under a rights agreement) or other similar anti-takeover
      provision under the Company’s charter documents or the laws of its state of
      incorporation that is or could become applicable to any of the Investors as
      a
      result of the Investors and the Company fulfilling their obligations or
      exercising their rights under the Transaction Documents, including, without
      limitation, as a result of the Company’s issuance of the Securities and the
      Investors’ ownership of the Securities.

     

    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    

     

    3.28    Acknowledgment
      Regarding Investors’ Purchase of Securities.
      Based
      upon the assumption that the transactions contemplated by this Agreement are
      consummated in all material respects in conformity with the Transaction
      Documents, the Company acknowledges and agrees that each of the Investors (other
      than Excluded Investors) is acting solely in the capacity of an arm’s length
      purchaser with respect to the Transaction Documents and the transactions
      contemplated hereby and thereby. The Company further acknowledges that no
      Investor (other than Excluded Investors) is acting as a financial advisor or
      fiduciary of the Company (or in any similar capacity) with respect to this
      Agreement and the transactions contemplated hereby and any advice given by
      any
      Investor (other than Excluded Investors) or any of their respective
      representatives or agents in connection with the Transaction Documents and
      the
      transactions contemplated hereby and thereby is merely incidental to the
      Investors’ purchase of the Securities. The Company further represents to each
      Investor that the Company’s decision to enter into this Agreement has been based
      solely on the independent evaluation of the transactions contemplated hereby
      by
      the Company and its representatives.

     

    3.29    Internal
      Accounting Controls.
      The
      Company and the Subsidiary maintain a system of internal accounting controls
      sufficient to provide reasonable assurance that (i) transactions are executed
      in
      accordance with management’s general or specific authorizations, (ii)
      transactions are recorded as necessary to permit preparation of financial
      statements in conformity with GAAP and to maintain asset accountability, (iii)
      access to assets is permitted only in accordance with management’s general or
      specific authorization, and (iv) the recorded accountability for assets is
      compared with the existing assets at reasonable intervals and appropriate action
      is taken with respect to any differences.

     

    3.30    Foreign
      Corrupt Practices.
      Neither
      the Company nor the Subsidiary nor, to the knowledge of the Company, any
      director, officer, agent, employee or other Person acting on behalf of the
      Company or the Subsidiary has, in the course of its actions for, or on behalf
      of, the Company (i) used any corporate funds for any unlawful contribution,
      gift, entertainment or other unlawful expenses relating to political activity;
      (ii) made any direct or indirect unlawful payment to any foreign or domestic
      government official or employee from corporate funds; (iii) violated or is
      in
      violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
      as
      amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment,
      kickback or other unlawful payment to any foreign or domestic government
      official or employee.

     

    3.31    Indebtedness.
      Except
      as set forth on Schedule 3.31,
      neither
      the Company nor the Subsidiary (i) has any outstanding Indebtedness, (ii) is
      in
      violation of any term of or in default under any contract, agreement or
      instrument relating to any Indebtedness, except where such violations and
      defaults would not result, individually or in the aggregate, in a Material
      Adverse Effect, or (iii) is a party to any contract, agreement or instrument
      relating to any Indebtedness, the performance of which, in the judgment of
      the
      Company’s officers, has or is expected to have a Material Adverse Effect.

     

    3.32    Accounts
      Receivable.
      All
      accounts receivable of the Company and the Subsidiary shown on the Financial
      Statements and all accounts receivable created after the date of the date of
      the
      Financial Statements, subject to reserves created in the ordinary course of
      business on a basis consistent with the past practices and policies of the
      Company and the Subsidiary, as the case may be, and otherwise in accordance
      with
      generally accepted accounting principles, (a) have been collected or (b) to
      the
      Company’s knowledge, are valid and enforceable, arose from bona-fide sales to
      third parties in the ordinary course of business, and are collectible at the
      aggregate recorded amounts thereof on the books of the Company and the
      Subsidiary, as the case may be.

     

    
      
        
        

      

      
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    3.33    Condition
      of Tangible Assets.
      Each of
      the Company’s and the Subsidiary’s facilities and tangible assets, including,
      without limitation, machinery, equipment, vehicles, furniture, plants and
      buildings, are in good operating condition and repair (ordinary wear and tear
      excepted) and are adequate for the uses to which they have been put by the
      Company and the Subsidiary in the ordinary course of business, except for parts
      or repairs of an immaterial nature in the aggregate, and neither the Company
      nor
      the Subsidiary has received any notice that any of such facilities or assets
      is
      in need of substantial maintenance or repair.

     

    3.34    Disclosure.
      No
      representation or warranty of the Company in this Agreement (including, without
      limitation, the Schedules of the Company hereto and the Disclosure Materials)
      contains or will contain any untrue statement of a material fact or omits or
      will omit to state any material fact necessary to make the statements herein
      or
      therein not misleading.

     

    ARTICLE
      IV

    REPRESENTATIONS
      AND WARRANTIES OF THE INVESTORS

     

    Each
      of
      the Investors, severally and not jointly, hereby represents and warrants to
      the
      Company as follows on and as of the date hereof:

     

    4.1    Organization;
      Authority.
      Such
      Investor is an entity duly organized, validly existing and in good standing
      under the laws of the jurisdiction of its organization with the requisite
      corporate, partnership or other power and authority to enter into and to
      consummate the transactions contemplated by the Transaction Documents and
      otherwise to carry out its obligations hereunder and thereunder. The purchase
      by
      such Investor of the Securities hereunder has been duly authorized by all
      necessary action on the part of such Investor. This Agreement has been duly
      executed and delivered by such Investor and constitutes the valid and binding
      obligation of such Investor, enforceable against it in accordance with its
      terms, except as may be limited by (i) applicable bankruptcy, insolvency,
      reorganization or other laws of general application relating to or affecting
      the
      enforcement of creditors rights generally, and (ii) the effect of rules of
      law
      governing the availability of specific performance and other equitable
      remedies.

     

    4.2    No
      Public Sale or Distribution.
      Such
      Investor is (i) acquiring the Series A Preferred Shares and the Warrants,
      (ii) upon conversion of the Series A Preferred Stock will acquire the
      Conversion Shares issuable upon conversion thereof, and (iii) upon exercise
      of the Warrants will acquire the Warrant Shares issuable upon exercise thereof,
      in the ordinary course of business for its own account and not with a view
      towards, or for resale in connection with, the public sale or distribution
      thereof, except pursuant to sales registered under the Securities Act or under
      an exemption from such registration and in compliance with applicable federal
      and state securities laws, and such Investor does not have a present arrangement
      to effect any distribution of the Securities to or through any person or entity;
      provided,
      however,
      that by
      making the representations herein, such Investor does not agree to hold any
      of
      the Securities for any minimum or other specific term and reserves the right
      to
      dispose of the Securities at any time in accordance with or pursuant to a
      registration statement or an exemption under the Securities Act.

     

    
      
        
        

      

      
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    4.3    Investor
      Status.
      At the
      time such Investor was offered the Securities, it was, and at the date hereof
      it
      is, an “accredited investor” as defined in Rule 501(a) under the Securities Act
      or a “qualified institutional buyer” as defined in Rule 144A(a) under the
      Securities Act. Such Investor is not a registered broker dealer registered
      under
      Section 15(a) of the Exchange Act, or a member of the NASD, Inc. or an entity
      engaged in the business of being a broker dealer. Except as otherwise disclosed
      in writing to the Company on Exhibit
      B-2
      (attached hereto) on or prior to the date of this Agreement, such Investor
      is
      not affiliated with any broker dealer registered under Section 15(a) of the
      Exchange Act, or a member of the NASD, Inc. or an entity engaged in the business
      of being a broker dealer.

     

    4.4    Experience
      of Such Investor.
      Such
      Investor, either alone or together with its representatives has such knowledge,
      sophistication and experience in business and financial matters so as to be
      capable of evaluating the merits and risks of the prospective investment in
      the
      Securities, and has so evaluated the merits and risks of such investment. Such
      Investor understands that it must bear the economic risk of this investment
      in
      the Securities indefinitely, and is able to bear such risk and is able to afford
      a complete loss of such investment.

     

    4.5    Access
      to Information.
      Such
      Investor acknowledges that it has reviewed the Disclosure Materials and has
      been
      afforded: (i) the opportunity to ask such questions as it has deemed necessary
      of, and to receive answers from, representatives of the Company concerning
      the
      terms and conditions of the offering of the Securities and the merits and risks
      of investing in the Securities; (ii) access to information about the Company
      and
      the Subsidiaries and their respective financial condition, results of
      operations, business, properties, management and prospects sufficient to enable
      it to evaluate its investment; and (iii) the opportunity to obtain such
      additional information that the Company possesses or can acquire without
      unreasonable effort or expense that is necessary to make an informed investment
      decision with respect to the investment. Neither such inquiries nor any other
      investigation conducted by or on behalf of such Investor or its representatives
      or counsel shall modify, amend or affect such Investor’s right to rely on the
      truth, accuracy and completeness of the Disclosure Materials and the Company’s
      representations and warranties contained in the Transaction Documents.

     

    4.6    No
      Governmental Review.
      Such
      Investor understands that no United States federal or state agency or any other
      government or governmental agency has passed on or made any recommendation
      or
      endorsement of the Securities or the fairness or suitability of the investment
      in the Securities nor have such authorities passed upon or endorsed the merits
      of the offering of the Securities.

     

    4.7    No
      Conflicts.
      The
      execution, delivery and performance by such Investor of this Agreement and
      the
      consummation by such Investor of the transactions contemplated hereby will
      not
      (i) result in a violation of the organizational documents of such Investor
      or
      (ii) conflict with, or constitute a default (or an event which with notice
      or
      lapse of time or both would become a default) under, or give to others any
      rights of termination, amendment, acceleration or cancellation of, any
      agreement, indenture or instrument to which such Investor is a party, or (iii)
      result in a violation of any law, rule, regulation, order, judgment or decree
      (including federal and state securities laws) applicable to such Investor,
      except in the case of clauses (ii) and (iii) above, for such that are not
      material and do not otherwise affect the ability of such Investor to consummate
      the transactions contemplated hereby.

     

    
      
        
        

      

      
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    4.8    Illegal
      Transactions.
      No
      Investor, directly or indirectly, and no Person acting on behalf of or pursuant
      to any understanding with any Investor, has engaged in any transactions in
      the
      securities of the Company (including, without limitation, any Short Sales
      involving any of the Company’s securities) since the time that such Investor was
      first contacted by the Company, the Placement Agent or any other Person
      regarding this investment in the Company. Such Investor covenants that neither
      it nor any Person acting on its behalf or pursuant to any understanding with
      such Investor will engage, directly or indirectly, in any transactions in the
      securities of the Company (including Short Sales) prior to the time the
      transactions contemplated by this Agreement are publicly disclosed.
“Short
      Sales”
      include, without limitation, all “short sales” as defined in Rule 200
      promulgated under Regulation SHO under the Exchange Act and all types of direct
      and indirect stock pledges, forward sale contracts, options, puts, calls, short
      sales, swaps, derivatives and similar arrangements (including on a total return
      basis), and sales and other transactions through non-United States
      broker-dealers or foreign regulated brokers.

     

    4.9    Restricted
      Securities.
      The
      Investors understand that the Securities are characterized as “restricted
      securities” under the United States federal securities laws inasmuch as they are
      being acquired from the Company in a transaction not involving a public offering
      and that under such laws and applicable regulations such securities may be
      resold without registration under the Securities Act only in certain limited
      circumstances.

     

    4.10   Legends.
      It is
      understood that certificates evidencing the Securities shall bear the legend
      set
      forth in Section 5.1(b).

     

    4.11   No
      Legal, Tax or Investment Advice.
      Such
      Investor understands that nothing in this Agreement or any other materials
      presented by or on behalf of the Company to the Investor in connection with
      the
      purchase of the Securities constitutes legal, tax or investment advice. Such
      Investor has consulted such legal, tax and investment advisors as it, in its
      sole discretion, has deemed necessary or appropriate in connection with its
      purchase of the Securities. Such Investor understands that the Placement Agent
      has acted solely as the agent of the Company in this placement of the
      Securities, and that the Placement Agent makes no representation or warranty
      with regard to the merits of this transaction or as to the accuracy of any
      information such Investor may have received in connection therewith (including,
      without limitation, the Disclosure Materials). Such Investor acknowledges that
      he has not relied on any information or advice furnished by or on behalf of
      the
      Placement Agent, other than the Offering Memorandum, the Proxy Statement, this
      Agreement and the schedules and exhibits and other agreements related hereto
      and
      thereto.

     

    ARTICLE
      V

    OTHER
      AGREEMENTS OF THE PARTIES

     

    5.1    Transfer
      Restrictions.

     

    (a)    The
      Investors covenant that the Securities will only be disposed of pursuant to
      an
      effective registration statement under, and in compliance with the requirements
      of, the Securities Act or pursuant to an available exemption from the
      registration requirements of the Securities Act, and in compliance with any
      applicable state securities laws. In connection with any transfer of Securities
      other than pursuant to an effective registration statement or to the Company,
      or
      pursuant to Rule 144(k), the Company may require the transferor to provide
      to
      the Company an opinion of counsel selected by the transferor, the form and
      substance of which opinion shall be reasonably satisfactory to the Company,
      to
      the effect that such transfer does not require registration under the Securities
      Act. Notwithstanding the foregoing, the Company hereby consents to and agrees
      to
      register on the books of the Company and with its transfer agent, without any
      such legal opinion, except to the extent that the transfer agent requests such
      legal opinion, any transfer of Securities by an Investor to an Affiliate of
      such
      Investor, provided that the transferee certifies to the Company that it is
      an
“accredited investor” as defined in Rule 501(a) under the Securities Act and
      provided that such Affiliate does not request any removal of any existing
      legends on any certificate evidencing the Securities.

     

    
      
        
        

      

      
        -23-

        
          

        

      

      
        
        

      

    

     

    (b)    The
      Investors agree to the imprinting, so long as is required by this Section
      5.1(b),
      of the
      following legend on any certificate evidencing any of the Securities:

     

    THESE
      SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
      OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
      REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
      ACT”),
      OR
      ANY APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR
      SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
      ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
      TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH
      APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. THESE SECURITIES MAY BE
      PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY THE
      SECURITIES.

     

    Certificates
      evidencing Securities shall not be required to contain such legend or any other
      legend (i) while a registration statement (including the Registration Statement)
      covering the resale of the Securities is effective under the Securities Act,
      (ii) following any sale of such Securities pursuant to Rule 144 if the holder
      provides the Company with a legal opinion (and the documents upon which the
      legal opinion is based) reasonable acceptance to the Company to the effect
      that
      the Securities can be sold under Rule 144, (iii) if the holder provides the
      Company with a legal opinion (and the documents upon which the legal opinion
      is
      based) reasonably acceptable to the Company to the effect that the Securities
      are eligible for sale under Rule 144(k), or (iv) if the holder provides the
      Company with a legal opinion (and the documents upon which the legal opinion
      is
      based) reasonably acceptable to the Company to the effect that the legend is
      not
      required under applicable requirements of the Securities Act (including
      controlling judicial interpretations and pronouncements issued by the Staff
      of
      the SEC). 

     

    (c)    The
      Company will not object to and shall permit (except as prohibited by law) an
      Investor to pledge or grant a security interest in some or all of the Securities
      in connection with a bona fide margin agreement or other loan or financing
      arrangement secured by the Securities, and if required under the terms of such
      agreement, loan or arrangement, the Company will not object to and shall permit
      (except as prohibited by law) such Investor to transfer pledged or secured
      Securities to the pledges or secured parties. Except as required by law, such
      a
      pledge or transfer would not be subject to approval of the Company, no legal
      opinion of the pledgee, secured party or pledgor shall be required in connection
      therewith, and no notice shall be required of such pledge. Each Investor
      acknowledges that the Company shall not be responsible for any pledges relating
      to, or the grant of any security interest in, any of the Securities or for
      any
      agreement, understanding or arrangement between any Investor and its pledgee
      or
      secured party. At the appropriate Investor’s expense, the Company will execute
      and deliver such reasonable documentation as a pledgee or secured party of
      Securities may reasonably request in connection with a pledge or transfer of
      the
      Securities, including the preparation and filing of any required prospectus
      supplement under Rule 424(b)(3) of the Securities Act or other applicable
      provision of the Securities Act to appropriately amend the list of selling
      shareholders thereunder. Provided that the Company is in compliance with the
      terms of this Section
      5.1(c),
      the
      Company’s indemnification obligations pursuant to the terms of the Registration
      Rights Agreement shall not extend to any Proceeding or Losses arising out of
      or
      related to this Section 5.1(c).

     

    
      
        
        

      

      
        -24-

        
          

        

      

      
        
        

      

    

     

    (d)    Following
      the Effective Date, or at such earlier time as a legend is no longer required
      for certain Securities, the Company will no later than three (3) Trading Days
      following the delivery by an Investor to the Company or the Transfer Agent
      (with
      notice to the Company) of (i) a legended certificate representing such
      Conversion Shares or Warrant Shares (endorsed or with stock powers attached,
      signatures guaranteed, and otherwise in form necessary to affect the reissuance
      and/or transfer ) or (ii) an exercise notice in the manner stated in the
      Warrants to effect the exercise of such Warrant in accordance with its terms
      and
      an opinion of counsel to the extent required by Section 5.1(a)
      (such
      third Trading Day, the “Legend
      Removal Date”),
      deliver or cause to be delivered to such Investor a certificate representing
      such Securities that is free from all restrictive and other legends.  The
      Company may not make any notation on its records or give instructions to the
      Transfer Agent that enlarge the restrictions on transfer set forth in this
      Section
      5.1.
       Certificates for Conversion Shares or Warrant Shares subject to legend
      removal hereunder shall be transmitted by the Transfer Agent to the Investors
      by
      crediting the account of the Investor’s prime broker or other financial
      institution as directed by such Investor with the Depository Trust Company.
      

     

    (e)    If
      the
      Company fails to deliver the unlegended certificates by the Legend Removal
      Date
      as required under Section
      5.1(d),
      and
      prior to the receipt of such unlegended certificates, the Investor purchases
      (in
      an open market transaction or otherwise) shares of Common Stock to deliver
      in
      satisfaction of a sale by the Investor of shares of Common Stock that such
      Investor anticipated receiving from the Company without any restrictive legend
      (a “Buy-In”),
      then
      the Company shall, within three (3) Business Days after such Investor's request
      and in such Investor’s sole discretion, either (i) pay cash to the Investor in
      an amount equal to such Investor’s total purchase price (including brokerage
      commissions, if any) for the shares of Common Stock so purchased (the
“Buy-In
      Price”),
      at
      which point the Company’s obligation to deliver such certificate (and to issue
      such shares of Common Stock) shall terminate, or (ii) promptly honor its
      obligation to deliver to such Investor a certificate or certificates
      representing such shares of Common Stock and pay cash to the Investor in an
      amount equal to the excess (if any) of the Buy-In Price over the product of
      (a)
      such number of shares of Common Stock, times (b) the Closing Price of a share
      of
      the Company’s Common Stock on the Legend Removal Date.

     

    
      
        
        

      

      
        -25-

        
          

        

      

      
        
        

      

    

     

    5.2    Furnishing
      of Information.
      Until
      the date that all Investors owning Conversion Shares or Warrant Shares (or
      having the right to acquire Conversion Shares or Warrant Shares) may sell all
      of
      them under Rule 144(k) of the Securities Act (or any successor provision),
      the
      Company shall timely file (or obtain extensions in respect thereof and file
      within the applicable grace period) all reports required to be filed by the
      Company after the Effective Date pursuant to the Exchange Act. The Company
      further covenants that it will take such further action as any holder of
      Securities may reasonably request to satisfy the provisions of this Section 5.2.

     

    5.3    Integration.
      The
      Company shall not, and shall use its commercially reasonably efforts to ensure
      that no Affiliate thereof shall, sell, offer for sale or solicit offers 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
      Securities in a manner that would require the registration under the Securities
      Act of the sale of the Securities to the Investors or that would be integrated
      with the offer or sale of the Securities for purposes of the rules and
      regulations of any Trading Market. 

     

    5.4    Reservation
      of Securities.
      The
      Company shall maintain a reserve from its duly authorized shares of Common
      Stock
      for issuance pursuant to the Transaction Documents in such amount as may be
      required to fulfill its obligations to issue such Common Shares under the terms
      of the Series A Preferred Shares and the Warrants. In the event that at any
      time
      the then authorized shares of Common Stock are insufficient for the Company
      to
      satisfy its obligations to issue such Common Shares under the terms of the
      Series A Preferred Shares and the Warrants, the Company shall promptly take
      such
      actions as may be required to increase the number of authorized
      shares.

     

    5.5    Publicity.
      The
      Company shall, on or before 5:30 a.m., California time, on the first Trading
      Day
      following execution of this Agreement, issue a press release reasonably
      acceptable to the Investors disclosing all material terms of the transactions
      contemplated hereby. Except as herein provided, the Company shall not publicly
      disclose the name of any Investor, or include the name of any Investor in any
      press release without the prior written consent of such Investor, unless
      otherwise required by law. The Company shall not, and shall cause each of its
      Subsidiaries and its and each of their respective officers, directors, employees
      and agents not to, provide any Investor with any material nonpublic information
      regarding the Company or any of its Subsidiaries from and after the issuance
      of
      the above referenced press release without the express written consent of such
      Investor. 

     

    5.6    Use
      of Proceeds.
      The
      Company (including the Subsidiary) intends to use the net proceeds from the
      sale
      of the Securities in the manner described in the Offering Memorandum. Pending
      these uses, the Company intends to invest the net proceeds from this offering
      in
      short-term, interest-bearing, investment-grade securities, or as otherwise
      pursuant to the Company’s customary investment policies.

     

    5.7    Registration
      Rights Agreement.
      The
      Company and the Investors shall, concurrently with the Closing, enter into
      a
      Registration Rights Agreement in substantially the form attached hereto as
      Exhibit G.

     

    
      
        
        

      

      
        -26-

        
          

        

      

      
        
        

      

    

     

    5.8    Indemnification.
      

     

    (a)    The
      Company shall indemnify and hold harmless each Investor, the officers,
      directors, agents, brokers, investment advisors, representatives and employees
      of each of them, each Person who controls each Investor (within the meaning
      of
      Section 15 of the Securities Act or Section 20 of the Exchange Act)
      and the officers, directors, agent, representatives and employees of each such
      controlling Person (each, an “Investor
      Party”),
      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 reasonable attorneys’ fees) and expenses (collectively,
“Losses”),
      as
      incurred, as a result of or relating to (including, but not limited to, any
      third party claims against such Investor Party) any breach of any of the
      representations, warranties, covenants or agreements made by the Company in
      this
      Agreement or in any of the other Transaction Documents, except to the extent,
      but only to the extent, that any such Losses are attributable to any Investor’s
      breach of any of the representations, warranties, covenants or agreements made
      by such Investor in this Agreement or in any of the other Transaction
      Documents.

     

    (b)    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.

     

    
      
        
        

      

      
        -27-

        
          

        

      

      
        
        

      

    

     

    All
      fees
      and expenses of the Indemnified Party (including reasonable attorneys’ 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 5.8)
      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 by a court of competent jurisdiction in a final judgment not subject
      to appeal or review that such Indemnified Party is not entitled to
      indemnification hereunder).

     

    (c)    The
      indemnity agreements contained in this Section 5
      are in
      addition to any liability that the Indemnifying Parties may have to the
      Indemnified Parties. Notwithstanding the foregoing, the obligations of the
      Investors herein shall be the several, and not joint, obligation of each
      Investor as to itself and not as to any other Investor.

     

    5.9    Director
      Nominee.
      Pursuant to the rights granted to the Investors contained in Article IV, Section
      6 of the Restated Articles, the Investors hereby nominate Wes Cummins as a
      member of the Board of Directors of the Company and the Company hereby agrees
      to
      appoint Mr. Cummins to the Board of Directors immediately after the
      Closing.

     

    5.10   Trading
      of Conversion Shares and Warrant Shares.
      Promptly following the effectiveness of the Exchange Act Registration Statement
      with the SEC, the Company shall take all necessary action to cause the
      Conversion Shares and the Warrant Shares to be approved for trading on the
      OTCBB
      or such other Trading Market (other than the Pink Sheets, LLC) as the Company
      may determine.

     

    ARTICLE
      VI

    CONDITIONS

     

    6.1    Conditions
      Precedent to the Obligations of the Investors.
      The
      obligation of each Investor to acquire Securities at the Closing is subject
      to
      the satisfaction or waiver by such Investor, at or before the Closing, of each
      of the following conditions:

     

    (a)    Representations
      and Warranties.
      The
      representations and warranties of the Company contained herein shall be true
      and
      correct in all respects as of the date when made and as of the Closing as though
      made on and as of such date.

     

    (b)    Performance.
      The
      Company and each other Investor shall have performed, satisfied and complied
      in
      all material respects with all covenants, agreements and conditions required
      by
      the Transaction Documents to be performed, satisfied or complied with by it
      at
      or prior to the Closing.

     

    
      
        
        

      

      
        -28-

        
          

        

      

      
        
        

      

    

     

    (c)    Consents
      and Approvals.
      The
      Company shall have obtained all governmental, regulatory or third party consents
      and approvals, if any, necessary for the sale of the Securities.

     

    (d)    No
      Material Adverse Effect.
      Between
      the execution of this Agreement and the Closing, no event or series of events
      (other than stock price fluctuations) shall have occurred which has had or
      reasonably would be expected to have or result in a Material Adverse
      Effect.

     

    (e)    Deliverables.
      The
      Company shall have delivered all of the Company deliverables set forth in
Section 2.2(a)
      for
      distribution at Closing.

     

    (f)    Cross-Receipt.
      The
      Company and the Investors shall have executed and delivered a cross-receipt
      acknowledging the Company’s delivery to the Investors of the Series A Preferred
      Shares and Warrants and the Investors’ payment therefor.

     

    (g)    No
      Termination.
      This
      Agreement shall not have been terminated pursuant to Section
      7.1.

     

    (h)    Minimum
      Proceeds.
      The
      Company shall have raised at least $11.5 million in gross proceeds in connection
      with the offering of the Securities hereby.

     

    6.2    Conditions
      Precedent to the Obligations of the Company.
      The
      obligation of the Company to sell the Securities at the Closing is subject
      to
      the satisfaction or waiver by the Company, at or before the Closing, of each
      of
      the following conditions:

     

    (a)    Representations
      and Warranties.
      The
      representations and warranties of the Investors contained herein shall be true
      and correct in all material respects as of the date when made and as of the
      Closing Date as though made on and as of such date; and

     

    (b)    Performance.
      The
      Investors shall have performed, satisfied and complied in all material respects
      with all covenants, agreements and conditions required by the Transaction
      Documents to be performed, satisfied or complied with by the Investors at or
      prior to the Closing.

     

    (c)    Cross-Receipt.
      The
      Company and the Investors shall have executed and delivered a cross-receipt
      acknowledging the Company’s delivery to the Investors of the Series A Preferred
      Shares and Warrants and the Investors’ payment therefor.

     

    (d)    No
      Termination.
      This
      Agreement shall not have been terminated pursuant to Section
      7.1.

     

    (e)    Minimum
      Proceeds.
      The
      Company shall have raised at least $11.5 million in gross proceeds in connection
      with the offering of the Securities hereby.

     

    6.3    Satisfaction
      of Conditions Precedent; Escrow Release.

     

    (a)    The
      Company and the Investors acknowledge that the Company, Subsidiary and Escrow
      Agent have entered into the Escrow Agreement in respect of the purchase and
      sale
      of the Securities hereunder. At the request of an Investor, the Company shall
      provide such Investor with a true, correct and complete copy of the Escrow
      Agreement.

     

    
      
        
        

      

      
        -29-

        
          

        

      

      
        
        

      

    

     

    (b)    On
      or
      prior to the Closing Date, the Company shall notify each Investor whether or
      not
      the conditions precedent set forth in Section
      6.1
      have
      been satisfied. Promptly following receipt of such notice, and the Investors
      concurring with the Company that the conditions precedent set forth in
Section
      6.1
      have
      been satisfied, the Investors purchasing a majority of the Securities shall,
      by
      written notice, instruct and authorize the Company to (i) deliver the
      Company Certificate (as defined in the Escrow Agreement) to the Escrow Agent,
      and (ii) direct the Escrow Agent to deliver the amount deposited with the Escrow
      Agent to the Company (in accordance with such wire transfer instructions as
      the
      Company shall provide by written notice to the Escrow Agent). Any notice to
      the
      Company hereunder shall be in accordance with the provisions of Section 7.4
      and
      shall be addressed to the address set forth on the signature page
      hereof.

     

    (c)    Each
      Investor consents and agrees to the provisions of this Section
      6.3
      and
      agrees to be bound hereby.

     

    ARTICLE
      VII

    MISCELLANEOUS

     

    7.1    Termination.
      This
      Agreement may be terminated by the Company or any Investor, by written notice
      to
      the other parties, if the Closing has not been consummated by the fifth
      (5th)
      Business Day following the date of this Agreement; provided that no such
      termination will affect the right of any party to sue for any breach by the
      other party (or parties).

     

    7.2    Fees
      and Expenses.
      Except
      as expressly set forth in the Transaction Documents to the contrary, each party
      shall pay the fees and expenses of its advisers, counsel, accountants and other
      experts, if any, and all other expenses incurred by such party incident to
      the
      negotiation, preparation, execution, delivery and performance of this Agreement;
      provided,
      however,
      that
      the Company shall reimburse each of the Lead Investors for the reasonable
      attorneys’ fees and expenses incurred by each such Lead Investor in connection
      with the transactions hereunder. The maximum amount payable by the Company
      to
      each Lead Investor pursuant to this Section 7.2
      shall be
      $20,000. The Company shall pay all Transfer Agent fees, stamp taxes and other
      taxes and duties levied in connection with the sale and issuance of their
      applicable Securities.

     

    7.3    Entire
      Agreement.
      The
      Transaction Documents, together with the Exhibits and Schedules thereto, contain
      the entire understanding of the parties with respect to the subject matter
      hereof and supersede all prior agreements and understandings, oral or written,
      with respect to such matters, which the parties acknowledge have been merged
      into such documents, exhibits and schedules. At or after the Closing, and
      without further consideration, the Company will execute and deliver to the
      Investors such further documents as may be reasonably requested in order to
      give
      practical effect to the intention of the parties under the Transaction
      Documents.

     

    
      
        
        

      

      
        -30-

        
          

        

      

      
        
        

      

    

     

    7.4    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 pages hereof, or such other address or
      facsimile number as may be designated in writing hereafter, in the same manner,
      by any such Person.

     

    7.5    Amendments;
      Waivers.
      No
      provision of this Agreement may be waived or amended except in a written
      instrument signed, in the case of an amendment, by the Company and each of
      the
      Investors or, in the case of a waiver, by the party against whom enforcement
      of
      any such waiver is sought. No waiver of any default with respect to any
      provision, condition or requirement of this Agreement shall be deemed to be
      a
      continuing waiver in the future or a waiver of any subsequent default or a
      waiver of any other provision, condition or requirement hereof, nor shall any
      delay or omission of either party to exercise any right hereunder in any manner
      impair the exercise of any such right. 

     

    7.6    Construction.
      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. The language used in this Agreement will be deemed to be the language
      chosen by the parties to express their mutual intent, and no rules of strict
      construction will be applied against any party.

     

    7.7    Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and permitted assigns. The Company may not assign this
      Agreement or any rights or obligations hereunder without the prior written
      consent of the Investors. Any Investor may assign its rights under this
      Agreement to any Person to whom such Investor assigns or transfers any
      Securities, provided (i) such transferor agrees in writing with the transferee
      or assignee to assign such rights, and a copy of such agreement is furnished
      to
      the Company after such assignment, (ii) the Company is furnished with written
      notice of (x) the name and address of such transferee or assignee and (y) the
      Registrable Securities with respect to which such registration rights are being
      transferred or assigned pursuant to the Registration Rights Agreement, (iii)
      following such transfer or assignment, the further disposition of such
      securities by the transferee or assignee is restricted under the Securities
      Act
      and applicable state securities laws, (iv) such transferee agrees in writing
      to
      be bound, with respect to the transferred Securities, by the provisions hereof
      that apply to the “Investors” and (v) such transfer shall have been made in
      accordance with the applicable requirements of this Agreement and with all
      laws
      applicable thereto.

     

    7.8    No
      Third-Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      successors and permitted assigns and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person.

     

    
      
        
        

      

      
        -31-

        
          

        

      

      
        
        

      

    

     

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

     

    7.10   Survival.
      The
      representations and warranties, agreements and covenants contained herein shall
      survive the Closing.

     

    7.11   Execution.
      This
      Agreement may be executed in two or more counterparts, all of which when taken
      together shall be considered one and the same agreement and shall become
      effective when counterparts have been signed by each party and delivered to
      the
      other party, it being understood that both parties need not sign the same
      counterpart. In the event that any signature is delivered by facsimile
      transmission or email attachment, such signature shall create a valid and
      binding obligation of the party executing (or on whose behalf such signature
      is
      executed) with the same force and effect as if such facsimile or email-attached
      signature page were an original thereof.

     

    7.12   Severability.
      If any
      provision of this Agreement is held to be invalid or unenforceable in any
      respect, the validity and enforceability of the remaining terms and provisions
      of this Agreement shall not in any way be affected or impaired thereby and
      the
      parties will attempt to agree upon a valid and enforceable provision that is
      a
      reasonable substitute therefor, and upon so agreeing, shall incorporate such
      substitute provision in this Agreement.

     

    7.13   Rescission
      and Withdrawal Right.
      Notwithstanding anything to the contrary contained in (and without limiting
      any
      similar provisions of) the Transaction Documents, whenever any Investor
      exercises a right, election, demand or option owed to such Investor by the
      Company under a Transaction Document and the Company does not timely perform
      its
      related obligations within the periods therein provided, then, prior to the
      performance by the Company of the Company’s related obligation, such Investor
      may rescind or withdraw, in its sole discretion from time to time upon written
      notice to the Company, any relevant notice, demand or election in whole or
      in
      part without prejudice to its future actions and rights.

     

    
      
        
        

      

      
        -32-

        
          

        

      

      
        
        

      

    

     

    7.14    Replacement
      of Securities.
      If any
      certificate or instrument evidencing any Securities is mutilated, lost, stolen
      or destroyed, the Company shall issue or cause to be issued in exchange and
      substitution for and upon cancellation thereof, or in lieu of and substitution
      therefor, a new certificate or instrument, but only upon receipt of evidence
      reasonably satisfactory to the Company of such loss, theft or destruction and
      the execution by the holder thereof of a customary lost certificate affidavit
      of
      that fact and an agreement to indemnify and hold harmless the Company for any
      losses in connection therewith. The applicants for a new certificate or
      instrument under such circumstances shall also pay any reasonable third-party
      costs associated with the issuance of such replacement Securities.

     

    7.15    Remedies.
      In
      addition to being entitled to exercise all rights provided herein or granted
      by
      law, including recovery of damages, each of the Investors and the Company will
      be entitled to seek specific performance under the Transaction Documents. The
      parties agree that monetary damages may not be adequate compensation for any
      loss incurred by reason of any breach of obligations described in the foregoing
      sentence and hereby agrees to waive in any action for specific performance
      of
      any such obligation (other than in connection with any action for temporary
      restraining order) the defense that a remedy at law would be adequate.

     

    7.16    Payment
      Set Aside.
      To the
      extent that the Company makes a payment or payments to any Investor hereunder
      or
      any Investor enforces or exercises its rights hereunder or thereunder, and
      such
      payment or payments or the proceeds of such enforcement or exercise or any
      part
      thereof are subsequently invalidated, declared to be fraudulent or preferential,
      set aside, recovered from, disgorged by or are required to be refunded, repaid
      or otherwise restored to the Company by a trustee, receiver or any other person
      under any law (including, without limitation, any bankruptcy law, state or
      federal law, common law or equitable cause of action), then to the extent of
      any
      such restoration the obligation or part thereof originally intended to be
      satisfied shall be revived and continued in full force and effect as if such
      payment had not been made or such enforcement or setoff had not
      occurred.

     

    7.17    Independent
      Nature of Investors’ Obligations and Rights.
      The
      obligations of each Investor under any Transaction Document are several and
      not
      joint with the obligations of any other Investor, and no Investor shall be
      responsible in any way for the performance of the obligations of any other
      Investor under any Transaction Document. The decision of each Investor to
      purchase Securities pursuant to this Agreement has been made by such Investor
      independently of any other Investor and independently of any information,
      materials, statements or opinions as to the business, affairs, operations,
      assets, properties, liabilities, results of operations, condition (financial
      or
      otherwise) or prospects of the Company which may have been made or given by
      any
      other Investor or by any agent or employee of any other Investor, and no
      Investor or any of its agents or employees shall have any liability to any
      other
      Investor (or any other person) relating to or arising from any such information,
      materials, statements or opinions. Nothing contained herein or in any
      Transaction Document, and no action taken by any Investor pursuant thereto,
      shall be deemed to constitute the Investors as a partnership, an association,
      a
      joint venture or any other kind of entity, or create a presumption that the
      Investors are in any way acting in concert or as a group with respect to such
      obligations or the transactions contemplated by the Transaction Document. Each
      Investor acknowledges that no other Investor has acted as agent for such
      Investor in connection with making its investment hereunder and that no other
      Investor will be acting as agent of such Investor in connection with monitoring
      its investment hereunder. Each Investor shall be entitled to independently
      protect and enforce its rights, including without limitation the rights arising
      out of this Agreement or out of the other Transaction Documents, and it shall
      not be necessary for any other Investor to be joined as an additional party
      in
      any proceeding for such purpose.

     

    [SIGNATURE
      PAGES TO FOLLOW]

     

    
      
        
        

      

      
        -33-

        
          

        

      

      
        
        

      

    

     

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

     

    

    
      	 	
              STRASBAUGH

            
	 	 
	 	
              By:
                /s/ Richard Nance            

               

              Name:
                Richard Nance            

               

              Title: 
                CFO                  

            
	 	 
	 	 
	 	
              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.

              

            

    

     

    
      
        
        

      

      
        -34-

        
          

        

      

      
        
        

      

    

     

    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 Securities
      Purchase Agreement dated as of May __, 2007 (the “Purchase
      Agreement”)
      by and
      among Strasbaugh and the Investors (as defined therein), and agrees to subscribe
      for and purchase the number of Series A Preferred Shares and Warrants set
      forth below, and authorizes this signature page to be attached to the Purchase
      Agreement or counterparts thereof.

     

    
      	 	
              Name
                of Investor:

            
	 	
              ______________________________

               

            
	 	
              By:________________________________

               

              Name:______________________________

               

              Title:_______________________________

            
	 	 
	 	Address: 
	 	
              ______________________________

              ______________________________

              ______________________________

               

              
                Telephone
                  No.: ______________________

                 

                Facsimile
                  No.:________________________

                 

                Email
                  Address:_______________________

                 

                
                  Number
                    of Series A Preferred Shares:_______

                   

                  Number
                    of Warrants:___________________

                   

                  
                    Aggregate
                      Purchase Price:
                      $______________

                  

                

              

            

    

     

    
      
        
        

      

      
        -35-

        
          

        

      

      
        
        

      

    

     

    Exhibits:
      

     

    A Schedule
      of Investors

    B Instruction
      Sheet for Investors

    C Form
      of
      Opinion of Company Counsel

    D Company
      Transfer Agent Instructions

    E Form
      of
      Warrant

    F Form
      of
      Restated Articles

    G Form
      of
      Registration Rights Agreement

    H Plan
      of
      Distribution

    

    
      
        
        

      

      
        -36-

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A

     

    SCHEDULE
      OF INVESTORS

    

    

    
      	
              Investor

            	 	
              Series
                A

              Preferred
                Shares

            	 	
              Warrants

            	 	
              Warrant

              Shares

            	 	
              Purchase
                Price

            	 
	
              Lloyd
                I. Miller, III

            	 	 	
              1,000,000

            	 	 	
              150,000

            	 	 	
              150,000

            	 	
              $

            	
              2,200,000.00

            	 
	
              Milfam
                II L.P.

            	 	 	
              1,000,000

            	 	 	
              150,000

            	 	 	
              150,000

            	 	
              $

            	
              2,200,000.00

            	 
	
              Harvey
                SMidCap Fund LP

            	 	 	
              1,186,363

            	 	 	
              177,954

            	 	 	
              177,954

            	 	
              $

            	
              2,609,998.60

            	 
	
              Bryant
                Riley

            	 	 	
              772,727

            	 	 	
              115,909

            	 	 	
              115,909

            	 	
              $

            	
              1,699,999.40

            	 
	
              The
                Robert A Lichtenstein & Annette Lichtenstein Revocable
                Trust

            	 	 	
              454,545

            	 	 	
              68,182

            	 	 	
              68,182

            	 	
              $

            	
              999,999.00

            	 
	
              Kayne
                Anderson Capital Income Partners (QP), LP

            	 	 	
              363,637

            	 	 	
              54,546

            	 	 	
              54,546

            	 	
              $

            	
              800,001.00

            	 
	
              Catalysis
                Offshore, Ltd.

            	 	 	
              159,091

            	 	 	
              23,864

            	 	 	
              23,864

            	 	
              $

            	
              350,000.20

            	 
	
              PTR
                Fund L.P.

            	 	 	
              113,636

            	 	 	
              17,045

            	 	 	
              17,045

            	 	
              $

            	
              249,999.20

            	 
	
              Jonathan
                Stanton Company

            	 	 	
              113,636

            	 	 	
              17,045

            	 	 	
              17,045

            	 	
              $

            	
              249,999.20

            	 
	
              Palm
                Beach Trading

            	 	 	
              45,455

            	 	 	
              6,818

            	 	 	
              6,818

            	 	
              $

            	
              100,001.00

            	 
	
              Newport
                Micro Fund II, LLC

            	 	 	
              45,455

            	 	 	
              6,818

            	 	 	
              6,818

            	 	
              $

            	
              100,001.00

            	 
	
              Spector
                & Bennet Profit Sharing Plan

            	 	 	
              22,727

            	 	 	
              3,409

            	 	 	
              3,409

            	 	
              $

            	
              49,999.40

            	 
	
              Nanci
                S. Munck

            	 	 	
              22,727

            	 	 	
              3,409

            	 	 	
              3,409

            	 	
              $

            	
              49,999.40

            	 
	
              Michael
                C. Munck

            	 	 	
              22,727

            	 	 	
              3,409

            	 	 	
              3,409

            	 	
              $

            	
              49,999.40

            	 
	
              Mike
                Crawford

            	 	 	
              22,727

            	 	 	
              3,409

            	 	 	
              3,409

            	 	
              $

            	
              49,999.40

            	 
	
              Kenneth
                W. Tang

            	 	 	
              22,727

            	 	 	
              3,409

            	 	 	
              3,409

            	 	
              $

            	
              49,999.40

            	 
	
              R.
                Gregg Hillman

            	 	 	
              22,727

            	 	 	
              3,409

            	 	 	
              3,409

            	 	
              $

            	
              49,999.40

            	 
	
              Harvey
                SMidCap Offshore Fund LTD

            	 	 	
              177,273

            	 	 	
              26,591

            	 	 	
              26,591

            	 	
              $

            	
              390,000.60

            	 
	
              Kayne
                Anderson Income Partners, LP

            	 	 	
              45,454

            	 	 	
              6,818

            	 	 	
              6,818

            	 	
              $

            	
              100,000.00

            	 
	
              Kayne
                Anderson Capital Income Fund, Ltd.

            	 	 	
              136,364

            	 	 	
              20,455

            	 	 	
              20,455

            	 	
              $

            	
              300,000.00

            	 
	
              Catalysis
                Partners, LLC

            	 	 	
              159,091

            	 	 	
              23,864

            	 	 	
              23,864

            	 	
              $

            	
              350,000.20

            	 

    

     

    
      
        
        

      

      
        A-1

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      H

     

    PLAN
      OF DISTRIBUTION

     

    The
      selling security holders may, from time to time, sell any or all of their shares
      of common stock on any stock exchange, market or trading facility on which
      the
      shares are traded or in private transactions. These sales may be at fixed or
      negotiated prices. The selling security holders may use any one or more of
      the
      following methods when selling shares:

     

    
      	·  	
              ordinary
                brokerage transactions and transactions in which the broker-dealer
                solicits purchasers;

            

    

     

    
      	·  	
              block
                trades in which the broker-dealer will attempt to sell the shares
                as agent
                but may position and resell a portion of the block as principal to
                facilitate the transaction;

            

    

     

    
      	·  	
              purchases
                by a broker-dealer as principal and resale by the broker-dealer for
                its
                account;

            

    

     

    
      	·  	
              an
                exchange distribution in accordance with the rules of the applicable
                exchange;

            

    

     

    
      	·  	
              privately
                negotiated transactions;

            

    

     

    
      	·  	
              short
                sales;

            

    

     

    
      	·  	
              broker-dealers
                may agree with the selling security holders to sell a specified number
                of
                such shares at a stipulated price per
                share;

            

    

     

    
      	·  	
              a
                combination of any such methods of sale;
                and

            

    

     

    
      	·  	
              any
                other method permitted pursuant to applicable
                law.

            

    

     

    The
      selling security holders may also sell shares under Rule 144 under the
      Securities Act, if available, rather than under this prospectus.

     

    Broker-dealers
      engaged by the selling security holders may arrange for other brokers-dealers
      to
      participate in sales. Broker-dealers may receive commissions or discounts from
      the selling security holders (or, if any broker-dealer acts as agent for the
      purchaser of shares, from the purchaser) in amounts to be negotiated. The
      selling security holders do not expect these commissions and discounts to exceed
      what is customary in the types of transactions involved. Any profits on the
      resale of shares of common stock by a broker-dealer acting as principal might
      be
      deemed to be underwriting discounts or commissions under the Securities Act.
      Discounts, concessions, commissions and similar selling expenses, if any,
      attributable to the sale of shares will be borne by a selling stockholder.
      The
      selling security holders may agree to indemnify any agent, dealer or
      broker-dealer that participates in transactions involving sales of the shares
      if
      liabilities are imposed on that person under the Securities Act.

     

    The
      selling security holders may from time to time pledge or grant a security
      interest in some or all of the shares of common stock owned by them and, if
      they
      default in the performance of their secured obligations, the pledgees or secured
      parties may offer and sell the shares of common stock from time to time under
      this prospectus after we have filed a supplement to this prospectus under Rule
      424(b)(3) or other applicable provision of the Securities Act supplementing
      or
      amending the list of selling stockholders to include the pledgee, transferee
      or
      other successors in interest as selling stockholders under this
      prospectus.

     

    
      
        
        

      

      
        H-1

        
          

        

      

      
        
        

      

    

     

    The
      selling security holders also may transfer the shares of common stock in other
      circumstances, in which case the transferees, pledgees or other successors
      in
      interest will be the selling beneficial owners for purposes of this prospectus
      and may sell the shares of common stock from time to time under this prospectus
      after we have filed a supplement to this prospectus under Rule 424(b)(3) or
      other applicable provision of the Securities Act supplementing or amending
      the
      list of selling stockholders to include the pledgee, transferee or other
      successors in interest as selling stockholders under this
      prospectus.

     

    The
      selling stockholders and any broker-dealers or agents that are involved in
      selling the shares of common stock may be deemed to be “underwriters” within the
      meaning of the Securities Act in connection with such sales. In such event,
      any
      commissions received by such broker-dealers or agents and any profit on the
      resale of the shares of common stock purchased by them may be deemed to be
      underwriting commissions or discounts under the Securities Act. 

     

    We
      are
      required to pay all fees and expenses incident to the registration of the shares
      of common stock. We have agreed to indemnify the selling stockholders against
      certain losses, claims, damages and liabilities, including liabilities under
      the
      Securities Act.

     

    The
      selling security holders have advised us that they have not entered into any
      agreements, understandings or arrangements with any underwriters or
      broker-dealers regarding the sale of their shares of common stock, nor is there
      an underwriter or coordinating broker acting in connection with a proposed
      sale
      of shares of common stock by any selling security holder. If we are notified
      by
      any selling stockholder that any material arrangement has been entered into
      with
      a broker-dealer for the sale of shares of common stock, if required, we will
      file a supplement to this prospectus. If the selling security holders use this
      prospectus for any sale of the shares of common stock, they will be subject
      to
      the prospectus delivery requirements of the Securities Act.

     

    The
      anti-manipulation rules of Regulation M under the Exchange Act may apply to
      sales of our common stock and activities of the selling security
      holders.

     

     

    H-2

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