Document:

EXHIBIT 10.1

                                     [LOGO]
                               SILICON VALLEY BANK
                           SPECIALTY FINANCE DIVISION

                     ACCOUNTS RECEIVABLE FINANCING AGREEMENT

      This ACCOUNTS RECEIVABLE  FINANCING AGREEMENT (the "Agreement"),  dated as
of the Effective Date, is among Silicon Valley Bank,  Specialty Finance Division
("Bank") on the one hand, and Tegal  Corporation,  a Delaware  corporation,  and
Tegal  Japan,   Inc.,  a   corporation   organized   under  the  laws  of  Japan
(collectively,  joint and severally "Borrower") on the other hand, whose address
is 2201 S. McDowell Blvd, Petaluma,  CA 94954 and with a FAX number of (707) 765
- 9311.

1. DEFINITIONS. In this Agreement:

      "ACCOUNTS" are all existing and later arising  accounts,  contract rights,
and other  obligations  owed  Borrower in  connection  with its sale or lease of
goods  (including  licensing  software  and other  technology)  or  provision of
services, all credit insurance,  guaranties,  other security and all merchandise
returned or reclaimed by Borrower and  Borrower's  Books  relating to any of the
foregoing.

      "ACCOUNT DEBTOR" is defined in the California  Uniform Commercial Code and
shall  include any person  liable on any Financed  Receivable  or Exim  Financed
Receivable,  such as a guarantor of the  Financed  Receivable  or Exim  Financed
Receivable and any issuer of a letter of credit or banker's acceptance.

      "ADJUSTMENTS"   are  all   discounts,   allowances,   returns,   disputes,
counterclaims,  offsets,  defenses,  rights of  recoupment,  rights  of  return,
warranty  claims,  or short  payments,  asserted  by or on behalf of any Account
Debtor for any Financed Receivable or Exim Financed Receivable.

      "ADVANCE" is defined in Section 2.2.

      "ADVANCE RATE" is 80%, net of deferred revenue and offsets related to each
specific Account Debtor, or another percentage as Bank establishes under Section
2.2.

      "APPLICABLE  RATE" is a rate per annum equal to the "Prime Rate" plus 1.00
percentage point.

      "BORROWER  AGREEMENT"  is the  Export-Import  Bank  of the  United  States
Working Capital Guarantee Program Borrower Agreement between Borrower and Bank.

      "BORROWING BASE" has the meaning set forth in the Borrower Agreement.

      "BORROWER'S BOOKS" are all Borrower's books and records including ledgers,
records  regarding  Borrower's assets or liabilities,  the Collateral,  business
operations  or financial  condition  and all  computer  programs or discs or any
equipment containing the information.

      "CODE" is the California Uniform Commercial Code as in effect from time to
time.

      "COLLATERAL" is attached as Exhibit "A".

      "COLLATERAL HANDLING FEE" is defined in Section 4.5.

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      "COLLECTIONS"  are all  funds  received  by Bank  from or on  behalf of an
Account Debtor for Financed Receivables or Exim Financed Receivables.

      "COMPLIANCE CERTIFICATE" is attached as Exhibit "B".

      "EARLY TERMINATION FEE" is defined in Section 4.6.

      "EFFECTIVE DATE" is the date in which Bank executes this Agreement.

      "EVENT OF DEFAULT" is defined in Section 10.

      "EXIM ADVANCE" is defined in Section 3.1.

      "EXIM ADVANCE RATE" is 90%, net of deferred revenue and offsets related to
each specific Account Debtor,  or another  percentage as Bank establishes  under
Section 3.1.

      "EXIM BANK" is the Export-Import Bank of the United States.

      "EXIM BANK EXPENSES" are all audit fees and expenses,  reasonable costs or
expenses  (including  reasonable  attorneys'  fees and expenses) for  preparing,
negotiating,  administering,  defending and  enforcing  the Exim Loan  Documents
(including appeals or Insolvency Proceedings) and the fees that the Bank pays to
the Exim Bank in consideration of the issuance of the Exim Guarantee.

      "EXIM  ELIGIBLE  FOREIGN  ACCOUNTS" are Accounts  payable in United States
Dollars that arise in the ordinary course of Borrower's business from Borrower's
sale of Exim Eligible  Foreign  Inventory  (i) that the Account  Debtor does not
have its  principal  place of business  in the United  States and (ii) that have
been assigned and comply with all of Borrower's  representations  and warranties
in this  Agreement;  but Bank, in its good faith business  judgment,  may change
eligibility standards by giving Borrower notice. Unless Bank agrees otherwise in
writing, Exim Eligible Foreign Accounts will not include:

            (a) Accounts with terms of sales greater than 90 days;

            (b) Accounts  which are more than 60 calendar days past the original
      due date,  unless it is insured through Exim Bank export credit  insurance
      for  comprehensive  commercial  and  political  risk, or through Exim Bank
      approved  private  insurers  for a comparable  coverage,  in which case 90
      calendar days shall apply;

            (c)  Credit  balances  over 60 days  from due  date of the  relevant
      invoice;

            (d)  Accounts  evidenced  by a letter  of  credit  until the date of
      shipment of the items covered by the subject letter of credit;

            (e) Accounts  for which the Account  Debtor is a military or defense
      entity;

            (f) Accounts for which Borrower owes the Account Debtor, but only up
      to the amount owed (sometimes called "contra" accounts,  accounts payable,
      customer deposits or credit accounts);

            (g) Accounts for demonstration or promotional equipment, or in which
      goods are consigned,  sales guaranteed,  sale or return, sale on approval,
      bill  and  hold,  or  other  terms  if  Account  Debtor's  payment  may be
      conditional;

            (h) Accounts for which the Account  Debtor is Borrower's  Affiliate,
      officer, employee, or agent;

            (i) Accounts in which the Account Debtor disputes liability or makes
      any claim and Bank believes  there may be a basis for dispute (but only up
      to the disputed or claimed amount), or if the Account Debtor is subject to
      an Insolvency Proceeding, or becomes insolvent, or goes out of business;

            (j)  Accounts  generated  by the  sale  of  products  purchased  for
      military purposes;

            (k) Accounts  generated by the sales of Inventory  which  constitute
      defense articles or defense services;

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            (l) Accounts  excluded  from the  Borrowing  Base under the Borrower
      Agreement;

            (m) Accounts  that arise from the sales of items not in the ordinary
      course of Borrower's business;

            (n) Accounts not owned by Borrower or that are subject to any right,
      claim or interest of another person other than the lien in favor of Bank;

            (o) Accounts with respect to which an invoice has not been sent;

            (p) Accounts  billed and payable  outside the United  Stated  unless
      approved  in writing by Exim Bank;  and such  Accounts  are subject to the
      following:

                  1.  Each  subsidiary  or  affiliate  is a  party  to the  Loan
            Agreement;

                  2. All proceeds are remitted to the United States on a monthly
            basis  (excluding  the  retention  of  proceeds  for the  purpose of
            funding local expenses);

                  3. Accounts are derived from eligible exports originating from
            the United States;

                  4. Bank obtains a valid first priority  security  interest (or
            equivalent) in the jurisdiction where the Accounts are located; and

                  5. Bank obtains a legal opinion from local counsel with regard
            to the enforceability of such security interest.

            (s) Accounts billed in currencies  other than U.S.  Dollars,  unless
      approved in writing by Exim Bank;

            (t)  Accounts  from foreign  buyers in countries  where Exim Bank is
      legally  prohibited  from doing business or in which Exim Bank coverage is
      not available (as designated in the Country Limitation Schedule);

            (u) Accounts backed by letters of credit unacceptable to Bank in its
      reasonable and good faith credit judgment;

            (v) Accounts for which Bank or Exim Bank determines collection to be
      doubtful, with Bank's determination of same to be reasonable;

            (w)  Accounts  for which the items  giving rise to such Account have
      not  been  shipped  and  delivered  to and  accepted  by the  Buyer or the
      services  giving rise to such Account have not been  performed by Borrower
      and accepted by the Buyer or the Account does not represent a final sale;

            (x) Accounts  for which  Borrower  has made any  agreement  with the
      Buyer for any deduction therefrom, except for discounts or allowances made
      in the  ordinary  course of  business  for  prompt  payment,  all of which
      discounts or allowances are reflected in the calculation of the face value
      of each respective invoice related thereto; and

            (y)  Accounts for which any of the items giving rise to such Account
      have been returned, rejected or repossessed.

      "EXIM FINANCED RECEIVABLES" are all those accounts,  receivables,  chattel
paper, instruments,  contract rights, documents, general intangibles, letters of
credit,  drafts,  bankers acceptances,  and rights to payment, and all proceeds,
including their proceeds (collectively  "receivables"),  which Bank finances and
makes an Exim Advance.  An Exim Financed Receivable stops being an Exim Financed
Receivable  (but  remains  Collateral)  when the Exim  Advance made for the Exim
Financed Receivable has been finally paid.

      "EXIM  GUARANTEE"  is that  certain  Master  Guarantee  Agreement or other
agreement,  as amended  from time to time,  the terms of which are  incorporated
into this Agreement.

      "EXIM LOAN DOCUMENTS" means this Agreement,  any note or notes executed by
Borrower or any other agreement  entered into in connection with this Agreement,
pursuant  to which  Exim  Bank  guarantees  Borrower's  obligations  under  this
Agreement.

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      "EXISTING FACILITY" means that certain LOAN AND SECURITY AGREEMENT BETWEEN
BANK AND TEGAL  CORPORATION AND  _________________________  DATED AS OF JUNE 26,
2002 AND ANY NOTE OR NOTES EXECUTED BY TEGAL  CORPORATION OR ANY OTHER AGREEMENT
ENTERED INTO IN CONNECTION WITH SUCH LOAN AND SECURITY AGREEMENT.

      "EXPORT  ORDER" is a written  export order or contract for the purchase by
the buyer from the Borrower of any finished goods or services which are intended
for export.

      "FACILITY"  is an  extension  of  credit by Bank to  Borrower  in order to
finance receivables with an aggregate Account Balance not exceeding the Facility
Amount.

      "FACILITY AMOUNT" is $3,500,000 gross.

      "FACILITY  PERIOD" is the  period  beginning  on this date and  continuing
until January 16,2005 unless the period is terminated sooner by Bank with notice
to Borrower or by Borrower under Section 4.6.

      "FINANCE CHARGES" is defined in Section 4.2.

      "FINANCED RECEIVABLES" are all those accounts, receivables, chattel paper,
instruments, contract rights, documents, general intangibles, letters of credit,
drafts, bankers acceptances,  and rights to payment, and all proceeds, including
their  proceeds  (collectively  "receivables"),  which Bank finances and make an
Advance.  A Financed  Receivable stops being a Financed  Receivable (but remains
Collateral)  when the Advance made for the Financed  Receivable has been finally
paid.

      "FINANCED  RECEIVABLE  BALANCE" is the total  outstanding  amount,  at any
time, of all Financed Receivables and Exim Financed Receivables.

      "GAAP" means United States generally accepted accounting principals.

      "GOOD FAITH DEPOSIT" is defined in Section 4.9.

      "GUARANTOR" means any guarantor of the Obligations.

      "INELIGIBLE RECEIVABLE" is any accounts receivable:

      (A)   that is unpaid (90) calendar days after the invoice date; or

      (B)   that is owed by an Account  Debtor that has filed,  or has had filed
            against  it, any  bankruptcy  case,  assignment  for the  benefit of
            creditors,  receivership, or Insolvency Proceeding or who has become
            insolvent (as defined in the United States  Bankruptcy  Code) or who
            is generally not paying its debts as they become due; or

      (C)   for which there has been any breach of warranty or representation in
            Section 7 or any breach of any  covenant in this  Agreement;  or

      (D)   for  which the  Account  Debtor  asserts  any  discount,  allowance,
            return, dispute, counterclaim, offset, defense, right of recoupment,
            right of return, warranty claim, or short payment; or

      (E)   is not an Exim Eligible Foreign Account.

      "INSOLVENCY PROCEEDING" are proceedings by or against any person under the
United  States  Bankruptcy  Code, or any other  bankruptcy  or  insolvency  law,
including  assignments  for the benefit of creditors,  compositions,  extensions
generally  with  its   creditors,   or   proceedings   seeking   reorganization,
arrangement, or other relief.

      "INVOICE  TRANSMITTAL"  shows accounts  receivable  which Bank may finance
and, for each receivable,  includes the Account Debtor's, name, address, invoice
amount,  invoice date and invoice number and is signed by Borrower's  authorized
representative.

      "LOCKBOX" is described in Section 7.2.

      "OBLIGATIONS" are all advances,  liabilities,  obligations,  covenants and
duties  owing,  arising,  due or payable by  Borrower to Bank now or later under
this  Agreement  or  any  other  document,   instrument  or  agreement,  account
(including  those  acquired by  assignment)  primary or  secondary,  such as all
Advances,  Exim Advances,  Finance Charges,  Collateral Handling Fees, interest,
fees, expenses, professional fees and attorneys' fees or other.

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      "PRIME RATE" is Bank's most recently announced "prime rate," even if it is
not Bank's  lowest rate.  Notwithstanding  the  foregoing,  for purposes of this
Agreement, the Prime Rate shall not be less than 4.25%.

      "RECONCILIATION DAY" is the last calendar day of each month.

      "RECONCILIATION PERIOD" is each calendar month.

      "TANGIBLE  NET WORTH"  shall mean the  excess of total  assets  over total
liabilities, determined in accordance with GAAP, with the following adjustments:

      (A)   there shall be excluded from assets: (i) notes,  accounts receivable
            and other  obligations  owing to Borrower from its officers or other
            Affiliates,  and (ii)  all  assets  which  would  be  classified  as
            intangible assets under GAAP, including without limitation goodwill,
            licenses, patents, trademarks, trade names, copyrights,  capitalized
            software and organizational costs, licenses and franchises; and

      (B)   there  shall  be   excluded   from   liabilities   all  50%  of  all
            consideration  received  after the effective  date of this Agreement
            for equity securities and indebtedness  which is subordinated to the
            Obligations  under a  subordination  agreement in form  specified by
            Bank or by language in the instrument  evidencing  the  indebtedness
            which Bank agrees in writing is acceptable to Bank in its good faith
            business judgment.

      2.    FINANCING OF ACCOUNTS RECEIVABLE.

            2.1. REQUEST FOR ADVANCES.  During the Facility Period, Borrower may
            offer  accounts  receivable  to Bank if  there  is not an  Event  of
            Default.  Borrower will deliver an Invoice  Transmittal (in the form
            of Exhibit C) for each accounts  receivable it offers. Bank may rely
            on  information in or with the Invoice  Transmittal.  The Bank shall
            not make any Advances prior to Borrower transferring all of its cash
            in its primary  operating account at California Bank & Trust ("CBT")
            from CBT to Bank.

            2.2.  ACCEPTANCE  OF ACCOUNTS  RECEIVABLE.  Bank is not obligated to
            finance  any  accounts  receivable.  Bank may  approve  any  Account
            Debtor's credit before financing any receivable. When Bank accepts a
            receivable,  it will pay  Borrower  the Advance  Rate times the face
            amount  of  the  receivable  (the  "Advance").   Bank  may,  in  its
            discretion,  change the  percentage of the Advance  Rate.  When Bank
            makes an Advance,  the receivable  becomes a "Financed  Receivable."
            All  representations  and warranties in Section 7 must be true as of
            the date of the Invoice  Transmittal and of the Advance and no Event
            of Default  exists  would  occur as a result of the  Advance.  There
            shall  be  Advances  for no more  than 12  invoices  at any one time
            outstanding.  At no time shall the sum of all  outstanding  Advances
            plus Exim Advances exceed the Facility Amount.

      3.    EXIM ADVANCES; OVERADVANCES.

            3.1 EXIM ADVANCES SUBLIMIT.

                  (a)  During  the  Facility  Period,  Borrower  may offer  Exim
            Eligible  Foreign  Accounts  to Bank if  there  is not an  Event  of
            Default.  Borrower will deliver an Invoice Transmittal for each Exim
            Eligible Foreign Account it offers.  Bank may rely on information in
            or with the  Invoice  Transmittal.  The Bank shall not make any Exim
            Advances  prior  to  Borrower  transferring  all of its  cash in its
            primary operating account at CBT from CBT to Bank.

                  (b) Bank is not obligated to finance any Exim Eligible Foreign
            Accounts.  Bank may  approve  any  Account  Debtor's  credit  before
            financing  any  receivable.   When  Bank  accepts  a  receivable  in
            connection with an Exim Advance, the Bank will pay Borrower the Exim
            Advance  Rate  times the face  amount of the  receivable  (the "Exim
            Advance"). Bank may, in its discretion, change the percentage of the
            Exim Advance Rate.  When Bank makes an Exim Advance,  the receivable
            becomes  a  "Exim  Financed  Receivable."  All  representations  and
            warranties  in Section 7 must be true as of the date of the  Invoice
            Transmittal  and of the Advance and no Event of Default exists would
            occur as a result of the Advance.  There shall be Exim  Advances for
            no more  than 12  invoices  at any one time  outstanding.  The total
            amount of Exim Advances  outstanding  at any one time may not exceed
            $2,800,000.  The aggregate amount of outstanding Exim Advances shall
            reduce the  amount  otherwise  available  to be  borrowed  under the
            Facility Amount.

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                  (c) To obtain  an Exim  Advance,  Borrower  must  notify  Bank
            (which notice is  irrevocable)  by facsimile no later than 3:00 p.m.
            Pacific time 1 Business Day before the day on which the Exim Advance
            is to be made. The notice must be in the form of Exhibit C and shall
            be accompanied by any Export Orders.  The notice must be signed by a
            Responsible  Officer or designee.  In addition,  the Exim  Guarantee
            must be in full force and effect.

      3.2   OVERADVANCES.

                  If Borrower's Obligations under Section 2.1 and 3.1 exceed the
            Facility Amount, Borrower must immediately pay Bank the excess.

4. COLLECTIONS,  FINANCE CHARGES, REMITTANCES AND FEES. The Obligations shall be
subject to the following fees and Finance Charges. Fees and Finance Charges may,
in Bank's  discretion,  be  charged as an  Advance  or Exim  Advance,  and shall
thereafter  accrue fees and Finance Charges as described below. Bank may, in its
discretion,  charge  fee and  Finance  Charges  to  Borrower's  deposit  account
maintained with Bank.

      4.1. COLLECTIONS. Collections will be credited to the Financed Receivables
      Balance,  but if there is an Event of Default,  Bank may apply Collections
      to the Obligations in any order it chooses. If Bank receives a payment for
      both  a  Financed   Receivable  or  an  Exim  Financed  Receivable  and  a
      non-Financed receivable or a non-Exim Financed Receivable,  the funds will
      first  be  applied  to  the  Financed  Receivable  or  the  Exim  Financed
      Receivable,  as the case may be, and if there is not an Event of  Default,
      the excess  will be  remitted to the  Borrower,  subject to Section  4.10.
      Bank, in its sole and exclusive discretion,  may apply Collections towards
      the repayment of a Financed  Receivable or an Exim Financed  Receivable in
      any order and in any manner as it sees fit.

      4.2.  FINANCE  CHARGES.  In computing  Finance Charges on the Advances and
      Exim Advances, all Collections received by Bank shall be deemed applied by
      Bank on account of the  Advances and Exim  Advances 3 Business  Days after
      receipt  of the  Collections.  Borrower  will pay a  finance  charge  (the
      "Finance Charge"),  which is equal to the Applicable Rate times the number
      of days in the Reconciliation  Period times the outstanding  average daily
      Financed Receivable Balance for that Reconciliation Period. After an Event
      of Default,  Advances and Exim Advances accrue interest at 5 percent above
      the Applicable Rate effective immediately before the Event of Default.

      4.3. [THIS SECTION INTENTIONALLY LEFT BLANK.]

      4.4. [THIS SECTION INTENTIONALLY LEFT BLANK.]

      4.5.  COLLATERAL  HANDLING FEE. On each  Reconciliation Day, Borrower will
      pay to Bank a  collateral  handling  fee,  equal to 0.50% per month of the
      average  daily  Financed   Receivable   Balance   outstanding  during  the
      applicable   Reconciliation   Period.  After  an  Event  of  Default,  the
      Collateral  Handling  Fee will  increase  an  additional  0.50%  effective
      immediately before the Event of Default.

      4.6.  EARLY  TERMINATION  FEE.  A  fully  earned,   non-refundable   early
      termination  fee  equal to one  percent  (1%) of the  Financed  Receivable
      Balance (such amount to be  calculated on the date such early  termination
      fee  is  earned)  on the  date  such  early  termination  fee is due  upon
      voluntary or involuntary  full payment of the  Obligations and termination
      of this  Facility  prior  to  twelve  (12)  months  from  the date of this
      Agreement, unless the Obligations are paid in full from an initial advance
      from a loan agreement with Bank.

      4.7.  ACCOUNTING.  After each Reconciliation  Period, Bank will provide an
      accounting of the transactions for that Reconciliation  Period,  including
      the amount of all Financed  Receivables,  Exim Financed  Receivables,  all
      Collections, Adjustments, Finance Charges and the Collateral Handling Fee.
      If Borrower does not object to the accounting in writing within 30 days it
      is considered  correct.  All Finance  Charges and other  interest and fees
      calculated on the basis of a 360-day year and actual days elapsed.

      4.8.  DEDUCTIONS.  Bank may deduct fees, finance charges and other amounts
      due from any Advances made or Collections received by Bank.

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      4.9. GOOD FAITH DEPOSIT. Borrower has paid to Bank a Good Faith Deposit of
      $20,000 to initiate Bank's due diligence review process.

      4.10. ACCOUNT COLLECTION  SERVICES.  All Borrowers'  receivables are to be
      paid to the same address/or party and Borrower and Bank must agree on such
      address.  If Bank  collects all  receivables  and there is not an Event of
      Default or an event that with  notice or lapse of time will be an Event of
      Default,  within FIVE (5) days of receipt of those collections,  Bank will
      give Borrower,  the  receivables  collections it receives for  receivables
      other than Financed Receivables or Exim Financed Receivables and/or amount
      in excess of the  amount  for which  Bank has made an  Advance  or an Exim
      Advance to  Borrower,  less any amount  due to Bank,  such as the  Finance
      Charge,  Collateral  Handling Fee and expenses or otherwise.  This section
      does not impose any  affirmative  duty on Bank to do any act other than to
      turn over amounts.  All  receivables and collections are Collateral and if
      an Event of Default occurs,  Bank need not remit collections of Collateral
      and may apply them to the Obligations.

      4.11 EXIM  BANK  EXPENSES.  On the date this  Agreement  is  executed  and
      delivered,  Borrower will pay all Exim Bank Expenses  incurred through the
      date hereof.

5.    REPAYMENT OF CERTAIN OBLIGATIONS.

      5.1.  REPAYMENT  ON  MATURITY.  Borrower  will repay each Advance and Exim
      Advance on the earliest of: (a) payment of the Financed Receivable or Exim
      Financed Receivable in respect which the Advance or Exim Advance was made,
      (b)  the  Financed  Receivable  or Exim  Financed  Receivable  becomes  an
      Ineligible  Receivable,  (c) when any  Adjustment  is made to the Financed
      Receivable  or Exim  Financed  Receivable  (but only to the  extent of the
      Adjustment if the Financed  Receivable or Exim Financed  Receivable is not
      otherwise an  Ineligible  Receivable,  or (d) the last day of the Facility
      Period (including any early  termination).  Each payment will also include
      all accrued  Finance  Charges on the Advance or Exim Advance and all other
      amounts due hereunder.

      5.2.  REPAYMENT  ON EVENT OF  DEFAULT.  When there is an Event of Default,
      Borrower  will,  if Bank demands (or, in an Event of Default under Section
      10(B),  immediately  without  notice or demand from Bank) repay all of the
      Obligations. The demand may, at Bank's option, include the Advance or Exim
      Advance, as the case may be, for each Financed Receivable or Exim Financed
      Receivable then  outstanding and all accrued Finance  Charges,  Collateral
      Handling Fees,  attorneys and professional fees, court costs and expenses,
      and any other Obligations.

6. POWER OF ATTORNEY.  Borrower irrevocably appoints Bank and its successors and
assigns it attorney-in-fact and authorizes Bank, regardless of whether there has
been an Event of Default, to:

      (A)   sell, assign, transfer,  pledge, compromise, or discharge all or any
            part of the Financed Receivables or Exim Financed Receivables:

      (B)   demand,  collect,  sue, and give releases to any Account  Debtor for
            monies due and compromise,  prosecute,  or defend any action, claim,
            case or proceeding  about the Financed  Receivables or Exim Financed
            Receivables,  including  filing  a claim  or  voting  a claim in any
            bankruptcy case in Bank's or Borrower's name, as Bank chooses;

      (C)   prepare,  file  and  sign  Borrower's  name  on any  notice,  claim,
            assignment,  demand,  draft, or notice of or satisfaction of lien or
            mechanics' lien or similar document;

      (D)   notify all Account Debtors to pay Bank directly;

      (E)   receive, open, and dispose of mail addressed to Borrower;

      (F)   endorse Borrower's name on check or other instruments;

      (G)   execute on Borrower's behalf any instruments,  documents,  financing
            statements to perfect Bank's  interests in the Financed  Receivables
            and Collateral; and

      (H)   do all acts and things necessary or expedient.

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7.    REPRESENTATIONS, WARRANTIES AND COVENANTS.

      7.1. REPRESENTATIONS AND WARRANTIES.  Borrower represents and warrants for
each Financed Receivable and each Exim Financed Receivable:

      (A)   It is the owner with legal right to sell, transfer and assign it;

      (B)   The  correct  amount  is on  the  Invoice  Transmittal  and  is  not
            disputed;

      (C)   Payment is not  contingent on any  obligation or contract and it has
            fulfilled all its obligations as of the Invoice Transmittal date;

      (D)   It is based on an actual sale and delivery of goods and/or  services
            rendered, due to Borrower, it is not past due or in default, has not
            been previously sold, assigned,  transferred, or pledged and is free
            of any liens, security interests and encumbrances;

      (E)   There are no defenses,  offsets,  counterclaims  or  agreements  for
            which the Account Debtor may claim any deduction or discount;

      (F)   It reasonably  believes no Account Debtor is insolvent or subject to
            any Insolvency Proceedings;

      (G)   It has not filed or had filed against it Insolvency  Proceedings and
            does not anticipate any filing;

      (H)   Bank has the right to endorse  and/ or require  Borrower  to endorse
            all  payments  received on Financed  Receivables  and Exim  Financed
            Receivables and all proceeds of Collateral; and

      (I)   No  representation,  warranty or other  statement of Borrower in any
            certificate or written  statement  given to Bank contains any untrue
            statement  of a  material  fact or omits to  state a  material  fact
            necessary to make the  statement  contained in the  certificates  or
            statement not misleading.

      7.1.1 ADDITIONAL  REPRESENTATIONS AND WARRANTIES.  Borrower represents and
            warrants as follows:

      (A)   Borrower  is duly  existing  and in good  standing  in its  state of
            formation  and qualified and licensed to do business in, and in good
            standing  in, any state in which the conduct of its  business or its
            ownership of property requires that it be qualified.  The execution,
            delivery and performance of this Agreement has been duly authorized,
            and does not conflict with Borrower's  organizational documents, nor
            constitute an Event of Default under any material agreement by which
            Borrower is bound. Borrower is not in default under any agreement to
            which or by which it is bound.

      (B)   Borrower  has good  title to the  Collateral,  free and clear of all
            liens.  The Accounts in any report submitted to Bank, are bona fide,
            existing  obligations and the service or property has been performed
            or delivered  to the Account  Debtor or its agent  (subject  only to
            installation and warranty obligations arising in the ordinary course
            of Borrower's business), for immediate shipment to and unconditional
            acceptance  by the  Account  Debtor.  Borrower  has no notice of any
            actual or imminent Insolvency Proceeding of any Account Debtor.

      (C)   All  inventory  is in all material  respects of good and  marketable
            quality and free from material defects.

      (D)   Borrower is not an "investment company" or a company "controlled" by
            an "investment  company" under the Investment  Company Act. Borrower
            is not  engaged  as one of its  important  activities  in  extending
            credit for margin stock (under Regulations G, T and U of the Federal
            Reserve Board of Governors).  Borrower has complied with the Federal
            Fair  Labor  Standards  Act.  Borrower  has not  violated  any laws,
            ordinances  or rules.  None of  Borrower's  properties or assets has
            been  used by  Borrower,  to the best of  Borrower's  knowledge,  by
            previous persons, in disposing,  producing,  storing,  treating,  or
            transporting  any hazardous  substance other than legally.  Borrower
            has timely filed all required tax returns and paid, or made adequate
            provision  to pay, all taxes.  Borrower  has obtained all  consents,
            approvals and  authorizations  of, made all  declarations or filings
            with, and given all notices to, all government  authorities that are
            necessary to continue its business as currently conducted.

                                       37
<PAGE>

      (E)   Borrower  will use the  proceeds of the Exim  Advances  only for the
            purposes specified in the Borrower Agreement.  Borrower will not use
            the proceeds of the Exim Advances for any purpose  prohibited by the
            Borrower Agreement.

      7.2.  AFFIRMATIVE COVENANTS. Borrower will do all of the following:

      (A)   Maintain  its   corporate   existence   and  good  standing  in  its
            jurisdictions  of  incorporation  and maintain its  qualification in
            each jurisdiction necessary to Borrower's business or operations.

      (B)   Give Bank at least 10 days  prior  written  notice of changes to its
            name, organization, chief executive office or location of records.

      (C)   Pay all its taxes  including  gross payroll,  withholding  and sales
            taxes when due and will deliver satisfactory  evidence of payment if
            requested.

      (D)   Provide a written  report within 10 days, if payment of any Financed
            Receivable  or Exim  Financed  Receivable  does not occur by its due
            date and include the reasons for the delay.

      (E)   Give Bank  copies of all Forms 10-K,  10-Q and 8-K (or  equivalents)
            within 5 days of filing with the Securities and Exchange Commission,
            while  any  Financed  Receivable  or  Exim  Financed  Receivable  is
            outstanding.

      (F)   Execute  any further  instruments  and take  further  action as Bank
            requests  to perfect or  continue  Bank's  security  interest in the
            Collateral or to effect the purposes of this Agreement.

      (G)   Provide  Bank with a  Compliance  Certificate  no later than 30 days
            following  each  month  end  when  there  is  a  positive   Financed
            Receivable Balance or as requested by Bank.

      (H)   When there is a positive Financed Receivable  Balance,  provide Bank
            with, as soon as available, but no later than 30 days following each
            Reconciliation  Period,  a company prepared balance sheet and income
            statement,  prepared  under  GAAP,  consistently  applied,  covering
            Borrower's  operations  during  the  period  together  with  an aged
            listing of accounts  receivable  and accounts  payable  along with a
            deferred  revenue  report;  provided,  however,  that such  deferred
            revenue  report  shall be provided to Bank upon each Advance or Exim
            Advance if such Advances or Exim  Advances  occur more than once per
            month or if more than one Advance or Exim Advance is made per month.

      (I)   Immediately  notify,  transfer  and deliver to Bank all  collections
            Borrower   receives  for  Financed   Receivables  or  Exim  Financed
            Receivables.

      (J)   Borrower  will remit all  payment's  for Accounts to the Bank by the
            close of business on each Friday along with a detailed cash receipts
            journal  and  shall  immediately   notify  and  direct  all  of  the
            Borrower's  Account  Debtor's to make all payment's  for  Borrower's
            Accounts  to a  lockbox  account  established  with  a  third  party
            acceptable to Bank  ("Lockbox")  or to wire  transfer  payments to a
            cash collateral account that Bank controls. It will be considered an
            immediate  Event  of  Default  if  the  Lockbox  is not  set-up  and
            operational within 45 days from the date of this Agreement.

      (K)   Borrower will allow Bank to audit Borrower's  Collateral,  including
            but not limited to Borrower's  Accounts,  at Borrowers  expense,  no
            later than 90 days of the execution of this  Agreement and every six
            months  thereafter.  Provided,  however,  if an Event of Default has
            occurred,  Bank may audit Borrower's  Collateral,  including but not
            limited to Borrower's Accounts at Bank's sole discretion and without
            notification and authorization from Borrower.

      (L)   Provide Bank with, as soon as available,  but no later than 120 days
            after the last day of  Borrower's  fiscal  year,  either (i) audited
            consolidated financial statements prepared under GAAP,  consistently
            applied,  together  with an  unqualified  opinion  on the  financial
            statements  from an independent  certified  public  accounting  firm
            reasonably  acceptable to Bank or (ii) a copy of the Borrower's most
            recently filed United States income tax return.

      (M)   Provide Bank with inventory  reports  reasonably  requested by Bank.
            Each Exim Advance  shall be supported by Export Orders in connection
            with such advance.

                                       38
<PAGE>

      (N)   Borrower shall deliver all reports, certificates and other documents
            to Bank as provided in the Borrower  Agreement,  including,  without
            limitation,  copies of Export Orders and any other  information that
            Bank and Exim Bank may reasonably request.

      (O)   Borrower will keep all inventory in good and  marketable  condition,
            free from material  defects  except for inventory for which adequate
            reserves have been made in accordance with GAAP, which reserves have
            been,  and at all  times  will be  with  respect  to  Exim  Eligible
            Inventory.  Returns and allowances  between Borrower and its Account
            Debtors will follow Borrower's  customary practices as they exist at
            execution of this  Agreement.  Borrower must promptly notify Bank of
            all returns, recoveries, disputes and claims, that involve more than
            $100,000.00.

      (P)   If required by Bank,  Borrower will obtain, with respect to Accounts
            that are  otherwise  ineligible  under Exim  borrowing  criteria and
            where  Borrower has  requested or obtained an Advance,  and pay when
            due all premiums with respect to, and maintain uninterrupted foreign
            credit  insurance.  In addition,  Borrower  will execute in favor of
            Bank an assignment of proceeds of any insurance  policy  obtained by
            Borrower  and  issued by Exim Bank  insuring  against  comprehensive
            commercial  and  political  risk  (the  "EXIM  Bank  Policy").   The
            insurance  proceeds  from the EXIM Bank  Policy  assigned or paid to
            Bank  will  be  applied  to  the  balance   outstanding  under  this
            Agreement.  Borrower will  immediately  notify Bank and Exim Bank in
            writing  upon  submission  of any claim under the Exim Bank  Policy.
            Then  Bank  will  not  be  obligated  to  make  any  further  Credit
            Extensions  to  Borrower  based on Exim  Eligible  Foreign  Accounts
            without prior approval from Exim Bank.

      (Q)   Borrower  will comply with all terms of the Borrower  Agreement.  If
            any provision of the Borrower Agreement conflicts with any provision
            contained in this Agreement, the more strict provision, with respect
            to the Borrower,  will  control;  provided,  however,  any action or
            event that is  permitted  hereunder  shall be deemed to satisfy  any
            requirement for consent of Bank under the Borrower Agreement.

      (R)   Borrower will, if required by Exim Bank or Bank,  cause all sales of
            products  on which the Exim  Advances  are based to satisfy at least
            one of the  following:  (i) be supported by one or more  irrevocable
            letters of credit in an amount and of matter,  naming a  beneficiary
            and  issued  by a  financial  institution  acceptable  to  Bank  and
            negotiated by Bank,  (ii) be for any Account which  satisfies all of
            the requirements to constitute an Exim Eligible Foreign Account,  or
            (iii) where the Accounts from the Buyer exceed  twenty-five  percent
            (25%) of all Exim Eligible  Foreign  Accounts,  to be preapproved in
            writing, by Bank or Exim Bank.

      (S)   Borrower shall maintain a minimum Tangible Net Worth as follows:

            (i)   During the period  commencing on April 1, 2003 and  continuing
                  through June 30, 2003, $8,800,000;

            (ii)  During the period  commencing  on July 1, 2003 and  continuing
                  through September 31, 2003, $8,000,000;

            (iii) During the period commencing on October 1, 2003 and continuing
                  through December 31, 2003, $7,000,000; and

            (iv)  Commencing  on  January  1, 2004 and at all times  thereafter,
                  $6,500,000.

            Increases  in this  minimum  Tangible  Net Worth  covenant  based on
            consideration  received for equity  securities and subordinated debt
            of the  Borrower  shall be  effective  as of the end of the month in
            which such  consideration is received,  and shall continue effective
            thereafter.  Increases in this minimum  Tangible Net Worth  Covenant
            based on net income shall be effective on the last day of the fiscal
            quarter  in which said net income is  realized,  and shall  continue
            effective  thereafter.  In no event shall this minimum  Tangible Net
            Worth covenant be decreased.

7.3.  NEGATIVE  COVENANTS.  Borrower  will not do any of the  following  without
      Bank's prior written consent:

      (A)   Assign,  transfer,  sell or grant,  or permit  any lien or  security
            interest in the Collateral  except to Orin  Hirschman  ("Hirschman")
            with respect to Borrower's intellectual property.

      (B)   Convey,   sell,   lease,   transfer  or  otherwise  dispose  of  the
            Collateral.

                                       39
<PAGE>

      (C)   Create, incur, assume, or be liable for any indebtedness.

      (D)   Become  an  "investment  company"  or a  company  controlled  by  an
            "investment  company,"  under the Investment  Company Act of 1940 or
            undertake as one of its  important  activities  extending  credit to
            purchase or carry margin  stock,  or use the proceeds of any Advance
            for that purpose;  fail to meet the minimum funding  requirements of
            ERISA,  permit a  Reportable  Event or  Prohibited  Transaction,  as
            defined in ERISA,  to occur;  fail to comply with the  Federal  Fair
            Labor  Standards  Act or  violate  any other law or  regulation,  or
            permit any of its subsidiaries to do so.

      (E)   Violate  or  fail to  comply  with  any  provision  of the  Borrower
            Agreement or take an action,  or permit any action to be taken, that
            causes,  or could be expected to cause, the Exim Guarantee to not be
            in full force and effect.  Notwithstanding the introductory sentence
            to this  Section 7, at no time will Bank give or be required to give
            its consent to the actions set forth in this Section 7.3.

8.  ADJUSTMENTS.  If any Account Debtor asserts a discount,  allowance,  return,
offset,  defense,  warranty claim, or the like (an  "Adjustment") or if Borrower
breaches  any of the  representations,  warranties  or  covenants  set  forth in
Section  7,  Borrower  will  promptly  advise  Bank.  Borrower  will  resell any
rejected,  returned,  returned,  or recovered  personal  property  for Bank,  at
Borrower's expense,  and pay proceeds to Bank. While Borrower has returned goods
that are Borrower  property,  Borrower will segregate and mark them "property of
Silicon  Valley  Bank." Bank owns the  Financed  Receivables  and Exim  Financed
Receivables  and until receipt of payment,  has the right to take  possession of
any rejected, returned, or recovered personal property.

9. SECURITY INTEREST.  Borrower grants to Bank a continuing security interest in
all presently and later acquired  Collateral to secure all  Obligations  and the
performance of each of Borrower's duties  hereunder.  Any security interest will
be a first priority security interest in the Collateral;  provided, however that
Bank's security interest in Borrower's  intellectual  property shall be a second
priority  security  interest  solely  behind  Hirschman.   Notwithstanding   the
foregoing,  when the debt owed by Borrower to  Hirschman is converted to equity,
Bank's interest in Borrower's intellectual property will become a first priority
security interest.

10.   EVENTS  OF  DEFAULT.  Any one or  more of the  following  is an  Event  of
      Default.

      (A)   Borrower fails to pay any amount owed to Bank when due;

      (B)   Borrower files or has filed against it any Insolvency Proceedings or
            any  assignment  for the benefit of creditors,  or  appointment of a
            receiver or custodian for any of its assets;

      (C)   Borrower  becomes  insolvent or is generally not paying its debts as
            they become due or is left with unreasonably small capital;

      (D)   Any  involuntary  lien,  garnishment,  attachment  attaches  to  the
            Financed Receivables, Exim Financed Receivables or any Collateral;

      (E)   Borrower   breaches   any   covenant,   agreement,    warranty,   or
            representation is an immediate Event of Default;

      (F)   Borrower is in default under any  document,  instrument or agreement
            evidencing  any debt,  obligation  or liability in favor of Bank its
            affiliates or vendors regardless of whether the debt,  obligation or
            liability is direct or indirect,  primary or secondary,  or fixed or
            contingent;

      (G)   An event of default occurs under any guaranty of the  Obligations or
            any material  provision of any Guaranty is not valid or  enforceable
            or a guaranty is repudiated or terminated;

      (H)   A material  default or Event of Default  occurs under any  agreement
            between  Borrower  and  any  creditor  of  Borrower  that  signed  a
            subordination agreement with Bank;

      (I)   Any creditor  that has signed a  subordination  agreement  with Bank
            breaches any terms of the subordination agreement; or

                                       40
<PAGE>

      (J)   (i) A material  impairment  in the  perfection  or  priority  of the
            Bank's security interest in the Collateral;  (ii) a material adverse
            change in the  business,  operations,  or  conditions  (financial or
            otherwise) of the Borrower occurs; or (iii) a material impairment of
            the prospect of repayment of any portion of the Advances occurs; or

      (K)   If the Exim Guarantee  ceases for any reason to be in full force and
            effect,  or if the Exim Bank  declares  the Exim  Guarantee  void or
            revokes any obligations under the Exim Guarantee.

11.   REMEDIES.

      11.1. REMEDIES UPON DEFAULT. When an Event of Default occurs, (1) Bank may
      stop financing receivables or extending credit to Borrower;  (2) at Bank's
      option and on demand,  all or a portion of the  Obligations  or, for to an
      Event of Default  described in Section  10(B),  automatically  and without
      demand,  are due and payable in full; (3) apply to the Obligations any (i)
      balances  and  deposits of  Borrower it holds,  or (ii) any amount held by
      Bank owing to or for the credit or the account of  Borrower;  and (4) Bank
      may  exercise all rights and remedies  under this  Agreement  and the law,
      including  those of a secured  party  under the  Code,  power of  attorney
      rights in Section 6 for the Collateral,  and the right to collect, dispose
      of, sell,  lease,  use, and realize  upon all Financed  Receivables,  Exim
      Financed  Receivables  and Collateral in any commercial  manner.  Borrower
      agrees that any notice of sale  required to be given to Borrower is deemed
      given if at least five days before the sale may be held.

      11.2.  DEMAND  WAIVER.  Borrower  waives  demand,  notice  of  default  or
      dishonor,  notice  of  payment  and  nonpayment,  notice  of any  default,
      nonpayment at maturity,  release,  compromise,  settlement,  extension, or
      renewal of accounts, documents, instruments, chattel paper, and guaranties
      held by Bank on which Borrower is liable.

      11.3.  DEFAULT  RATE. If any amount is not paid when due, the amount bears
      interest at the Applicable Rate plus five percent until the earlier of (a)
      payment in good funds or (b) entry of a final  judgment when the principal
      amount of any money  judgment  will accrue  interest  at the highest  rate
      allowed by law.

      11.4 EXIM  DIRECTION;  NOTIFICATION.  Upon the  occurrence  and during the
      continuance  of an Event of  Default,  Exim Bank  shall  have right to (i)
      direct Bank to exercise  the  remedies  specified  in Section 9.1 and (ii)
      request that Bank  accelerate the maturity of any other loans to Borrower.
      Bank has the right to  immediately  notify  Exim Bank in writing if it has
      knowledge  of any of the  following  events:  (1) any  failure  to pay any
      amount due under this  Agreement;  (2) the Borrowing Base is less than the
      sum of the outstanding Credit Extensions;  (3) any failure to pay when due
      any amount  payable to Bank under any loan owing by Borrower to Bank;  (4)
      the filing of an action for  debtor's  relief by,  against or on behalf of
      Borrower;  (5) any  threatened  or  pending  material  litigation  against
      Borrower,  or any dispute  involving  Borrower.  If Bank sends a notice to
      Exim  Bank,  Bank has the right to send Exim Bank a written  report on the
      status of events covered by the notice every 30 days after the date of the
      original  notification,  until  Bank  files a claim  with Exim Bank or the
      defaults have been cured (but no Advances may be required  during the cure
      period unless Exim Bank gives its written  approval).  If directed by Exim
      Bank,  Bank will have the right to exercise any rights it may have against
      the Borrower to demand the immediate  repayment of all amount outstandings
      under the Exim Loan Documents.

12. FEES,  COSTS AND EXPENSES.  The Borrower will pay on demand all fees,  costs
and  expenses  (including  attorneys'  and  professionals  fees  with  costs and
expenses) that Bank incurs from: (a) preparing, negotiating,  administering, and
enforcing this Agreement or related agreement, including any amendments, waivers
or consents, (b) any litigation or dispute relating to the Financed Receivables,
the Exim  Financed  Receivables,  the  Collateral,  this  Agreement or any other
agreement,  (c) enforcing any rights against  Borrower or any guarantor,  or any
Account  Debtor,  (d)  protecting  or  enforcing  its  interest in the  Financed
Receivables,  Exim Financed Receivables or other Collateral,  (e) collecting the
Financed Receivables, Exim Financed Receivables and the Obligations, and (f) any
bankruptcy  case or  insolvency  proceeding  involving  Borrower,  any  Financed
Receivable, any Exim Financed Receivable, the Collateral, any Account Debtor, or
any Guarantor.

13.  CHOICE OF LAW,  VENUE AND JURY TRIAL  WAIVER.  California  law governs this
Agreement.  Borrower and Bank each submit to the exclusive  jurisdiction  of the
State and Federal courts in Santa Clara County, California.

                                       41
<PAGE>

BORROWER  AND BANK EACH WAIVE  THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION  ARISING  OUT OF OR BASED  UPON  THIS  AGREEMENT  OR ANY  CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL  INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS  AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

14. NOTICES.  Notices or demands by either party about this Agreement must be in
writing and personally  delivered or sent by an overnight  delivery service,  by
certified  mail  postage  prepaid  return  receipt  requested,  or by FAX to the
addresses  listed at the beginning of this Agreement.  A party may change notice
address by written notice to the other party.

15.   GENERAL PROVISIONS.

      15.1.  SUCCESSORS AND ASSIGNS. This Agreement binds and is for the benefit
      of successors and permitted assigns of each party. Borrower may not assign
      this Agreement or any rights under it without Bank's prior written consent
      which may be granted or withheld in Bank's  discretion.  Bank may, without
      the  consent  of  or  notice  to  Borrower,   sell,  transfer,   or  grant
      participation in any part of Bank's obligations,  rights or benefits under
      this Agreement.

      15.2.  INDEMNIFICATION.  Borrower will indemnify, defend and hold harmless
      Bank and its officers,  employees,  and agents against:  (a)  obligations,
      demands, claims, and liabilities asserted by any other party in connection
      with the  transactions  contemplated by this Agreement;  and (b) losses or
      expenses  incurred,  or paid by Bank from or consequential to transactions
      between  Bank  and  Borrower  (including  reasonable  attorneys  fees  and
      expenses),  except for losses caused by Bank's gross negligence or willful
      misconduct.

      15.3.  TIME OF  ESSENCE.  Time is of the essence  for  performance  of all
      obligations in this Agreement.

      15.4.  SEVERABILITY  OF  PROVISION.  Each  provision of this  Agreement is
      severable from every other provision in determining the  enforceability of
      any provision.

      15.5. AMENDMENTS IN WRITING, INTEGRATION. All amendments to this Agreement
      must be in writing.  This  Agreement  is the entire  agreement  about this
      subject matter and supersedes prior negotiations or agreements.

      15.6.  COUNTERPARTS.  This  Agreement  may be  executed  in any  number of
      counterparts  and by different  parties on separate  counterparts and when
      executed and delivered are one Agreement.

      15.7. SURVIVAL. All covenants, representations and warranties made in this
      Agreement  continue in force while any Financed  Receivable amount remains
      outstanding.  Borrower's  indemnification  obligations  survive  until all
      statutes of limitations  for actions that may be brought against Bank have
      run.

      15.8.  CONFIDENTIALITY.  Bank will use the same  degree  of care  handling
      Borrower's confidential  information that it uses for its own confidential
      information,  but may disclose  information;  (i) to its  subsidiaries  or
      affiliates  in  connection  with their  business  with  Borrower,  (ii) to
      prospective  transferees  or purchasers of any interest in the  Agreement,
      (iii) as required by law,  regulation,  subpoena,  or other order, (iv) as
      required  in  connection  with  an  examination  or  audit  and  (v) as it
      considers  appropriate  exercising  the  remedies  under  this  Agreement.
      Confidential  information does not include information that is either: (a)
      in the public domain or in Bank's  possession when  disclosed,  or becomes
      part of the public  domain after  disclosure  to Bank; or (b) disclosed to
      Bank by a third  party,  if Bank  does not know  that the  third  party is
      prohibited from disclosing the information.

      15.9.  OTHER  AGREEMENTS.  This  Agreement may not adversely  affect Banks
      rights  under any other  document  or  agreement.  If there is a  conflict
      between this Agreement and any agreement  between  Borrower and Bank, Bank
      may determine in its sole  discretion  which provision  applies.  Borrower
      acknowledges that any security agreements, liens and/or security interests
      securing  payment  of  Borrower's   Obligations  also  secure   Borrower's
      Obligations  under this  Agreement and are not adversely  affected by this
      Agreement.  Additionally,  (a) any  Collateral  under other  agreements or
      documents  between Borrower and Bank secures  Borrowers  Obligations under
      this  Agreement  and (b) a default by Borrower  under this  Agreement is a
      default under agreements between Borrower and Bank.

                                       42
<PAGE>

      15.10. EXISTING CREDIT LINE. The Borrower agrees that it shall not be able
      to borrow any  amounts  under its  Existing  Facility  with Bank as of the
      Effective  Date  of  this   Agreement.   Borrower  also  agrees  that  all
      outstanding  obligations under the Existing Facility shall be paid in full
      in cash on or prior to the date this Agreement becomes effective.

BORROWER:   TEGAL CORPORATION

By     /s/ Thomas R. Mika
       ----------------------------------
Title  Executive Vice President & CFO

BORROWER:   TEGAL JAPAN, INC.

By     /s/ James McKibben
       ----------------------------------
Title  President - Tegal Japan Inc.

BANK: SILICON VALLEY BANK

By     /s/ R. Michael White
       ----------------------------------
Title  Market Manager

Effective Date:     January 16, 2003

                                       43

<PAGE>

                                   SIGNATURES

      Pursuant to the  requirements of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                         TEGAL CORPORATION
                                             (Registrant)

                                         /s/ THOMAS R. MIKA
                                         ------------------
                                         Thomas R. Mika
                                         Chief Financial Officer

Dated: February 12, 2004

                                       44Exhibit 10.1

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

                         COMMON STOCK PURCHASE AGREEMENT

                                 by and between

                           KINGSBRIDGE CAPITAL LIMITED

                                       and

                                TEGAL CORPORATION

                          dated as of February 11, 2004

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

<PAGE>

                                Table of Contents

<TABLE>
<CAPTION>
                                                                                                      Page

<S>                                                                                                    <C>
ARTICLE I  DEFINITIONS..................................................................................2

         Section 1.01.     "Blackout Shares"............................................................2

         Section 1.02.     "Certificate"................................................................2

         Section 1.03.     "Closing Date"...............................................................2

         Section 1.04.     "Commission".................................................................2

         Section 1.05.     "Commission Documents".......................................................2

         Section 1.06.     "Commitment Period"..........................................................2

         Section 1.07.     "Common Stock"...............................................................2

         Section 1.08.     "Condition Satisfaction Date"................................................2

         Section 1.09.     "Damages"....................................................................2

         Section 1.10.     "Draw Down"..................................................................2

         Section 1.11.     "Draw Down Amount"...........................................................2

         Section 1.12.     "Draw Down Notice"...........................................................2

         Section 1.13.     "Draw Down Price"............................................................2

         Section 1.14.     "Draw Down Pricing Period"...................................................2

         Section 1.15.     "DTC"........................................................................3

         Section 1.16.     "Effective Date".............................................................3

         Section 1.17.     "Exchange Act"...............................................................3

         Section 1.18.     "Knowledge"..................................................................3

         Section 1.19.     "Legend".....................................................................3

         Section 1.20.     "Make Whole Amount"..........................................................3

         Section 1.21.     "Material Adverse Effect"....................................................3

         Section 1.22.     "Maximum Commitment Amount"..................................................3

         Section 1.23.     "Maximum Draw Down Amount"...................................................3

         Section 1.24.     "NASD".......................................................................3

         Section 1.25.     "Other Financing"............................................................3

         Section 1.26.     "Permitted Transaction"......................................................3

         Section 1.27.     "Person".....................................................................3

         Section 1.28.     "Principal Market"...........................................................4

         Section 1.29.     "Prohibited Transaction".....................................................4

         Section 1.30.     "Prospectus".................................................................4

         Section 1.31.     "Registrable Securities".....................................................4

         Section 1.32.     "Registration Rights Agreement"..............................................4
</TABLE>

                                       i
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<TABLE>
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         Section 1.33.     "Registration Statement".....................................................4

         Section 1.34.     "Regulation D"...............................................................4

         Section 1.35.     "Section 4(2)"...............................................................4

         Section 1.36.     "Securities Act".............................................................4

         Section 1.37.     "Settlement Date"............................................................4

         Section 1.38.     "Shares".....................................................................4

         Section 1.39.     "Threshold Price"............................................................4

         Section 1.40.     "Trading Day"................................................................5

         Section 1.41.     "Underwriter"................................................................5

         Section 1.42.     "VWAP".......................................................................5

         Section 1.43.     "Warrant"....................................................................5

         Section 1.44.     "Warrant Shares".............................................................5

ARTICLE II            PURCHASE AND SALE OF COMMON STOCK.................................................5

         Section 2.01.     Purchase and Sale of Stock...................................................5

         Section 2.02.     Closing......................................................................5

         Section 2.03.     Registration Statement and Prospectus........................................5

         Section 2.04.     Warrant......................................................................5

         Section 2.05.     Blackout Shares..............................................................5

ARTICLE III           DRAW DOWN TERMS...................................................................6

         Section 3.01.     Draw Down Notice.............................................................6

         Section 3.02.     Number of Shares.............................................................6

         Section 3.03.     Limitation on Draw Downs.....................................................6

         Section 3.04.     Trading Cushion..............................................................6

         Section 3.05.     Expiration of Draw Downs.....................................................6

         Section 3.06.     Settlement...................................................................6

         Section 3.07.     Delivery of Shares; Payment of Draw Down Amount..............................6

         Section 3.08.     Threshold Price..............................................................7

         Section 3.09.     Other Issuances..............................................................7

         Section 3.10.     Failure to Deliver Shares....................................................7

ARTICLE IV            REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................................8

         Section 4.01.     Organization, Good Standing and Power........................................8

         Section 4.02.     Authorization; Enforcement...................................................8
</TABLE>

                                       ii
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                                  (Continued)

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<CAPTION>
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<S>                                                                                                    <C>
         Section 4.03.     Capitalization...............................................................8

         Section 4.04.     Issuance of Shares...........................................................9

         Section 4.05.     No Conflicts.................................................................9

         Section 4.06.     Commission Documents, Financial Statements..................................10

         Section 4.07.     No Material Adverse Change..................................................10

         Section 4.08.     No Undisclosed Liabilities..................................................10

         Section 4.09.     No Undisclosed Events or Circumstances......................................10

         Section 4.10.     Actions Pending.............................................................11

         Section 4.11.     Compliance with Law.........................................................11

         Section 4.12.     Certain Fees................................................................11

         Section 4.13.     Disclosure..................................................................11

         Section 4.14.     Material Non-Public Information.............................................11

         Section 4.15.     Exemption from Registration; Valid Issuances................................11

         Section 4.16.     No General Solicitation or Advertising in Regard to this Transaction........12

         Section 4.17.     No Integrated Offering......................................................12

         Section 4.18.     Acknowledgment Regarding Investor's Purchase of Shares......................12

ARTICLE V             REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR........................12

         Section 5.01.     Organization and Standing of the Investor...................................12

         Section 5.02.     Authorization and Power.....................................................12

         Section 5.03.     No Conflicts................................................................13

         Section 5.05.     Information.................................................................13

         Section 5.06.     Selling Restrictions........................................................13

ARTICLE VI            COVENANTS OF THE COMPANY.........................................................14

         Section 6.01.     Securities..................................................................14

         Section 6.02.     Reservation of Common Stock.................................................14

         Section 6.03.     Registration and Listing....................................................14

         Section 6.04.     Registration Statement......................................................14

         Section 6.05.     Compliance with Laws........................................................14

         Section 6.06.     Reporting Requirements......................................................15

         Section 6.07.     Other Financing.............................................................15

         Section 6.08.     Prohibited Transactions.....................................................15
</TABLE>

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                                  (Continued)

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         Section 6.09.     Corporate Existence.........................................................15

         Section 6.10.     Non-Disclosure of Non-Public Information....................................16

         Section 6.11.     Notice of Certain Events Affecting Registration; Suspension of Right to
                           Request a Draw Down.........................................................16

         Section 6.12.     Amendments to the Registration Statement....................................16

         Section 6.13.     Prospectus Delivery.........................................................16

         Section 6.14.     Expectations Regarding Draw Downs...........................................16

ARTICLE VII           CONDITIONS TO THE OBLIGATION OF THE INVESTOR TO ACCEPT A DRAW DOWN...............17

         Section 7.01.     Accuracy of the Company's Representations and Warranties....................17

         Section 7.02.     Performance by the Company..................................................17

         Section 7.03.     Compliance with Law.........................................................17

         Section 7.04.     Effective Registration Statement............................................17

         Section 7.05.     No Knowledge................................................................17

         Section 7.06.     No Suspension...............................................................17

         Section 7.07.     No Injunction...............................................................17

         Section 7.08.     No Proceedings or Litigation................................................18

         Section 7.09.     Section 16 Limitation.......................................................18

         Section 7.10.     Sufficient Shares Registered for Resale.....................................18

         Section 7.11.     Warrant.....................................................................18

         Section 7.12.     Opinion of Counsel..........................................................18

CONDITIONS TO THE OBLIGATIONS OF THE COMPANY TO SELL, ISSUE AND DELIVER THE SHARES TO THE INVESTOR.....18

         Section 8.01.     Accuracy of the Investor's Representations and Warranties...................18

         Section 8.02.     Performance by the Investor.................................................19

         Section 8.03.     Compliance with Law.........................................................19

         Section 8.04.     Effective Registration Statement............................................19

         Section 8.05.     No Knowledge................................................................19

         Section 8.06.     No Suspension...............................................................19

         Section 8.07.     No Injunction...............................................................19

         Section 8.08.     No Proceedings or Litigation................................................19

ARTICLE IX            LEGENDS..........................................................................19

         Section 9.01.     Legends.....................................................................19
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         Section 9.02.     No Other Legend or Stock Transfer Restrictions..............................21

ARTICLE X             TERMINATION......................................................................21

         Section 10.01.    Term........................................................................21

         Section 10.02.    Other Termination...........................................................21

         Section 10.03.    Effect of Termination.......................................................22

ARTICLE XI            INDEMNIFICATION..................................................................22

         Section 11.01.    Indemnification.............................................................22

         Section 11.02.    Notification of Claims for Indemnification..................................23

         Section 11.03.    Dispute Resolution..........................................................24

ARTICLE XII           MISCELLANEOUS....................................................................25

         Section 12.01.    Fees and Expenses...........................................................25

         Section 12.02.    Reporting Entity for the Common Stock.......................................25

         Section 12.03.    Brokerage...................................................................26

         Section 12.04.    Notices.....................................................................26

         Section 12.05.    Assignment..................................................................27

         Section 12.06.    Amendment; No Waiver........................................................27

         Section 12.07.    Entire Agreement............................................................27

         Section 12.08.    Severability................................................................27

         Section 12.09.    Title and Subtitles.........................................................27

         Section 12.10.    Counterparts................................................................27

         Section 12.11.    Choice of Law...............................................................28

         Section 12.12.    Specific Enforcement, Consent to Jurisdiction...............................28

         Section 12.13.    Survival....................................................................28

         Section 12.14.    Publicity...................................................................28

         Section 12.15.    Further Assurances..........................................................28
</TABLE>

                                       v
<PAGE>

                         COMMON STOCK PURCHASE AGREEMENT

                                 by and between

                           KINGSBRIDGE CAPITAL LIMITED

                                       and

                                TEGAL CORPORATION

                          dated as of February 11, 2004

         This COMMON STOCK PURCHASE AGREEMENT is entered into as of the 11th day
of  February,  2004  (this  "Agreement"),  by and  between  Kingsbridge  Capital
Limited,  a company  organized and existing under the laws of the British Virgin
Islands (the  "Investor")  and TEGAL  CORPORATION,  a corporation  organized and
existing under the laws of the State of Delaware (the "Company").

                  WHEREAS,  the parties desire that,  upon the terms and subject
to the  conditions  set  forth  herein,  the  Company  may issue and sell to the
Investor,  from time to time as provided herein, and the Investor shall purchase
from the Company,  Common Stock (as defined below) for an aggregate of up to $25
million; and

                  WHEREAS,  such  investments  will be made in reliance upon the
provisions of Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of
the  United  States  Securities  Act of  1933,  as  amended  and the  rules  and
regulations  promulgated  thereunder (the  "Securities  Act"),  and/or upon such
other exemption from the registration  requirements of the Securities Act as may
be available with respect to any or all of the investments in Common Stock to be
made hereunder; and

                  WHEREAS,  the parties hereto are concurrently  entering into a
Registration Rights Agreement in the form of Exhibit A hereto (the "Registration
Rights Agreement") pursuant to which the Company shall register the Common Stock
issued and sold to the Investor  under this  Agreement and under the Warrant (as
defined below),  upon the terms and subject to the conditions set forth therein;
and

                  WHEREAS,  in  consideration  for the Investor's  execution and
delivery of, and its performance of its obligations  under, this Agreement,  the
Company is concurrently issuing to the Investor a Warrant in the form of Exhibit
B hereto (the  "Warrant")  pursuant to which the Investor may purchase  from the
Company up to 300,000 shares of Common Stock,  upon the terms and subject to the
conditions set forth therein;

         NOW, THEREFORE, the parties hereto agree as follows:

<PAGE>

                                   ARTICLE I

                                   DEFINITIONS

         Section 1.01. "Blackout Shares" shall have the meaning assigned to such
term in the Registration Rights Agreement.

         Section  1.02.  "Certificate"  shall have the meaning  assigned to such
term in Section 4.03 hereof.

         Section 1.03.  "Closing Date" means the date on which this Agreement is
executed and delivered by the Company and the Investor.

         Section 1.04.  "Commission" means the United States Securities Exchange
Commission.

         Section 1.05. "Commission Documents" shall have the meaning assigned to
such term in Section 4.06 hereof.

         Section 1.06.  "Commitment  Period" means the period  commencing on the
Effective  Date and  expiring on the  earliest to occur of (x) the date on which
the Investor  shall have  purchased  Shares  pursuant to this  Agreement  for an
aggregate  purchase price equal to the Maximum  Commitment  Amount, (y) the date
this  Agreement is  terminated  pursuant to Article IX hereof,  and (z) the date
occurring 24 months from the Effective Date.

         Section  1.07.  "Common  Stock"  means the common stock of the Company,
$0.01 par value per share.

         Section  1.08.  "Condition  Satisfaction  Date"  shall have the meaning
assigned to such term in Article VII hereof.

         Section 1.09. "Damages" means any loss, claim, damage, liability, costs
and expenses  (including,  without  limitation,  reasonable  attorneys' fees and
expenses   and  costs  and   reasonable   expenses  of  expert   witnesses   and
investigation).

         Section 1.10.  "Draw Down" shall have the meaning assigned to such term
in Section 3.01 hereof.

         Section 1.11. "Draw Down Amount" means the actual amount of a Draw Down
paid to the Company.

         Section  1.12.  "Draw Down Notice"  shall have the meaning  assigned to
such term in Section 3.01 hereof.

         Section  1.13.  "Draw Down Price"  means 90% of the VWAP on any Trading
Day  during  the Draw Down  Pricing  Period  when the VWAP  equals to or exceeds
$1.50.

         Section 1.14.  "Draw Down Pricing  Period" shall mean,  with respect to
each Draw Down, a period of fifteen (15)  consecutive  Trading Days beginning on
the first Trading Day specified in a Draw Down Notice.

                                       2
<PAGE>

         Section 1.15.  "DTC" means the  Depository  Trust  Corporation,  or any
successor thereto.

         Section 1.16.  "Effective Date" means the first Trading Day immediately
following the date on which the Registration  Statement is declared effective by
the Commission.

         Section 1.17.  "Exchange Act" means the U.S. Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.

         Section  1.18.  "Knowledge"  means the  actual  knowledge  of the Chief
Executive  Officer,  Chief Financial  Officer or any Executive Vice President or
Vice President of the Company.

         Section 1.19. "Legend" shall have the meaning specified in Section 8.1.

         Section 1.20.  "Make Whole Amount" shall have the meaning  specified in
Section 3.10.

         Section  1.21.  "Material  Adverse  Effect"  means  any  effect  on the
business,  operations,  properties or financial condition of the Company and its
consolidated  subsidiaries  that is material and adverse to the Company and such
subsidiaries, taken as a whole, and/or any condition, circumstance, or situation
that would  prohibit or otherwise  interfere  with the ability of the Company to
perform any of its obligations  under this Agreement,  the  Registration  Rights
Agreement or the Warrant in any  material  respect;  provided,  that none of the
following  shall  constitute  a "Material  Adverse  Effect":  (i) the effects of
conditions  or events that are generally  applicable to the capital,  financial,
banking or currency  markets and (ii) any changes or effects  resulting from the
announcement or consummation of the transactions contemplated by this Agreement,
including,  without  limitation,  any  changes  or effects  associated  with any
particular Draw Down.

         Section  1.22.   "Maximum  Commitment  Amount"  means  $25  million  in
aggregate  Draw Down  Amounts;  provided,  however,  that in no event  shall the
Investor be obligated to purchase,  nor shall the Company issue and sell, Common
Stock in the aggregate under this Agreement representing twenty percent (20%) or
more of the voting power in the Company outstanding on the date hereof.

         Section  1.23.  "Maximum  Draw Down Amount" means 4.5% of the Company's
Market  Capitalization (as defined and calculated in accordance with Annex A) at
the time of the Draw Down; provided,  however, that such amount shall not exceed
$7.5 million in respect of any Draw Down.

         Section  1.24.  "NASD" means the  National  Association  of  Securities
Dealers, Inc.

         Section 1.25. "Other Financing" shall have the meaning assigned to such
term in Section 6.07 hereof.

         Section 1.26.  "Permitted  Transaction" shall have the meaning assigned
to such term in Section 6.07 hereof.

         Section 1.27. "Person" means any individual, corporation,  partnership,
limited liability company,  association,  trust or other entity or organization,
including   any   government   or   political   subdivision   or  an  agency  or
instrumentality thereof.

                                       3
<PAGE>

         Section 1.28.  "Principal Market" means the Nasdaq National Market, the
Nasdaq  SmallCap  Market,  the  American  Stock  Exchange  or the New York Stock
Exchange,  whichever is at the time the principal trading exchange or market for
the Common Stock.

         Section 1.29. "Prohibited  Transaction" shall have the meaning assigned
to such term in Section 6.08 hereof.

         Section  1.30.  "Prospectus"  as  used  in  this  Agreement  means  the
prospectus in the form included in the Registration  Statement,  as supplemented
from time to time pursuant to Rule 424(b) of the Securities Act.

         Section 1.31.  "Registrable  Securities" means (i) the Shares, (ii) the
Warrant Shares,  and (iii) any securities issued or issuable with respect to any
of the  foregoing  by way of  exchange,  stock  dividend  or  stock  split or in
connection with a combination of shares, recapitalization, merger, consolidation
or  other  reorganization  or  otherwise.   As  to  any  particular  Registrable
Securities, once issued such securities shall cease to be Registrable Securities
when (w) the Registration  Statement has been declared  effective by the SEC and
such  Registrable  Securities have been disposed of pursuant to the Registration
Statement,  (x) such Registrable  Securities have been sold under  circumstances
under  which  all of the  applicable  conditions  of Rule  144  (or any  similar
provision then in force) under the Securities Act ("Rule 144") are met, (y) such
time as such Registrable  Securities have been otherwise  transferred to holders
who may trade such shares without  restriction under the Securities Act, and the
Company has delivered a new  certificate or other evidence of ownership for such
securities not bearing a restrictive  legend or (z) in the opinion of counsel to
the Company such  Registrable  Securities may be sold without  registration  and
without any time, volume or manner  limitations  pursuant to Rule 144(k) (or any
similar provision then in effect) under the Securities Act.

         Section 1.32.  "Registration  Rights  Agreement" shall have the meaning
set forth in the recitals of this Agreement.

         Section 1.33.  "Registration Statement" shall have the meaning assigned
to such term in the Registration Rights Agreement.

         Section  1.34.  "Regulation  D" shall have the meaning set forth in the
recitals of this Agreement.

         Section  1.35.  "Section  4(2)" shall have the meaning set forth in the
recitals of this Agreement.

         Section 1.36.  "Securities Act" shall have the meaning set forth in the
recitals of this Agreement..

         Section 1.37. "Settlement Date" shall have the meaning assigned to such
term in Section 3.06 hereof.

         Section 1.38.  "Shares" means the shares of Common Stock of the Company
that are and/or may be purchased hereunder.

         Section 1.39.  "Threshold Price" means the lowest "Draw Down Price" (as
specified  in a Draw Down Notice) at which the Company will agree to sell Shares
during the applicable  Draw Down Pricing  Period,  which price shall not be less
than $1.50 per share.

                                       4
<PAGE>

         Section  1.40.  "Trading  Day" means any day other than a Saturday or a
Sunday on which the Principal Market is open for trading in equity securities.

         Section 1.41. "Underwriter" shall mean any underwriter participating in
any disposition of the Registrable Securities on behalf of the Investor pursuant
to the Registration Statement.

         Section 1.42. "VWAP" means the daily volume weighted average price (the
aggregate  sales price of all trades of Common  Stock  during  each  Trading Day
divided by the total number of shares of Common Stock traded during such Trading
Day) of the Common Stock during any Trading Day as reported by  Bloomberg,  L.P.
using the AQR function.

         Section  1.43.  "Warrant"  shall  have  the  meaning  set  forth in the
recitals of this Agreement.

         Section  1.44.  "Warrant  Shares"  means the  shares  of  Common  Stock
issuable to the Investor upon exercise of the Warrant.

                                   ARTICLE II

                        PURCHASE AND SALE OF COMMON STOCK

         Section 2.01. Purchase and Sale of Stock. Upon the terms and subject to
the conditions set forth in this Agreement,  the Company shall issue and sell to
the Investor and the Investor  shall  purchase from the Company Common Stock for
an  aggregate  (in Draw Down  Amounts) of up to the Maximum  Commitment  Amount,
consisting  of  purchases  based on Draw Downs in  accordance  with  Article III
hereof.

         Section 2.02. Closing. In consideration of and in express reliance upon
the  representations,  warranties,  covenants,  terms  and  conditions  of  this
Agreement,  the  Company  agrees  to  issue  and sell to the  Investor,  and the
Investor  agrees to purchase  from the Company,  that number of the Shares to be
issued in  connection  with each Draw Down.  The  closing of the  execution  and
delivery of this  Agreement (the  "Closing")  shall take place at the offices of
Clifford Chance US LLP, 200 Park Avenue,  New York, NY 10166 at 11:00 a.m. local
time on February  11,  2004,  or at such other time and place or on such date as
the Investor  and the Company may agree upon (the  "Closing  Date").  Each party
shall deliver all documents,  instruments and writings  required to be delivered
by such party pursuant to this Agreement at or prior to the Closing.

         Section 2.03. Registration Statement and Prospectus. Promptly after the
Closing, the Company shall prepare and file with the Commission the Registration
Statement  (including the  Prospectus) in accordance  with the provisions of the
Securities Act and the Registration Rights Agreement.

         Section 2.04. Warrant. On the Closing Date, the Company shall issue and
deliver the Warrant to the Investor.

         Section 2.05.  Blackout Shares. The Company shall issue and deliver any
Blackout Shares,  if any, to the Investor in accordance with Section 1(e) of the
Registration Rights Agreement.

                                       5
<PAGE>

                                  ARTICLE III

                                 DRAW DOWN TERMS

         Subject to the satisfaction of the conditions  hereinafter set forth in
this Agreement, the parties agree as follows:

         Section  3.01.  Draw  Down  Notice.  The  Company,  may,  in  its  sole
discretion,  issue a Draw Down Notice  with  respect to a Draw Down up to a Draw
Down Amount equal to the Maximum Draw Down Amount  (each,  a "Draw Down") during
the Commitment Period, which Draw Down the Investor will be obligated to accept.
The Company shall inform the Investor via facsimile transmission, with a copy to
the  Investor's  counsel,  as to the Draw  Down  Amount  the  Company  wishes to
exercise  before  commencement  of trading on the first  Trading Day of any Draw
Down  Pricing  Period  (the "Draw Down  Notice").  In  addition to the Draw Down
Amount,  each Draw Down Notice shall specify the  Threshold  Price in respect of
the applicable  Draw Down and shall  designate the first Trading Day of the Draw
Down Pricing  Period.  In no event shall any Draw Down Amount exceed the Maximum
Draw Down  Amount or shall the  aggregate  of all Draw Down  Amounts  exceed the
Maximum  Commitment  Amount.  Each Draw Down Notice  shall be  accompanied  by a
certificate,  signed by the Chief Executive  Officer or Chief Financial  Officer
dated, as of the date of such Draw Down Notice, in the form of Exhibit C hereof.

         Section  3.02.  Number of Shares.  The number of Shares to be issued in
connection  with each Draw Down shall be equal to the sum of the quotients  (for
each Trading Day of the Draw Down  Pricing  Period for which the Draw Down Price
equals or exceeds the  Threshold  Price) of one  fifteenth  (1/15th) of the Draw
Down Amount divided by the applicable Draw Down Price.

         Section  3.03.  Limitation  on Draw Downs.  Only one Draw Down shall be
permitted for each Draw Down Pricing Period.

         Section  3.04.  Trading  Cushion.  Unless the parties  agree in writing
otherwise,  there  shall be a  minimum  of five (5)  Trading  Days  between  the
expiration  of any  Draw  Down  Pricing  Period  and the  beginning  of the next
succeeding Draw Down Pricing Period.

         Section 3.05.  Expiration of Draw Downs.  Each Draw Down will expire on
the last Trading Day of each Draw Down Pricing Period.

         Section  3.06.  Settlement.  The  number  of  Shares  purchased  by the
Investor  with  respect to each Draw Down shall be  determined  and settled on a
periodic basis in respect of the applicable Draw Down Pricing Period. Settlement
in respect of each  determination  shall be made no later than the third Trading
Day after the fifth,  tenth and  fifteenth  Trading Day of the Draw Down Pricing
Period.  Each date on which settlement of the purchase and sale of Shares occurs
hereunder  shall be  referred  to as a  "Settlement  Date." The  Investor  shall
provide the Company with  delivery  instructions  for the Shares to be issued at
each  Settlement  Date at least two Trading  Days in advance of such  Settlement
Date (except to the extent previously  provided).  The number of Shares actually
issued shall be rounded to the nearest whole number of Shares.

         Section 3.07. Delivery of Shares;  Payment of Draw Down Amount. On each
Settlement  Date, the Company shall deliver the Shares purchased by the Investor
to the Investor or its designees via  book-entry  through the  Depositary  Trust

                                       6
<PAGE>

Company  to an  account  designated  by the  Investor,  and upon  receipt of the
Shares,  the Investor  shall cause payment  therefor to be made to the Company's
designated  account by wire  transfer of  immediately  available  funds,  if the
Shares are received by the Investor no later than 1:00 p.m.  (Eastern  Time), or
next day available funds, if the Shares are received thereafter.

         Section 3.08.  Threshold Price. For each Trading Day during a Draw Down
Pricing  Period that the Draw Down Price is less than the  Threshold  Price,  no
Shares  shall be  purchased  or sold on such Trading Day and the total amount of
the Draw Down  Amount in  respect  of such Draw  Down  Pricing  Period  shall be
reduced by one fifteenth  (1/15th).  At no time shall the Threshold Price be set
below $1.50.  If trading in the  Company's  Common  Stock is  suspended  for any
reason for more than three (3) consecutive or  non-consecutive  hours during any
Trading  Day during a Draw Down  Pricing  Period,  the Draw Down Price  shall be
deemed to be less than the Threshold Price for that Trading Day.

         Section 3.09. Other  Issuances.  If during any Draw Down Pricing Period
the Company shall (with the consent of the Investor  pursuant to Section 6.07 or
6.08 hereof, if applicable) issue any shares of Common Stock to any Person other
than the Investor (other than shares of Common Stock issued in connection with a
Permitted  Transaction),  that the  applicable  Draw Down Notice shall be deemed
null and void and the Investor shall promptly  return to the Company any and all
Shares  transferred to the Investor in respect of any Settlement  Date(s) during
such Draw Down Pricing Period and the Company shall  promptly  thereafter pay to
the  Investor by wire  transfer  of  immediately  available  funds to an account
designated by the Investor that portion of the applicable  Draw Down Amount paid
to the Company in respect of such Settlement Date(s).

         Section 3.10. Failure to Deliver Shares. If on any Settlement Date, the
Company  fails to deliver the Shares to be purchased by the  Investor,  and such
failure is not cured within ten (10) Trading  Days  following  the date on which
the Investor  delivered  payment for such Shares,  the Company  shall pay to the
Investor on demand in cash by wire transfer of immediately available funds to an
account designated by the Investor the "Make Whole Amount;"  provided,  however,
that in the event  that the  Company  is  prevented  from  delivering  Shares in
respect  of  any  such  Settlement  Date  in a  timely  manner  by any  fact  or
circumstance that is reasonably within the control of, or directly  attributable
to, the Investor,  then such ten (10) Trading Day period shall be  automatically
extended until such time as such fact or  circumstance is cured. As used herein,
the Make Whole  Amount  shall be an amount equal to the sum of (i) the Draw Down
Amount  actually  paid by the  Investor  in respect of such  Shares plus (ii) an
amount equal to actual loss suffered by the Investor in respect of sales of such
Shares  to  subsequent  purchasers,  which  shall  be based  upon  documentation
reasonably  satisfactory to the Company demonstrating the difference (if greater
than zero) between (A) the price per share paid by the Investor to purchase such
number of shares of Common  Stock  necessary  for the Investor to meet its share
delivery  obligations to such subsequent  purchasers  minus (B) the average Draw
Down Price during the applicable Draw Down Pricing Period. In the event that the
Make Whole  Amount is not paid  within two (2) Trading  Days  following a demand
therefor  from the  Investor,  the  Make  Whole  Amount  shall  accrue  interest
compounded  daily at a rate of five percent  (5%) per annum up to and  including
the date on which  the Make  Whole  Amount  is  actually  paid.  Notwithstanding
anything  to the  contrary  set forth in this  Agreement,  in the event that the
Company pays the Make Whole Amount (plus interest,  if applicable) in respect of
any Settlement  Date in accordance with this Section 3.10, such payment shall be
the Investor's sole remedy in respect of the Company's failure to deliver Shares
in respect of such Settlement Date.

                                       7
<PAGE>

                                   ARTICLE IV

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         The Company hereby makes the following  representations  and warranties
to the Investor:

         Section 4.01.  Organization,  Good Standing and Power. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite power and authority to own, lease
and operate its properties and to carry on its business as now being  conducted.
Except as set forth in the Commission  Documents (as defined below), the Company
does not own more than fifty percent (50%) of the  outstanding  capital stock of
or control any other business  entity,  other than any  wholly-owned  subsidiary
that is not  "significant"  within the meaning of Regulation S-X  promulgated by
the  Commission.  The Company is duly  qualified as a foreign  corporation to do
business and is in good  standing in every  jurisdiction  in which the nature of
the  business  conducted  or  property  owned  by it  makes  such  qualification
necessary,  other  than  those in which the  failure so to qualify or be in good
standing would not have a Material Adverse Effect.

         Section  4.02.  Authorization;  Enforcement.  (i) The  Company  has the
requisite   corporate  power  and  authority  to  enter  into  and  perform  its
obligations  under this Agreement,  the  Registration  Rights  Agreement and the
Warrant  and to issue the  Shares,  the  Warrant,  the  Warrant  Shares  and any
Blackout  Shares  (except  to the  extent  that the  number of  Blackout  Shares
required to be issued  exceeds the number of  authorized  shares of Common Stock
under the  Certificate);  (ii) the execution and delivery of this  Agreement and
the Registration Rights Agreement,  and the execution,  issuance and delivery of
the  Warrant,  by the Company  and the  consummation  by it of the  transactions
contemplated  hereby and  thereby  have been duly  authorized  by all  necessary
corporate  action and no further consent or  authorization of the Company or its
Board of Directors or  stockholders  is required  (other than as contemplated by
Section  6.05);  and (iii) each of this  Agreement and the  Registration  Rights
Agreement  has been duly executed and  delivered,  and the Warrant has been duly
executed,  issued and  delivered,  by the Company and  constitute  the valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective  terms,  except as such  enforceability  may be limited by
applicable  bankruptcy,  insolvency,  reorganization,  moratorium,  liquidation,
receivership,   or  similar  laws  relating  to,  or  affecting   generally  the
enforcement of, creditors' rights and remedies or by other equitable  principles
of general application.

         Section  4.03.  Capitalization.  The  authorized  capital  stock of the
Company and the shares  thereof  issued and  outstanding as of February 10, 2004
are set forth on Schedule 4.03 attached hereto. All of the outstanding shares of
the Common Stock have been duly and validly authorized and issued, and are fully
paid and  non-assessable.  Except as set forth in this  Agreement or on Schedule
4.03  attached  hereto,  as of the date  hereof no  shares  of Common  Stock are
entitled  to  preemptive  rights  or  registration   rights  and  there  are  no
outstanding  options,   warrants,   scrip,  rights  to  subscribe  to,  call  or
commitments  of any  character  whatsoever  relating to, or securities or rights
convertible  into or exchangeable  for or giving any right to subscribe for, any
shares of capital stock of the Company. Except as set forth in this Agreement or
on Schedule  4.03, as of the date hereof,  there are no contracts,  commitments,
understandings,  or  arrangements by which the Company is or may become bound to
issue  additional  shares  of the  capital  stock  of the  Company  or  options,
securities or rights convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company. Except as set forth on
Schedule 4.03, as of the date hereof the Company is not a party to any agreement
granting  registration rights to any Person with respect to any of its equity or
debt securities. Except as set forth on Schedule 4.03, as of the date hereof the
Company is not a party to, and it has no Knowledge of, any agreement restricting
the voting or transfer of any shares of the capital  stock of the  Company.  The
offer and sale of all capital stock,  convertible securities,  rights, warrants,
or options of the Company issued during the twenty-four month period immediately
prior to the Closing  complied with all applicable  federal and state securities
laws,  and no  stockholder  has a right of  rescission  or damages  with respect
thereto that could reasonably be expected to have a Material Adverse Effect. The
Company has furnished or made  available to the Investor true and correct copies
of the Company's  Certificate of Incorporation,  as amended and in effect on the
date hereof (the  "Certificate"),  and the Company's  Bylaws,  as amended and in
effect on the date hereof (the "Bylaws").

                                       8
<PAGE>

         Section  4.04.  Issuance  of Shares.  The  Shares,  the Warrant and the
Warrant  Shares have been, and any Blackout  Shares will be, duly  authorized by
all necessary corporate action (except to the extent that the number of Blackout
Shares  required to be issued exceeds the number of authorized  shares of Common
Stock under the  Certificate)  and, when issued and paid for in accordance  with
the terms of this Agreement,  the Registration Rights Agreement and the Warrant,
the Shares and the Warrant Shares shall be validly issued and outstanding, fully
paid and  non-assessable,  and the  Investor  shall be  entitled  to all  rights
accorded to a holder of shares of Common Stock.

         Section 4.05. No Conflicts. The execution,  delivery and performance of
this Agreement,  the Registration  Rights  Agreement,  the Warrant and any other
document or instrument  contemplated  hereby or thereby,  by the Company and the
consummation by the Company of the transactions  contemplated hereby and thereby
do not: (i) violate any provision of the  Certificate  or Bylaws,  (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 material  agreement,  mortgage,
deed of trust,  indenture,  note, bond, license, lease agreement,  instrument or
obligation  to which  the  Company  is a party,  (iii)  create or impose a lien,
charge or  encumbrance on any property of the Company under any agreement or any
commitment  to which the  Company is a party or by which the Company is bound or
by which any of its respective properties or assets are bound, or (iv) result in
a violation of any federal,  state, local or foreign statute,  rule, regulation,
order,  judgment  or decree  (including  federal and state  securities  laws and
regulations)  applicable to the Company or any of its  subsidiaries  or by which
any  property  or asset of the Company or any of its  subsidiaries  are bound or
affected,  except,  in all cases,  for such conflicts,  defaults,  terminations,
amendments,   accelerations,   cancellations   and   violations  as  would  not,
individually or in the aggregate, have a Material Adverse Effect. The Company is
not required under federal, state or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute,  deliver or perform any
of its obligations  under this Agreement,  the Registration  Rights Agreement or
the Warrant,  or issue and sell the Shares,  the Warrant  Shares or the Blackout
Shares (except to the extent that the number of Blackout  Shares  required to be
issued  exceeds  the  number of  authorized  shares of  Common  Stock  under the
Certificate)  in  accordance  with the terms hereof and thereof  (other than any
filings that may be required to be made by the Company with the Commission,  the
NASD/Nasdaq or state securities  commissions subsequent to the Closing, and, any
registration statement (including any amendment or supplement thereto) which may
be filed pursuant  hereto);  provided  that, for purposes of the  representation
made in this sentence,  the Company is assuming and relying upon the accuracy of
the relevant representations, warranties and agreements of the Investor herein.

                                       9
<PAGE>

         Section 4.06.  Commission Documents,  Financial Statements.  The Common
Stock is registered  pursuant to Section 12(b) or 12(g) of the Exchange Act and,
except as disclosed in the  Commission  Documents,  the Company has timely filed
all reports,  schedules,  forms,  statements and other documents  required to be
filed by it with the Commission  pursuant to the reporting  requirements  of the
Exchange Act, including material filed pursuant to Section 13(a) or 15(d) of the
Exchange Act (all of the foregoing,  including filings incorporated by reference
therein,  being referred to herein as the "Commission  Documents").  The Company
has maintained all  requirements  for the continued  listing or quotation of its
Common Stock,  and such Common Stock is currently listed or quoted on the Nasdaq
SmallCap  Market.  The  Company  has made  available  to the  Investor  true and
complete  copies of the Commission  Documents  filed with the  Commission  since
December 31, 2003 and prior to the Closing Date. The Company has not provided to
the  Investor  any  information  which,  according to  applicable  law,  rule or
regulation, should have been disclosed publicly by the Company but which has not
been so disclosed,  other than with respect to the transactions  contemplated by
this  Agreement.  As of its date,  the  Company's  Form 10-K for the fiscal year
ended March 31, 2003 complied in all material  respects with the requirements of
the Exchange Act and the rules and  regulations  of the  Commission  promulgated
thereunder applicable to such document, and, as of its date, after giving effect
to the information  disclosed and incorporated by reference  therein,  such Form
10-K did not contain any untrue  statement of a material fact or omit to state a
material  fact  required to be stated  therein or necessary in order to make the
statements  therein,  in light of the circumstances  under which they were made,
not misleading.  As of their respective  dates, the financial  statements of the
Company  included in the Commission  Documents  filed with the Commission  since
December 31, 2002  complied as to form and  substance  in all material  respects
with applicable accounting  requirements and the published rules and regulations
of the  Commission  or other  applicable  rules  and  regulations  with  respect
thereto.  Such  financial  statements  have been  prepared  in  accordance  with
generally accepted accounting  principles ("GAAP") applied on a consistent basis
during the periods  involved  (except (i) as may be otherwise  indicated in such
financial  statements  or the  notes  thereto  or (ii) in the case of  unaudited
interim  statements,  to the extent  they may not  include  footnotes  or may be
condensed or summary  statements),  and fairly present in all material  respects
the  financial  position  of the Company  and its  subsidiaries  as of the dates
thereof and the results of operations  and cash flows for the periods then ended
(subject,  in the  case  of  unaudited  statements,  to  normal  year-end  audit
adjustments).

         Section 4.07. No Material  Adverse  Change.  Except as disclosed in the
Commission  Documents and for continued  losses from  operations in the ordinary
course of the Company's business,  since December 31, 2003 no event or series of
events has or have occurred that would, individually or in the aggregate, have a
Material Adverse Effect on the Company.

         Section 4.08. No Undisclosed  Liabilities.  Neither the Company nor any
of its subsidiaries has any liabilities,  obligations, claims or losses (whether
liquidated or unliquidated,  secured or unsecured, absolute, accrued, contingent
or  otherwise)  that would be required to be disclosed on a balance sheet of the
Company or any subsidiary  (including the notes thereto) in conformity with GAAP
and are not disclosed in the Commission Documents,  other than those incurred in
the ordinary course of the Company's or its subsidiaries  respective  businesses
since December 31, 2003 and which,  individually or in the aggregate,  do not or
would not have a Material Adverse Effect on the Company.

         Section  4.09.  No  Undisclosed  Events or  Circumstances.  No event or
circumstance  has  occurred  or  exists  with  respect  to  the  Company  or its
subsidiaries or their respective businesses, properties, operations or financial
condition,  which,  under  applicable  law, rule or regulation,  requires public
disclosure  or  announcement  by the  Company but which has not been so publicly
announced or disclosed and which,  individually  or in the aggregate,  do not or
would not have a Material Adverse Effect on the Company.

                                       10
<PAGE>

         Section  4.10.  Actions  Pending.  There  is no  action,  suit,  claim,
investigation  or  proceeding  pending  or,  to the  Knowledge  of the  Company,
threatened against the Company or any subsidiary which questions the validity of
this Agreement or the transactions contemplated hereby or any action taken or to
be taken  pursuant  hereto or  thereto.  Except  as set forth in the  Commission
Documents or on Schedule 4.10, there is no action, suit, claim, investigation or
proceeding pending or, to the Knowledge of the Company,  threatened,  against or
involving the Company,  any subsidiary or any of their respective  properties or
assets that could be reasonably  expected to have a Material  Adverse  Effect on
the  Company.  Except as set forth in the  Commission  Documents  or on Schedule
4.10, no judgment, order, writ, injunction or decree or award has been issued by
or, so far as is known by the  Company,  requested of any court,  arbitrator  or
governmental agency which might result in a Material Adverse Effect.

         Section 4.11.  Compliance  with Law. The  businesses of the Company and
its subsidiaries  have been and are presently being conducted in accordance with
all applicable  federal,  state and local governmental laws, rules,  regulations
and  ordinances,  except as set forth in the  Commission  Documents or such that
would not reasonably be expected to cause a Material Adverse Effect. The Company
and each of its subsidiaries have all franchises,  permits,  licenses,  consents
and other governmental or regulatory  authorizations and approvals necessary for
the  conduct  of its  business  as now being  conducted  by it,  except for such
franchises,  permits,  licenses,  consents and other  governmental or regulatory
authorizations and approvals,  the failure to possess which,  individually or in
the  aggregate,  could not  reasonably  be expected  to have a Material  Adverse
Effect.

         Section 4.12.  Certain Fees.  Except as set forth on Schedule  4.12, no
brokers,  finders or financial  advisory fees or commissions  will be payable by
the  Company  or  any  of  its  subsidiaries  in  respect  of  the  transactions
contemplated by this Agreement.

         Section  4.13.  Disclosure.  To the  best of the  Company's  Knowledge,
neither  this  Agreement  nor the  Schedules  hereto  nor any  other  documents,
certificates  or  instruments  furnished  to the Investor by or on behalf of the
Company or any subsidiary in connection  with the  transactions  contemplated by
this Agreement  contain any untrue statement of a material fact or omit to state
a  material  fact  necessary  in order to make the  statements  made  herein  or
therein,  in the light of the circumstances under which they were made herein or
therein, not misleading.

         Section  4.14.  Material  Non-Public   Information.   Except  for  this
Agreement and the transactions  contemplated hereby, neither the Company nor its
agents have disclosed to the Investor, any material non-public information that,
according to applicable  law,  rule or  regulation,  should have been  disclosed
publicly  by the  Company  prior to the date  hereof  but  which has not been so
disclosed.

         Section  4.15.  Exemption  from  Registration;   Valid  Issuances.  The
issuance  and sale of the  Shares,  the  Warrant,  the  Warrant  Shares  and any
Blackout  Shares  in  accordance  with  the  terms  and  on  the  bases  of  the
representations  and  warranties set forth in this  Agreement,  may and shall be
properly  issued  pursuant  to  Section  4(2),  Regulation  D and/or  any  other
applicable  federal and state securities laws.  Neither the sales of the Shares,
the  Warrant,  the Warrant  Shares or any Blackout  Shares  pursuant to, nor the
Company's performance of its obligations under, this Agreement, the Registration
Rights Agreement,  or the Warrant shall (i) result in the creation or imposition
of any liens, charges, claims or other encumbrances upon the Shares, the Warrant
Shares, any Blackout Shares or any of the assets of the Company, or (ii) entitle
the  holders  of any  outstanding  shares of  capital  stock of the  Company  to
preemptive or other rights to subscribe to or acquire the shares of Common Stock
or other  securities  of the  Company.  The Shares,  the Warrant  Shares and any
Blackout  Shares shall not subject the Investor to personal  liability by reason
of the ownership thereof.

                                       11
<PAGE>

         Section 4.16. No General  Solicitation or Advertising in Regard to this
Transaction.  Neither the Company nor any of its affiliates or any person acting
on its or their behalf (i) has conducted any general  solicitation (as that term
is used in Rule 502(c) of Regulation D) or general  advertising  with respect to
any of the Shares,  the Warrant,  the Warrant  Shares or any Blackout  Shares or
(ii) has made any offers or sales of any security or solicited any offers to buy
any security  under any  circumstances  that would require  registration  of the
Shares under the Securities Act.

         Section 4.17. No Integrated  Offering.  Neither the Company, nor any of
its  affiliates,  nor any person acting on its or their behalf has,  directly or
indirectly,  made any offers or sales of any security or solicited any offers to
buy any  security,  other than pursuant to this  Agreement and employee  benefit
plans, under circumstances that would require  registration under the Securities
Act of shares of the Common Stock  issuable  hereunder  with any other offers or
sales of securities of the Company.

         Section 4.18.  Acknowledgment  Regarding Investor's Purchase of Shares.
The Company  acknowledges  and agrees that the Investor is acting  solely in the
capacity of an arm's  length  Investor  with respect to this  Agreement  and the
transactions  contemplated hereunder.  The Company further acknowledges that the
Investor is not acting as a financial advisor or fiduciary of the Company (or in
any  similar  capacity)  with  respect to this  Agreement  and the  transactions
contemplated  hereunder  and any  advice  given  by the  Investor  or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated  hereunder is merely  incidental to the Investor's  purchase of the
Shares.

                                   ARTICLE V

            REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR

         The Investor hereby makes the following representations, warranties and
covenants to the Company:

         Section 5.01.  Organization and Standing of the Investor.  The Investor
is a company duly  organized,  validly  existing and in good standing  under the
laws of the British Virgin Islands.

         Section 5.02.  Authorization  and Power. The Investor has the requisite
power and  authority  to enter  into and  perform  its  obligations  under  this
Agreement, the Registration Rights Agreement and the Warrant and to purchase the
Shares  in  accordance  with the  terms  hereof.  The  execution,  delivery  and
performance  of this  Agreement  by Investor and the  consummation  by it of the
transactions  contemplated  hereby have been duly  authorized  by all  necessary
corporate action,  and no further consent or authorization of the Investor,  its
Board of Directors or  stockholders  is required.  This  Agreement has been duly
executed  and  delivered by the  Investor  and  constitutes  a valid and binding
obligation of the Investor  enforceable  against the Investor in accordance with
its  terms,   except  as  such  enforceability  may  be  limited  by  applicable
bankruptcy,     insolvency,     reorganization,     moratorium,     liquidation,
conservatorship,  receivership,  or  similar  laws  relating  to,  or  affecting
generally  the  enforcement  of  creditor's  rights  and  remedies  or by  other
equitable principles of general application.

                                       12
<PAGE>

         Section 5.03. No Conflicts. The execution,  delivery and performance of
this Agreement,  the Registration  Rights  Agreement,  the Warrant and any other
document or instrument contemplated hereby, by the Investor and the consummation
of the transactions contemplated thereby do not (i) violate any provision of the
Investor's  charter  documents or bylaws,  (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 material  agreement,  mortgage,  deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the  Investor  is a party,  (iii)  create  or impose a lien,  charge or
encumbrance  on  any  property  of  the  Investor  under  any  agreement  or any
commitment to which the Investor is a party or by which the Investor is bound or
by which any of its respective  properties or assets are bound or (iv) result in
a violation of any federal,  state, local or foreign statute,  rule, regulation,
order,  judgment  or decree  (including  federal and state  securities  laws and
regulations) applicable to the Investor or by which any property or asset of the
Investor  are  bound or  affected,  except  in all  cases,  for such  conflicts,
defaults, terminations, amendments, accelerations,  cancellations and violations
as would not, individually or in the aggregate,  prohibit or otherwise interfere
with the ability of the Investor to enter into and perform its obligations under
this  Agreement in any  material  respect.  The  Investor is not required  under
federal,  state  or  local  law,  rule or  regulation  to  obtain  any  consent,
authorization or order of, or make any filing or registration with, any court or
governmental  agency in order for it to  execute,  deliver or perform any of its
obligations  under this  Agreement or to purchase the Shares in accordance  with
the terms hereof, provided that, for purposes of the representation made in this
sentence, the Investor is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.

         Section  5.04.  Financial  Capability  The Investor  has the  financial
capability to perform all of its obligations under this Agreement, including the
capability to purchase the Shares in accordance with the terms hereof.

         Section 5.05. Information.  The Investor and its advisors, if any, have
been  furnished  with all  materials  relating  to the  business,  finances  and
operations  of the Company and  materials  relating to the offer and sale of the
Shares which have been requested by the Investor. The Investor and its advisors,
if any, have been afforded the opportunity to ask questions of the Company.  The
Investor has sought such  accounting,  legal and tax advice as it has considered
necessary  to  make  an  informed   investment  decision  with  respect  to  its
acquisition  of the  Shares.  The  Investor  understands  that it  (and  not the
Company) shall be responsible  for its own tax  liabilities  that may arise as a
result of this investment or the transactions contemplated by this Agreement.

         Section 5.06. Selling Restrictions.  The Investor covenants that during
the  Commitment  Period,  neither the Investor nor any of its affiliates nor any
entity managed by the Investor will ever (i) be in a short position with respect
to shares of the Common Stock in any accounts directly or indirectly  managed by
the  Investor or any  affiliate  of the  Investor  or any entity  managed by the
Investor or (ii) engage in any transaction  intended to reduce the economic risk
of ownership  of shares of Common  Stock  (including,  without  limitation,  the
purchase of any option or contract to sell) that would,  directly or indirectly,
have an effect  substantially  equivalent to selling short such shares of Common
Stock that are subject to,  underlie or may be  deliverable in  satisfaction  of
such  transaction or otherwise may be reasonably be expected to adversely affect
the  market  price of the  Common  Stock.  Notwithstanding  the  foregoing,  the
Investor shall have the right during any Draw Down Pricing Period to sell shares
of the  Company's  Common Stock equal in number to the  aggregate  number of the
Shares to be purchased pursuant to the applicable Draw Down Notice.

                                       13
<PAGE>

                                   ARTICLE VI

                            COVENANTS OF THE COMPANY

         The Company covenants with the Investor as follows, which covenants are
for the benefit of the Investor and its permitted assignees (as defined herein):

         Section 6.01.  Securities.  The Company shall notify the Commission and
the Principal Market,  if and as applicable,  in accordance with their rules and
regulations,  of the transactions  contemplated by this Agreement, and shall use
commercially   reasonable  efforts  to  take  all  other  necessary  action  and
proceedings  as may be  required  and  permitted  by  applicable  law,  rule and
regulation,  for the legal and valid issuance of the Shares,  the Warrant Shares
and the Blackout Shares, if any, to the Investor.

         Section 6.02.  Reservation of Common Stock. As of the date hereof,  the
Company has available  and the Company  shall reserve and keep  available at all
times,  free of  preemptive  rights  and  other  similar  contractual  rights of
stockholders,  shares of Common Stock for the purpose of enabling the Company to
satisfy any  obligation  to issue the Shares in  connection  with all Draw Downs
contemplated  hereunder and the Warrant Shares. The number of shares so reserved
from time to time, as theretofore  increased or reduced as hereinafter provided,
may be reduced by the number of shares actually delivered hereunder.

         Section 6.03.  Registration and Listing.  During the Commitment Period,
the Company shall use commercially  reasonable  efforts:  (i) to take all action
necessary to cause its Common Stock to continue to be  registered  under Section
12(b) or 12(g) of the  Exchange  Act,  (ii) to comply in all  respects  with its
reporting and filing  obligations  under the Exchange Act,  (iii) to prevent the
termination or suspension such registration, or the termination or suspension of
its reporting and filing  obligations  under the Exchange Act or Securities  Act
(except as  expressly  permitted  herein).  The Company  shall use  commercially
reasonable  efforts  necessary to maintain the listing and trading of its Common
Stock and the  listing of the Shares  purchased  by  Investor  hereunder  on the
Principal Market  (including,  without  limitation,  maintaining  sufficient net
tangible  assets) and will comply in all material  respects  with the  Company's
reporting,  filing and other  obligations  under the bylaws or rules of the NASD
and the Principal Market.

         Section 6.04. Registration Statement. Without the prior written consent
of the Investor,  the Registration  Statement shall be used solely in connection
with the transactions between the Company and the Investor contemplated hereby.

         Section 6.05. Compliance with Laws.

              (a) The Company shall comply, and cause each subsidiary to comply,
with all applicable  laws,  rules,  regulations and orders,  noncompliance  with
which could reasonably be expected to have a Material Adverse Effect.

              (b) Without the consent of its  stockholders  in  accordance  with
NASD rules,  the Company will not be obligated to issue,  and the Investor  will
not be  obligated  to  purchase,  any Shares  which would result in the issuance
under this Agreement of Shares representing more than the applicable  percentage
under the rules of the NASD  that  would  require  stockholder  approval  of the
issuance thereof.

                                       14
<PAGE>

         Section 6.06. Reporting  Requirements.  Upon reasonable written request
of the Investor during the Commitment  Period,  the Company shall furnish copies
of the following to the Investor  within three Trading Days of such request (but
not sooner than filed with or submitted to the Commission):

         (a)      Quarterly Reports on Form 10-Q;

         (b)      Annual Reports on Form 10-K;

         (c)      Periodic Reports on Form 8-K; and

         (d)      any other  documents  publicly  furnished  or submitted to the
                  Commission.

         Section 6.07. Other Financing.  During the term of this Agreement,  the
Company  shall not enter into any other  financing  agreement  for the issuance,
sale or other  disposition  of equity or  equity-linked  securities,  including,
without  limitation,  any securities or other  instruments  that are convertible
into or  exchangeable  for Common Stock or Preferred  Stock ("Other  Financing")
without the prior  written  consent of the  Investor,  which consent will not be
unreasonably withheld,  conditioned or delayed; provided,  however, that without
the prior written  consent of the Investor the Company may (i)  establish  stock
option or award  plans or  agreements  (for  directors,  employees,  consultants
and/or  advisors) and amend such plans or agreements,  including  increasing the
number of shares available thereunder, (ii) use equity securities to finance the
acquisition of other  companies,  equipment,  technologies or lines of business,
(iii) issue shares of Common Stock and/or Preferred Stock in connection with the
Company's option or award plans, stock purchase plans, rights plans, warrants or
options,  (iv) issue shares of Common Stock and/or Preferred Stock in connection
with the  acquisition  of  products,  licenses,  equipment  or other  assets and
strategic partnerships or joint ventures (the primary purpose of which is not to
raise equity  capital);  (v) issue shares of Common  and/or  Preferred  Stock to
consultants and/or advisors as consideration for services  rendered,  (vi) issue
and sell shares in an underwritten  public  offering of Common Stock,  and (vii)
issue shares of Common Stock to the Investor under any other  agreement  entered
into between the Investor and the Company (each a "Permitted Transaction").

         Section  6.08.  Prohibited  Transactions.   During  the  term  of  this
Agreement,  the Company shall not enter into any Prohibited  Transaction without
the prior written consent of the Investor,  which consent may be withheld at the
sole discretion of the Investor.  For the purposes of this  Agreement,  the term
"Prohibited  Transaction"  shall  refer to the  issuance  by the  Company of any
"future priced securities," which shall be deemed to mean the issuance of shares
of Common Stock or  securities of any type  whatsoever  that are, or may become,
convertible  or  exchangeable  into shares of Common  Stock where the  purchase,
conversion  or exchange  price for such  Common  Stock is  determined  using any
floating or otherwise  adjustable  discount to the market price of Common Stock,
including,  without  limitation,  pursuant to any equity line or other financing
that  is  substantially  similar  to  the  financing  provided  for  under  this
Agreement.

         Section  6.09.  Corporate  Existence.  The Company shall take all steps
necessary to preserve and continue the corporate existence of the Company.

                                       15
<PAGE>

         Section 6.10.  Non-Disclosure  of Non-Public  Information.  None of the
Company, its officers,  directors,  employees nor agents shall disclose material
non-public information to the Investor, its advisors or representatives.

         Section  6.11.   Notice  of  Certain  Events  Affecting   Registration;
Suspension of Right to Request a Draw Down.  Notwithstanding  the  provisions of
Section  6.10,  the  Company  shall  immediately  notify the  Investor  upon the
occurrence  of  any of the  following  events  in  respect  of the  Registration
Statement  or the  Prospectus  related  to the offer,  issuance  and sale of the
Shares  and the  Warrant  Shares  hereunder:  (i)  receipt  of any  request  for
additional  information  by  the  Commission  or  any  other  federal  or  state
governmental  authority  during the period of  effectiveness of the Registration
Statement for  amendments or supplements  to the  Registration  Statement or the
Prospectus;  (ii) the issuance by the  Commission  or any other federal or state
governmental  authority of any stop order  suspending the  effectiveness  of the
Registration  Statement or the initiation of any  proceedings  for that purpose;
and (iii)  receipt of any  notification  with respect to the  suspension  of the
qualification  or  exemption  from  qualification  of  any  of  the  Registrable
Securities for sale in any  jurisdiction or the initiation or threatening of any
proceeding  for such  purpose.  The Company shall not request a Draw Down during
the continuation of any of the foregoing events.

         Section  6.12.  Amendments  to the  Registration  Statement.  When  the
Registration  Statement  is declared  effective by the  Commission,  the Company
shall  not (i) file any  amendment  to the  Registration  Statement  or make any
amendment  or  supplement  to the  Prospectus  of which the  Investor  shall not
previously  have been advised or to which the Investor shall  reasonably  object
after being so advised or (ii) so long as, in the reasonable  opinion of counsel
for the Investor,  a Prospectus  is required to be delivered in connection  with
sales of the Shares by the Investor, file any information,  documents or reports
pursuant to the  Exchange  Act without  delivering  a copy of such  information,
documents or reports to the Investor promptly following such filing.

         Section 6.13. Prospectus Delivery. From time to time for such period as
in the  opinion of counsel  for the  Investor a  prospectus  is  required by the
Securities  Act to be delivered in connection  with sales by the  Investor,  the
Company will  expeditiously  deliver to the Investor,  without  charge,  as many
copies of the  Prospectus  (and of any amendment or  supplement  thereto) as the
Investor  may  reasonably  request.  The  Company  consents  to  the  use of the
Prospectus  (and of any amendment or supplement  thereto) in accordance with the
provisions of the Securities Act and state  securities  laws in connection  with
the offering  and sale of the Shares and the Warrant  Shares and for such period
of time  thereafter as the  Prospectus is required by the  Securities  Act to be
delivered in connection with sales of the Shares and the Warrant Shares.

         Section  6.14.  Expectations  Regarding  Draw  Downs.  Within  ten (10)
calendar  days  after  the  commencement  of  each  calendar  quarter  occurring
subsequent  to the date hereof,  the Company shall notify the Investor as to its
reasonable  expectations as to the dollar amount it intends to raise during such
calendar  quarter,  if any,  through  the  issuance of Draw Down  Notices.  Such
notification  shall  constitute  only the  Company's  good faith  estimate  with
respect to such  calendar  quarter and shall in no way  obligate  the Company to
raise such amount during such calendar quarter or otherwise limit its ability to
deliver  Draw Down  Notices  during such  calendar  quarter.  The failure by the
Company to comply with this  provision can be cured by the  Company's  notifying
the Investor at any time as to its reasonable  expectations  with respect to the
current calendar quarter.

                                       16
<PAGE>

                                  ARTICLE VII

       CONDITIONS TO THE OBLIGATION OF THE INVESTOR TO ACCEPT A DRAW DOWN

The  obligation  of the  Investor  hereunder to accept a Draw Down Notice and to
acquire  and pay for the  Shares  in  accordance  therewith  is  subject  to the
satisfaction  or waiver,  at each  Condition  Satisfaction  Date, of each of the
conditions set forth below.  The conditions are for the Investor's  sole benefit
and may be waived by the Investor at any time in its sole discretion. As used in
this Agreement,  the term "Condition Satisfaction Date" shall mean, with respect
to each  Draw  Down,  the date on which  the  applicable  Draw  Down  Notice  is
delivered to the Investor and each  Settlement Date in respect of the applicable
Draw Down Pricing Period.

         Section 7.01. Accuracy of the Company's Representations and Warranties.
Each of the  representations  and  warranties  of the Company  shall be true and
correct in all material respects as of the date when made as though made at that
time, except for  representations and warranties that are expressly made as of a
particular date.

         Section  7.02.  Performance  by the  Company.  The  Company  shall have
performed,  satisfied and complied in all material  respects with all covenants,
agreements and conditions  required by this Agreement,  the Registration  Rights
Agreement  and the Warrant to be  performed,  satisfied or complied  with by the
Company.

         Section 7.03.  Compliance  with Law. The Company shall have complied in
all material respects with all applicable federal,  state and local governmental
laws,  rules,  regulations  and  ordinances  in connection  with the  execution,
delivery  and  performance  of  this  Agreement  and  the  consummation  of  the
transactions contemplated hereby.

         Section  7.04.  Effective  Registration  Statement.  Upon the terms and
subject to the conditions as set forth in the Registration Rights Agreement, the
Registration  Statement shall have previously  become effective and shall remain
effective  and (i)  neither the Company  nor the  Investor  shall have  received
notice  that the  Commission  has  issued or  intends to issue a stop order with
respect to the  Registration  Statement  or that the  Commission  otherwise  has
suspended or withdrawn the effectiveness of the Registration  Statement,  either
temporarily  or  permanently,  or intends or has threatened to do so (unless the
Commission's  concerns  have  been  addressed  and the  Investor  is  reasonably
satisfied  that the  Commission no longer is considering or intends to take such
action),  and  (ii)  no  other  suspension  of  the  use  or  withdrawal  of the
effectiveness of the Registration Statement or the Prospectus shall exist.

         Section 7.05. No Knowledge.  The Company shall have no Knowledge of any
event  more  likely  than not to have the  effect of  causing  the  Registration
Statement  with  respect  to the  resale of the  Registrable  Securities  by the
Investor to be suspended or  otherwise  ineffective  (which event is more likely
than not to occur within fifteen Trading Days following the Trading Day on which
a Draw Down Notice is delivered).

         Section 7.06.  No  Suspension.  Trading in the  Company's  Common Stock
shall not have been  suspended by the  Commission,  the Principal  Market or the
NASD and trading in  securities  generally as reported on the  Principal  Market
shall not have been suspended or limited.

         Section 7.07. No Injunction.  No statute, rule,  regulation,  executive
order,  decree,   ruling  or  injunction  shall  have  been  enacted,   entered,
promulgated  or endorsed by any court or  governmental  authority  of  competent
jurisdiction  which  prohibits  the  consummation  of any  of  the  transactions
contemplated by this Agreement.

                                       17
<PAGE>

         Section  7.08.  No  Proceedings  or  Litigation.  No  action,  suit  or
proceeding  before any arbitrator or any governmental  authority shall have been
commenced,  and no investigation  by any governmental  authority shall have been
threatened,  against  the  Company or any  subsidiary,  or any of the  officers,
directors  or  affiliates  of the Company or any  subsidiary  seeking to enjoin,
prevent or change the transactions contemplated by this Agreement.

         Section 7.09.  Section 16  Limitation.  On each  Settlement  Date,  the
number of Shares  then to be  purchased  by the  Investor  shall not  exceed the
number  of  such  shares  that,  when  aggregated  with  all  other  Registrable
Securities then owned by the Investor  beneficially or deemed beneficially owned
by the  Investor,  would result in the Investor  owning more than 9.9% of all of
such Common Stock as would be outstanding on such Settlement Date, as determined
in accordance  with Section 16 of the Exchange Act. For purposes of this Section
7.09, in the event that the amount of Common Stock  outstanding as determined in
accordance with Section 16 of the Exchange Act and the  regulations  promulgated
thereunder is greater on a Settlement  Date than on the date upon which the Draw
Down Notice  associated with such Settlement Date is given, the amount of Common
Stock  outstanding  on  such  Settlement  Date  shall  govern  for  purposes  of
determining whether the Investor, when aggregating all purchases of Common Stock
made pursuant to this Agreement and, if any, Warrant Shares and Blackout Shares,
would own more than 9.9% of the Common Stock following such Settlement Date.

         Section 7.10.  Sufficient  Shares  Registered  for Resale.  The Company
shall have sufficient  Shares,  calculated  using the closing trade price of the
Common Stock as of the Trading Day immediately  preceding such Draw Down Notice,
registered  under the  Registration  Statement  to issue and sell such Shares in
accordance with such Draw Down Notice.

         Section  7.11.  Warrant.  The  Warrant  shall have been duly  executed,
delivered and issued to the Investor, and the Company shall not be in default in
any material respect under any of the provisions  thereof (it being acknowledged
and agreed that any refusal by or failure of the Company to issue Warrant Shares
when and as  requested  by the  Investor  in  accordance  with the  terms of the
Warrant shall be deemed to be a material default).

         Section 7.12.  Opinion of Counsel.  The Investor shall have received an
opinion of counsel to the Company,  dated as of the Effective  Date, in the form
of  Exhibit D hereof,  or in such  other  form  reasonably  satisfactory  to the
Investor and its counsel.

                                  ARTICLE VIII

         CONDITIONS TO THE OBLIGATIONS OF THE COMPANY TO SELL, ISSUE AND
                       DELIVER THE SHARES TO THE INVESTOR

The obligation of the Company hereunder to sell, issue and deliver Shares to the
Investor in accordance  with the terms of any Draw Down notice is subject to the
satisfaction or waiver,  at each Settlement  Date, of each of the conditions set
forth below. The conditions are for the Company's sole benefit and may be waived
by the Company at any time in its sole discretion.

                                       18
<PAGE>

         Section  8.01.   Accuracy  of  the   Investor's   Representations   and
Warranties.  Each of the representations and warranties of the Investor shall be
true and  correct in all  material  respects  as of the date when made as though
made at that time, except for  representations and warranties that are expressly
made as of a particular date.

         Section  8.02.  Performance  by the Investor.  The Investor  shall have
performed,  satisfied and complied in all material  respects with all covenants,
agreements and conditions  required by this Agreement,  the Registration  Rights
Agreement  and the Warrant to be  performed,  satisfied or complied  with by the
Investor.

         Section 8.03.  Compliance with Law. The Investor shall have complied in
all material respects with all applicable federal,  state and local governmental
laws,  rules,   regulations  and  ordinances,   including  all  NASD  rules  and
regulations, in connection with the execution,  delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby.

         Section 8.04. Effective Registration Statement. Neither the Company nor
the  Investor  shall have  received  notice  that the  Commission  has issued or
intends to issue a stop order with respect to the Registration Statement or that
the  Commission  otherwise has suspended or withdrawn the  effectiveness  of the
Registration  Statement,  either  temporarily or permanently,  or intends or has
threatened to do so (unless the  Commission's  concerns have been  addressed and
the Company is reasonably satisfied that the Commission no longer is considering
or  intends  to  take  such  action),  and no  other  suspension  of the  use or
withdrawal of the effectiveness of the Registration  Statement or the Prospectus
shall exist.

         Section 8.05. No Knowledge. The Investor shall have no Knowledge of any
event  more  likely  than not to have the  effect of  causing  the  Registration
Statement  with  respect  to the  resale of the  Registrable  Securities  by the
Investor to be suspended or  otherwise  ineffective  (which event is more likely
than not to occur within fifteen Trading Days following the Trading Day on which
a Draw Down Notice is delivered).

         Section 8.06.  No  Suspension.  Trading in the  Company's  Common Stock
shall not have been  suspended by the  Commission,  the Principal  Market or the
NASD and trading in  securities  generally as reported on the  Principal  Market
shall not have been suspended or limited.

         Section 8.07. No Injunction.  No statute, rule,  regulation,  executive
order,  decree,   ruling  or  injunction  shall  have  been  enacted,   entered,
promulgated  or endorsed by any court or  governmental  authority  of  competent
jurisdiction  which  prohibits  the  consummation  of any  of  the  transactions
contemplated by this Agreement.

         Section  8.08.  No  Proceedings  or  Litigation.  No  action,  suit  or
proceeding  before any arbitrator or any governmental  authority shall have been
commenced,  and no investigation  by any governmental  authority shall have been
threatened,  against the Investor, the Company or any subsidiary,  or any of the
officers,  directors  or  affiliates  of  the  Investor  or the  Company  or any
subsidiary seeking to enjoin, prevent or change the transactions contemplated by
this Agreement.

                                       19
<PAGE>

                                   ARTICLE IX

                                     LEGENDS

         Section  9.01.   Legends.   Unless  otherwise   provided  below,   each
certificate  representing  Registrable Securities will bear the following legend
(the "Legend"):

         THE SECURITIES  EVIDENCED BY THIS  CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE U.S.  SECURITIES  ACT OF 1933,  AS AMENDED  (THE  "SECURITIES
         ACT"), OR ANY OTHER APPLICABLE  SECURITIES LAWS AND HAVE BEEN ISSUED IN
         RELIANCE UPON AN EXEMPTION FROM THE  REGISTRATION  REQUIREMENTS  OF THE
         SECURITIES ACT AND SUCH OTHER  SECURITIES  LAWS.  NEITHER THIS SECURITY
         NOR ANY  INTEREST  OR  PARTICIPATION  HEREIN  MAY BE  REOFFERED,  SOLD,
         ASSIGNED, TRANSFERRED,  PLEDGED, ENCUMBERED,  HYPOTHECATED OR OTHERWISE
         DISPOSED OF,  EXCEPT  PURSUANT TO AN EFFECTIVE  REGISTRATION  STATEMENT
         UNDER THE  SECURITIES  ACT OR PURSUANT TO A TRANSACTION  THAT IS EXEMPT
         FROM,  OR NOT  SUBJECT  TO,  SUCH  REGISTRATION.  THE  HOLDER  OF  THIS
         CERTIFICATE IS THE  BENEFICIARY  OF CERTAIN  OBLIGATIONS OF THE COMPANY
         SET  FORTH  IN  A  COMMON  STOCK  PURCHASE   AGREEMENT   BETWEEN  TEGAL
         CORPORATION  AND  KINGSBRIDGE  CAPITAL LIMITED DATED AS OF FEBRUARY 11,
         2004. A COPY OF THE PORTION OF THE AFORESAID AGREEMENT  EVIDENCING SUCH
         OBLIGATIONS MAY BE OBTAINED FROM THE COMPANY'S EXECUTIVE OFFICES.

As soon as practicable after the execution and delivery hereof, but in any event
within ten (10) Trading Days hereafter,  the Company shall issue to the transfer
agent for its Common Stock (and to any substitute or replacement  transfer agent
for its Common Stock upon the Company's  appointment  of any such  substitute or
replacement  transfer  agent)  instructions,  with a copy to the Investor.  Such
instructions  shall be irrevocable by the Company from and after the date hereof
or from and after the issuance  thereof to any such  substitute  or  replacement
transfer  agent, as the case may be, except as otherwise  expressly  provided in
the  Registration  Rights  Agreement.  It is the  intent  and  purpose  of  such
instructions,  as provided therein, to require the transfer agent for the Common
Stock from time to time upon transfer of Registrable  Securities by the Investor
to issue  certificates  or make DTC entries (as the case may be) evidencing such
Registrable Securities free of the Legend during the following periods and under
the following  circumstances and without consultation by the transfer agent with
the  Company or its  counsel  and  without  the need for any  further  advice or
instruction or documentation to the transfer agent by or from the Company or its
counsel or the Investor,  unless an opinion of Investor's  counsel is reasonably
required by the transfer agent or the Company:

         (a) At any time after the Effective Date to the extent accompanied by a
notice requesting the issuance of certificates free of the Legend; provided that
(i) the Company is  reasonably  able to confirm to the  transfer  agent that the
Registration  Statement shall then be effective and (ii) if reasonably requested
by the  transfer  agent the  Investor  confirms to the  transfer  agent that the
Investor  has  complied  with the  prospectus  delivery  requirement  under  the
Securities Act.

                                       20
<PAGE>

         (b) At any  time  upon  any  surrender  of  one  or  more  certificates
evidencing   Registrable   Securities  that  bear  the  Legend,  to  the  extent
accompanied by a notice  requesting the issuance of new certificates free of the
Legend to replace those surrendered and containing  representations that (i) the
Investor  is  permitted  to  dispose  of  such  Registrable  Securities  without
limitation  as to amount or manner of sale  pursuant  to Rule  144(k)  under the
Securities  Act and  there is no  requirement  for the  Investor  to  deliver  a
prospectus or (ii) the Investor has sold,  pledged or otherwise  transferred  or
agreed to sell,  pledge or otherwise  transfer such Registrable  Securities in a
manner  other  than  pursuant  to  an  effective  registration  statement,  to a
transferee  who shall  upon  such  transfer  be  entitled  to  freely  tradeable
securities.

         Section 9.02. No Other Legend or Stock Transfer Restrictions. No legend
other than the one  specified in Section 9.01 has been or shall be placed on the
share  certificates  representing the Common Stock issued to the Investor and no
instructions or "stop transfer orders," so called "stock transfer restrictions,"
or other  restrictions  have  been or shall be given to the  Company's  transfer
agent with respect thereto other than as expressly set forth in this Article IX.

                                   ARTICLE X

                                   TERMINATION

         Section 10.01.  Term.  Unless  otherwise  terminated in accordance with
Section 10.02 below,  this Agreement  shall terminate upon the expiration of the
Commitment Period.

         Section 10.02. Other Termination.

              (a) The Investor may  terminate  this  Agreement  upon (x) one (1)
day's  notice if the  Company  enters into any Other  Financing  as set forth in
Section 6.07 or any Prohibited  Transaction as set forth in Section 6.08 without
the  Investor's  prior written  consent,  or (y) one (1) day's notice within ten
(10) Trading  Days after the Investor  obtains  actual  knowledge  that an event
resulting in a Material Adverse Effect has occurred; provided, however, that the
Investor  shall be deemed to  possess  such  actual  knowledge  within  five (5)
Trading  Days after such event has been  publicly  disclosed  by the  Company in
accordance with its periodic reporting requirements under the Exchange Act.

              (b) The Investor may terminate  this  Agreement upon one (1) day's
notice to the Company at any time in the event that the  Registration  Statement
is not declared effective in accordance with the Registration Rights Agreement.

              (c) The Company may terminate  this  Agreement  upon one (1) day's
notice;  provided,  however, that the Company shall not terminate this Agreement
pursuant to this Section 10.02(c) during any Draw Down Pricing Period;  provided
further;  that, in the event of any termination of this Agreement by the Company
hereunder,  so long as the  Investor  owns  Shares  purchased  hereunder  and/or
Warrant  Shares,  unless all of such shares of Common Stock may be resold by the
Investor without registration and without any time, volume or manner limitations
pursuant  to Rule  144(k) (or any similar  provision  then in effect)  under the
Securities  Act,  the Company  shall not suspend or  withdraw  the  Registration
Statement or otherwise cause the Registration  Statement to become  ineffective,
or delist the Common Stock from the Principal Market.

              (d) Each of the parties  hereto may terminate  this Agreement upon
one (1) day's notice if the other party has breached a material  representation,
warranty or covenant to this  Agreement  and such breach is not remedied  within
ten (10) Trading Days after notice of such breach is delivered to the  breaching
party.

                                       21
<PAGE>

              (e) The  obligation  of the Investor to purchase  shares of Common
Stock shall  terminate  permanently in the event that there shall occur any stop
order or  suspension  of  effectiveness  of the  Registration  Statement  for an
aggregate of thirty (30) calendar days during the Commitment Period.

         Section 10.03. Effect of Termination.

         (a) In the event of termination by the Company or the Investor, written
notice thereof shall forthwith be given to the other party and the  transactions
contemplated  by this Agreement  shall be terminated  without  further action by
either  party.  If this  Agreement is terminated as provided in Section 10.01 or
10.02  herein,  this  Agreement  shall  become void and of no further  force and
effect, except as provided in Section 12.13. Nothing in this Section 10.03 shall
be deemed to release  the Company or the  Investor  from any  liability  for any
breach  under this  Agreement,  or to impair the rights of the  Company  and the
Investor to compel  specific  performance by the other party of its  obligations
under this Agreement.

         (b) In the event that the Company  fails to issue and sell Common Stock
to the Investor for an amount (in aggregate Draw Down Amounts) at least equal to
$3,000,000  under this  Agreement  during the  Commitment  Period,  on the first
Trading Day following the expiration of the Commitment Period, the Company shall
pay to Investor by wire transfer of  immediately  available  funds to an account
designated  by the  Investor an amount  equal to  $300,000.  The parties  hereto
acknowledge  and agree that the sum payable  under this  Section  9.03(b)  shall
represent  liquidated damages and not a penalty. The parties further acknowledge
that such amount (i) bears a reasonable  relation to the commitment fee that the
Investor  would  have,  in  light  of its  reasonable  investment  expectations,
otherwise charged the Company in consideration for the Investor's  commitment to
purchase   Common   Stock   hereunder   and  (ii)  is  not  plainly  or  grossly
disproportionate  to the probable  loss likely to be incurred by the Investor in
connection with the failure by the Company to issue and sell Common Stock to the
Investor  for an amount  (in  aggregate  Draw Down  Amounts)  at least  equal to
$3,000,000 under this Agreement during the Commitment Period.

                                   ARTICLE XI

                                 INDEMNIFICATION

         Section 11.01. Indemnification.

              (a)  Except as  otherwise  provided  in this  Article  XI,  unless
disputed as set forth in Section 11.02, the Company agrees to indemnify,  defend
and hold harmless the Investor and its affiliates and their respective officers,
directors,  agents, employees,  subsidiaries,  partners, members and controlling
persons (each, an "Investor Indemnified Party"), to the fullest extent permitted
by law from and against any and all Damages directly  resulting from or directly
arising  out of any  breach  of any  representation  or  warranty,  covenant  or
agreement by the Company in this Agreement, the Registration Rights Agreement or
the Warrant; provided,  however, that the Company shall not be liable under this
Article XI to an  Investor  Indemnified  Party to the extent  that such  Damages
resulted  or arose  from the  breach  by an  Investor  Indemnified  Party of any
representation  or warranty of an Investor  Indemnified  Party contained in this
Agreement or the gross negligence, recklessness, willful misconduct or bad faith
of an Investor Indemnified Party. The parties intend that any Damages subject to
indemnification  pursuant to this Article XI will be net of insurance  proceeds.
Accordingly,  the amount  which the Company is  required to pay to any  Investor

                                       22
<PAGE>

Indemnified Party hereunder (a "Company  Indemnity  Payment") will be reduced by
any  insurance  proceeds  actually  recovered  by or on behalf  of any  Investor
Indemnified  Party in  reduction  of the related  Damages.  In  addition,  if an
Investor Indemnified Party receives a Company Indemnity Payment required by this
Article  XI in  respect  of any  Damages  and  subsequently  receives  any  such
insurance proceeds,  then the Investor Indemnified Party will pay to the Company
an amount equal to the Company Indemnity Payment received less the amount of the
Company Indemnity Payment that would have been due if the insurance proceeds had
been received,  realized or recovered before the Company  Indemnity  Payment was
made.

              (b)  Except as  otherwise  provided  in this  Article  XI,  unless
disputed as set forth in Section 11.02, the Investor agrees to indemnify, defend
and hold harmless the Company and its affiliates and their respective  officers,
directors,  agents, employees,  subsidiaries,  partners, members and controlling
persons (each, a "Company  Indemnified  Party"), to the fullest extent permitted
by law from and against any and all Damages directly  resulting from or directly
arising  out of any  breach  of any  representation  or  warranty,  covenant  or
agreement  by the  Investor  in this  Agreement;  provided,  however,  that  the
Investor  shall not be liable  under this  Article  XI to a Company  Indemnified
Party to the extent  that such  Damages  resulted  or arose from the breach by a
Company  Indemnified  Party  of any  representation  or  warranty  of a  Company
Indemnified Party contained in this Agreement or gross negligence, recklessness,
willful  misconduct  or bad faith of a Company  Indemnified  Party.  The parties
intend that any Damages subject to  indemnification  pursuant to this Article XI
will be net of insurance proceeds. Accordingly, the amount which the Investor is
required  to  pay  to any  Company  Indemnified  Party  hereunder  (a  "Investor
Indemnity  Payment")  will be  reduced  by any  insurance  proceeds  theretofore
actually recovered by or on behalf of any Company Indemnified Party in reduction
of the related Damages.  In addition,  if a Company Indemnified Party receives a
Investor Indemnity Payment required by this Article XI in respect of any Damages
and subsequently receives insurance such proceeds,  then the Company Indemnified
Party will pay to the Investor an amount equal to the Investor Indemnity Payment
received less the amount of the Investor  Indemnity Payment that would have been
due if the insurance  proceeds had been received,  realized or recovered  before
the Investor Indemnity Payment was made.

         Section 11.02.  Notification of Claims for Indemnification.  Each party
entitled  to  indemnification  under this  Article XI (an  "Indemnified  Party")
shall,  promptly  after the receipt of notice of the  commencement  of any claim
against such Indemnified  Party in respect of which indemnity may be sought from
the party  obligated to indemnify such  Indemnified  Party under this Article XI
(the  "Indemnifying  Party"),  notify the  Indemnifying  Party in writing of the
commencement  thereof.  Any such notice shall  describe the claim in  reasonable
detail. The failure of any Indemnified Party to so notify the Indemnifying Party
of any such action shall not relieve the  Indemnifying  Party from any liability
which it may have to such  Indemnified  Party (a) other  than  pursuant  to this
Article XI or (b) under this  Article  XI unless,  and only to the extent  that,
such failure  results in the  Indemnifying  Party's  forfeiture  of  substantive
rights or defenses or the  Indemnifying  Party is prejudiced by such delay.  The
procedures  listed  below  shall  govern  the  procedures  for the  handling  of
indemnification claims.

              (a) Any claim for  indemnification  for Damages that do not result
from a Third  Party  Claim  as  defined  in the  following  paragraph,  shall be
asserted by written notice given by the  Indemnified  Party to the  Indemnifying
Party. Such Indemnifying Party shall have a period of thirty (30) days after the
receipt of such notice  within which to respond  thereto.  If such  Indemnifying
Party does not respond  within such  thirty (30) day period,  such  Indemnifying
Party shall be deemed to have refused to accept  responsibility  to make payment
as set forth in Section  10.01.  If such  Indemnifying  Party  does not  respond
within such  thirty  (30) day period or rejects  such claim in whole or in part,
the Indemnified Party shall be free to pursue such remedies as specified in this
Agreement,  including  the dispute  resolution  provisions  set forth in Section
11.03 below.

                                       23
<PAGE>

              (b) If an  Indemnified  Party shall  receive  notice or  otherwise
learn of the  assertion  by a person or entity not a party to this  Agreement of
any threatened legal action or claim (collectively a "Third Party Claim"),  with
respect  to  which  an   Indemnifying   Party  may  be   obligated   to  provide
indemnification,  the  Indemnified  Party  shall  give such  Indemnifying  Party
written  notice  thereof  within twenty (20) days after  becoming  aware of such
Third Party Claim.

              (c) An  Indemnifying  Party may elect to defend  (and,  unless the
Indemnifying  Party has specified any  reservations  or  exceptions,  to seek to
settle or  compromise)  at such  Indemnifying  Party's  own  expense and by such
Indemnifying Party's own counsel, any Third Party Claim. Within thirty (30) days
after the receipt of notice from an  Indemnified  Party (or sooner if the nature
of such Third Party Claim so requires),  the Indemnifying Party shall notify the
Indemnified Party whether the Indemnifying Party will assume  responsibility for
defending such Third Party Claim,  which election shall specify any reservations
or exceptions.  If such  Indemnifying  Party does not respond within such thirty
(30) day period or rejects such claim in whole or in part, the Indemnified Party
shall be free to pursue such remedies as specified in this Agreement,  including
the dispute resolution  provisions set forth in Section 11.03 below. In case any
such Third Party Claim shall be brought  against any Indemnified  Party,  and it
shall  notify  the  Indemnifying   Party  of  the  commencement   thereof,   the
Indemnifying  Party shall be  entitled to assume the defense  thereof at its own
expense,  with counsel  satisfactory to such Indemnified Party in its reasonable
judgment;  provided,  however,  that at any  Indemnified  Party may,  at its own
expense,  retain  separate  counsel to  participate  in such  defense at its own
expense.  Notwithstanding  the  foregoing,  in  any  claim  in  which  both  the
Indemnifying  Party,  on the one hand,  and an Indemnified  Party,  on the other
hand, are, or are reasonably  likely to become, a party,  such Indemnified Party
shall have the right to employ  separate  counsel and to control its own defense
of such claim if, in the  reasonable  opinion  of  counsel  to such  Indemnified
Party,  either (x) one or more defenses are available to the  Indemnified  Party
that are not available to the Indemnifying  Party or (y) a conflict or potential
conflict  exists  between  the  Indemnifying  Party,  on the one hand,  and such
Indemnified   Party,   on  the  other  hand,   that  would  make  such  separate
representation  advisable;  provided,  however,  that the Indemnifying Party (i)
shall not be liable for the fees and  expenses  of more than one  counsel to all
Indemnified  Parties and (ii) shall reimburse the  Indemnified  Parties for such
reasonable fees and expenses of such counsel incurred in any such action between
the Indemnifying  Party and the Indemnified  Parties or between such Indemnified
Parties and any third party,  as such  expenses are incurred.  The  Indemnifying
Party  agrees  that it will  not,  without  the  prior  written  consent  of the
Indemnified Party, settle, compromise or consent to the entry of any judgment in
any pending or threatened claim relating to the matters  contemplated hereby (if
any Indemnified  Party is a party thereto or has been actually  threatened to be
made a party thereto) unless such settlement,  compromise or consent includes an
unconditional  release of such Indemnified  Party from all liability  arising or
that may arise out of such claim. The Indemnifying Party shall not be liable for
any  settlement of any claim effected  against an Indemnified  Party without the
Indemnifying  Party's written  consent,  which consent shall not be unreasonably
withheld,  conditioned or delayed.  The rights accorded to an Indemnified  Party
hereunder shall be in addition to any rights that any Indemnified Party may have
at common law, by separate  agreement  or  otherwise;  provided,  however,  that
notwithstanding  the  foregoing  or anything to the  contrary  contained in this
Agreement,  nothing in this Article XI (other than Section 11.03) shall restrict
or limit  any  rights  that any  Indemnified  Party  may have to seek  equitable
relief.

                                       24
<PAGE>

         Section 11.03.  Dispute  Resolution.  Any dispute under this Agreement,
the  Registration  Rights  Agreement  or  the  Warrant  shall  be  submitted  to
arbitration  (including,  without  limitation,  pursuant to this Article XI) and
shall be finally  and  conclusively  determined  by the  decision  of a board of
arbitration  consisting  of three  (3)  members  (the  "Board  of  Arbitration")
selected  as  hereinafter  provided.  Each  of the  Indemnified  Party  and  the
Indemnifying  Party shall  select one (1) member and the third  member  shall be
selected by mutual agreement of the other members,  or if the other members fail
to reach  agreement  on a third  member  within  twenty  (20) days  after  their
selection,  such third  member  shall  thereafter  be selected  by the  American
Arbitration  Association  upon  application  made to it for such  purpose by the
Indemnified  Party. The Board of Arbitration shall meet on consecutive  business
days in San  Francisco,  California  or such other  place as a  majority  of the
members of the Board of Arbitration determines more appropriate, and shall reach
and render a decision in writing  (concurred  in by a majority of the members of
the  Board of  Arbitration)  with  respect  to the  amount,  if any,  which  the
Indemnifying  Party is required to pay to the Indemnified  Party in respect of a
claim  filed  by  the  Indemnified  Party.  In  connection  with  rendering  its
decisions,  the Board of  Arbitration  shall  adopt and  follow  such  rules and
procedures  as a  majority  of the  members  of the Board of  Arbitration  deems
necessary or  appropriate.  To the extent  practical,  decisions of the Board of
Arbitration  shall be rendered no more than thirty (30) calendar days  following
commencement of proceedings with respect thereto. The Board of Arbitration shall
cause its written  decision to be  delivered  to the  Indemnified  Party and the
Indemnifying  Party. Any decision made by the Board of Arbitration (either prior
to or after the  expiration  of such thirty (30)  calendar day period)  shall be
final,  binding and  conclusive on the  Indemnified  Party and the  Indemnifying
Party and  entitled to be enforced to the fullest  extent  permitted  by law and
entered in any court of competent  jurisdiction.  Each party to any  arbitration
shall bear its own expense in  relation  thereto,  including  but not limited to
such party's  attorneys' fees, if any, and the expenses and fees of the Board of
Arbitration shall be divided between the Indemnifying  Party and the Indemnified
Party in the same  proportion as the portion of the related claim  determined by
the Board of  Arbitration  to be payable to the  Indemnified  Party bears to the
portion of such claim determined not to be so payable.

                                  ARTICLE XII

                                  MISCELLANEOUS

         Section 12.01. Fees and Expenses.

              (a) The  Company  shall  pay on  demand  all  reasonable  fees and
expenses,  including,  without  limitation,  all  reasonable  attorneys fees and
expenses,   incurred  by  the  Investor  in  connection  with  the  preparation,
negotiation,  execution and delivery of this Agreement,  the Registration Rights
Agreement  and the  Warrant,  which  payment  shall be made  whether  or not any
transactions contemplated hereunder are actually consummated.

              (b) The Company shall pay on demand  $12,500 per calendar  quarter
to cover due diligence expenses incurred by the Investor during the term of this
Agreement; provided, however, that the Company shall not be required to pay such
amounts with respect to the second and third calendar quarters of 2004.

                                       25
<PAGE>

              (c) The Company shall be solely responsible for (i) all reasonable
fees and expenses  incurred by the Investor in connection  with any  amendments,
modifications  or waivers of this  Agreement or incurred in connection  with the
Investor's  enforcement of this Agreement,  including,  without limitation,  all
reasonable  attorneys  fees and  expenses,  and (ii) all stamp or other  similar
taxes and  duties,  if any,  levied in  connection  with  issuance of the Shares
pursuant hereto.

         Section  12.02.  Reporting  Entity for the Common Stock.  The reporting
entity relied upon for the  determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this  Agreement
shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of
the  Investor  and the Company  shall be required to employ any other  reporting
entity.

         Section 12.03. Brokerage. Except as set forth on Schedule 4.12, each of
the parties  hereto  represents  that it has had no dealings in connection  with
this transaction with any finder or broker who will demand payment of any fee or
commission from the other party.  The Company on the one hand, and the Investor,
on the other  hand,  agree to  indemnify  the other  against  and hold the other
harmless  from  any  and  all  liabilities  to any  Persons  claiming  brokerage
commissions  or  finder's  fees on account of  services  purported  to have been
rendered on behalf of the  indemnifying  party in connection with this Agreement
or the transactions contemplated hereby.

         Section  12.04.  Notices.  All notices,  demands,  requests,  consents,
approvals,  and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein,  shall be (i) personally served,
(ii) deposited in the mail,  registered or certified,  return receipt requested,
postage  prepaid,  (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other  address as such party shall have  specified
most  recently by written  notice given in  accordance  herewith.  Any notice or
other communication  required or permitted to be given hereunder shall be deemed
effective  (a) upon hand  delivery  or  delivery  by  facsimile,  with  accurate
confirmation  generated by the transmitting facsimile machine, at the address or
number  designated  below (if delivered on a business day during normal business
hours where such notice is to be received),  or the first business day following
such delivery (if delivered  other than on a business day during normal business
hours where such notice is to be  received)  or (b) on the second  business  day
following  the date of  mailing  by  express  courier  service,  fully  prepaid,
addressed to such address,  or upon actual  receipt of such  mailing,  whichever
shall first occur. The addresses for such communications shall be:

                  If to the Company:

                  Tegal Corporation
                  2201 South McDowell Blvd.
                  Petaluma, California  94954
                  Telephone:  (707) 763-5600
                  Facsimile:  (707) 763 0436
                  Attention:  Thomas R. Mika, Chief Financial Officer

                                       26
<PAGE>

with a copy (which shall not constitute notice) to:

                  Scott Willoughby, Esq.
                  Latham & Watkins LLP
                  505 Montgomery Street #1900
                  San Francisco, CA 94111
                  Telephone:  (415) 646-8345
                  Facsimile:  (415) 395-8095

if to the Investor:

                  Kingsbridge Capital Limited/ c/o Kingsbridge Corporate
                  Services Limited
                  Main Street
                  Kilcullen, County Kildare
                  Republic of Ireland
                  Telephone:  011-353-45-481-811
                  Facsimile:  011-353-45-482-003
                  Attention:  Adam Gurney, Managing Director

with a copy (which shall not constitute notice) to:

                  Keith M. Andruschak, Esq.
                  Clifford Chance US LLP
                  200 Park Avenue
                  New York, NY  10166
                  Telephone: (212) 878-8000
                  Facsimile: (212) 878-8375

Either party hereto may from time to time change its address or facsimile number
for notices  under this Section by giving at least ten (10) days' prior  written
notice of such changed address or facsimile number to the other party hereto.

         Section 12.05. Assignment. Neither this Agreement nor any rights of the
Investor or the Company  hereunder  may be assigned by either party to any other
Person.  Notwithstanding  the  foregoing,  (a) the  provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any private  transferee of
any of the Common Stock  purchased or acquired by the  Investor  hereunder  with
respect to the Common Stock held by such Person, and (b) the Investor's interest
in this  Agreement  may be  assigned  at any time,  in whole or in part,  to any
Affiliate of the Investor upon the prior written  consent of the Company,  which
consent shall not to be unreasonably withheld.

         Section 12.06.  Amendment; No Waiver. No party shall be liable or bound
to any other party in any manner by any warranties, representations or covenants
except  as  specifically  set  forth in this  Agreement  or  therein.  Except as
expressly provided in this Agreement, neither this Agreement nor any term hereof
may be  amended,  waived,  discharged  or  terminated  other  than by a  written
instrument  signed by both  parties  hereto.  The failure of the either party to
insist on strict  compliance  with this  Agreement,  or to exercise any right or
remedy  under  this  Agreement,  shall not  constitute  a waiver  of any  rights
provided under this Agreement,  nor estop the parties from thereafter  demanding
full and  complete  compliance  nor prevent the parties from  exercising  such a
right or remedy in the future.

         Section 12.07.  Entire  Agreement.  This  Agreement,  the  Registration
Rights   Agreement   and  the  Warrant  set  forth  the  entire   agreement  and
understanding  of  the  parties  relating  to  the  subject  matter  hereof  and
supersedes  all  prior  and   contemporaneous   agreements,   negotiations   and
understandings  between  the  parties,  both oral and  written,  relating to the
subject matter hereof.

                                       27
<PAGE>

         Section  12.08.  Severability.  In the event that any provision of this
Agreement  becomes or is declared  by a court of  competent  jurisdiction  to be
illegal,  unenforceable or void, this Agreement shall continue in full force and
effect  without  said  provision;  provided  that,  such  severability  shall be
ineffective if it materially  changes the economic  benefit of this Agreement to
any party.

         Section 12.09.  Title and  Subtitles.  The titles and subtitles used in
this  Agreement  are used for the  convenience  of  reference  and are not to be
considered in construing or interpreting this Agreement.

         Section 12.10. Counterparts. This Agreement may be executed in multiple
counterparts,  each of which may be executed by less than all of the parties and
shall be deemed to be an original  instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument.

         Section 12.11.  Choice of Law. This Agreement  shall be construed under
the laws of the State of New York.

         Section 12.12. Specific Enforcement, Consent to Jurisdiction.

              (a) The  Company  and the  Investor  acknowledge  and  agree  that
irreparable  damage would occur in the event that any of the  provisions of this
Agreement  were not performed in accordance  with their  specific  terms or were
otherwise breached.  It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce  specifically  the terms and provisions  hereof or
thereof,  this being in addition to any other remedy to which any of them may be
entitled by law or equity.

              (b) Subject to Section 11.03, each of the Company and the Investor
(i) hereby irrevocably submits to the jurisdiction of the United States District
Court and other courts of the United States sitting in the State of New York for
the  purposes of any suit,  action or  proceeding  arising out of or relating to
this  Agreement  and (ii)  hereby  waives,  and agrees not to assert in any such
suit, action or proceeding,  any claim that it is not personally  subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in an
inconvenient  forum or that the  venue of the  suit,  action  or  proceeding  is
improper.  Each of the Company and the Investor consents to process being served
in any such suit,  action or  proceeding by mailing a copy thereof 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  in this  Section  shall  affect  or limit  any right to serve
process in any other manner permitted by law.

         Section  12.13.  Survival.  The  representations  and warranties of the
Company  and the  Investor  contained  in  Articles  IV and V and the  covenants
contained in Article V and Article VI shall  survive the  execution and delivery
hereof  and  the  Closing  until  the  termination  of this  Agreement,  and the
agreements and covenants set forth in Article X and Article XI of this Agreement
shall survive the execution and delivery hereof and the Closing hereunder.

                                       28
<PAGE>

         Section 12.14. Publicity. Prior to the Closing, neither the Company nor
the  Investor  shall  issue any  press  release  or  otherwise  make any  public
statement or  announcement  with respect to this  Agreement or the  transactions
contemplated hereby or the existence of this Agreement. In the event the Company
is required by law, based upon an opinion of the Company's  counsel,  to issue a
press release or otherwise make a public statement or announcement  with respect
to this  Agreement  prior to the  Closing,  the Company  shall  consult with the
Investor on the form and  substance of such press  release.  Promptly  after the
Closing,  each  party  may  issue a press  release  or  otherwise  make a public
statement or  announcement  with respect to this  Agreement or the  transactions
contemplated hereby or the existence of this Agreement;  provided that, prior to
issuing  any  such  press   release,   making  any  such  public   statement  or
announcement,  the party wishing to make such release, statement or announcement
consults and cooperates in good faith with the other party in order to formulate
such press  release,  public  statement or  announcement  in form and  substance
reasonably acceptable to both parties.

         Section  12.15.  Further  Assurances.  From and  after the date of this
Agreement,  upon the request of the Investor or the Company, each of the Company
and the Investor shall execute and deliver such instruments, documents and other
writings as may be  reasonably  necessary  or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.

                [Remainder of this page intentionally left blank]

                                       29
<PAGE>

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

                                KINGSBRIDGE CAPITAL LIMITED

                                By: /s/ Valentine O'Donoghue
                                    -----------------------------------
                                    Valentine O'Donoghue
                                    Director

                                TEGAL CORPORATION

                                By: /s/ Thomas R. Mika
                                    -----------------------------------
                                    Thomas R. Mika
                                    Executive Vice President and Chief
                                    Financial Officer

                                       30
<PAGE>

                                     ANNEX A

                              MARKET CAPITALIZATION

         The market  capitalization  of Tegal Corporation shall be calculated on
the Trading Day preceding the first Trading Day of the Draw Down Pricing  Period
and  shall be  based  upon  the  product  of (x) the  closing  bid  price of the
Company's Common Stock as reported by Bloomberg L.P. using the AQR function, (y)
the number of  outstanding  shares of Common Stock of the Company as reported by
Bloomberg   L.P.   using  the  DES   function   (such   product,   the   "Market
Capitalization").

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