10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended April 1, 2006
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from           to           .

Commission file number 0-23418

MTI TECHNOLOGY CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	95-3601802
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)

17595 Cartwright Road

Irvine, California 92614

(Address of principal executive offices, zip code)

Registrant’s telephone number, including area code: (949) 251-1101

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common stock, $0.001 par value

(Title of class)

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes o          No þ

      Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes o          No þ

      Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark is disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer     o Accelerated filer     o Non-accelerated filer     þ

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes o          No þ

      The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $39,570,293 on September 30, 2005, based on the closing sale price of such stock on The Nasdaq Capital Market.

      The number of shares outstanding of registrant’s Common Stock, $0.001 par value, was 36,057,124 on June 19, 2006.

DOCUMENTS INCORPORATED BY REFERENCE:

      Information required under Items 10, 11, 12, 13 and 14 of Part III hereof are incorporated by reference to portions of the registrant’s definitive Proxy Statement to be filed in connection with the solicitation of proxies for its 2006 Annual Meeting of Stockholders.

TABLE OF CONTENTS

PART I
	ITEM 1. BUSINESS
	ITEM 1A. RISK FACTORS
	ITEM 1B. UNRESOLVED STAFF COMMENTS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 6. SELECTED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
	ITEM 9A. CONTROLS AND PROCEDURES
	ITEM 9B. OTHER INFORMATION
PART III
	ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	ITEM 11. EXECUTIVE COMPENSATION
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
	ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
SIGNATURES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
INDEPENDENT AUDITORS’ REPORT
MTI TECHNOLOGY CORPORATION CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
MTI TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
MTI TECHNOLOGY CORPORATION
SCHEDULE II
EXHIBIT 2.1
EXHIBIT 10.19
EXHIBIT 10.20
EXHIBIT 10.24
EXHIBIT 10.25
EXHIBIT 10.26
EXHIBIT 10.28
EXHIBIT 10.30
EXHIBIT 10.33
EXHIBIT 10.34
EXHIBIT 10.35
EXHIBIT 10.36
EXHIBIT 21.1
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I

ITEM 1. BUSINESS

INTRODUCTION

      MTI Technology Corporation was incorporated in California in March 1981 and reincorporated in Delaware in October 1992. Our principal executive offices are located at 17595 Cartwright Road, Irvine, California 92614. Our telephone number at that location is (949) 885-7300. References in this Form 10-K to “we,” “our,” “us,” the “Company” and “MTI” refer to MTI Technology Corporation and its consolidated subsidiaries.

      All references to years refer to our fiscal years ended April 6, 2002, April 5, 2003, April 3, 2004, April 2, 2005 and April 1, 2006, as applicable, unless the calendar year is specified. References to dollar amounts that appear in the tables and in the Notes to Consolidated Financial Statements are in thousands, except share and per share data amounts, unless otherwise specified. All of the fiscal years noted above consisted of 52 weeks.

OVERVIEW

      We are a multinational total information storage infrastructure solutions provider that offers a wide range of storage systems, software, services and solutions that are designed to help organizations get more value from their information and maximize their information technology (IT) assets. With a strategy known as Information Lifecycle Management (ILM), we help organizations organize, protect, move and manage information on the lowest-cost storage system appropriate for the level of protection and the speed of access needed at each point in the information’s life. ILM strives to simultaneously lower the cost of and reduce the risk of managing information, no matter what format it is in — documents, images or e-mail — as well as the data that resides in databases. ILM is designed to provide cost-effective business continuity and more efficient compliance with government and industry regulations. Through our broad array of offerings, we seek to help customers lower total operating costs, optimize service and performance and build a more responsive IT infrastructure.

      In March 2003, we became a reseller and service provider of EMC Automated Networked Storage^tm systems and software, pursuant to a reseller agreement with EMC Corporation, a world leader in information storage systems, software, networks and services. Although we focus primarily on EMC products, we also support and service customers that continue to use our MTI-branded RAID controller technology and partnered independent storage technology. The terms of the EMC reseller agreement do not allow us to sell data storage hardware that competes with EMC products. As an EMC reseller and service provider, we combine our core services capabilities, including storage networking assessment, installation, resource management and enhanced data protection, with the complete line of EMC storage systems and software. We design and implement solutions that incorporate a broad array of third party products to meet customer requirements in the areas of storage area networks, network attached storage, high-availability systems for enhanced business continuance, data protection systems incorporating enhanced backup and recovery, ILM, archiving and tape automation. We also enhance the value of our storage solutions through our 24 hour, seven days per week support and service infrastructure, which includes an international network of on-site field engineers, a storage solution laboratory, and global technical support centers. The EMC reseller agreement will expire in March 2009. Thereafter, and subject to mutual agreement, the EMC reseller agreement is automatically renewed for successive one-year renewal periods until terminated by either party with a 90-day notice. The sale of EMC products accounted for 81% of product revenue in both fiscal year 2006 and 2005, and 56% of product revenue in fiscal year 2004.

      We strive to differentiate ourselves from other resellers of EMC products. As the only EMC reseller that sells EMC disk-based storage products exclusively, we believe that we receive favorable pricing, rebates and access to training. As a service-enabled EMC reseller, unlike many resellers that only sell hardware and software, we generally do not rely on other service providers to fulfill the maintenance and professional services requirements for our customers. Not only do we sell hardware and software, we are able to provide a full offering of professional services, consulting and maintenance to our customers.

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      We have a history of recurring losses and net cash used in operations. In fiscal years 2006, 2005 and 2004 we incurred net losses of $8.1 million, $15.8 million and $3.9 million, respectively. Our cash used in operations was $11.2 million, $4.4 million and $10.9 million in fiscal years 2006, 2005 and 2004, respectively. We had $13.5 million in working capital as of April 1, 2006. Our future is dependent upon many factors, including but not limited to, improving revenues and margins, continuing our relationship with EMC, expanding our service offerings, completing and successfully integrating our recently announced acquisition of Collective Technologies, LLC, receiving market acceptance of new products and services, recruiting, hiring, training and retaining qualified personnel, forecasting revenues, controlling expenses and managing assets. If we are not successful in these areas, our future results of operations could be adversely affected.

      Our segment and geographic information is set forth in Note 9 of our Notes to Consolidated Financial Statements included in this report.

Our Strategy

      Our strategy is to become the dominant, trusted storage systems and infrastructure advisor in the mid-enterprise space. Through our total solutions provider approach, we strive to simplify the storage, availability, protection and management of data by delivering fully integrated solutions to our customers based on EMC storage systems and other vendors’ best-of-breed technologies and high value services.

      We provide customers access to technology through strategic partnerships with leading storage vendors including EMC, Legato, ADIC, Quantum, VMware, StorageTek, Qlogic, Emulex, McData, and Brocade. From basic services such as installation and integration to advanced services by our professional services consulting group designing and implementing fully integrated solutions, we strive to enable our customers to achieve the full potential of the technologies we implement in their operations.

      In order to continue to provide the broadest array of information storage solutions, we require access to a full complement of technology from the leaders in the industry. Through our relationship with EMC and other vendors, we believe we can offer our customers effective solutions addressing some of their most urgent business and regulatory requirements.

SIGNIFICANT BUSINESS DEVELOPMENTS

Collective Technologies Acquisition

      On June 6, 2006, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Collective Technologies, LLC (“Collective”). Collective is a leading provider of enterprise-class IT infrastructure services and solutions, with over 90 consultants. Pursuant to the Asset Purchase Agreement, we will acquire specified assets and liabilities of Collective for a purchase price consisting of:

•  $6.0 million in cash;

•  a note in the amount of $2.0 million bearing interest at 5% and due in twelve quarterly payments beginning 90 days after closing;

•  2,272,727 shares of our common stock;

•  a warrant to purchase 1,000,000 shares of our common stock at an exercise price of $1.32 per share;

•  assumption of certain liabilities.

      The shares issued as consideration in the transaction will be subject to a 12 month lock-up agreement and will have piggyback registration rights. The purchase price is subject to certain adjustments specified in the Asset Purchase Agreement. We will also issue up to 306,303 shares of restricted stock and up to 1,608,481 stock options to former employees of Collective that we acquire in the transaction or increase the purchase price in lieu thereof in certain instances. The transaction is subject to customary closing conditions. See further discussion in Note 13 of the Notes to the Consolidated Financial Statements of this Form 10-K.

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Series B Financing

      On August 19, 2005, we entered into an agreement to sell shares of Series B Convertible Preferred Stock (the “Series B”) in a private placement financing, which is referred to as the “Series B financing,” for $20.0 million, in gross proceeds, before payment of professional fees. The purchasers in the private placement were EMC Corporation and affiliates of Advent International Corporation. The sale of the Series B was subject to stockholder approval and was approved by stockholders at our annual stockholder meeting on November 1, 2005.

      Accordingly, on November 2, 2005, 1,582,023 shares of Series B were issued at a purchase price of $12.6420 per share, which was equal to ten times 90% of the average closing price of our common stock during the 15 trading days prior to the Series B issue date. The sale of Series B raised $19.1 million in net proceeds. The Series B shares are convertible any time at the direction of the holders. Each share of Series B is convertible into a number of shares of common stock equaling its stated value plus accumulated and unpaid dividends, divided by its conversion price then in effect. Each share of Series B is initially convertible into ten shares of common stock, but is subject to adjustment upon certain dilutive issuances of securities by the Company. The Series B financing included the issuance of warrants to purchase 5,932,587 shares of our common stock at an exercise price of $1.26 per share. The warrants are exercisable immediately and have a ten year life. As part of the private placement, the Series B investors have the right to elect a director to the Company’s Board of Directors. The issuance of Series B triggered the anti-dilution provisions of the Series A Convertible Preferred Stock (the “Series A”). Upon issuance of the Series B, the conversion price of the Series A was reduced from $2.6465 to $2.0650 per share. As of April 1, 2006, each share of Series A is convertible into approximately 12.8 shares of common stock.

OUR MARKET

      Our primary market focus is the worldwide mid-enterprise open systems-based market for information storage, data management and protection solutions. EMC currently fulfills approximately 27% of the storage infrastructure for this market.

      Worldwide IT storage capacity deployments are growing and storage is considered to be a major IT discipline in most organizations, with storage spending exceeding server and networking expenditures. Storage expenditures are shifting to services and we believe that complexity, not a lack of technology, is now the key weakness in the IT storage environment. There are currently many powerful networking, software and integrated “appliance” products available that address storage manageability and automate key storage management functions. Historically, we have sold many of these state-of-the-art products ranging from fibre-channel storage area network (SAN), network area storage (NAS), direct attached storage (DAS) and content addressable storage (CAS), as well as the hardware and software components of data replication and backup systems. Understanding and working with the vast array of storage offerings is complex and expensive for the IT customer.

      We believe that the trend towards acquiring fully integrated storage solutions will be particularly strong in the mid-enterprise storage market, where companies tend to host their own mission critical applications yet do not have the staffing of the large enterprise environment. Despite increasing demand for additional storage requirements over the last few years, we believe that companies in the mid-enterprise segment do not have sufficient access to fully integrated storage solution providers. The majority of system integrators and resellers tend to either be too small, lack the necessary multi-national infrastructure or do not have the required technology relationships to satisfy the needs of the mid-enterprise market. In addition, too few vendors, resellers, and integrators focus purely on information storage infrastructure.

OUR STORAGE SOLUTION

      We deliver information storage infrastructure solutions designed to solve many common and demanding customer problems. These solutions are built on what we believe to be the best-of-breed platform complemented by strategic partners such as EMC, Legato, ADIC, Quantum, VMware, StorageTek, Qlogic, Emulex, McData, and Brocade. We strive to integrate these solutions into a complete, easy-to-operate and reliable

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storage environment designed to meet the customer’s specific business objectives. Our technical specialists assess the customer’s environment and often custom design each solution to address the customer’s specific needs, both in terms of technical configuration and vendor product selection. Leveraging our technical resources and vendor relationships, we work with our customers to select an interoperative platform to meet the solution objectives. We then custom design and deliver these solutions with a wide range of value-added service offerings from installation and implementation to ongoing maintenance, support, management, residency and knowledge transfer. Our solutions approach provides us the opportunity to not only meet a customer’s hardware and software requirements, but also advise and implement comprehensive business process (e.g. ILM, business continuance, regulatory compliance) improvements thus enhancing our value proposition. Moreover, as a provider of both products and professional services and on-going support, we strive to provide a single point of contact that reduces vendor complexity and delivers operational efficiencies.

      Our solutions are divided into five areas that address different aspects of the storage environment:

•  Storage infrastructure solutions that center on state-of-the-art, high-performance, high-availability networked storage systems from EMC (DAS, SAN, NAS and CAS). These solutions are designed to deliver fast, reliable and resilient on-line storage systems. Our solutions are integrated with easy to use storage resource management software that allows our customers to improve system administration productivity.

•  Information backup, recovery and archiving solutions that incorporate leading edge solutions from vendors such as EMC, Legato and Arkivio in combination with state-of-the-art tape libraries from Quantum, StorageTek and ADIC.

•  Replication and availability services on both a local level and wide area basis to create operational copies of current data or for enhanced data protection and business continuity utilizing software and hardware services from EMC, Legato and other leading storage application software vendors.

•  Server virtualization solutions from VMware that enable server consolidation and increased application mobility across server platforms to deliver operational cost savings and increased availability and business continuity.

•  Information Lifecycle Management solutions that enable customers to reduce cost and control, track and manage information across storage platforms and applications in support of regulatory compliance and corporate governance initiatives.

GLOBAL CUSTOMER SOLUTIONS

      We believe the quality and reliability of the products we sell and the continuing support of these products are important elements of our business. As we continue to expand our reseller strategy with EMC and other partners, we believe that the expertise of our professional services staff and the delivery of high quality customer service will be of even greater importance to our customer base. Additionally, as part of EMC’s Authorized Service Network, we are part of a worldwide network of professional service organizations enabling us to offer enhanced service and consulting capabilities to our customers.

      As part of our strategy to build a worldwide organization devoted to addressing customers’ information infrastructure related needs, in fiscal year 2004 we created a function called Global Customer Solutions (GCS) to better align and utilize our service resources. GCS is the umbrella function for all of our customer support functions. The GCS functions encompass all of product procurement, integration, logistics support, software and hardware technical support, field service operations and professional services consultancy. We have consolidated our legacy product sustaining function in two separate primary product support centers, one located at our corporate headquarters in Irvine, California, and a second located in Godalming, England. As necessary, technical professionals from either facility are dispatched worldwide to address and solve our customer requirements.

      We offer a variety of customer services that include system and software maintenance of MTI and EMC-manufactured products, as well as other open-system platforms, consulting services, storage-management

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integration and training. We offer on-site service response 24 hours-a-day, seven-days-a-week, 365 days-a-year. Service revenue represented approximately 25%, 29% and 44% of our total revenue in fiscal years 2006, 2005 and 2004, respectively.

SALES AND MARKETING

      Since 1996, we have focused our business on the information storage needs of the open-systems and mid-enterprise storage market. We have over 3,000 customers who have relied on us to design, implement and service portions of the storage environments that often support their critical business applications. Since becoming a reseller and total storage solutions provider in 2003, the vast majority of our sales and marketing efforts have been focused on selling and servicing storage solutions purchased from EMC and its wholly-owned subsidiaries. Our market strategy is to become the preferred provider for sales, professional services and maintenance to the mid-enterprise market for information infrastructure solutions.

      We believe that in today’s technology storage marketplace, buying decisions are based much more on return on investment than in the past. Today’s buyers are more “business managers” than traditional technology buyers and purchases are made to solve existing business issues. For this reason, we believe our total solutions approach combined with the EMC product brand provides customers with a compelling value proposition. Through our total solutions approach, we strive to enable customers to leverage one source for their storage infrastructure needs, while our EMC relationship allows us to have access to what we believe is a world-class product brand to meet the demands of today’s marketplace.

      Our marketing is focused around direct lead generation through select localized telemarketing and other marketing strategies. The majority of our sales transactions are developed through our internal lead generation. However, we also receive sales leads directly from EMC. EMC’s primary sales focus is geared toward large customers and therefore at times it passes sales leads for small to mid-size customers to one of its channel partners. Upon receiving a sales lead, we are then responsible for designing the solution, negotiating and closing the transaction.

ORDER BACKLOG

      As a reseller of EMC storage systems, our backlog levels will depend on the availability of EMC products. EMC generally ships products within ten days upon receipt of a purchase order. A significant portion of our sales historically has occurred in the last month of a quarter. Consequently, our backlog at the end of a quarter is dependant upon our ability to place a purchase order with EMC soon enough to allow EMC adequate time to assemble, test and ship orders prior to the end of the quarter. We believe that order backlog as of any particular date is not meaningful as it is not necessarily indicative of future sales levels. As of April 1, 2006, our product order backlog was $5.1 million as compared to $4.1 million as of April 2, 2005.

MANUFACTURING AND INTEGRATION SERVICES

      In April 2004, MTI ceased manufacturing operations. Order fulfillment for North America is managed through our corporate office in Irvine, California and products are generally drop-shipped directly from our suppliers. Order fulfillment for Europe through the majority of fiscal year 2005 was managed directly through Dublin, Ireland. Since the closure of the Dublin, Ireland facility in fiscal year 2005, order fulfillment for Europe is handled by each respective country. We continue to have a smaller scale product integration capability in the UK to fulfill the need for our legacy RAID products.

COMPETITION

      The market for information infrastructure solutions is extremely competitive, characterized by rapidly changing technology. We have a number of competitors in various markets, including Hewlett-Packard Company, Hitachi Data Systems, IBM, Network Appliance, Inc. and Sun Microsystems, Inc., each of which has substantially greater name recognition, marketing capabilities, and financial and personnel resources than we have. As a reseller of EMC-centric solutions, we believe that we have a competitive advantage of selling

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products of the highest levels of functionality, performance and availability in the information infrastructure market.

      Since our goal is to enable customers to purchase a single, integrated information infrastructure solution, rather than multiple components requiring integration by the customer, we believe the principal elements of competition include quality of professional services consulting, ongoing support and maintenance coupled with responsiveness to customers and market needs, as well as price, product quality, reliability and performance. There can be no assurance that we will be able to compete successfully or that competition will not have a materially-adverse effect on our results of operations. See “Risk Factors — The markets for the products and services that we sell are intensely competitive which may lead to reduced sales of our products, reduced profits and reduced market share for our business” in Item 1A of this Form 10-K.

PROPRIETARY RIGHTS

      We have relied on a combination of patent, copyright, trademark and trade-secret laws, employee and third party non-disclosure agreements and technical measures to protect our proprietary rights in our products. Since we shifted our strategy and became an EMC reseller, our reliance on proprietary rights is less relevant. In fiscal year 2005, we assigned to EMC all of our rights, title and interest in and to all of our remaining patents and patent applications.

SEASONALITY

      Although we do not consider our business to be highly seasonal, we generally experience greater demand for our products and services in the last quarter of the calendar year (our third fiscal quarter).

EMPLOYEES

      As of April 1, 2006, we had 302 full-time employees worldwide, including 123 in sales and marketing, 132 in global customer solutions and 50 in procurement, general administration and finance. None of our employees is represented by a labor union, and we consider our relations with our employees to be good.

AVAILABILITY OF SEC FILINGS

      All reports we file with the Securities Exchange Commission are available free of charge via EDGAR through the Securities Exchange Commission website at www.sec.gov. In addition, the public may read and copy materials we file with the Securities Exchange Commission at the Securities Exchange Commission’s public reference room located at 100 F Street, N.E., Washington, D.C., 20549. Information regarding operation of the Securities Exchange Commission’s public reference room can be obtained by calling the Securities Exchange Commission at 1-800-SEC-0330. We make available our Forms 8-K, 10-K 10-Q, Proxy and Annual Report through our website at www.mti.com, as soon as reasonably practicable after filing or furnishing such material with the Securities Exchange Commission. Our code of conduct is also available on our website. The information contained on our website is not part of this report or incorporated by reference herein.

ITEM 1A.      RISK FACTORS

FORWARD-LOOKING STATEMENTS

      This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements include statements regarding our expectations, hopes or intentions regarding the future, including but not limited to, statements regarding our relationship with EMC, storage solution trends, strategy, backlog, competition, demand seasonality, acquisition of Collective Technologies, LLC, financing, revenue, margins, operations, capital

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expenditures, service offerings, personnel, dividends, litigation and compliance with applicable laws. In particular, this Annual Report on Form 10-K contains forward-looking statements regarding:

•  our belief that we receive favorable pricing, rebates and access to training from EMC;

•  our belief that complexity is the key weakness in the IT storage environment;

•  our beliefs regarding trends toward fully integrated storage solutions and insufficient access to those solutions in the mid-enterprise market;

•  our belief that the quality, reliability, and continuing support of our products and the expertise of our professional services staff will be of greater importance to our customer base;

•  our market strategy to become the preferred provider for sales, professional services and maintenance to the mid-enterprise market for information infrastructure solutions;

•  our belief that EMC products are a world-class product brand;

•  our total solutions approach and the ability of the EMC product brand to meet our customers’ needs and to track their buying decisions;

•  our belief that order backlog as of any particular date is not meaningful as it is not necessarily indicative of future sales levels;

•  our beliefs regarding the principal elements of competition;

•  our anticipation of greater demand for our products and services in our third fiscal quarter;

•  the factors upon which our future depends, which, in addition to our cost-reduction initiatives, include improving revenues and margins, continuing our relationship with EMC, expanding our service offerings, receiving market acceptance of new products and services, recruiting, hiring, training and retaining significant numbers of qualified personnel, forecasting revenues and expenses, controlling expenses, and managing assets;

•  our belief that our current cash and receivable balances will be sufficient to meet our operating and capital expenditure requirements for at least the next 12 months;

•  our belief regarding the timing and risk of undetected software or hardware errors;

•  our belief that our success is dependent to a significant extent on our personnel, including our executive officers;

•  our focus on increasing EMC product sales;

•  our belief that we are currently in compliance with Nasdaq Capital Market continued listing requirements;

•  our expectation to retain earnings and not to declare or pay any cash dividends in the near future;

•  our expectation that the loss of hardware maintenance revenue will be mitigated by an increase in professional service revenue and software maintenance revenue; and

•  our business outlook, including all statements in the section titled “Outlook” in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.

      Forward-looking statements involve certain risks and uncertainties, and actual results may differ materially from those discussed in any such statement. Factors that could cause actual results to differ materially from such forward-looking statements include the risks described in greater detail under the heading “Risk Factors” in Item 1A of this report. All forward-looking statements in this document are made as of the date hereof, based on information available to us as of the date hereof, and, except as otherwise

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required by law, we assume no obligation to update or revise any forward-looking statement to reflect new information, events or circumstances after the date hereof.

We are dependent upon EMC as the main supplier for our storage solutions, and disruptions in supply or significant increases in costs could harm our business materially.

      In March 2003, we entered into a Reseller Agreement with EMC whereby we became a reseller of EMC storage products. The agreement gives us a right to sell and license EMC hardware and software products, but also restricts our ability to resell data storage hardware platforms that compete with EMC products. As a result of the agreement, we depend on EMC to manufacture and supply us with its storage products. We may fail to obtain required storage products in a timely manner or to obtain it in the quantities we desire in the future. If EMC were to decide to modify its channel strategy, it may cease supplying us with its storage products. If EMC were to unexpectedly cancel the reseller agreement, we may be unable to find other vendors as a replacement in a timely manner or of acceptable quality. Any interruption or delay in the supply of EMC storage products, or the inability to obtain these products at acceptable prices and within a reasonable amount of time, would impair our ability to meet scheduled product deliveries to our customers and could cause customers to cancel orders. This lost storage product revenue could harm our business, financial condition and operating results, rendering us unable to continue operating at our current level of operations.

      In the first quarter of fiscal 2005 we became an EMC Premier Velocity Partner, which has allowed us to earn certain performance based and service rebates. In fiscal 2006 we recorded EMC rebates of $1.5 million. There is no guarantee that we will earn these rebates in the future or that EMC will continue to offer such rebate program. Our failure to receive these performance rebates could have an adverse impact on our results of operations.

Our stock ownership is concentrated in a few stockholders who may be able to influence corporate decisions.

      Our stock ownership is concentrated in a few stockholders who are able to influence corporate decisions. As a result of this concentration, these few stockholders are able to influence actions of the Company that require stockholder approval, in particular with regard to significant corporate transactions. Among other things, this concentration may delay or prevent a change in control of the Company that may be favored by other stockholders, and may in general make it difficult for the Company to effect certain actions without the support of the larger stockholders.

      As of April 1, 2006, The Canopy Group, Inc. (“Canopy”) beneficially owned 22% of the Company’s common stock assuming conversion of the Series A and Series B and related warrants outstanding, but excluding outstanding options. Mr. William Mustard serves on our Board of Directors and was President and CEO of Canopy until December 23, 2005 when he resigned from Canopy.

      In addition, the holders of our Series A and Series B, as a result of their acquisition of securities issued in our June 2004 and November 2005 private placements, currently beneficially own approximately 46% of the Company’s outstanding common stock, assuming conversion and exercise of all shares of preferred stock and warrants which they presently hold. Other than with respect to the election of directors, the holders of Series A and Series B generally have the right to vote on any matter with the holders of common stock, and each share of Series A is entitled to 8.5369 votes and each share of Series B is entitled to 8.7792 votes. The approval of the holders of a majority of the Series A and Series B, each voting as a separate class, will be required to approve certain corporate actions, including:

•  any amendment of the Company’s charter or bylaws that adversely affects the holders of Series A, or Series B, as applicable;

•  any authorization of a class of capital stock ranking senior to, or on parity with, the Series A, or Series B, as applicable;

•  any increase in the size of the Company’s Board of Directors to greater than eight members or any change in the classification of the Board of Directors;

8

•  certain redemptions or repurchases of capital stock;

•  acquisitions of capital stock or assets from other entities;

•  effecting, or entering into any agreement to effect, any merger, consolidation, recapitalization, reorganization, liquidation, dissolution, winding up or similar transaction (a “Liquidation Event”) involving the Company or any of its subsidiaries;

•  any sale of assets of the Company or a subsidiary which is outside the ordinary course of business;

•  any purchase of assets of or an equity interest in another entity for more than $5.0 million; and

•  any incurrence of additional debt for borrowed money in excess of $1.0 million.

      The holders of Series A and Series B are each entitled to elect one member of the Company’s Board of Directors.

      In connection with the Series A financing, the Series A investors, the Company and The Canopy Group, Inc. entered into a Voting Agreement, pursuant to which, when any matter involving a significant corporation transaction (such as a merger, consolidation, liquidation, significant issuance of voting securities by the Company, sale of significant Company assets, or acquisition of significant assets or equity interest of another entity) is submitted to a vote of the Company’s stockholders, Canopy has agreed that either (a) the common stock of the Company that Canopy holds will be voted in proportion to the Series A investors’ votes on the matter, or (b) if Canopy wishes that any of its common stock be voted differently than in proportion to the Series A investors’ votes, Canopy will, if so required by a Series A investor, purchase from the Series A investor(s) with which the Canopy votes are not aligned all or any portion (as required by the Series A investor) of such investor’s Series A Convertible Preferred Stock. The per share price in any such purchase is to equal two times the sum of (x) the stated value of a share of Series A Convertible Preferred Stock plus (y) any accrued but unpaid dividends thereon. At any stockholder meeting at which members of the Board are to be elected and the Series A investors do not then have either a Series A Director on the Board or the power at such election to elect a Series A Director to the Board, Canopy has agreed to vote in favor of one nominee of the Advent Funds and the Series A investors have agreed to vote in favor of a Canopy nominee. Currently, Canopy beneficially owns approximately 22% of the Company’s outstanding common stock (calculated assuming conversion of all outstanding Series A Preferred and Series B Preferred and the warrants held by the holders of our preferred stock, but excluding outstanding options).

Our pending acquisition of the operating assets of Collective Technologies, LLC is expected to benefit us, but we may not realize any anticipated benefits due to challenges associated with integrating our companies and costs we incur from the acquisition.

      The closing of our pending acquisition of the operating assets of Collective is subject to customary closing conditions and other uncertainties, and the transaction may not ultimately be consummated. Furthermore, the success of our pending acquisition of Collective, if consummated, will depend in large part on the success of our management in integrating the operations, technologies, service capabilities and personnel of Collective into our company following the acquisition. Our failure to meet the challenges involved in integrating successfully the operations of Collective or otherwise to realize any of the anticipated benefits of the acquisition could adversely impact our combined results of operations. In addition, the overall integration of Collective may result in unanticipated operational problems, expenses, liabilities and diversion of management’s attention. The challenges involved in this integration include the following:

•  successfully integrating our operations, technologies, products and services with those of Collective;

•  retaining and expanding customer and supplier relationships;

•  coordinating and integrating the service capabilities of Collective into our company;

•  preserving service and other important relationships that we and Collective have, and resolving potential conflicts that may arise;

9

•  assimilating the personnel of Collective and integrating the business cultures of both companies;

•  maintaining employee morale and motivation; and

•  reducing administrative costs associated with the operations of Collective.

      We may not be able to successfully integrate the operations of Collective in a timely manner, or at all, and we may not realize the anticipated benefits or synergies of the acquisition to the extent or in the time frame anticipated.

Our stockholders may be diluted by the conversion of outstanding Series A and Series B and the exercise of warrants to purchase common stock issued in our June 2004 and November 2005 private placements, and by our pending acquisition of Collective, if consummated.

      There are currently 566,797 shares of our Series A Convertible Preferred Stock outstanding, which are convertible at any time at the direction of their holders. Each share of Series A Convertible Preferred Stock is convertible into a number of shares of common stock equaling its stated value plus accumulated and unpaid dividends, divided by its conversion price then in effect. Each share of Series A is presently convertible into approximately 12.8 shares of common stock, but is subject to adjustment upon certain dilutive issuances of securities by the Company. The outstanding shares of Series A Convertible Preferred Stock are currently convertible into an aggregate of approximately 7.3 million shares of common stock. Dividends accrue on the Series A Convertible Preferred Stock at an annual rate of 8%, and the holders of Series A Convertible Preferred Stock may convert the accrued dividends into shares of common stock to the extent the Company has not previously paid such dividends in cash. Accrued and unpaid Series A dividends totaled $2,225 at April 1, 2006. The holders of Series A are also entitled to anti-dilution protection, pursuant to which the conversion price would be reduced using a weighted-average calculation in the event the Company issues certain additional securities at a price per share less than the conversion price then in effect. In addition, the holders of Series A have preemptive rights to purchase a pro rata portion of certain future issuances of equity securities by the Company.

      There are also currently 1,582,023 shares of our Series B outstanding, which are convertible at any time at the direction of their holders. Each share of Series B is convertible into a number of shares of common stock equaling its stated value plus accumulated and unpaid dividends, divided by its conversion price then in effect. Each share of Series B is presently convertible into 10 shares of common stock, but is subject to adjustment upon certain dilutive issuances of securities by the Company. The outstanding shares of Series B are currently convertible into an aggregate of approximately 15.8 million shares of common stock. Dividends accrue on the Series B at an annual rate of 8%, and the holders of Series B may convert the accrued dividends into shares of common stock to the extent the Company has not previously paid such dividends in cash. Accrued and unpaid Series B dividends totaled $667 at April 1, 2006. The holders of Series B are also entitled to anti-dilution protection, pursuant to which the conversion price would be reduced using a weighted-average calculation in the event the Company issues certain additional securities at a price per share less than their conversion price then in effect. In addition, the holders of Series B have preemptive rights to purchase a pro rata portion of certain future issuances of equity securities by the Company.

      There are currently warrants outstanding to purchase up to 1,624,308 shares of our common stock, which are held by the Series A investors. The exercise price for such warrants is $3.10 per share. The warrants are currently exercisable and expire in December 2014. There are currently warrants outstanding to purchase up to 5,932,587 shares of our common stock, which are held by the Series B investors. The exercise price for such warrants is $1.26 per share. The warrants are currently exercisable and expire in November 2015.

      Furthermore, if we have an indemnity obligation under the Securities Purchase Agreement we entered into in connection with the Series B financing, then we may, if we and the Series B investors agree, settle up to $2.0 million of that indemnity obligation by issuing up to an additional $2.0 million (158,203 shares) of Series B and warrants to purchase 37.5% of the number of shares of common stock into which such additional shares of Series B are convertible when issued. If any such indemnity obligation is not satisfied by issuing shares of Series B and warrants, then it will be satisfied through a cash payment.

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      If the holders of our Series A or Series B convert their shares or exercise the warrants they now hold, or that they may in the future be issued as a result of any indemnity obligations that we may have in connection with the Series B financing, the Company would be required to issue additional shares of common stock, resulting in dilution of existing common stockholders and potentially a decline in the market price of our common stock. Additionally, we have also agreed to issue 2,272,272 shares of common stock, a warrant to purchase 1 million shares of common stock, options to purchase up to 1,608,481 shares of common stock and up to 306,303 shares of restricted stock in connection with our pending acquisition of Collective (unless, under certain circumstances, the purchase price is increased in lieu thereof), all of which could cause further dilution to existing stockholders.

A significant portion of our revenues occurs in the last month of a given quarter. Consequently, our results of operations for any particular quarter are difficult to predict.

      We have experienced, historically, a significant portion of our orders, sales and shipments in the last month or weeks of each quarter. In fiscal year 2006, 59%, 65%, 61% and 60%, respectively, of our total revenue was recorded in the last month of each successive quarter. We expect this pattern to continue, and possibly to increase, in the future. This uneven pattern makes our ability to forecast revenues, earnings and working capital requirements for each quarter difficult and uncertain. If we do not receive orders that we have anticipated or complete shipments within a given quarter, our results of operations could be harmed materially for that quarter. Additionally, due to receiving a significant portion of our orders in the last month of the quarter, we may experience a situation in which we have exceeded our credit limits with our vendors, thereby making our ability to ship to our customers very difficult. If we experience such situations and are unable to extend our credit limits with our vendors, this could materially harm our results of operations.

We have a history of operating losses, and our future operating results may depend on the success of our cost reduction initiatives and on other factors.

      We have a history of recurring losses and net cash used in operations. In fiscal 2006 and 2005, we incurred net losses of $8.1 million and $15.8 million, respectively. Our cash used in operations was $11.2 million and $4.4 million and for fiscal year 2006 and 2005, respectively. We had $13.5 million in working capital as of April 1, 2006.

      In fiscal year 2005, we implemented additional restructuring activities related to the closure of our Dublin, Ireland facility. These measures included reductions in our workforce and the partial or complete closure of certain under-utilized facilities, including offices. We cannot predict with any certainty the long-term impact of our workforce reductions. Reductions in our workforce could negatively impact our financial condition and results of operations by, among other things, making it difficult to motivate and retain the remaining employees, which in turn may affect our ability to deliver our products in a timely fashion. We also cannot assure you that these measures will be successful in achieving the expected benefits within the expected time frames, or at all, or that the workforce reductions will not impair our ability to achieve our current or future business objectives.

      Our future is dependent upon many other factors in addition to our cost reduction initiatives, including but not limited to, improving revenues and margins, continuing our relationship with EMC, expanding our service offerings, completing and successfully integrating our recently announced acquisition of Collective, receiving market acceptance of new products and services, recruiting, hiring, training and retaining significant numbers of qualified personnel, forecasting revenues and expenses, controlling expenses and managing assets. If we are not successful in these areas, our future results of operations could be adversely affected.

We are subject to financial and operating risks associated with international sales and services.

      International sales and services represented approximately 40% and 42% of our total sales and service revenue for fiscal year 2006 and 2005, respectively. As a result, our results of operations are subject to the financial and operating risks of conducting business internationally, including:

•  fluctuating exchange rates, tariffs and other barriers;

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•  difficulties in staffing and managing foreign subsidiary operations;

•  changes in a country’s economic or political conditions;

•  greater difficulties in accounts receivable collection and longer payment cycles;

•  unexpected changes in, or impositions of, legislative or regulatory requirements;

•  import or export restrictions;

•  potentially adverse tax consequences;

•  potential hostilities and changes in diplomatic and trade relationships; and

•  differing customer and/or technology standards requirements.

      All of our sales and services in international markets are priced in the applicable local currencies and are subject to currency exchange rate fluctuations. If we are faced with significant changes in the regulatory and business climate in our international markets, our business and results of operations could suffer.

The storage market is characterized by rapid technological change, and our success will depend on EMC’s ability to develop new products.

      The market for data storage products is characterized by rapid technology changes. The market is sensitive to changes in customer demands and very competitive with respect to timely innovation. New product introductions representing new or improved technology or industry standards may cause our existing products to become obsolete. When we became a reseller of EMC disk-based storage products, we agreed not to sell data storage hardware platforms that compete with EMC products. EMC’s ability to introduce new or enhanced products into the market on a timely basis at competitive price levels will affect our future results.

The markets for the products and services that we sell are intensely competitive, which may lead to reduced sales of our products, reduced profits and reduced market share for our business.

      The market for our products and services is intensely competitive. If we fail to maintain or enhance our competitive position, we could experience pricing pressures and reduced sales, margins, profits and market share, each of which could materially harm our business. Furthermore, new products and technologies developed by third parties may depress the sales of existing products and technologies. Our customers’ requirements and the technology available to satisfy those requirements are continually changing. We must be able to respond to these changes in order to remain competitive. Since we emphasize integrating third party products, our ability to respond to new technologies will be substantially dependent upon our contractual relationships with the third parties whose products we sell, particularly EMC. In addition, we must be able to quickly and effectively train our employees with respect to any new products or technologies developed by our third party suppliers and resold by us. Since we are not exclusive resellers, the third party products we sell are available from a large number of sources. Therefore, we must distinguish ourselves by the quality of our service and support. The principal elements of competition in our markets include:

•  quality of professional services consulting and support;

•  responsiveness to customer and market needs;

•  product price, quality, reliability and performance; and

•  ability to sell, service and deploy new technology.

      We have a number of competitors in various markets, including: Hewlett-Packard, Sun Microsystems, IBM, Hitachi and Network Appliance, each of which has substantially greater name recognition, marketing capabilities, and financial, technological, and personnel resources than MTI.

      Certain of our sales transactions are generated through sales leads received from EMC. Although EMC’s primary sales focus is currently on large-enterprise customers, should EMC change its strategy and begin to

12

sell directly to the small-to-mid-enterprise customers, or work more closely with other resellers, it could have an adverse impact on our results of operations.

We may need additional financing to continue to carry on our existing operations and such additional financing may not be available.

      We require substantial working capital to fund our operations. We have historically used cash generated from our operations, equity capital and bank financings to fund capital expenditures, as well as to invest in and operate our existing operations. Additionally, there is often a time gap between when we are required to pay for a product received from EMC (which is due net 45 days from shipment) and the time when we receive payment for the product from our customer (which often occurs after payment is due to EMC). Due to our sales growth since fiscal year 2004, a significant and increasingly larger portion of our working capital resources must be used to cover amounts owed to EMC during the gap periods. If we are not able to maintain sufficient working capital resources to fund payments due to EMC during these gap periods, we could default on or be late in our payments to EMC, which could harm our relationship with EMC, cause EMC to stop or delay shipments to our customers or otherwise reduce the level of business it does with us, harm our ability to serve our customers and otherwise adversely affect our financial performance and operations.

      We believe that our current cash and receivable balances will be sufficient to meet our operating and capital expenditure requirements for at least the next 12 months. Projections for our capital requirements are subject to numerous uncertainties, including the cost savings expected to be realized from the restructuring, the actual costs of the integration of Collective, the amount of service and product revenue generated in fiscal 2007 and general economic conditions. If we do not realize substantial cost savings from our restructuring, improve revenues and margins, successfully integrate Collective and achieve profitability, we expect to require additional funds in order to carry on our operations, and may seek to raise such funds through bank borrowings or public or private offerings of equity or debt securities or from other sources. Any such activity requires the approval of the Series A and Series B investors. No assurance can be given that our Series A and Series B investors will consent to such new financing, that additional financing will be available or that, if available, will be on terms favorable to us. If additional financing is required but not available to us, we would have to implement additional measures to conserve cash and reduce costs, which may include, among other things, making additional cost reductions. However, there is no assurance that such measures would be successful. Our failure to raise required additional funds would adversely affect our ability to:

•  grow the business;

•  maintain or enhance our product or service offerings;

•  respond to competitive pressures; and

•  continue operations.

      Additional funds raised through the issuance of equity securities or securities convertible into our common stock may include restrictive covenants and have the following negative effects on the then current holders of our common stock:

•  dilution in percentage of ownership in MTI;

•  economic dilution if the pricing terms offered to investors are more favorable to them than the current market price; and

•  subordination of the rights, preferences or privileges of common stockholders to the rights, preferences or privileges of new security holders.

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We are party to long term, non-cancelable facility leases for facilities which we do not use and may not be able to sublease on terms that will offset our lease obligations, which may result in a continuing unfavorable impact on our cash position.

      We are party to long term, non-cancelable facility leases with respect to facilities we no longer utilize. For example, we no longer utilize our facilities in Sunnyvale, California and various facilities in Europe. As a result, we are obligated to continue making lease payments related to our unutilized facilities. In the aggregate, in fiscal year 2007 and 2008, we are obligated to pay gross lease payments of approximately $0.6 million each fiscal year, for facility space which we no longer utilize, and we cannot assure you that we will be able to continue to sublease the unutilized facilities on terms that will significantly offset these obligations.

Our quarterly results may fluctuate from period to period. Therefore, historical results may not be indicative of future results or be helpful in evaluating the results of our business.

      We have experienced quarterly fluctuations in operating results and we anticipate that these fluctuations may continue into the future. These fluctuations have resulted from, and may continue to be caused by, a number of factors, including:

•  the size, timing and terms of customer orders;

•  the introduction of new products by our competitors and competitive pricing pressures;

•  the timing of the introduction of new products and new versions of best-of-breed products;

•  shifts in our product or services mix;

•  changes in our operating expenditures;

•  decreases in our gross profit as a percentage of revenues for mature products; and

•  changes in foreign currency exchange rates.

      Accordingly, we believe that quarter-to-quarter comparisons of our operating results are not necessarily meaningful and that such comparisons cannot be relied upon as indications of our future performance. We cannot assure you that we will be profitable on a quarter-to-quarter basis or that our future revenues and operating results will meet or exceed the expectations of securities analysts and investors. Failure to be profitable on a quarterly basis or to meet such expectations could cause a significant decrease in the trading price of our common stock. The following table quantifies the fluctuations in our period-to-period results for fiscal year 2006 (amounts in thousands).

									Net Loss
						Operating			Attributable
		Total		Gross		Income			to Common
		Revenue		Profit		(Loss)			Shareholders
2006
Fourth quarter		$	43,915	$	8,589	$	(117	)	$	(1,253	)
Third quarter			40,162		7,887		(1,557	)		(2,988	)
Second quarter			31,635		6,401		(3,463	)		(4,148	)
First quarter			39,331		8,078		(2,090	)		(3,622	)
	Total	$	155,043	$	30,955	$	(7,227	)	$	(12,011	)

Our solutions are complex and may contain undetected software or hardware errors that could be difficult, costly, and time-consuming to repair.

      Although we have not experienced significant undetected software or hardware errors to date, given the complex nature of our solutions, we believe the risk of undetected software or hardware errors may occur in

14

networking products primarily when they are first introduced or as new versions of products are released. These errors, if significant, could:

•  adversely affect our sales;

•  cause us to incur significant warranty and repair costs;

•  cause significant customer relations problems;

•  harm our competitive position;

•  hurt our reputation; and

•  cause purchase delays.

      Any of these effects could materially harm our business or results of operations.

All domestic employment at MTI, including employment of our domestic key personnel, is “at will.”

      Both MTI and its U.S. employees have the right to terminate their employment at any time, with or without advance notice, and with or without cause. We believe that our success is dependent, to a significant extent, upon the efforts and abilities of our salespeople, technical staff and senior management team, particularly our executive officers, who have been instrumental in setting our strategic plans. The loss of the services of our key personnel, especially to our competitors, could materially harm our business. The failure to retain key personnel, or to implement a succession plan to prepare qualified individuals to join us upon the loss of a member of our key personnel, could materially harm our business.

We may have difficulty managing any future growth effectively.

      Our facilities, personnel, operating and financial systems may not be sufficient to effectively manage our expected future growth and, as a result, we may lose our ability to respond to new opportunities promptly. Additionally, our expected revenue growth may not materialize and increases in our operating expenses in response to the expected revenue growth may harm our operating results and financial condition.

      Our growth strategy is currently focused on increasing EMC product sales and providing a broad range of professional services. To accomplish these goals, we are dependent upon many factors, including but not limited to, recruiting, hiring, training and retaining significant numbers of qualified sales and professional services personnel in various geographic regions.

We may face inherent costly damages or litigation costs if third parties claim that we infringe upon their intellectual property rights.

      Although we have not experienced material costs with respect to proprietary rights infringement cases, there is risk that our business activities may infringe upon the proprietary rights of others, and other parties may assert infringement claims against us. Though the majority of our future product sales are expected to be third party products, and the applicable third party manufacturers will defend their own intellectual property rights, in the event such claims are made against our suppliers, we may be faced with a situation in which we cannot sell the products and thus our results of operations could be significantly and adversely affected. In addition, we may receive communications from other parties asserting that our employees’ or our own intellectual property infringes on their proprietary rights. If we become liable to any third party for infringing its intellectual property rights, we could be required to pay substantial damage awards and to develop non-infringing technology, obtain licenses, or to cease selling the applications that contain the infringing intellectual property. Litigation is subject to inherent uncertainties, and any outcome unfavorable to us could materially harm our business. Furthermore, we could incur substantial costs in defending against any intellectual property litigation, and these costs could increase significantly if any dispute were to go to trial. Our defense of any litigation, regardless of the merits of the complaint, likely would be time-consuming, costly, and a distraction to our management personnel. Adverse publicity related to any intellectual property litigation also could harm the sale of our products and damage our competitive position.

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If we and our partners are unable to comply with evolving industry standards and government regulations, we may be unable either to sell our solutions or to be competitive in the marketplace.

      Our solutions must comply with current industry standards and government regulations in the United States and internationally. Any new products and product enhancements that we sell in the future also must meet industry standards and government regulations at the time they are introduced. Failure to comply with existing or evolving industry standards or to obtain timely domestic or foreign regulatory approvals could materially harm our business. In addition, such compliance may be time-consuming and costly. Our solutions integrate SAN, NAS, DAS and CAS technologies into a single storage architecture. Components of these architectures must comply with evolving industry standards, and we depend upon our suppliers to provide us with products that meet these standards. If our suppliers or customers do not support the same industry standards that we do, or if competing standards emerge that we do not support, market acceptance of our products could suffer.

Our stock price may be volatile, which could lead to losses by investors and to securities litigation.

      The value of an investment in our company could decline due to the impact of a number of factors upon the market price of our common stock, including the following:

•  failure of our results from operations to meet the expectations of public market analysts and investors;

•  the timing and announcement of new or enhanced products or services by us, our partners or by our competitors;

•  speculation in the press or investment community about our business or our competitive position;

•  the volume of trading in our common stock; and

•  market conditions and the trading price of shares of technology companies generally.

      In addition, stock markets, particularly The Nasdaq Capital Market, where our shares are listed, have experienced extreme price and volume fluctuations, and the market prices of securities of companies such as ours have been highly volatile. These fluctuations have often been unrelated to the operating performance of such companies. Fluctuations such as these may affect the market price of our common stock. In the past, securities class action litigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and could divert our management’s attention and resources.

We may not have registered, or we may not have had an exemption from registering, certain options under the California securities laws and may incur liability to repurchase the options or face potential claims under the California securities laws.

      At various times from March 2005 through March 2006, we issued options to purchase shares of our common stock under our 2001 Stock Incentive Plan, as amended, to our directors, employees and consultants, with exercise prices ranging from a minimum of $1.44 per share to a maximum of $2.45 per share, for the purpose of providing incentive compensation to those directors, employees and consultants. The aggregate exercise price of the issued options is $1.2 million. The recipients of the issued options did not pay the Company for the options, and none of the options has been exercised as of the date hereof. In order to comply with the securities laws of California, where we have our headquarters, we have applied for approval of the terms of a repurchase offer. Under the terms submitted to the California Department of Corporations, we would offer to repurchase any outstanding options issued during such period for a cash price equal to 20% of the aggregate exercise price of the option, plus interest at an annual rate of 7%. There is no assurance that the terms of the repurchase offer will be approved, and we could be required to offer a higher repurchase price or to extend the offer to a greater number of persons.

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Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.

      We are in the process of documenting and testing our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent auditors regarding our assessments. During the course of our testing we may identify deficiencies which we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. Upon completion of the Collective acquisition, we will need to integrate Collective it into our internal control procedures, and as a result, may identify deficiencies. In addition, if we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Failure to achieve and maintain an effective internal control environment could have a material adverse effect on our stock price. Based on our current market capitalization and the current legislation as written, we do not expect to be required to comply with Section 404 of the Sarbanes-Oxley Act until our fiscal year 2008. However, changes in our market capitalization or changes to the legislation may require us to comply earlier.

We may fail to comply with Nasdaq Marketplace Rules.

      Our securities have traded on the Nasdaq Capital Market since August 16, 2002. We believe we are currently in compliance with Nasdaq Capital Market continued listing requirements. However, we failed to comply with Nasdaq Marketplace Rules, specifically with the minimum bid price requirement, in fiscal year 2002, and may in the future fail to comply with the minimum bid price requirement, or other continued listing requirements. If that happens and we do not regain compliance by the end of any applicable grace period, our stock would be delisted and we would likely seek to list our common stock on the over-the-counter market, which is viewed by many investors as a less liquid marketplace. As a result, the price per share of our common stock would likely decrease materially and the trading market for our common stock, our ability to issue additional securities and our ability to secure additional financing would likely be materially and adversely affected.

We have adopted anti-takeover defenses that could affect the price of our common stock.

      Our restated certificate of incorporation and amended and restated bylaws contain various provisions, including notice provisions and provisions authorizing us to issue preferred stock, that may make it more difficult for a third party to acquire, or may discourage acquisition bids for, our company. Also, the rights of holders of our common stock may be affected adversely by the rights of holders of our Series A Preferred Stock, Series B and any other preferred stock that we may issue in the future that would be senior to the rights of the holders of our common stock. Furthermore, we are subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock.

ITEM 1B.     UNRESOLVED STAFF COMMENTS

      None.

ITEM 2. PROPERTIES

      Our corporate offices, including marketing, sales and support, general administration, and finance functions are currently located in Irvine, California, in a leased facility consisting of approximately 25,000 square feet. We occupy these premises under a lease agreement that expires on December 31, 2010. We also lease 16,000 square feet, 19,500 square feet, 11,800 square feet and 1,500 square feet at facilities in Godalming, England, Chatou, France, Wiesbaden, Germany and Munich, Germany, respectively, which we use for sales, service and administration. In the fourth quarter of fiscal 2005, we closed our 28,500 square feet

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legacy manufacturing facility in Dublin, Ireland, for which the lease expires in 2023 (the lease contains a break clause in 2008).

      We abandoned 21,700 square feet, 2,050 square feet and 3,400 square feet of our facilities located in Sunnyvale, California, Godalming, England, and Chatou, France, respectively, in the fourth quarter of fiscal year 2002. However, we are still obligated under facilities lease agreements for these properties that expire in July 2006, November 2012 and April 2007, respectively. We have been able to sublet portions of these facilities.

      We also lease approximately 12 sales and support offices located throughout the United States and Europe.

ITEM 3. LEGAL PROCEEDINGS

      We are, from time to time, subject to claims and suits arising in the ordinary course of business. In our opinion, the ultimate resolution of these matters is not expected to have a materially-adverse effect on our consolidated financial position, results of operations or liquidity.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matters were submitted to a vote of our stockholders during the fourth quarter of fiscal year 2006.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRINCIPAL MARKET AND PRICES

      Shares of our common stock trade on The Nasdaq Capital Market under the ticker symbol “MTIC.” The following table sets forth the range of high and low bid prices per share of our common stock for each quarterly period as reported on The Nasdaq Capital Market for the periods indicated. The price of our common stock at the close of business on June 19, 2006, was $1.28.

	Bid Prices
	High		Low
FISCAL YEAR 2005
First Quarter		4.05		1.84
Second Quarter		2.49		1.41
Third Quarter		2.70		1.40
Fourth Quarter		2.96		1.48
FISCAL YEAR 2006
First Quarter		2.48		1.40
Second Quarter		2.38		1.68
Third Quarter		1.99		1.18
Fourth Quarter		1.64		1.22

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NUMBER OF COMMON STOCKHOLDERS

      The approximate number of record holders of our common stock as of June 19, 2006, was 341.

DIVIDENDS

      We have never declared or paid any dividends related to our common stock. We currently expect to retain any earnings for use in the operation of our business and, therefore, do not anticipate declaring or paying any cash dividends related to our common stock in the foreseeable future.

      Our Series A and B Convertible Preferred Stock carry cumulative dividends of 8% payable when and if declared by the Board of Directors. We had accrued dividends payable of $2,225 and $667 at April 1, 2006, related to the Series A and B, respectively.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

      The information required to be filed pursuant to this item was previously included in the Current Reports on form 8-K that we filed with the Securities Exchange Commission on November 3, 2005 and on June 26, 2006, and is incorporated herein by reference.

ISSUER PURCHASES OF EQUITY SECURITIES

      During the fourth quarter of fiscal 2006, there were no purchases made by or on behalf of the Company or any affiliated purchaser, as defined in Rule 10b-18(a)(3) of the Securities Exchange Act of 1934, as amended, of shares of the Company’s common stock that is registered by the Company pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

      See Item 12 of Part III for information concerning securities authorized for issuance under equity compensation plans, which is incorporated herein by reference.

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ITEM 6. SELECTED FINANCIAL DATA

      We have derived the selected consolidated financial data presented below with respect to the periods indicated from the audited consolidated financial statements contained elsewhere in this Form 10-K. The selected consolidated financial data presented below for fiscal years 2003 and 2002 have been derived from our audited consolidated financial statements not contained herein. Operating results for the periods presented below are not necessarily indicative of the results that may be expected for future years.

			Fiscal Year Ended
			April 1,			April 2,			April 3,			April 5,			April 6,
			2006			2005			2004			2003			2002
SELECTED STATEMENT OF OPERATIONS DATA:
Net product revenue			$	116,326		$	93,703		$	46,442		$	40,101		$	69,519
Service revenue				38,717			38,910			36,723			42,285			48,399
		Total revenue(1)		155,043			132,613			83,165			82,386			117,918
Product gross profit				21,858			19,805			11,473			7,153			13,053
Service gross profit				9,097			5,714			10,333			14,645			18,648
		Gross profit(1)(2)		30,955			25,519			21,806			21,798			31,701
Operating expense:
	Selling, general and administrative(5)			37,091			39,078			28,935			27,754			43,211
	Research and development			—			—			776			5,238			12,742
	Restructuring charges			1,091			2,024			(211	)		1,467			4,911
		Total operating expenses		38,182			41,102			29,500			34,459			60,864
		Operating loss		(7,227	)		(15,583	)		(7,694	)		(12,661	)		(29,163	)
Interest and other income (expense), net(3)				(104	)		(500	)		631			1,008			4,182
Gain (loss) on foreign currency transactions				(720	)		318			29			639			(542	)
Equity in net loss and write-down of net investment of affiliate				—			—			—			—			(9,504	)
		Loss before income taxes		(8,051	)		(15,765	)		(7,034	)		(11,014	)		(35,027	)
Income tax expense (benefit)(4)				51			22			(3,168	)		205			24,598
Net loss				(8,102	)		(15,787	)		(3,866	)		(11,219	)		(59,625	)
Amortization of preferred stock discount				(1,970	)		(880	)		—			—			—
Dividend on preferred stock				(1,939	)		(953	)		—			—			—
Net loss applicable to common shareholders			$	(12,011	)	$	(17,620	)	$	(3,866	)	$	(11,219	)	$	(59,625	)
Net loss per share:
	Basic and diluted		$	(0.34	)	$	(0.51	)	$	(0.12	)	$	(0.34	)	$	(1.83	)
Weighted average shares used in per share computations:
	Basic and diluted			35,541			34,476			33,482			32,852			32,548
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents			$	21,660		$	12,191		$	3,017		$	9,833		$	8,420
Working capital				13,540			2,256			2,743			2,071			8,263
Total assets				84,622			62,866			46,612			44,556			61,698
Short-term debt				5,167			3,745			4,109			1,901			2,035
Long-term debt, less current maturities				—			—			95			286			461
Total stockholders’ equity (deficit)			$	(3,630	)	$	(2,369	)	$	7,141		$	8,974		$	20,113

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(1)	On March 31, 2003, we became an exclusive reseller of EMC products and services. See further discussion of this transition and its impact on result of operations in the “Results of Operations” section of Management’s Discussion and Analysis.
(2)	Includes charges related to production and service inventory write-offs of $589, $2,681, $1,469, $1,950, and $8,850 for fiscal years 2006, 2005, 2004, 2003, and 2002, respectively.
(3)	Includes $3,600 in fiscal year 2002 related to the gain on sale of patents. Includes $1,200 in fiscal year 2003 related to the gain on sale of SCO common stock.
(4)	Includes tax expense related to a deferred tax asset valuation allowance adjustment of $24,300 in fiscal year 2002. Fiscal year 2004 includes a tax benefit of $(3,200) related to an IRS settlement refund. See Note 6 to the Notes to the Consolidated Financial Statements.
(5)	Selling, general and administrative expenses for fiscal year 2006 noted above were $132 higher than what was reported in our press release dated May 25, 2006 due to the fact that a customer filed for Chapter 11 bankruptcy subsequent to the press release but prior to the filing of this Annual Report on Form 10-K. As such, the accounts receivable from that customer was written-off as of April 1, 2006.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

      This discussion and analysis should be read in conjunction with the Consolidated Financial Statements of the Company and Notes thereto contained elsewhere in this report and in conjunction with Item 1A “Risk Factors.”

      Management’s discussion and analysis that follows is designed to provide information that will assist readers in understanding our consolidated financials statements, changes in certain items in those statements from year to year and the primary factors that caused those changes and how certain accounting principles, policies and estimates affect our financial statements.

OVERVIEW AND EXECUTIVE SUMMARY

      In March 2003, we became a reseller and service provider of EMC storage systems and software, pursuant to a reseller agreement with EMC Corporation. The shift in strategy from a developer of technology to a reseller and service provider of third-party solutions has had the following primary financial implications:

•  We have increased product revenue significantly during the past two fiscal years. We recorded product revenue of $93.7 million in fiscal 2005, a 102% increase from fiscal 2004. Furthermore, we recorded product revenue of $116.3 million in fiscal 2006, a 24% increase from fiscal 2005. In order to achieve this revenue growth, we invested heavily in sales and service resources which led to increased losses in fiscal 2005. In fiscal 2006, we moderated headcount additions and reduced spending which led to decreased operating losses as compared to fiscal 2005.

•  Maintenance revenue has been negatively impacted due to the comprehensive warranty provided on EMC products. We resell EMC hardware products with up to a three-year warranty and a seven-day, twenty-four hour service level. In contrast, MTI proprietary products were generally sold with a one year warranty and a five day, nine hour service level. Therefore, the sale of proprietary products provided an opportunity to generate maintenance revenue earlier due to the shorter warranty period and allowed the Company to generate maintenance revenue during the warranty period by selling maintenance contracts increasing the service level to seven days a week, twenty-four hours a day. We expect the loss of hardware maintenance revenue to be mitigated by an increase in professional service revenue as well as software maintenance revenue on new technology installations.

      Our exclusive reliance on EMC products as our core product solution has inherent challenges, such as obtaining sufficient product quantities to satisfy customer requirements, developing the ability to ship products to meet customer imposed deadlines, developing the ability to control the cost of the product, reliance on the

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ability of EMC to respond to changing technology and our reliance on EMC to continue to provide an adequate purchasing credit line.

      Some of the key financial highlights for fiscal 2006 include:

•  Revenue — We recorded total revenue of $155.0 million in fiscal 2006, an increase of 17% from fiscal 2005;

•  Service Gross Profit — We recorded service gross profit percentage of 23.5% in fiscal 2006 compared to 14.7% in fiscal 2005;

•  Operating Loss — We recorded an operating loss of $7.2 million in fiscal 2006 compared to $15.6 million in fiscal 2005.

OUTLOOK

      The following information summarizes management’s outlook for fiscal 2007:

•  We expect product revenue to continue to grow in fiscal 2007. We expect product revenue to follow, to some extent, the seasonal patterns experienced in fiscal 2006.

•  If we are able to achieve the performance based rebates from EMC, we expect our product margin percentage to increase modestly as compared to fiscal 2006, however, our product margins can be volatile and are subject to many factors including competitive market forces.

•  We expect that service revenue will increase sequentially due to anticipated growth in our professional service business as well as continued sales of software maintenance contracts. If our acquisition of Collective is consummated as planned, professional services revenue is expected to increase beginning in our second quarter of fiscal 2007. We also expect service revenue to be driven by sales of hardware maintenance contracts as the warranty period on EMC products sold in previous years begin to expire. If we are able to achieve growth in service revenue, we expect service margins to improve as we are able to further leverage our existing service resources.

CRITICAL ACCOUNTING POLICIES

      The preparation of the consolidated financial statements requires estimates and judgments that affect the reported amounts of revenues, expenses, assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying values of assets and liabilities. Critical accounting policies are defined as those that are most important to the portrayal of the Company’s financial condition and results of operations, and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and could potentially produce materially different results under different assumptions and conditions. For a detailed discussion of the application of the following critical accounting policies and other accounting policies, see Notes to the Consolidated Financial Statements.

      Revenue recognition. We derive revenue from sales of products and services. The following summarizes the major terms of the contractual relationships with customers and the manner in which we account for sales transactions.

Hardware revenue

      Hardware revenue consists of the sale of disk and tape based hardware. We recognize revenue pursuant to Emerging Issues Task Force No. 00-21, “Revenue Arrangements with Multiple Deliverables” (EITF 00-21) and Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements” (SAB 104). In

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accordance with these revenue recognition guidelines, revenue is recognized for a unit of accounting when all of the following criteria are met:

•  persuasive evidence of an arrangement exists;

•  delivery has occurred;

•  fee is fixed or determinable; and

•  collectability is reasonably assured.

      Generally, product sales are not contingent upon customer testing, approval and/or acceptance. However, if sales require customer acceptance, revenue is recognized upon customer acceptance. Product sales with post-delivery obligations generally relate to professional services, including installation services or other projects. Professional services revenue is not recognized until the services have been performed, while product revenue is recognized at time of shipment as the services do not affect the functionality of the delivered items. In transactions where we sell directly to an end user, generally there are no acceptance clauses. However, we also sell to leasing companies who in turn lease the product to their lessee, the end user. For this type of sale, generally there are lessee acceptance criteria in the purchase order or contract. For these transactions, we defer the revenue until written acceptance is received from the lessee. Credit terms to customers typically range from net 30 to net 60 days after shipment.

      Product returns are estimated in accordance with Statement of Financial Accounting Standards No. (Statement) 48, “Revenue Recognition When Right of Return Exists.” Customers have a limited right of return which allows them to return non-conforming products. Accordingly, reserves for estimated future returns are provided in the period of sale based on contractual terms and historical data and are recorded as a reduction of revenue. We also ensure that the other criteria in Statement 48 have been met prior to recognition of revenue: the price is fixed or determinable; the customer is obligated to pay and there are no contingencies surrounding the obligation or the payment; the customer’s obligation would not change in the event of theft or damage to the product; the customer has economic substance; the amount of returns can be reasonably estimated; and we do not have significant obligations for future performance in order to bring about resale of the product by the customer.

Software revenue

      We sell various software products ranging from software that is embedded in the hardware to add-on software that can be sold on a stand-alone basis. Software that is embedded in the hardware consists of tools that provide a user-interface and assist the customer in the configuration of storage disks as well as provide performance monitoring and troubleshooting features. This software can not be sold on a stand-alone basis and is not a significant part of sales or marketing efforts. This embedded software is considered incidental to the hardware and is not recognized as a separate unit of accounting apart from the hardware. If a maintenance contract is sold related to this software, it is accounted for in accordance with EITF 00-21, whereby the total arrangement revenue is first allocated to the maintenance contract based on fair value and the remaining arrangement revenue is allocated to the hardware elements in the transaction. Revenue from maintenance contracts is recognized ratably over the term of the contract.

      We also sell application software that is sold as add-on software to existing hardware configurations. This software is generally loaded onto a customers’ host CPU and provides additional functionality to the storage environment, such as assisting in data back-up, data migration and mirroring data to remote locations. Based on the factors described in footnote two of AICPA Statement of Position (SOP) 97-2 “Software Revenue Recognition,” we consider this type of software to be more-than-incidental to hardware components in an arrangement. This assessment is based on the fact that the software can be sold on a stand-alone basis and that maintenance contracts are generally sold with the software. Software products that are considered more-than-incidental are treated as a separate unit of accounting apart from the hardware and the related software product revenue is recognized upon delivery to the customer. We account for software that is more-than-incidental in accordance with SOP 97-2, as amended by SOP 98-9, whereby the total arrangement revenue is first allocated to the software maintenance contract based on vendor specific objective evidence (VSOE) of

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fair value and is recognized ratably over the term of the contract. VSOE is established based on stand-alone renewal rates. The remaining revenue from the sale of software products is recognized at the time the software is delivered to the customer, provided all the revenue recognition criteria noted above have been met, except collectability must be deemed probable under SOP 97-2 versus reasonably assured under SAB 104.

      In transactions where the software is considered more-than-incidental to the hardware in the arrangement, we also consider EITF 03-05, “Applicability of AICPA Statement of Position 97-2, Software Revenue Recognition, to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software” (EITF 03-05). Per EITF 03-05, if the software is considered not essential to the functionality of the hardware, then the hardware is not considered “software related” and is excluded from the scope of SOP 97-2. All software sold by MTI is not essential to the functionality of the hardware. The software adds additional features and functionality to the hardware and allows the customer to perform additional tasks in their storage environment. The hardware is not dependent upon the software to function and the customer can fully utilize the hardware product without any of the software products. Therefore, in multiple-element arrangements containing hardware and software, the hardware elements are excluded from SOP 97-2 and are accounted for under the residual method of accounting per EITF 00-21 and SAB 104.

Service revenue

      Service revenue is generated from the sale of professional services, maintenance contracts and time and materials arrangements. The following describes how we account for service transactions, provided all the other revenue recognition criteria noted above have been met. Generally, professional services revenue, which includes installation, training, consulting and engineering services, is recognized upon delivery of the services. If the professional service project includes independent milestones, revenue is recognized as milestones are met and upon acceptance from the customer. Maintenance revenue is generated from the sale of hardware and software maintenance contracts. These contracts generally range from one to three years. Maintenance revenue is recorded as deferred revenue and is recognized as revenue ratably over the term of the related agreement.

Multiple element arrangements

      We consider sales contracts that include a combination of systems, software or services to be multiple element arrangements. Revenue related to multiple element arrangements is separated in accordance with EITF 00-21 and SOP 97-2. If an arrangement includes undelivered elements, we use the residual method, whereby we defer the fair value of the undelivered elements with the residual revenue allocated to the delivered elements. Discounts are allocated only to the delivered elements. Fair value is determined by examining renewed service contracts and based upon the price charged when the element is sold separately or, for transactions accounted for under EITF 00-21, prices provided by vendors if sufficient stand-alone sales information is not available. Undelivered elements typically include installation, training, warranty, maintenance and professional services.

Other

      Certain of our sales transactions are initiated by EMC and jointly negotiated and closed by EMC and MTI’s sales force. We recognize revenue related to these transactions on a gross basis, in accordance with EITF 99-19, because we bear the risk of returns and collectability of the full accounts receivable. Product revenue for the delivered items is recorded at residual value upon pickup by a common carrier for Free Carrier (FCA) origin shipments. For FCA destination shipments, product revenue is recorded upon delivery to the customer. If we subcontract the undelivered items such as maintenance and professional services to EMC or other third parties, we record the costs of those items as deferred costs and amortize the costs using the straight-line method over the life of the contract. We defer the revenue for the undelivered items at fair value based upon list prices with EMC according to EITF 00-21. At times, our customers prefer to enter into service agreements directly with EMC. In such instances, we may assign the obligation to perform services to EMC, or other third parties, and therefore we do not record revenue nor defer any costs related to the services.

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      We may allow customers that purchase new equipment to trade in used equipment to reduce the purchase price under the sales contract. These trade-in credits are considered discounts and are allocated to the delivered elements in accordance with EITF 00-21. Thus, product revenue from trade-in transactions is recognized net of trade-in value.

Shipping

      Products are generally drop-shipped directly from suppliers to our customers. Upon the supplier’s delivery to a carrier, title and risk of loss pass to MTI. Revenue is recognized at the time of shipment when shipping terms are Free Carrier (FCA) shipping point as legal title and risk of loss to the product pass to the customer. For FCA destination point shipments, revenue is recorded upon delivery to the customer.

      Significant estimates which impact the timing and classification of revenue involve the calculation of fair value of the undelivered elements in a multi-element arrangement. If the fair value of the undelivered elements changes, the timing and classification of revenue could be impacted.

      Product warranty. We maintain a warranty accrual for the estimated future warranty obligation based upon the relationship between historical and anticipated costs and sales volumes. Factors that affect our warranty liability include the number of units sold, historical and anticipated rates of warranty calls and repair cost. We continue to assess the adequacy of the warranty accrual each quarter. Should actual warranty calls and repair cost differ from our estimates, the amount of actual warranty costs could materially differ from our estimates.

      Allowance for doubtful accounts and product returns. We maintain an allowance for doubtful accounts for estimated returns and losses resulting from the inability of our customers to make payments for products sold or services rendered. We analyze accounts receivable, including past due balances, customer credit-worthiness, current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. All new customers are reviewed for credit-worthiness upon initiation of the sales process. The allowance for product returns is established based on historical return trends. Historically, we have not experienced significant losses on accounts receivable, however, if the financial condition of our customers deteriorates, resulting in an inability to make payments, additional allowances may be required.

      Income taxes. We are required to estimate our income taxes, which includes estimating our current income taxes as well as measuring the temporary differences resulting from different treatment of items for tax and accounting purposes. These temporary differences result in deferred tax assets or liabilities. We apply Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (Statement 109). Under the asset and liability method, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and operating loss and tax credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse, net of a valuation allowance. We have recorded a full valuation allowance against our deferred tax assets as management has determined that it is more likely than not that these assets will not be utilized. In the event that actual results differ from our estimates, our provision for income taxes could be materially impacted.

      Valuation of goodwill. We assess the impairment of goodwill in accordance with Financial Accounting Standards Board Statement No. 142 “Goodwill and Other Intangible Assets” (Statement 142), on an annual basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include significant under-performance relative to expected historical or projected future operating results, significant changes in the manner of our use of acquired assets or the strategy for our overall business, and significant negative industry or economic trends. We completed our annual assessment for goodwill impairment in the fourth quarter of fiscal year 2006. Based upon factors such as the market valuation approach, comparison between the reporting units’ estimated fair value using discounted cash flow projections over the next three years, and carrying value, we concluded that there was no impairment of our goodwill. Changes in assumptions and estimates included within this

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analysis could produce significantly different results than those identified above and those recorded in the consolidated financial statements.

      Inventories. Our inventory consists of spare parts inventory and production inventory. Spare parts inventory is used for product under maintenance contracts and warranty, and is not held for re-sale. As of April 1, 2006, we had net spare parts inventory of $0.9 million and net production inventory of $9.6 million. Inventories are valued at the lower of cost (first-in, first-out) or market, net of an allowance for obsolete, slow-moving, and unsalable inventory. The allowance is based upon management’s review of inventories on-hand, historical product sales, and future sales forecasts. Historically, we used rolling forecasts based upon anticipated product orders to determine our component and product inventory requirements. As a reseller, we primarily procure inventory upon receipt of purchase orders from customers and as a result we believe the risk of EMC production inventory obsolescence is low. At times, in order to take advantage of favorable pricing, we may procure inventory in advance of receiving customer orders. Our allowance for spare parts inventory is calculated based on a review of product lifecycles and comparison to current and projected maintenance revenue. As maintenance contracts expire and are not renewed, the amount of spare parts inventory needed to support the legacy installed base decreases. Management regularly evaluates the carrying value of the spare parts inventory relative to the remaining legacy maintenance contracts. If we overestimate our product or component requirements, we may have excess inventory, which could lead to additional excess and obsolete charges.

RESULTS OF OPERATIONS

      The following table sets forth selected items from the Consolidated Statements of Operations as a percentage of total revenue for the periods indicated, except for product gross profit and service gross profit, which are expressed as a percentage of the related revenue. This information should be read in conjunction with the Selected Financial Data and Consolidated Financial Statements included elsewhere herein:

		Fiscal Year Ended
		April 1,			April 2,			April 3,
		2006			2005			2004
Net product revenue			75.0	%		70.7	%		55.8	%
Service revenue			25.0			29.3			44.2
	Total revenue		100.0			100.0			100.0
Product gross profit			18.8			21.1			24.7
Service gross profit			23.5			14.7			28.1
	Gross profit		20.0			19.2			26.2
Selling, general and administrative			23.9			29.4			34.8
Research and development			—			—			0.9
Restructuring charges			0.7			1.5			(0.3	)
	Operating loss		(4.7	)		(11.7	)		(9.2	)
Other income (expense), net			(0.1	)		(0.4	)		0.8
Gain (loss) on foreign currency transactions			(0.4	)		0.2			—
Income tax benefit			—			—			3.8
	Net loss		(5.2	)%		(11.9	)%		(4.6	)%

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Fiscal year 2006 compared to Fiscal year 2005

      Net product revenue: The components of product revenue by geographic region for fiscal 2006 and 2005 are shown in the table below (in millions):

		Fiscal Year 2006						Fiscal Year 2005
		US		Europe		Total		US		Europe		Total
Server revenue		$	47.1	$	31.5	$	78.6	$	43.2	$	25.7	$	68.9
Software revenue			17.6		3.5		21.1		12.5		2.8		15.3
Tape library revenue			10.3		6.3		16.6		2.5		7.0		9.5
	Total product revenue	$	75.0	$	41.3	$	116.3	$	58.2	$	35.5	$	93.7

      Net product revenue for fiscal 2006 increased $22.6 million, or 24% from fiscal 2005. This increase was comprised of a $16.8 million and $5.8 million increase in domestic and international product revenue, respectively. The increase in product revenue was comprised of an increase in server, software and tape library revenue of $9.7 million, $5.8 million and $7.1 million, respectively. We believe the increase in product revenue is a result of our continued effort to reach new customers through new and existing sales channels. During fiscal year 2006 we increased our marketing and inside-sales teams, adding 12 new telemarketing employees and expanding our marketing exposure through attendance at tradeshows and increased advertising campaigns. We believe this has helped to generate new name accounts and provide further opportunities for our outside-sales teams. In fiscal year 2006 our product mix percentage of EMC product remained comparable to fiscal 2005. In fiscal 2006, sales of EMC products represented $94.6 million, or 81% of total product revenue compared with $76.3 million or 81% of total product revenue for fiscal 2005. We ended fiscal 2006 with a product order backlog of $5.1 million compared to $4.1 million at the end of fiscal 2005. It should be noted that backlog is not necessarily indicative of future revenue.

      Service Revenue: The components of service revenue for fiscal 2006 and 2005 are shown in the table below (in millions):

		Fiscal Year 2006						Fiscal Year 2005
		US		Europe		Total		US		Europe		Total
Professional services revenue		$	7.8	$	4.4	$	12.2	$	5.6	$	2.9	$	8.5
Maintenance revenue			10.2		16.3		26.5		12.9		17.5		30.4
	Total service revenue	$	18.0	$	20.7	$	38.7	$	18.5	$	20.4	$	38.9

      Total service revenue in fiscal 2006 remained comparable to fiscal 2005 decreasing $0.2 million or 0.5%. The net decrease was attributable to a decrease in maintenance revenue of $3.9 million, partially offset by an increase in professional services revenue of $3.7 million.

      Most EMC hardware products are sold with up to a 3-year, 24x7 warranty. As a result, any revenue associated with post-warranty service contracts for those hardware product sales would not occur until expiration of the warranty period. We believe this factor, along with declining renewal rates of legacy maintenance contracts, caused maintenance revenue to decrease compared to fiscal 2005. The decline in hardware maintenance revenue was partially offset by new maintenance contracts sold on software products.

      Professional services revenue for fiscal 2006 increased $3.7 million or 44% from fiscal 2005. One factor which contributed to the growth in professional services revenue was increased product sales which provided the opportunity to generate service revenue through the performance of installation and configuration services. We have made a focused effort to grow our professional service business. In 2006, we created a new service-sales team focused exclusively on selling service engagements to new and existing customers. We believe that this has also contributed to the increase in professional services revenue. Through increased capabilities of our service engineers, we believe we are better positioned to sell more complex professional service projects such as design and architecture, which generally drive more revenue than implementation and installation projects.

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      Product Gross Profit: Product gross profit was $21.9 million for fiscal 2006, an increase of $2.1 million or 11% from fiscal 2005. The gross profit percentage for net product sales was 18.8% for fiscal 2006 compared to 21.1% for fiscal 2005. There were two primary factors that impacted the product gross profit percentage during fiscal 2006, rebates earned and lower margins on a transaction-by-transaction basis due to competitive market forces. In the first quarter of fiscal 2005, we became an EMC Premier Velocity Partner, which allowed us to earn certain performance based rebates. In fiscal 2005, we recorded EMC performance rebates of $1.4 million. In fiscal 2006, although our product revenue was higher, we only recorded EMC performance rebates of $0.5 million as our purchases of certain products from EMC were lower than the rebate goals. Also contributing to the lower product gross profit percentage were several large product fulfillment transactions which carried lower than normal product margins.

      Service Gross Profit: Service gross profit was $9.1 million for fiscal 2006, an increase of $3.4 million, or 59.2% from fiscal 2005. The service gross profit percentage was 23.5% in fiscal 2006 compared to 14.7% in fiscal 2005. We believe the increase in service gross profit percentage was mainly due to cost reduction measures and improved service utilization in the third quarter of fiscal 2006. The majority of the cost reductions were due to decreased third-party subcontractor expenses. Through additional training and certification, we were able to decrease our reliance on third-party subcontractors to deliver certain professional services. We also focused on better aligning our service headcount in the most effective geographic areas to help improve utilization and reduce costs. Worldwide service headcount was 130 at the end of fiscal 2006 compared to 152 at the end of fiscal year 2005. Service utilization was also improved by increased professional service bookings as noted above in the discussion of service revenue. The capabilities of our service engineers have also increased, allowing us to perform more complex service projects including design and architecture which generally are expected to yield higher profit than implementation and installation projects. Service costs benefited in the fourth quarter of fiscal 2006 from a non-recurring beneficial adjustment to a long-term subcontract arrangement. Also contributing to the increase in service gross profit percentage was a reduction in spare parts inventory charges. Service gross profit in fiscal 2005 was negatively impacted by a write-down of spare parts inventory of $2.6 million compared to a write-down of $0.5 million in fiscal 2006. The 2005 write down was due to the continued decline in our legacy maintenance base which resulted in a revised estimate of the carrying value of certain spare parts.

      Selling, General and Administrative: Selling, general and administrative expenses for fiscal 2006 decreased $2.0 million, or 5% from fiscal 2005. As a percentage of total revenue, selling, general and administrative expenses for fiscal 2006 were 24% as compared to 29% for fiscal 2005. The decrease in selling, general and administrative expenses was primarily due to the closure of our Dublin, Ireland facility in the fourth quarter of fiscal 2005 and a decrease in headcount. Worldwide headcount decreased from 342 at April 2, 2005 to 302 at April 1, 2006. More specifically, the decrease in selling, general and administrative expense was due to a decrease in fixed charges of $1.0 million, travel and lodging of $0.6 million and outside purchases of $0.2 million. The decrease in fixed charges primarily related to a decrease in rent and depreciation expense due to the closure of the Ireland facility and the relocation of the corporate headquarters in the second quarter of fiscal 2006. Selling, general and administrative expenses noted above for fiscal 2006 were $0.1 million higher than as reported in our press release dated May 25, 2006 due to the fact that a customer filed for Chapter 11 bankruptcy subsequent to the press release but prior to the filing of this Annual Report on Form 10-K. As such, the accounts receivable from that customer was written-off as of April 1, 2006.

      Restructuring: In the fourth quarter of fiscal 2005, we announced plans to restructure our European operations. This plan was initiated primarily in order to reduce operating costs and simplify processes throughout the European operations. The 2005 restructuring plan primarily involved the closure of the Dublin, Ireland facility and the consolidation of European finance functions within the Weisbaden, Germany facility. We recorded a restructuring charge of $2.0 million in fiscal 2005 for abandoned lease and severance payments related to this restructuring plan. In fiscal 2006, we recorded additional restructuring charges of $1.1 million primarily due to additional severance costs related to the 2005 restructuring plan.

      Interest and Other Expense, Net: Interest and other expense, net for fiscal 2006 was a net expense of $0.1 million as compared to $0.5 million for fiscal 2005. The decreased expense in fiscal 2006 was primarily

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related to higher interest income earned as a result of the cash proceeds of the Series B offering. This increased interest income was partially offset by increased interest expense due to higher interest rates on our credit facility.

      Gain on Foreign Currency Transactions: We recorded a loss on foreign currency transactions of $0.7 million in fiscal 2006 compared to a gain of $0.3 million in fiscal 2005. The loss in fiscal 2006 was the result of the strengthening value of the US Dollar as compared to the Euro and the British Pound Sterling primarily in the first quarter of fiscal year 2006. The gain in fiscal 2005 was the result of the weakening value of the US Dollar during fiscal year 2005.

      Income Tax Expense (Benefit): We recorded tax expense of $0.05 million in fiscal 2006 compared to tax expense of $0.02 million in fiscal 2005. The tax expense in both fiscal 2006 and 2005 is primarily related to various state and foreign taxes. Due to losses incurred, the Company was not subject to Federal income tax expense in fiscal 2006 nor 2005.

Fiscal year 2005 compared to Fiscal year 2004

      Net product revenue: The components of product revenue by geographic region for fiscal 2005 and 2004 are shown in the table below (in millions):

		Fiscal Year Ended
		April 2, 2005		April 3, 2004		Change
US		$	58.2	$	23.3	$	34.9
Europe			35.5		23.1		12.4
	Total product revenue	$	93.7	$	46.4	$	47.3

      Net product revenue for fiscal 2005 increased $47.3 million, or 102% from fiscal 2004. This increase was comprised of a $34.9 million and $12.4 million increase in domestic and international product revenue, respectively. We experienced a greater percentage increase in domestic product sales primarily due to a more focused effort on adding headcount to the US sales force in fiscal 2005. The increase in net product revenue was primarily the result of further leveraging our reseller relationship with EMC. Our EMC reseller agreement was entered into in the fourth quarter of fiscal year 2003. Our ability to sell EMC products enabled us to further penetrate the mid-range storage market. As of April 2, 2005, we had a total worldwide sales headcount of 132 compared to 80 as of April 3, 2004. This increase in headcount enabled us to sell products to hundreds of new name accounts across a number of new regions. The increase was driven primarily by strong demand for EMC server and software products, which generally have a higher average selling price than our former, proprietary products. Server and software product revenue for fiscal 2005 increased from fiscal 2004 by $40.1 million and $9.7 million, respectively. These increases were offset by a $2.6 million decrease in tape library product revenue. The decrease in tape library revenue is attributable to a shift in focus towards developing expertise selling the EMC product set. Server, software and library revenue accounted for 73%, 16% and 10% of total product revenue in fiscal 2005 as compared to 62%, 12% and 26% in fiscal 2004, respectively. For fiscal year 2005, sales of EMC products represented $76.3 million, or 81% of total product revenue compared with $26.1 million or 56% of total product revenue for fiscal 2004.

      Service Revenue: The components of service revenue for fiscal 2005 and 2004 are shown in the table below (in millions):

		Fiscal Year 2005						Fiscal Year 2004
		US		Europe		Total		US		Europe		Total
Professional Services Revenue		$	5.6	$	2.9	$	8.5	$	1.6	$	1.2	$	2.8
Maintenance Revenue			12.9		17.5		30.4		16.6		17.3		33.9
	Total Service Revenue	$	18.5	$	20.4	$	38.9	$	18.2	$	18.5	$	36.7

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      Total service revenue in fiscal 2005 increased $2.2 million, or 6% from fiscal 2004. The net increase was attributable to an increase in professional services revenue of $5.7 million, partially offset by a decrease in maintenance revenue of $3.5 million.

      The decline in maintenance revenue was primarily related to the following factors. In March 2003, we became a reseller and service provider of EMC Automated Networked Storage Systems and software. Most EMC hardware products are sold with up to a 3-year 24x7 warranty. As a result, any revenue associated with post-warranty service contracts for those hardware product sales would not occur until expiration of the warranty period. This factor, along with declining renewal rates of legacy maintenance contracts, caused maintenance revenue to decrease compared to fiscal 2004. During fiscal 2005, we began to replace the decline in legacy maintenance revenue with increased revenue from new software maintenance contracts.

      Professional services revenue for fiscal 2005 increased $5.7 million or 204% from fiscal 2004. The growth in professional services revenue was the result of increased product sales which provided the opportunity to generate service revenue through the performance of installation and configuration services, as well as the ability to sell more complex professional service engagements. We have made a focused effort to grow our professional service business and have added significant headcount and resources to this area. As of April 2, 2005, we had 152 service employees compared to 117 as of April 3, 2004.

      Product Gross Profit: Product gross profit was $19.8 million for fiscal 2005, an increase of $8.3 million or 71% from fiscal 2004. The gross profit percentage for net product sales was 21.1% for fiscal 2005 compared to 24.7% for fiscal 2004. There were three primary factors that impacted the product gross profit percentage during fiscal 2005: product-mix, inventory provision and rebates earned. A change in product mix had a negative impact on product gross profit margins compared to fiscal 2004. The sale of EMC products accounted for 81% of product revenue in fiscal 2005, compared to 56% in fiscal 2004. Generally, sales of our legacy products had higher profit margins compared to EMC products. Product gross profit for fiscal 2005 was negatively impacted by approximately $0.6 million in production inventory related charges as compared to only $0.1 million in such charges in fiscal 2004. Partially offsetting these first two factors was the favorable impact of rebates recorded in fiscal year 2005. In the first quarter of fiscal 2005, we became an EMC Premier Velocity Partner, which allowed us to earn certain performance based rebates. In fiscal 2005 we recorded performance rebates of $1.7 million. No rebates were earned in fiscal year 2004, resulting in a favorable impact to product margin percentage in 2005. We believe that the product gross profit percentage for fiscal year 2005 reflects the factors discussed above as well as lower profit margins experienced on a transaction by transaction basis.

      Service Gross Profit: Service gross profit was $5.7 million for fiscal 2005, a decrease of $4.6 million, or 45% from fiscal 2004. The service gross profit percentage was 14.7% in fiscal 2005 compared to 28.1% in fiscal 2004. The decrease in service gross profit percentage was primarily due to the combination of a shift in the composition of service revenue, an increase in service expenses related to additional professional services personnel added and the impact of spare parts inventory provision of $2.7 million. As noted above, in fiscal 2005 maintenance revenue decreased $3.5 million and professional service revenue increased $5.7 million compared to fiscal 2004. Professional services revenue represented 22% of total service revenue for fiscal 2005 compared to 8% for fiscal 2004. In order to drive increased professional services revenue and as an investment in growing our professional services business, we incurred increased expenses related to salary and benefits and travel and lodging. Also contributing to the decrease in service gross profit percentage was the decrease in maintenance revenue which is supported by a relatively fixed cost structure. Service gross profit in fiscal 2005 was negatively impacted by a write-down of spare parts inventory of $2.6 million in fiscal 2005 compared to $1.2 million in fiscal 2004. The 2005 write down was due to the continued decline in our legacy maintenance base which resulted in a revised estimate of the remaining useful life of certain spare parts.

      Selling, General and Administrative: Selling, general and administrative expenses for fiscal 2005 increased $10.1 million, or 35% from fiscal 2004. As a percentage of total revenue, selling, general and administrative expenses for fiscal 2005 were 29% as compared to 35% for fiscal 2004. The increase in selling, general and administrative expenses was primarily due to an increase in salaries and related benefits of $7.3 million, an increase in travel and lodging expenses of $1.3 million and an increase in outside purchases of

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$1.4 million. The increase in salaries and related benefits expense was attributable to an increase of 52 employees in sales, marketing and G&A departments compared to April 3, 2004, as well as increased commission expense as a result of increased sales. The increase in travel and lodging expenses was also primarily the result of increased headcount in our sales organization. The increase in outside purchases was primarily related to increases in employment recruiting fees, audit and consulting fees related to Sarbanes-Oxley compliance, marketing consulting fees and legal fees. In the fourth quarter of fiscal 2005, we announced plans to restructure our European operations as discussed below under “Restructuring.”

      Research and Development: We did not incur research and development expenses during fiscal 2005. In the second quarter of fiscal year 2004, we eliminated research and development expenditures due to our strategy shift from a producer of proprietary products to a reseller of EMC products. We determined that EMC’s research and development functions overlap the integration and testing function that we historically performed and, therefore, we decided not to invest further on research and development activities.

      Restructuring: In the fourth quarter of fiscal 2005, we announced plans to restructure our European operations. This plan was initiated primarily in order to reduce operating costs and simplify processes throughout the European operations. The 2005 restructuring plan primarily involved the closure of the Dublin, Ireland facility and the consolidation of European finance functions within the Weisbaden, Germany facility. We recorded a restructuring charge of $2.0 million in fiscal 2005 for abandoned lease and severance payments related to this restructuring plan. We recorded a net restructuring benefit of $0.2 million in fiscal 2004 due to higher than anticipated lease payments from sub-lessees.

      Interest and Other Expense, Net: Interest and other expense, net for fiscal 2005 was an expense of $0.5 million, compared to income of $0.6 million for fiscal 2004. Included in interest income for fiscal 2004 was approximately $0.7 million related to the interest portion of our IRS refund. Also contributing to the increased expense was an increase in interest expense due to higher borrowing and higher interest rates on our line of credit during fiscal 2005.

      Gain on Foreign Currency Transactions: We recorded a gain on foreign currency transactions of $0.3 million in fiscal 2005 compared to a gain of $0.03 million in fiscal 2004. The increased gain was the result of the weakening value of the US Dollar as compared to the Euro and British Pound Sterling. Also, in the first quarter of fiscal 2004, we recognized a $0.3 million loss when we closed out our hedging contracts. We had no such hedges in place during fiscal 2005.

      Income Tax Expense (Benefit): We recorded tax expense of $0.02 million in fiscal 2005 compared to a net tax benefit of $3.2 million for fiscal year 2004. The net tax benefit was due to a $3.1 million income tax receivable from the IRS due to the settlement on income tax audits for fiscal years 1992 through 1995 which resulted in a tax payable of $0.2 million for which we had accrued $1.7 million and an income tax receivable of $1.7 million for fiscal years 1982 through 1990 based upon the carry-back of the net operating losses which were confirmed by the IRS for the fiscal years 1993 through 1995.

LIQUIDITY AND CAPITAL RESOURCES

      As of April 1, 2006, working capital was $13.5 million, compared to $2.3 million as of April 2, 2005. We had cash and cash equivalents of $21.7 million as of April 1, 2006, compared to $12.2 million as of April 2, 2005. The $9.5 million increase in cash and cash equivalents was primarily the result of $19.1 million in net proceeds received from the issuance of Series B, borrowings on our line of credit of $1.5 million and $0.8 million in proceeds from the exercise of stock options. These increases in cash and cash equivalents were partially offset by $11.2 million in cash used in operating activities, mainly due to the net loss of $8.1 million coupled with a decrease in accrued liabilities and deferred revenue of $4.8 million and an increase in accounts receivable of $3.9 million. The increase in accounts receivable was due to increased sales, particularly in the last quarter of fiscal 2006. Deferred revenue decreased $1.6 million due to the expiration of maintenance contracts on our legacy products, partially offset by new sales of software maintenance contracts. The increase in accounts payable and inventory resulted in a favorable cash impact of $5.3 million. The increase was mainly the result of increased purchases from EMC and other vendors, particularly in the last month of fiscal 2006.

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      In fiscal 2006, cash was also negatively impacted by payments of $0.4 million for capital expenditures. We expect capital expenditures in fiscal 2007 to be comparable to 2006.

      In November 2002, we entered into an agreement with Comerica Bank for a line of credit of $7.0 million at an interest rate equal to the prime rate. The line of credit is secured by a letter of credit that is guaranteed by Canopy. The line of credit with Comerica was set to expire on May 31, 2006 and the letter of credit from Canopy was to expire on June 30, 2006. However, on June 20, 2006, we renewed the Comerica line of credit through November 30, 2006 and Canopy renewed its letter of credit guarantee through December 31, 2006. Until December 30, 2004, as discussed below, the Canopy letter of credit was secured by substantially all the assets of the Company. As of April 1, 2006, there was $5.2 million and $0.4 million in borrowings and letters of credit outstanding, respectively, under the Comerica Loan Agreement and $1.4 million was available for borrowing.

      On December 30, 2004, we entered into a security agreement with EMC whereby we granted EMC a security interest in certain assets of the Company to secure our obligations to EMC under our existing supply agreements. The assets pledged as collateral consisted primarily of the Company’s accounts receivable generated from the sale of EMC products and services, related inventory and the proceeds of such accounts receivable and inventory. In exchange for this security interest, EMC increased our purchasing credit limit to $20.0 million. On June 7, 2006, due to our improved financial position and established payment history, EMC terminated the security agreement and released its security interest in all of our assets. On a go-forward basis, our purchasing credit limit with EMC will be determined based on the needs of our business and our financial position. Our payment terms with EMC will remain at net 45 days from shipment.

      We had previously granted a security interest in all of our personal property assets to Canopy as security for our obligations to Canopy in connection with Canopy’s guaranty of our indebtedness to Comerica Bank. To enable us to pledge the collateral described above to EMC, Canopy delivered a waiver and consent releasing Canopy’s security interest in the collateral to be pledged to EMC and consenting to the transaction. As part of the waiver and consent, we agreed not to increase our indebtedness to Comerica Bank above our then-current outstanding balance of $5.5 million, and to make a principal repayment to Comerica equal to $1.8 million on each of February 15, 2005, May 15, 2005 and August 15, 2005 in order to eliminate our outstanding indebtedness to Comerica. In connection with our renewal of the Comerica agreement noted above, Canopy amended its waiver and consent which terminated the requirement to pay-down the indebtedness to Comerica and extended their letter of credit guarantee through December 31, 2006. In exchange for this waiver and consent amendment, we agreed to issue a warrant to purchase 125,000 shares of our common stock at an exercise price of $1.23 per share, the market price on the date of grant. The warrant is exercisable immediately and has a ten year life.

      The Comerica loan agreement contains negative covenants placing restrictions on our ability to engage in any business other than the businesses currently engaged in, suffer or permit a change in control, and merge with or acquire another entity. Comerica has issued a consent related to our pending acquisition of Collective Technologies discussed below. We are currently in compliance with all of the terms of the Comerica loan agreement and believe that we will remain in compliance. Upon an event of default, Comerica may terminate the Comerica loan agreement and declare all amounts outstanding immediately due and payable.

      On August 19, 2005, we entered into an agreement to sell shares of Series B in a private placement financing, which is referred to as the “Series B financing,” for $20.0 million in gross proceeds, before payment of professional fees. The purchasers in the private placement were the Series A holders. The sale of Series B was subject to stockholder approval and was approved by stockholders at our annual stockholder meeting on November 1, 2005.

      Accordingly, on November 2, 2005, 1,582,023 shares of Series B were issued at a purchase price of $12.6420 per share, which was equal to ten times 90% of the average closing price of the Company’s common stock during the 15 trading days prior to the Series B issue date. The Series B is convertible any time at the direction of the holders. Each share of Series B is convertible into a number of shares of common stock equaling its stated value plus accumulated and unpaid dividends, divided by its conversion price then in effect. Each share of Series B is initially convertible into ten shares of common stock, but is subject to adjustment

32

upon certain dilutive issuances of securities by the Company. The Series B financing included the issuance of warrants to purchase 5,932,587 shares of the Company’s common stock at an exercise price of $1.26 per share. The warrants are exercisable immediately and have a ten year life.

      On June 6, 2006, we entered into an Asset Purchase Agreement with Collective Technologies, LLC. Pursuant to the Asset Purchase Agreement, we will acquire specified assets and liabilities of Collective for a purchase price consisting of:

•  $6.0 million in cash;

•  a note in the amount of $2.0 million bearing interest at 5% and due in twelve quarterly payments beginning 90 days after closing;

•  2,272,727 shares of our common stock;

•  a warrant to purchase 1,000,000 shares of our common stock at an exercise price of $1.32 per share;

•  assumptions of certain liabilities.

      The shares issued as consideration in the transaction will be subject to a 12 month lock-up agreement and will have piggyback registration rights. We will also issue up to 306,303 shares of restricted stock and up to 1,608,481 stock options to former employees of Collective that we acquire in the transaction, or increase the purchase price in lieu thereof in certain instances. The purchase price is subject to certain adjustments specified in the Asset Purchase Agreement. The transaction is subject to customary closing conditions. See further discussion in Note 13 of the Notes to the Consolidated Financial Statements of this Form 10-K.

      At various times from March 2005 through March 2006, we issued options to purchase shares of our common stock under our 2001 Stock Incentive Plan to our directors, employees and consultants, with exercise prices ranging from a minimum of $1.44 per share to a maximum of $2.45 per share, for the purpose of providing incentive compensation to those directors, employees and consultants. The aggregate exercise price of the issued options is $1.2 million. The options were issued in accordance with applicable federal securities laws and registered on Form S-8. We believed in good faith that we could rely on a prior qualification order issued pursuant to Section 25111 of the Code or an exemption from the qualification requirements thereof; however, the options may not in fact have been issued in compliance with the provisions of Section 25110 of the Code. In order to comply with the securities laws of California, where we have our headquarters, we have applied for approval of the terms of a repurchase offer. Under the terms submitted to the California Department of Corporations, we would offer to repurchase any outstanding options issued during such period for a cash price equal to 20% of the aggregate exercise price of the option, plus interest at an annual rate of 7%. There is no assurance that the terms of the repurchase offer will be approved, and we could be required to offer a higher repurchase price or to extend the offer to a greater number of persons.

      The Company’s principal sources of liquidity are cash and cash equivalents. We believe that our current cash and receivable balances will be adequate to fund operations for at least the next 12 months. Our credit terms with EMC are net 45 days from shipment. Our credit terms with our customers generally range from 30 to 60 days. Often there is a gap between when we pay EMC and when we ultimately collect the receivable from our customer. This gap is funded by our working capital. If we experience a significant deterioration in our receivable collections, or if we are not successful in growing revenues and improving operating margins, we may need to seek additional sources of liquidity to fund operations. Our future is dependent upon many factors, including but not limited to, improving revenues and margins, continuing our relationship with EMC, expanding our service offerings, completing and successfully integrating our recently announced acquisition of Collective, receiving market acceptance of new products and services, recruiting, hiring, training and retaining qualified personnel, forecasting revenues, controlling expenses and managing assets. If we are not successful in these areas, our future results of operations could be adversely affected. If we need additional funds such as for acquisition or expansion or to fund a downturn in sales or increase in expenses, there are no assurances that adequate financing will be available on acceptable terms, if at all. We may in the future seek additional financing from public or private debt or equity financing. There can be no assurance such financing will be available on terms favorable to us or at all, or that necessary approvals to obtain any such financing will be

33

received. To the extent any such financing involves the issuance of equity securities, existing stockholders could suffer dilution.

      The following represents a comprehensive list of our contractual obligations and commitments as of April 1, 2006:

	Payments Due by Fiscal Period
	Total		2007		2008		2009		2010		2011		Thereafter
	(In millions)
Line of Credit	$	5.2	$	5.2		—		—		—		—		—
Operating Leases(1)		8.1		3.1		2.7		1.1		1.0		0.3		—
	$	13.4	$	8.3	$	2.7	$	1.1	$	1.0	$	0.3		—

(1)  Represents lease obligations, net of anticipated sublease cash receipts.

      We enter into agreements in the ordinary course of business with customers, OEM’s, system distributors and integrators. Certain of these agreements require us to indemnify the other party against certain claims relating to property damage, personal injury or the acts or omissions of the Company, its employees, agents or representatives. In addition, from time to time the Company may have made certain guarantees regarding the performance of our systems to our customers.

INFLATION AND FOREIGN CURRENCY EXCHANGE

      We recorded a $0.7 million foreign exchange loss during fiscal year 2006, which resulted primarily from the strengthening U.S. dollar against the Euro and the British Pound Sterling during the first quarter of fiscal 2006. In fiscal 2006, approximately 40% of total revenue was generated outside the United States, particularly in Germany, France and the United Kingdom. Sales denominated in currencies other than the U.S. dollar expose us to market risk from unfavorable movements in foreign exchange rates between the U.S. dollar and the foreign currency, particularly the British Pound Sterling and the Euro. Also, our European subsidiaries pay EMC in U.S. dollars. This exposes us to currency movements while these payables are outstanding. In fiscal year 2006, we did not enter into forward exchange contracts to sell foreign currency to fix the U.S. dollar amount we will receive on sales denominated in that currency.

      The Company has assets and liabilities outside the United States that are subject to fluctuations in foreign currency exchange rates. Assets and liabilities outside the United States are primarily located in Germany, France and the United Kingdom. The Company’s investments in foreign subsidiaries with a functional currency other than the U.S. dollar are generally considered long-term. Accordingly, the Company does not hedge these net investments.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

      Our European operations transact in foreign currencies, which exposes us to financial market risk resulting from fluctuations in foreign currency exchange rates, particularly the British Pound Sterling and the Euro. We have used and may in the future use hedging programs, currency forward contracts, currency options and/or other derivative financial instruments commonly used to reduce financial market risks. In order to conserve cash, we decided to end our hedging program as of the end of May 2003. As of April 1, 2006, we had no outstanding forward contracts. Should we decide to use hedging programs, currency forward contracts, currency options and/or other derivative financial instruments commonly used to reduce financial market risks, there can be no assurance that such actions will successfully reduce our exposure to financial market risks.

      Our exposure to short-term interest rate fluctuations is limited to our short-term borrowings under our line of credit. As of April 1, 2006, the balance on our line of credit was $5.2 million. Therefore, a 1% increase in interest rates would increase annual interest expense by $0.05 million.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The information required by this Item is incorporated herein by reference to the Consolidated Financial Statements and supplementary data listed in Item 15(a)(1) and 15(a)(2) of Part IV of this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

      None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

      We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our “disclosure controls and procedures” as of the end of the period covered by this report, pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this report, these disclosure controls and procedures were effective to ensure that we are able to accumulate and communicate to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure, information that we are required to disclose in the reports that we file with the Securities Exchange Commission , and to record, process, summarize and report that information within the required time periods.

Changes in Internal Control over Financial Reporting

      There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

      In the second quarter of fiscal year 2005, we began implementation of our project to document and test our internal control procedures in order to satisfy the requirements of section 404 of the Sarbanes-Oxley Act. We have engaged a third party consulting firm to assist us in this effort. We are currently in the documentation phase of the project. If our public float at the end of our second quarter of fiscal 2007 is less than $75 million, we may not need to comply with section 404 until the end of fiscal 2008. However, if our public float at the end of our second quarter of fiscal 2007 is greater than $75 million, we may be required to comply with section 404 by the end of fiscal 2007. Management has not identified any deficiencies in internal control that would constitute a material weakness. There have not been significant changes in our internal control over financial reporting as a result of our documentation efforts. However, as we move into the remediation phase of the project we expect that there will be changes to our internal control structure in order to comply with section 404.

      As noted previously, in the fourth quarter of fiscal 2005, we implemented plans to close our facility in Dublin, Ireland. Subsequent to fiscal 2005, all finance and accounting functions that were previously performed in Dublin have been transitioned to our Wiesbaden, Germany facility. There were no significant changes in internal control procedures over financial reporting as a result of this consolidation. However, the personnel performing the controls are now primarily located in Germany.

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ITEM 9B. OTHER INFORMATION

      None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The information required hereunder is incorporated by reference from the information contained in the sections entitled “Directors,” “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance” in MTI’s definitive Proxy Statement for its 2006 Annual Meeting of the Stockholders to be filed with the Securities and Exchange Commission.

      We have a code of ethics that applies to all of our employees. This code, which is available on our website at www.mti.com, satisfies the requirements set forth in Item 406 of Regulation S-K and applies to all relevant persons set forth therein.

ITEM 11. EXECUTIVE COMPENSATION

      The information required hereunder is incorporated by reference from the information contained in the sections entitled “Compensation of Directors and Executive Officers and Other Information,” in MTI’s definitive Proxy Statement for its 2006 Annual Meeting of the Stockholders to be filed with the Securities and Exchange Commission.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

      The information required hereunder is incorporated by reference from the information contained in the section entitled “Voting Securities and Principal Holders Thereof” in MTI’s definitive Proxy Statement for its 2006 Annual Meeting of the Stockholders to be filed with the Securities and Exchange Commission.

SECURITIES AUTHORIZED FOR ISSUANCE

      The following table sets forth certain information as of April 1, 2006, with respect to equity compensation plans under which our equity securities are authorized for issuance:

							Number of Securities
		Number of Securities			Weighted-Average		Remaining Available
		to be Issued Upon			Exercise Price of		for Future Issuance
		the Exercise of			Outstanding		under Equity
		Outstanding Options,			Options,		Compensation Plans
		Warrants and			Warrants and		(Excluding
		Rights(1)			Rights(1)		Securities Reflected
Plan Category		(#)			($)		in Column (a))
		(a)			(b)		(c)
Equity Compensation Plans Approved by Security Holders:
2001 Stock Option Plan which includes the 2001 Director Plan			6,790,013	(2)	$	1.78		2,497,075	(3)
	All other terminated stock plans		2,818,897		$	8.28		—
Warrants:
	Ralph Yarro		150,000		$	18.75		—
Equity Compensation Plans Not Approved by Security Holders:
	None		—			—		—
	Total:		9,758,910					2,497,075

36

(1)	The 2001 Non-Employee Director Option Program functions as part of the 2001 Stock Incentive Plan.
(2)	6,265,013 shares and 525,000 shares related to the 2001 Stock Incentive Plan (the “SIP”) and the 2001 Non-Employee Director Option Program (the “Program”), respectively.
(3)	The maximum aggregate number of shares allocated for the SIP increases by 3% annually, subject to terms and conditions of the SIP. 2,415,431 and 81,644 shares related to the SIP and the Program.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information required hereunder is incorporated by reference from the information contained in the section entitled “Certain Transactions and Related Transactions” in MTI’s definitive Proxy Statement for its 2006 Annual Meeting of the Stockholders to be filed with the Securities and Exchange Commission.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The information required hereunder is incorporated by reference from the information contained in the section entitled “Ratification of the Appointment by the Audit Committee of Independent Auditors” in MTI’s definitive Proxy Statement for its 2006 Annual Meeting of the Stockholders to be filed with the Securities and Exchange Commission.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

      The following Consolidated Financial Statements of MTI and the Reports of Independent Registered Public Accounting Firms are attached hereto beginning on pages 43 and 41, respectively.

      (a)(1) Consolidated Financial Statements:

      Report of Independent Registered Public Accounting Firm — Grant Thornton LLP

      Independent Auditors’ Report — BDO Simpson Xavier

      Consolidated Balance Sheets as of April 1, 2006 and April 2, 2005

      Consolidated Statements of Operations for the fiscal years ended 2006, 2005, and 2004

Consolidated Statements of Stockholders’ Equity (Deficit) for the fiscal years ended 2006, 2005, and 2004

      Consolidated Statements of Cash Flows for the fiscal years ended 2006, 2005 and 2004

      Notes to Consolidated Financial Statements

      (2) The following financial statement schedule for fiscal years 2006, 2005, and 2004 is submitted herewith:

      Schedule II — Valuation and Qualifying Accounts (See page 70)

      All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or notes thereto.

      (3) Exhibits

      An exhibit index has been filed as part of this report and is incorporated herein by this reference.

37

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of June 2006.

MTI TECHNOLOGY CORPORATION

By:  /s/ THOMAS P. RAIMONDI, JR.

Thomas P. Raimondi, Jr.

Chairman, President and Chief Executive Officer

POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below, constitutes and appoints Thomas P. Raimondi, Jr. and Scott Poteracki jointly and severally, attorneys-in-fact and agents, each with full power of substitution, for him in any and all capacities to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, and all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact and agents, and his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ THOMAS P. RAIMONDI, JR.      (Thomas P. Raimondi, Jr.)	Chairman, President and Chief Executive Officer (Principal Executive Officer)	June 29, 2006
/s/ SCOTT POTERACKI      (Scott Poteracki)	Chief Financial Officer and Secretary (Principal Financial Officer)	June 29, 2006
/s/ TODD WILLIAMS      (Todd Williams)	Vice President and Corporate Controller (Principal Accounting Officer)	June 29, 2006
/s/ LAWRENCE P. BEGLEY      (Lawrence P. Begley)	Director	June 29, 2006
/s/ FRANZ L. CRISTIANI      (Franz L. Cristiani)	Director	June 29, 2006
/s/ WILLIAM MUSTARD      (William Mustard)	Director	June 29, 2006
/s/ MICHAEL PEHL      (Michael Pehl)	Director	June 29, 2006

38

Signature	Title	Date
/s/ JOHN REPP      (John Repp)	Director	June 29, 2006
/s/ KENT D. SMITH      (Kent D. Smith)	Director	June 29, 2006

39

INDEX TO FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm — Grant Thornton LLP		41
Independent Auditors’ Report — BDO Simpson Xavier		42
Consolidated Balance Sheets as of April 1, 2006 and April 2, 2005		43
Consolidated Statements of Operations for the fiscal years ended April 1, 2006, April 2, 2005 and April 3, 2004		44
Consolidated Statements of Stockholders’ Equity (Deficit) for the fiscal years ended April 1, 2006, April 2, 2005 and April 3, 2004		45
Consolidated Statements of Cash Flows for the fiscal years ended April 1, 2006, April 2, 2005 and April 3, 2004		46
Notes to Consolidated Financial Statements		47
FINANCIAL STATEMENT SCHEDULE
Schedule II — Valuation and Qualifying Accounts		70

40

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

MTI Technology Corporation

      We have audited the accompanying consolidated balance sheets of MTI Technology Corporation and subsidiaries as of April 1, 2006 and April 2, 2005, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three fiscal years in the period ended April 1, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. For the year ended April 3, 2004, we did not audit the financial statements of MTI France SA, a consolidated subsidiary, which statements reflect total revenue constituting 16%,in 2004, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the 2004 amounts included for MTI France SA, is based solely on the report of the other auditors.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, based on our audits and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of MTI Technology Corporation and subsidiaries as of April 1, 2006 and April 2, 2005, and the results of their operations and their cash flows for each of the fiscal years in the three year period ended April 1, 2006, in conformity with accounting principles generally accepted in the United States of America.

      Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying Schedule II — Valuation and Qualifying Accounts is presented for purposes of additional analysis and is not a required part of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

/s/ Grant Thornton LLP

Irvine, California

June 27, 2006

41

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Shareholders

MTI France SA:

      We have audited the statements of operations, stockholder’s equity and cash flows of MTI France SA as of April 3, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

      In our opinion, such financial statements present fairly, in all material respects, the results of its operations and cash flows for the year ended April 3, 2004, in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO Simpson Xavier

Dublin, Ireland

June 4, 2004

42

MTI TECHNOLOGY CORPORATION

CONSOLIDATED BALANCE SHEETS

			April 1,			April 2,
			2006			2005
			(In thousands except per
			share amounts)
ASSETS
Current assets:
	Cash and cash equivalents		$	21,660		$	12,191
	Accounts receivable, less allowance for doubtful accounts and sales returns of $514 and $451 in 2006 and 2005, respectively			37,803			33,866
	Inventories, net			10,466			3,723
	Prepaid expenses and other receivables			8,712			6,971
		Total current assets		78,641			56,751
	Property, plant and equipment, net			555			708
	Goodwill, net			5,184			5,184
	Other assets			242			223
		Total assets	$	84,622		$	62,866
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
	Line of credit		$	5,167		$	3,667
	Current portion of capital lease obligations			—			78
	Accounts payable			36,952			24,474
	Accrued liabilities			10,315			9,489
	Accrued restructuring charges			847			2,767
	Deferred revenue, current			11,820			14,020
		Total current liabilities		65,101			54,495
	Deferred revenue, noncurrent			4,305			3,695
		Total liabilities		69,406			58,190
	Series A redeemable convertible preferred stock, 567 shares issued and outstanding at April 1, 2006 and April 2, 2005 net of discount of $6,584 and $7,955 at April 1, 2006 and April 2, 2005, respectively			8,416			7,045
	Series B redeemable convertible preferred stock, 1,582 shares issued and outstanding April 1, 2006, net of discount of $9,570			10,430			—
	Stockholders’ deficit:
		Preferred stock, $.001 par value; 5,000 shares authorized; issued and outstanding 2,149 and 567 shares at April 1, 2006 and April 2, 2005, respectively, included in redeemable convertible preferred stock		—			—
		Common stock, $.001 par value; 80,000 shares authorized; issued and outstanding 36,024 and 35,159 shares at April 1, 2006 and April 2, 2005, respectively		36			35
	Additional paid-in capital			155,365			145,345
	Deferred Compensation			(326	)		(605	)
	Accumulated deficit			(155,779	)		(143,768	)
	Accumulated other comprehensive loss			(2,926	)		(3,376	)
		Total stockholders’ deficit		(3,630	)		(2,369	)
			$	84,622		$	62,866

See accompanying notes to consolidated financial statements.

43

CONSOLIDATED STATEMENTS OF OPERATIONS

FISCAL YEARS ENDED APRIL 1, 2006, APRIL 2, 2005 AND APRIL 3, 2004

				2006			2005			2004
				(In thousands, except per share data)
Net product revenue				$	116,326		$	93,703		$	46,442
Service revenue					38,717			38,910			36,723
		Total revenue			155,043			132,613			83,165
Product cost of revenue					94,468			73,898			34,969
Service cost of revenue					29,620			33,196			26,390
			Total cost of revenue		124,088			107,094			61,359
			Gross profit		30,955			25,519			21,806
Operating expenses:
Selling, general and administrative					37,091			39,078			28,935
Research and development					—			—			776
Restructuring charges					1,091			2,024			(211	)
			Total operating expenses		38,182			41,102			29,500
			Operating loss		(7,227	)		(15,583	)		(7,694	)
Interest and other income (expense), net					(104	)		(500	)		631
Gain (loss) on foreign currency transactions					(720	)		318			29
Loss before income tax expense (benefit)					(8,051	)		(15,765	)		(7,034	)
Income tax expense (benefit)					51			22			(3,168	)
Net loss					(8,102	)		(15,787	)		(3,866	)
Amortization of preferred stock discount					(1,970	)		(880	)		—
Dividend on preferred stock					(1,939	)		(953	)		—
Net loss applicable to common shareholders				$	(12,011	)	$	(17,620	)	$	(3,866	)
Net loss per share applicable to common shareholders:
	Basic and diluted			$	(0.34	)	$	(0.51	)	$	(0.12	)
Weighted average shares used in per share computations:
	Basic and diluted				35,541			34,746			33,482

See accompanying notes to consolidated financial statements.

44

MTI TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

FISCAL YEARS ENDED APRIL 1, 2006, APRIL 2, 2005 AND APRIL 3, 2004

														Accumulated			Total			Total
	Common Stock				Additional									Other			Stockholders’			Comprehensive
					Paid-In			Deferred			Accumulated			Comprehensive			Equity			Income
	Shares		Amount		Capital			Compensation			Deficit			Loss			(Deficit)			(Loss)
	(In thousands)
Balance at April 5, 2003		32,969	$	33	$	134,931			—		$	(122,282	)	$	(3,708	)	$	8,974
Net loss		—		—		—			—			(3,866	)		—			(3,866	)	$	(3,866	)
Foreign currency translation adjustments		—		—		—			—			—			648			648			648
Comprehensive loss for the year ended April 3, 2004																					(3,218	)
Shares issued under Employee Stock Purchase Plan		133		—		76			—			—			—			76
Exercise of stock options		1,331		1		1,269			—			—			—			1,270
Issuance of restricted stock		—		—		271			(271	)		—			—			—
Deferred compensation		—		—		—			40			—			—			40
Warrant conversion		40		—		—			—			—			—			—
Balance at April 3, 2004		34,473		34		136,547			(231	)		(126,148	)		(3,060	)		7,142
Net loss		—		—		—			—			(15,787	)		—			(15,787	)		(15,787	)
Foreign currency translation adjustments		—		—		—			—			—			(316	)		(316	)		(316	)
Comprehensive loss for the year ended April 2, 2005																					(16,103	)
Shares issued under Employee Stock Purchase Plan		104		—		161			—			—			—			161
Exercise of stock options		582		1		698			—			—			—			699
Issuance of restricted stock		—		—		540			(540	)		—			—			—
Deferred compensation		—		—		—			166			—			—			166
Discount related to Series A preferred stock		—		—		8,835			—			—			—			8,835
Issuance fees related to preferred stock		—		—		(1,436	)		—			—			—			(1,436	)
Dividend on preferred stock		—		—		—			—			(953	)		—			(953	)
Amortization of preferred stock discount		—		—		—			—			(880	)		—			(880	)
Balance at April 2, 2005		35,159		35		145,345			(605	)		(143,768	)		(3,376	)		(2,369	)
Net loss		—		—		—			—			(8,102	)		—			(8,102	)		(8,102	)
Foreign currency translation adjustments		—		—		—			—			—			450			450			450
Comprehensive loss for the year ended April 1, 2006																				$	(7,652	)
Shares issued under Employee Stock Purchase Plan		140		—		193			—			—			—			193
Exercise of stock options		610		1		560			—			—			—			561
Deferred compensation		115		—		(42	)		279			—			—			237
Discount related to Series B preferred stock		—		—		10,169			—			—			—			10,169
Issuance fees related to preferred stock		—		—		(860	)		—			—			—			(860	)
Dividend on preferred stock		—		—		—			—			(1,939	)		—			(1,939	)
Amortization of preferred stock discount		—		—		—			—			(1,970	)		—			(1,970	)
Balance at April 1, 2006		36,024	$	36	$	155,365		$	(326	)	$	(155,779	)	$	(2,926	)	$	(3,630	)

See accompanying notes to consolidated financial statements.

45

MTI TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

FISCAL YEARS ENDED APRIL 1, 2006, APRIL 2, 2005 AND APRIL 3, 2004

			2006			2005			2004
			(In thousands)
Cash flows from operating activities:
Net loss			$	(8,102	)	$	(15,787	)	$	(3,866	)
Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation and amortization		487			1,282			1,419
		Provision for losses on accounts receivable, net		197			14			25
		Provision for inventory obsolescence		589			2,681			1,469
		Loss on disposal of fixed assets		—			96			210
		Restructuring charges		1,091			2,024			(211	)
		Non-cash compensation from issuance of restricted stock		237			166			40
Changes in assets and liabilities:
		Accounts receivable		(3,886	)		(11,323	)		(8,540	)
		Inventories		(7,301	)		(233	)		625
		Prepaid expenses, other receivables and other assets		(1,654	)		1,213			(4,087	)
		Accounts payable		12,648			10,706			5,052
		Deferred revenue		(1,592	)		1,387			(887	)
		Accrued and other liabilities		(3,887	)		3,422			(2,202	)
Net cash used in operating activities				(11,173	)		(4,352	)		(10,953	)
Cash flows from investing activities:
		Capital expenditures for property, plant and equipment		(360	)		(661	)		(157	)
		Proceeds from the sale of property, plant and equipment		—			—			50
Net cash used in investing activities				(360	)		(661	)		(107	)
Cash flows from financing activities:
		Net borrowings (payments) on line of credit		1,500			(266	)		2,193
		Proceeds from exercise of stock options		753			860			1,346
		Proceeds from issuance of preferred stock, net		19,140			13,564			—
		Payment of capital lease obligations		(78	)		(193	)		(176	)
Net cash provided by financing activities				21,315			13,965			3,363
Effect of exchange rate changes on cash				(313	)		222			881
Net increase (decrease) in cash and cash equivalents				9,469			9,174			(6,816	)
Cash and cash equivalents at beginning of year				12,191			3,017			9,833
Cash and cash equivalents at end of year			$	21,660		$	12,191		$	3,017
Supplemental disclosures of cash flow information:
	Cash paid during the year for:
		Interest	$	285		$	432		$	241
		Income taxes		64			7			166
Non-cash investing and financing activities:
	Accrued dividends on preferred stock		$	1,939		$	953			—

See accompanying notes to consolidated financial statements.

46

MTI TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Company

      MTI Technology Corporation (MTI or the “Company”) is a multinational total information storage infrastructure solutions provider that offers a wide range of storage systems, software, services and solutions that are designed to help organizations get more value from their information and maximize their information technology (IT) assets. In March 2003, MTI became a reseller and service provider of EMC Automated Networked Storage^tm systems and software pursuant to a reseller agreement with EMC Corporation, a world leader in information storage systems software, networks and services. Although it focuses primarily on EMC products, the Company also supports and services customers that continue to use MTI-branded RAID controller technology and partnered independent storage technology. The terms of the EMC reseller agreement do not allow the Company to sell data storage hardware that competes with EMC products. As an EMC reseller, MTI combines its core services capabilities, including storage networking assessment, installation, resource management and enhanced data protection, with the complete line of EMC Automated Networked Storage systems and software, focusing on the CLARiiON^® family of systems. MTI designs and implements solutions that incorporate a broad array of third party products to meet customer requirements in the areas of storage area networks, network attached storage, high-availability systems for enhanced business continuance, data protection systems incorporating enhanced backup and recovery, Information Lifecycle Management, archiving and tape automation. The Company also enhances the value of its storage solutions through its 24 hour, seven days per week support and service infrastructure, which includes an international network of on-site field engineers, a storage solution laboratory, and global technical support centers. The sale of EMC products accounted for 81% of product revenue for both 2006 and 2005 fiscal years and 56% of product revenue in fiscal year 2004.

Basis of Financial Statement Presentation

      The accompanying consolidated financial statements include the accounts of MTI Technology Corporation and its wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated. Certain reclassifications have been made to the fiscal year 2004 and 2005 financial statements to conform to the fiscal year 2006 presentation.

      References to dollar amounts in this financial statement section are in thousands, except per share data, unless otherwise specified.

Fiscal Year

      The Company’s year-end is the first Saturday following March 31. Fiscal years 2006, 2005, and 2004 ended on April 1, April 2, and April 3, respectively, and consisted of 52 weeks.

Use of Estimates

      The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, and as such, include amounts based upon informed estimates and judgments of management. Actual results could differ from these estimates. Significant estimates include fair value of contract elements, valuation of goodwill, inventory reserves, allowance for doubtful accounts and sales returns, warranty reserve and deferred tax assets.

47

Revenue Recognition

      The Company derives revenue from sales of products and services. The following summarizes the major terms of the contractual relationships with customers and the manner in which the Company accounts for sales transactions.

Hardware revenue

      Hardware revenue consists of the sale of disk and tape based hardware. The Company recognizes revenue pursuant to Emerging Issues Task Force No. 00-21, “Revenue Arrangements with Multiple Deliverables” (EITF 00-21) and Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements” (SAB 104). In accordance with these revenue recognition guidelines, revenue is recognized for a unit of accounting when all of the following criteria are met:

•  persuasive evidence of an arrangement exists;

•  delivery has occurred;

•  fee is fixed or determinable; and

•  collectability is reasonably assured.

      Generally, product sales are not contingent upon customer testing, approval and/or acceptance. However, if sales require customer acceptance, revenue is recognized upon customer acceptance. Product sales with post-delivery obligations generally relate to professional services, including installation services or other projects. Professional services revenue is not recognized until the services have been performed, while product revenue is recognized at time of shipment as the services do not affect the functionality of the delivered items. In sales transactions directly to an end user, generally there are no acceptance clauses. However, the Company also sells to leasing companies who in turn lease the product to their lessee, the end user. For this type of sale, generally there are lessee acceptance criteria in the purchase order or contract. For these transactions, revenue is deferred until written acceptance is received from the lessee. Credit terms to customers typically range from net 30 to net 60 days after shipment.

      Product returns are estimated in accordance with Statement of Financial Accounting Standards No. (Statement) 48, “Revenue Recognition When Right of Return Exists.” Customers have a limited right of return which allows them to return non-conforming products. Accordingly, reserves for estimated future returns are provided in the period of sale based on contractual terms and historical data and are recorded as a reduction of revenue. The Company also ensures that the other criteria in Statement 48 have been met prior to recognition of revenue: the price is fixed or determinable; the customer is obligated to pay and there are no contingencies surrounding the obligation or the payment; the customer’s obligation would not change in the event of theft or damage to the product; the customer has economic substance; the amount of returns can be reasonably estimated; and we do not have significant obligations for future performance in order to bring about resale of the product by the customer.

Software revenue

      The Company sells various software products ranging from software that is embedded in the hardware to add-on software that can be sold on a stand-alone basis. Software that is embedded in the hardware consists of tools that provide a user-interface and assist the customer in the configuration of storage disks as well as provide performance monitoring and troubleshooting features. This software cannot be sold on a stand-alone basis and is not a significant part of sales or marketing efforts. This embedded software is considered incidental to the hardware and is not recognized as a separate unit of accounting apart from the hardware. If a maintenance contract is sold related to this software, it is accounted for in accordance with EITF 00-21, whereby the total arrangement revenue is first allocated to the maintenance contract based on fair value and the remaining arrangement revenue is allocated to the hardware elements in the transaction. Revenue from maintenance contracts is recognized ratably over the term of the contract.

48

      The Company also sells application software that is sold as add-on software to existing hardware configurations. This software is generally loaded onto a customers’ host CPU and provides additional functionality to the storage environment, such as assisting in data back-up, data migration and mirroring data to remote locations. Based on the factors described in footnote two of AICPA Statement of Position (SOP) 97-2 “Software Revenue Recognition,” the Company considers this type of software to be more-than-incidental to hardware components in an arrangement. This assessment is based on the fact that the software can be sold on a stand-alone basis and that maintenance contracts are generally sold with the software. Software products that are considered more-than-incidental are treated as a separate unit of accounting apart from the hardware and the related software product revenue is recognized upon delivery to the customer. The Company accounts for software that is more-than-incidental in accordance with SOP 97-2, as amended by SOP 98-9, whereby the total arrangement revenue is first allocated to the software maintenance contract based on vendor specific objective evidence (VSOE) of fair value and is recognized ratably over the term of the contract. VSOE is established based on stand-alone renewal rates. The remaining revenue from the sale of software products is recognized at the time the software is delivered to the customer, provided all the revenue recognition criteria noted above have been met, except collectability must be deemed probable under SOP 97-2 versus reasonably assured under SAB 104.

      In transactions where the software is considered more-than-incidental to the hardware in the arrangement, the Company also considers EITF 03-05, “Applicability of AICPA Statement of Position 97-2, Software Revenue Recognition, to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software” (EITF 03-05). Per EITF 03-05, if the software is considered not essential to the functionality of the hardware, then the hardware is not considered “software related” and is excluded from the scope of SOP 97-2. All software sold by MTI is not essential to the functionality of the hardware. The software adds additional features and functionality to the hardware and allows the customer to perform additional tasks in their storage environment. The hardware is not dependent upon the software to function and the customer can fully utilize the hardware product without any of the software products. Therefore, in multiple-element arrangements containing hardware and software, the hardware elements are excluded from SOP 97-2 and are accounted for under the residual method of accounting per EITF 00-21 and SAB 104.

Service revenue

      Service revenue is generated from the sale of professional services, maintenance contracts and time and materials arrangements. The following describes how the Company accounts for service transactions, provided all the other revenue recognition criteria noted above have been met. Generally, professional services revenue, which includes installation, training, consulting and engineering services, is recognized upon delivery of the services. If the professional service project includes independent milestones, revenue is recognized as milestones are met and upon acceptance from the customer. Maintenance revenue is generated from the sale of hardware and software maintenance contracts. These contracts generally range from one to three years. Maintenance revenue is recorded as deferred revenue and is recognized as revenue ratably over the term of the related agreement.

Multiple element arrangements

      The Company considers sales contracts that include a combination of systems, software or services to be multiple element arrangements. Revenue related to multiple element arrangements is separated in accordance with EITF 00-21 and SOP 97-2. If an arrangement includes undelivered elements, the residual method is used, whereby the fair value of the undelivered elements is deferred and the residual revenue is allocated to the delivered elements. Discounts are allocated only to the delivered elements. Fair value is determined by examining renewed service contracts and based upon the price charged when the element is sold separately or, for transactions accounted for under EITF 00-21, prices provided by vendors if sufficient stand-alone sales information is not available. Undelivered elements typically include installation, training, warranty, maintenance and professional services.

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Other

      Certain sales transactions are initiated by EMC and jointly negotiated and closed by EMC and MTI’s sales force. The Company recognizes revenue related to these transactions on a gross basis, in accordance with EITF 99-19, because it bears the risk of returns and collectability of the full accounts receivable. Product revenue for the delivered items is recorded at residual value upon pickup by a common carrier for Free Carrier (FCA) origin shipments. For FCA destination shipments, product revenue is recorded upon delivery to the customer. If the Company subcontracts the undelivered items such as maintenance and professional services to EMC or other third parties, it records the costs of those items as deferred costs and amortizes the costs using the straight-line method over the life of the contract. The Company defers the revenue for the undelivered items at fair value based upon list prices with EMC according to EITF 00-21. At times, MTI’s customers prefer to enter into service agreements directly with EMC. In such instances, the Company may assign the obligation to perform services to EMC, or other third parties, and therefore does not record revenue nor defer any costs related to the services.

      The Company may allow customers that purchase new equipment to trade in used equipment to reduce the purchase price under the sales contract. These trade-in credits are considered discounts and are allocated to the delivered elements in accordance with EITF 00-21. Thus, product revenue from trade-in transactions is recognized net of trade-in value.

Shipping

      Products are generally drop-shipped directly from suppliers to MTI’s customers. Upon the supplier’s delivery to a carrier, title and risk of loss pass to MTI. Revenue is recognized at the time of shipment when shipping terms are Free Carrier (FCA) shipping point as legal title and risk of loss to the product pass to the customer. For FCA destination point shipments, revenue is recorded upon delivery to the customer.

Cash and Cash Equivalents

      The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. There were no cash equivalents at April 1, 2006 and April 2, 2005.

Inventories

      Inventories are stated at the lower of cost (first-in, first-out) or market, net of an allowance for obsolete, slow-moving, and unsalable inventory. The allowance is based upon management’s review of inventories on-hand, historical product sales, and future sales forecasts. The Company uses rolling forecasts based upon anticipated product orders to determine its component and product inventory requirements. As a reseller, the Company primarily procures inventory upon receipt of purchase orders from customers; as such, management believes the risk of production inventory obsolescence is low. At times, in order to take advantage of favorable pricing, the Company may procure inventory in advance of receiving customer orders. The Company’s spare parts inventory reserve is determined based on the estimated carrying value of the spare parts used in supporting products under maintenance contracts and warranty.

Property, Plant and Equipment

      Property, plant and equipment are recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Plant equipment, office furniture and fixtures are amortized over a period of two to five years. Computer equipment is amortized over five years. Leasehold improvements are amortized using the straight-line method over the lesser of the useful life of the improvement or the term of the related lease. Maintenance and repairs are expensed as incurred. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the fair value is less than the carrying value, a loss is recognized.

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Allowance for Doubtful Accounts and Sales Returns

      The Company maintains an allowance for doubtful accounts for estimated sales returns and losses resulting from the inability of our customers to make payments for products sold or services rendered. The Company analyzes accounts receivable, including past due accounts, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts and sales returns. All new customers are reviewed for credit-worthiness upon initiation of the sales process.

Accounting for Stock-Based Compensation

      The Company accounts for its stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25) and related interpretations, rather than the alternative fair value accounting allowed by Statement 123, “Accounting for Stock Based Compensation.” APB 25 provides that compensation expense relative to the Company’s employee stock options is measured based on the intrinsic value of stock options granted and the Company recognizes compensation expense in its statement of operations using the straight-line method over the vesting period for fixed awards. Under Statement 123, the fair value of stock options at the date of grant is recognized in earnings over the vesting period of the options. In December 2002, the Financial Accounting Standards Board (FASB) issued Statement 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” Statement 148 amends Statement 123 to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. The Company has adopted the disclosure-only provisions of Statement 148 and continues to follow APB 25 for stock-based employee compensation.

      The following table shows pro forma net loss as if the fair value method of Statement 123 had been used to account for stock-based compensation expense:

	2006			2005			2004
Net loss applicable to common shareholders, as reported	$	(12,011	)	$	(17,620	)	$	(3,866	)
Add: Stock-based compensation expense included in reported net loss, net of related tax effects		237			166			40
Deduct: Stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects		(2,512	)		(2,945	)		(5,571	)
Pro forma net loss applicable to common shareholders	$	(14,286	)	$	(20,399	)	$	(9,397	)
Net loss per share:
Basic and diluted, as reported	$	(0.34	)	$	(0.51	)	$	(0.12	)
Basic and diluted, pro forma	$	(0.40	)	$	(0.59	)	$	(0.28	)

      The fair value of the options granted has been estimated at the date of grant using the Black-Scholes option-pricing model. The following represents the weighted-average fair value of options granted and the assumptions used for the calculations:

	2006			2005			2004
Weighted-average fair value of options granted	$	1.11		$	1.54		$	1.49
Expected volatility		0.8			0.7			0.9
Risk-free interest rate		4.22	%		3.86	%		3.15	%
Expected life (years)		5.0			5.0			5.0
Dividend yield		—			—			—

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      The Black-Scholes option valuation model was developed for use in estimating the value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including expected stock price volatility.

      In December 2004, the FASB issued Statement 123R, “Share-Based Payment.” Statement 123R is a revision of Statement 123 and supersedes APB 25. Statement 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on the grant-date fair value of those instruments. That cost will be recognized as compensation expense over the service period, generally the vesting period. The Company is required to adopt Statement 123R in the first quarter of fiscal year 2007. Management has not yet finalized its adoption of Statement 123R and therefore the impact on the consolidated financial statements has yet to be determined. The future results will be impacted by the number and value of additional stock option grants as well as the value of existing unvested stock options.

Income taxes

      Under the asset and liability method of Statement 109, “Accounting for Income Taxes,” deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and operating loss and tax credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse, net of a valuation allowance for deferred tax assets which is provided when it is more likely than not that deferred tax assets will not be realizable. Under Statement 109, the effect on deferred taxes of a change in tax rates is recognized in operations in the period that includes the enactment date.

Intangible assets and goodwill

      The Company tests goodwill for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired. This impairment test is performed in the fourth quarter of the Company’s fiscal year in accordance with Statement 142, “Goodwill and Other Intangible Assets.” Factors the Company considers important which could trigger an impairment review include significant underperformance relative to expected historical or projected future operating results, significant changes in the manner of use of acquired assets or the strategy for the overall business, and significant negative industry or economic trends. The Company completed its annual assessment for goodwill impairment in the fourth quarter of fiscal year 2006. Based upon factors such as the market valuation approach, comparison between the reporting units’ estimated fair value using discounted cash flow projections over the next three years, and carrying value, the Company concluded that there was no impairment of goodwill as of April 1, 2006.

Foreign currency

      The Company follows the principles of Statement 52, “Foreign Currency Translation,” using the local currencies as the functional currencies of its foreign subsidiaries. Accordingly, all assets and liabilities outside the U.S. are translated into dollars at the rate of exchange in effect at the balance sheet date. Income and expense items are translated at the weighted-average exchange rates prevailing during the period. Net foreign-currency translation adjustments accumulate as other accumulated comprehensive loss in stockholders’ equity. A net foreign currency transaction exchange gain (loss) of $(720), $318, and $29 was recognized in the statement of operations in fiscal years 2006, 2005 and 2004, respectively.

Concentration of credit risk and dependence upon suppliers

      Credit is extended to all customers based on financial condition and, generally, collateral is not required. Concentrations of credit risk with respect to trade receivables are limited because of the large number of customers comprising the Company’s customer base and dispersion across many different industries and geographies. As of April 1, 2006, no single customer represented 10% or more of accounts receivable. No single customer represented 10% or more of total revenue for fiscal years 2006, 2005 and 2004.

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      Effective March 31, 2003, the Company became a reseller of EMC disk-based storage products. Therefore, the Company depends on EMC to manufacture and supply the Company with their storage products. If the supply of EMC disk-based storage products becomes disrupted for any reason, the Company’s operations and financial condition could be adversely impacted.

Loss per share

      Basic loss per share is computed by dividing net loss available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted loss per share is computed by dividing net loss available to common shareholders by the weighted-average number of common shares outstanding during the period, increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. The dilutive effect of outstanding options and warrants is reflected in diluted loss per share by application of the treasury-stock method. Such dilutive shares are not included when there is a loss from continuing operations as the effect would be anti-dilutive.

Fair value of financial instruments

      Statement 107, “Disclosure about Fair Value of Financial Instruments,” requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value. Statement 107 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of April 1, 2006, the fair value of all financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and line of credit approximate carrying value due to their short-term nature and variable market interest rates.

Recently Issued Accounting Standards

      In March 2005, the Securities Exchange Commission issued Staff Accounting Bulletin No. 107, “Share-Based Payment” (“SAB 107”). SAB 107 provides the Securities Exchange Commission’s view on the interaction between Statements 123R and certain Securities Exchange Commission rules and regulations. Specifically, SAB 107 provides guidance on share-based payment transactions with non-employees, valuation methods, accounting for certain redeemable financial instruments issued under share-based payment arrangements, the classification of compensation expense, non-GAAP financial measures, capitalization of compensation costs related to share-based payment arrangements, the accounting for income tax effects of share-based payment arrangements upon adoption of Statement 123R, the modification of employee share options prior to adoption of Statement 123R and disclosures in Management’s Discussion and Analysis subsequent to adoption of Statement 123R. Management does not believe that the adoption of SAB 107 will have a material impact on the Company’s implementation of Statement 123R.

      In May 2005, the FASB issued Statement No. 154, “Accounting Changes and Error Corrections” which replaces Accounting Principles Board Opinion (“APB”) No. 20 “Accounting Changes” and Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements — an Amendment of APB Opinion No. 28” and changes the requirements for the accounting for, and reporting of, a change in accounting principle. Statement 154 requires retrospective application to prior period financial statements (to the extent practicable) of changes in accounting principle instead of recognition of the cumulative effect of the change in net income in the period of the change as required by APB No. 20. Statement 154 also requires that a change in depreciation or amortization be accounted for as a change in accounting estimate affected by a change in accounting principle. Statement 154 is effective for accounting changes made by MTI after April 2, 2006. Management does not believe that adoption of Statement 154 will have a material impact on the Company’s consolidated results of operations and financial position.

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(2)  RESTRUCTURING

      The Company implemented restructuring programs to reduce its cost structure as a result of a shift in focus from developing technology to becoming a product integrator and reseller as well as to simplify the European operating structure. The Company recorded a net restructuring charge (benefit) of $1,091, $2,024 and $(211) in fiscal years 2006, 2005 and 2004, respectively. The activity for each restructuring plan is described below:

2005 Restructuring Program

      In the fourth quarter of fiscal year 2005, the Company implemented plans to restructure its European operations. This plan was initiated primarily in order to reduce operating costs and reduce duplication of processes throughout the European operations. The 2005 restructuring plan primarily involved the closure of the Dublin, Ireland facility and the consolidation of European finance functions within the Wiesbaden, Germany facility.

      The activity for the 2005 restructuring plan for the years ended April 1, 2006 and April 2, 2005 is presented below:

Fiscal 2006

				Additional
		Beginning		Charges During		Utilization			Ending
Category		Balance		2006		During 2006			Balance
Facilities actions		$	930	$	—	$	(327	)	$	603
Workforce reduction			941		941		(1,853	)		29
	Total	$	1,871	$	941	$	(2,180	)	$	632

Fiscal 2005

				Additional
		Initial		Charges During		Utilization			Ending
Category		Provision		2005		During 2005			Balance
Facilities actions		$	1,011	$	—	$	(81	)	$	930
Workforce reduction			1,161		—		(220	)		941
	Total	$	2,172	$	—	$	(301	)	$	1,871

      The additional restructuring charge of $941 in 2006 was primarily related to severance costs for employees not notified of termination as of April 1, 2005 as well as additional costs related to the liquidation of the Irish subsidiary.

      The 2005 facilities charge of $1,011 was due to the closure of the Dublin, Ireland facility. As of April 2, 2005, the Company had secured a sub-lease tenant and this charge is net of estimated sub-lese rental payments. The Company is liable on the lease of the Ireland facility through April 2, 2008. The 2005 workforce reduction charge of $1,161 was related to the termination of certain positions within the Europe, and domestic operations.

2002 Restructuring Program

      Due to a reduction in volume as well as a shift in focus from developing technology to becoming a product integrator, the Company initiated an approved restructuring plan in the fourth quarter of fiscal year 2002. It was determined that certain underutilized facilities would be exited and a significant number of positions, primarily in sales, marketing, research and development and manufacturing would be terminated. It was also determined that the Company’s manufacturing and integration facility would be consolidated in Dublin, Ireland. The majority of the restructuring actions were completed by the first quarter of fiscal year 2003.

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      The activity for the 2002 restructuring plan for the years ended April 1, 2006, April 2, 2005, and April 3, 2004 is presented below:

Fiscal 2006

				Additional
		Beginning		Charges During		Utilization			Ending
Category		Balance		2006		During 2006			Balance
Facilities actions		$	896	$	150	$	(831	)	$	215
Workforce reduction			—		—		—			—
	Total	$	896	$	150	$	(831	)	$	215

Fiscal 2005

				Additional
		Beginning		Charges During			Utilization			Ending
Category		Balance		2005			During 2005			Balance
Facilities actions		$	1,830	$	(148	)	$	(786	)	$	896
Workforce reduction			—		—			—			—
	Total	$	1,830	$	(148	)	$	(786	)	$	896

Fiscal 2004

				Additional
		Beginning		Charges During			Utilization			Ending
Category		Balance		2004			During 2004			Balance
Facilities actions		$	2,931	$	(211	)	$	(890	)	$	1,830
Workforce reduction			—		—			—			—
	Total	$	2,931	$	(211	)	$	(890	)	$	1,830

      The 2006 facilities charge of $150 was due to lower than expected sublease income related to our former research and development facility in Sunnyvale, CA. The remaining accrual at April 1, 2006 is related to remaining lease payments at abandoned or under-utilized office facilities. The Company remains liable on the leases related to the 2002 restructuring plan through 2012.

      The $(148) benefit in 2005 was due to the closure of the Ireland facility for which the Company had previously established a reserve for the un-occupied portion of the facility. The $(211) benefit in 2004 was due to higher than anticipated lease payments from sub-leases in the Company’s Westmont, Illinois facility.

(3)  INVENTORIES

      Inventories consist of the following:

	April 1,		April 2,
	2006		2005
Finished goods	$	9,611	$	2,846
Service spares and components		854		877
	$	10,466	$	3,723

      The Company recorded an inventory provision of $589, $2,681 and $1,200 during the fiscal years ended April 1, 2006, April 2, 2005, and April 3, 2004, primarily related to spare parts inventory. The spare parts inventory was written down due to the continued decline in our legacy product installed base, and related maintenance renewals, which led to a revised estimate of the carrying value of certain spare parts. As maintenance contracts expire and are not renewed, the amount of spare parts inventory needed to support the legacy installed base decreases. In fiscal 2004, the Company also recorded a $269 inventory provision related

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to finished goods inventory due to technological obsolescence of certain legacy products. The majority of the inventory that was written-down was either scrapped or sold to scrap dealers.

(4)  COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

      Prepaid expenses and other receivables are summarized as follows:

	April 1,		April 2,
	2006		2005
Prepaid maintenance contracts	$	6,312	$	5,252
Other		2,400		1,719
	$	8,712	$	6,971

      Property, plant and equipment, at cost, are summarized as follows:

	April 1,			April 2,
	2006			2005
Office furniture and fixtures	$	10,977		$	10,951
Machinery and equipment		8,580			8,706
Leasehold improvements		2,098			2,160
		21,656			21,817
Less accumulated depreciation and amortization		(21,101	)		(21,109	)
	$	555		$	708

      Property under capitalized leases in the amount of $846 at April 2, 2005, is included in office furniture and fixtures. Accumulated amortization amounted to and $768 at April 2, 2005. The capital lease expired in fiscal year 2006.

      Accrued liabilities are summarized as follows:

	April 1,		April 2,
	2006		2005
Salaries and benefits	$	2,661	$	3,273
Sales tax		2,236		2,602
Preferred stock dividends		2,892		953
Customer deposits		519		990
Commissions		684		694
Warranty costs		662		598
Other		661		379
	$	10,315	$	9,489

Product warranties

      Generally, the Company sells EMC hardware products with a two or three year warranty. For legacy hardware products, the Company provided its customers with a warranty against defects for one year domestically and for two years internationally. The Company maintains a warranty accrual for the estimated future warranty obligation based upon the relationship between historical and anticipated costs and sales volumes. Upon expiration of the warranty, the Company may sell extended maintenance contracts to its customers. The Company records revenue from equipment maintenance contracts as deferred revenue when billed and it recognizes this revenue as earned over the period in which the services are provided, primarily straight-line over the term of the contract.

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      The changes in the Company’s warranty obligation for fiscal 2006 and 2005 are as follows:

	April 1,			April 2,
	2006			2005
Balance at the beginning of the period	$	598		$	603
Current year warranty charges		833			650
Utilization		(769	)		(655	)
Balance at the end of the period	$	662		$	598

(5)  DEBT

Credit Agreement and Lines of Credit

      In November 2002, the company entered into an agreement with Comerica Bank for a line of credit of $7,000 million at an interest rate equal to the prime rate. The line of credit is secured by a letter of credit that is guaranteed by The Canopy Group, Inc. (“Canopy”). The line of credit with Comerica was set to expire on May 31, 2006 and the letter of credit from Canopy was to expire on June 30, 2006. See Note 13 for renewal status. Until December 30, 2004, as discussed below, the Canopy letter of credit was secured by substantially all the assets of the Company. As of April 1, 2006 there was $5,167 and $390 in borrowings and letters of credit outstanding, respectively, under the Comerica agreement and $1,443 was available for borrowing.

      On December 30, 2004, the Company entered into a security agreement with EMC whereby the Company granted EMC a security interest in certain of its assets to secure the Company’s obligations to EMC under its existing supply agreements. The assets pledged as collateral consisted primarily of the Company’s accounts receivable generated from the sale of EMC products and services, related inventory and the proceeds of such accounts receivable and inventory. In exchange for this security interest, EMC increased the Company’s purchasing credit limit to $20,000. The Company’s payment terms to EMC remained at net 45 days from shipment. Subsequent to year-end, EMC terminated this security agreement. See Note 13.

      The Company had previously granted a security interest in all of its personal property assets to Canopy as security for the Company’s obligations to Canopy in connection with Canopy’s guaranty of the Company’s indebtedness to Comerica Bank. To enable the Company to pledge the collateral described above to EMC, Canopy delivered to the Company a waiver and consent releasing Canopy’s security interest in the collateral to be pledged to EMC and consenting to the transaction. As part of the waiver and consent, the Company agreed not to increase its indebtedness to Comerica Bank above its then-current outstanding balance of $5,500, and to make a principal repayment to Comerica equal to $1,833 on each of February 15, 2005, May 15, 2005 and August 15, 2005 in order to eliminate the Company’s outstanding indebtedness to Comerica. The Company made the first payment but did not make the May 15, 2005 or august 15, 2005 payments. Subsequent to year-end, Canopy amended its waiver and consent which terminated the requirement to pay-down the outstanding indebtedness to Comerica. See Note 13.

      The Comerica loan agreement contains negative covenants placing restrictions both on our ability to engage in any business other than the businesses currently engaged in, suffer or permit a change in control, and merge with or acquire another entity. The Company believes it is currently in compliance with all of the terms of the Comerica loan agreement. Upon an event of default, Comerica may, in its sole discretion and without notice or opportunity to cure, terminate the Comerica loan agreement and declare all amounts outstanding immediately due and payable.

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(6)  INCOME TAXES

      The components of loss before income taxes are as follows:

	Fiscal Year Ended
	April 1,			April 2,			April 3,
	2006			2005			2004
U.S.	$	(5,737	)	$	(8,948	)	$	(5,554	)
Foreign		(2,314	)		(6,817	)		(1,480	)
	$	(8,051	)	$	(15,765	)	$	(7,034	)

      Income tax expense (benefit) consists of the following:

		Current			Deferred		Total
2006:
	Federal	$	—		$	—	$	—
	State		39			—		39
	Foreign		12			—		12
		$	51		$	—	$	51
2005:
	Federal	$	—		$	—	$	—
	State		3			—		3
	Foreign		19			—		19
		$	22		$	—	$	22
2004:
	Federal	$	(3,127	)	$	—	$	(3,127	)
	State		6			—		6
	Foreign		(47	)		—		(47	)
		$	(3,168	)	$	—	$	(3,168	)

      Reconciliations of the federal statutory tax rate to the effective tax rate are as follows:

	Fiscal Year Ended
	April 1,			April 2,			April 3,
	2006			2005			2004
Federal statutory rate		(34.0	)%		(34.0	)%		(35.0	)%
Effect of foreign operations		2.6			0.1			(0.6	)
State taxes, net of federal benefit		(3.4	)		(3.3	)		(5.8	)
Change in valuation allowance		(10.6	)		30.4			37.9
Elimination of reserve for tax audit		—			—			(20.8	)
Tax benefit from NOL carry-back		—			—			(23.7	)
Non-deductible expenses		2.2			0.7			2.9
Change to beginning deferred tax assets		33.4			3.5			—
Expiration of NOL		24.4			—			—
Change in effective state tax rate in valuing deferred tax assets		(11.9	)		—			—
Other		(2.1	)		2.7			0.1
		0.6	%		0.1	%		(45.0	)%

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      Deferred-tax assets and liabilities result from differences between the financial-statement carrying amounts and the tax bases of existing assets and liabilities. The significant components of the deferred income tax assets and liabilities are as follows:

	2006		2005		2004
Tax operating loss carryforwards	$	51,523	$	49,951	$	43,588
Intangible assets		1,912		2,304		2,707
Accrued expenses		415		2,389		2,174
Inventory reserves		161		378		1,398
Depreciation		268		643		1,306
Deferred income		612		559		403
Other		4,109		3,617		3,466
		59,000		59,839		55,042
Less valuation allowance		59,000		59,839		55,042
	$	—	$	—	$	—

      At April 1, 2006, the Company had federal, state and foreign net operating loss (“NOL”) carryforwards, available to offset future taxable income of $116,448, $82,570 and $28,443, respectively. The federal, state and foreign carryforwards begin to expire in fiscal year 2007. The utilization of these carryforwards may be limited based upon changes in the Company’s ownership. Approximately $5,635 of federal carryforwards expired unused in 2006.

      At April 1, 2006, the Company had federal and state general business credits and alternative minimum tax credit carryforwards of $1,204 and $119, respectively. The general business credits begin to expire in varying years and the alternative minimum tax credits have an indefinite life.

      The change in the valuation allowance from fiscal year 2005 to fiscal year 2006 was $839 and the change in the valuation allowance from fiscal year 2004 to fiscal year 2005 was $4,797. Management believes that it is more likely than not that the Company will not realize the benefits of the net deferred tax asset existing on April 1, 2006.

      Subsequent to fiscal 2006, the company recorded a settlement with the IRS related to the examination of the Company’s 1996 federal income tax return. As a result of the settlement, the Company reduced its NOL by $4,154. This matter is considered closed.

      In the third quarter of fiscal year 2004, the Company received notice of reassessment from the French Treasury. The French tax authorities argued that the Company’s French Subsidiary should have paid VAT on the waiver of intercompany debts granted by its U.S. Parent Company and by the Company’s Irish subsidiary. The amount of the re-assessment was estimated at $353 that related to the fiscal years 2002 and 2001. The Company received a request for payment in the second quarter of fiscal 2006 and, in order to avoid penalties and interest, the Company paid $301 to the French Treasury. This payment was charged to selling, general and administrative expenses in the second quarter of fiscal 2006. The company appealed this re-assessment and in the fourth quarter of fiscal 2006, the Company received notice that it was successful in its appeal and the $301 benefit was to be refunded to the Company. Therefore, the Company recorded a $301 benefit to SG&A in the fourth quarter of fiscal 2006. The matter is considered closed.

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(7)  STOCKHOLDERS’ EQUITY

Net Loss Per Share

      The following table sets forth the computation of basic and diluted loss per share (in thousands, except per share amounts):

		2006			2005			2004
Numerator:
	Net loss	$	(8,102	)	$	(15,787	)	$	(3,866	)
	Amortization of preferred stock discount		(1,970	)		(880	)		—
	Dividend on preferred stock		(1,939	)		(953	)		—
	Net loss applicable to common shareholders	$	(12,011	)	$	(17,620	)	$	(3,866	)
Denominator:
	Denominator for net loss per share, basic and diluted weighted-average shares outstanding		35,541			34,476			33,482
Net loss per share, basic and diluted		$	(0.34	)	$	(0.51	)	$	(0.12	)

      Options and warrants to purchase 17,373,045, 13,229,400 and 11,068,000 shares of common stock were outstanding at April 1, 2006, April 2, 2005 and April 3, 2004, respectively, but were not included in the computation of diluted earnings per share for the year then ended because the effect would be antidilutive.

      The common share equivalents related to the Company’s convertible preferred stock outstanding during the relevant period were not included in the computation of diluted earnings per share as the effect would be anti-dilutive for all periods presented.

Series A Convertible Preferred Stock

      On June 17, 2004, the Company sold 566,797 shares of Series A Convertible Preferred Stock (the “Series A”) in a private placement financing at $26.46 per share, which raised $13,564 in net proceeds. The sale included issuance of warrants to purchase 1,624,308 shares of the Company’s common stock at an exercise price of $3.10 per share. The warrants are exercisable on or after December 20, 2004, and expire on June 17, 2015. Each share of the Series A is convertible into common stock any time at the direction of the holders. Each share of Series A is convertible into a number of shares of common stock equaling its stated value plus accumulated and unpaid dividends, divided by its conversion price then in effect. Each share of Series A was initially convertible into ten shares of common stock, but is subject to adjustment upon certain dilutive issuances of securities by the Company. The issuance of Series B Convertible Preferred Stock (the “Series B”) as discussed below, triggered the anti-dilution provisions of the Series A. Upon issuance of the Series B on November 2, 2005, the conversion price of the Series A was reduced from $2.6465 to $2.0650 per share. As of April 1, 2006, each share of Series A is convertible into approximately 12.8 shares of common stock. As part of the private placement, a representative of the investors joined the Company’s Board of Directors.

      The Series A contains a beneficial conversion discount because the Series A was priced based on 90% of the average closing price of the Company’s common stock during the 20 trading days prior to the Series A issuance. The beneficial conversion discount is computed at $8,835 including $3,000 attributable to the estimated fair value of the warrants. The estimated fair value of the warrants was computed based on the Black-Scholes model using the following assumptions: Risk free rate — 4.71%; Volatility — 87%; Expected life — 10 years. The beneficial conversion discount is amortized as a non-cash charge to retained earnings, and included in the computation of earnings per share, over the five year period using the effective interest method from the Series A issuance date until the first available redemption date. Amortization of the beneficial conversion discount was $1,371 and $880 at April 1, 2006 and April 2, 2005, respectively. At April 1, 2006, the Series A is recorded net of the unamortized discount of $6,584.

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      The Series A carries a cumulative dividend of 8% per year payable when and if declared by the Board of Directors. At April 1, 2006, the Company had accrued dividends of $2,225 for the Series A. In the event of liquidation, dissolution or winding up of the Company, the holders of the Series A will be senior in all respects to all other equity holders of the Company, except that they will be junior to the holders of the Series B. The Company has the option to pay the dividends in cash or common stock, when approved by the Board of Directors.

      Beginning in June 2009, the holders of the Series A will have the right to require the Company to redeem all or any portion of the Series A for an amount equal to its stated value plus accrued and unpaid dividends. Beginning in June 2009, the Company may redeem all or any portion of the Series A at the greater of (i) the fair market value of the Series A based upon the underlying fair value of the common stock into which the preferred stock is convertible, or (ii) the stated value of the Series A, plus accrued and unpaid dividends. Given that the investor redemption right is outside the control of the Company, the Series A was recorded outside of permanent equity.

      The Series A is entitled to 8.5369 votes per share on all matters, except the election of directors, where the Series A has the right to elect one director to the Board. The Series A has approval rights as well with respect to certain significant corporate transactions. Pursuant to the terms of a related investors’ rights agreement, the Company agreed to register the sale of shares of common stock issuable upon conversion of the Series A. The registration statement for the Series A was declared effective on December 15, 2005. As part of the private placement financing, the Series A investors and Canopy entered into a proxy agreement whereby the Series A investors are able to vote Canopy’s shares as it relates to certain significant corporate transactions (see further discussion in “Risk Factors” in Item 1A of this Form 10-K.

Series B Convertible Preferred Stock

      On August 19, 2005, the Company entered into an agreement to sell shares of Series B in a private placement financing, which is referred to as the “Series B financing,” for $20,000 in gross proceeds, before payment of professional fees. The purchasers in the private placement were the Series A holders. The sale of the Series B was subject to stockholder approval and was approved by stockholders at the Company’s annual stockholder meeting on November 1, 2005.

      Accordingly, on November 2, 2005, 1,582,023 shares of Series B were issued at a purchase price of $12.6420 per share, which was equal to ten times 90% of the average closing price of the Company’s common stock during the 15 trading days prior to the Series B issue date. The sale of Series B raised $19,140 in net proceeds. The Series B is convertible any time at the direction of the holders. Each share of Series B is convertible into a number of shares of common stock equaling its stated value plus accumulated and unpaid dividends, divided by its conversion price then in effect. Each share of Series B is initially convertible into ten shares of common stock, but is subject to adjustment upon certain dilutive issuances of securities by the Company. The Series B financing included the issuance of warrants to purchase 5,932,587 shares of the Company’s common stock at an exercise price of $1.26 per share. The warrants are exercisable immediately and have a ten year life. As part of the private placement, the Series B investors have the right to elect a director to the Company’s Board of Directors. As of April 1, 2006, the Series B holders have not yet elected to designate a director nominee. In conjunction with the Series B financing, the rights, preferences and privileges of the Series A were amended to: (i) remove the conversion limitation which previously limited the number of shares of common stock that could be issued upon aggregate conversions of the Series A; (ii) revise the liquidation preferences of the Series A in light of the issuance of the Series B; and (iii) make conforming changes to the preemptive rights of the Series A to reflect the issuance of the Series B.

      The Series B carries a cumulative dividend of 8% per year payable when and if declared by the Board of Directors. At April 1, 2006, the Company had accrued dividends of $667 for the Series B. In the event of liquidation, dissolution or winding up of the Company, the holders of the Series B is senior in all respects to all other equity holders of the Company. The Company has the option to pay the dividends in cash or common stock, when approved by the Board of Directors.

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      Beginning November 2010, the holders of the Series B will have the right to require the Company to redeem all or any portion of the Series B for an amount equal to its stated value plus accrued but unpaid dividends. Beginning in November 2010, the Company may redeem all or any portion of the Series B at the greater of (i) the fair market value of the Series B based upon the underlying fair value of the common stock into which the preferred stock is convertible, or (ii) the stated value of the Series B, plus accrued and unpaid dividends. Given that the investor redemption right is outside the control of the Company, the Series B is recorded outside of permanent equity on the balance sheet.

      The Series B contains a beneficial conversion discount because the Series B was priced based on 90% of the average closing price of the Company’s common stock during the 15 trading days prior to the Series B issuance. The beneficial conversion discount is computed at $10,169 including $2,490 attributable to the estimated fair value of the warrants. The estimated fair value of the warrants was computed based on the Black-Scholes model using the following assumptions: Risk free rate — 4.58%; Volatility — 84%; Expected life — 10 years. The beneficial conversion discount is amortized as a non-cash charge to retained earnings, and included in the computation of earnings per share, over the five year period using the effective interest method from the Series B issuance date until the first available redemption date. Amortization of the beneficial conversion was $599 at April 1, 2006. At April 1, 2006, the Series B is recorded net of the unamortized discount of $9,570.

      The Series B is entitled to 8.7792 votes per share on all matters, except the election of directors, where the Series B has the right to elect one director to the Board. The Series B has certain approval rights as well. Pursuant to the terms of a related investors’ rights agreement, the Company agreed to register the sale of shares of common stock issuable upon conversion of the Series B. The registration statement for the Series B was declared effective on December 15, 2005. After completion of the Series A and Series B transactions, affiliates of Advent and EMC own approximately 46.3% of the outstanding shares of the Company’s capital stock, on an as converted basis assuming conversion of all the shares of Series A and Series B and exercise of all the warrants they presently hold. On a combined basis, EMC, Canopy and affiliates of Advent own approximately 68.1% of the outstanding shares of the Company’s capital stock on an as converted basis. Furthermore, if the Company has an indemnity obligation under the Securities Purchase Agreement the Company entered into in connection with the Series B financing, then the Company may, if the Company and the Series B investors agree, settle up to $2,000 of that indemnity obligation by issuing up to an additional $2,000 (158,203 shares) of Series B and warrants to purchase 37.5% of the number of shares of common stock into which such additional shares of Series B are convertible when issued. If any such indemnity obligation is not satisfied by issuing shares of Series B and warrants, then it will be satisfied through a cash payment. For additional information regarding the voting agreement and the Series A financing, see “Certain Relationships and Related Transactions.”

Stock Purchase Warrants

      In addition to the warrants granted to the holders of the Series A and Series B noted above, at April 1, 2006, a warrant to purchase 150,000 shares of the Company’s common stock at a price of $18.75 per share was outstanding. The warrant was issued in August 1999 to an individual affiliated with Canopy in connection with services provided to the Company and expires in August 2009. Also at April 1, 2006, warrants to purchase 57,240 shares of the Company’s common stock at a price of $12.00 per share were outstanding. The warrants were issued in February 1998 to GB Storage in connection with a French distribution agreement and expire in February 2008. All of the above warrants were fully exercisable at April 1, 2006.

Stock Options

      The Company granted stock options under its 1987 Incentive Stock Option Plan and Non-Qualified Stock Option Plan, its 1992 Stock Incentive Plan, its 1996 Stock Incentive Plan, and its 2001 Stock Inventive Plan, at prices equal to the fair market value of the Company’s common stock at date of grant.

      The Company’s stockholders approved the 2001 Stock Incentive Plan (SIP), the 2001 Non-Employee Director Option Program (Program) and the 2001 Employee Stock Purchase Plan (Stock Purchase Plan) on

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July 11, 2001. Upon approval of these plans, all prior plans were terminated. Therefore, the Company will no longer issue options under its prior plans and has granted stock options under its SIP. Options currently outstanding under prior plans as of April 1, 2006, shall remain in effect in accordance with the respective terms of such plans. In the first quarter of fiscal year 2004, the Board approved the amended Stock Incentive Plan (the Amended SIP) to increase the number of shares issuable by 2,500,000 shares. Under the Amended SIP, the maximum aggregate number of shares of Common Stock available for grant shall be 6,500,000 shares. A maximum of 1,200,000, 450,000 and 9,477,000 shares are authorized for issuance under the Stock Purchase Plan, the Program and the SIP, respectively. The Program functions as part of the SIP.

      In connection with the pending acquisition of Collective Technologies, LLC (see Note 13), on June 2, 2006, the Company adopted the 2006 Stock Incentive Plan (CT), pursuant to which the options and restricted stock to be granted to employees acquired from Collective will be granted.

Non-Employee Directors Option Program

      On July 11, 2001, the Company’s shareholders approved the 2001 Non-Employee Directors Option Program (the “Program”) which functions as part of the SIP described above. Upon approval of the Program, the 1994 Director’s Non-Qualified Stock Option Plan was terminated, although options currently outstanding under the prior plan shall remain in effect in accordance with the respective terms of such plan. Under the Program, each non-employee director first elected to the Board of Directors following the effective date of the SIP will automatically be granted an option to acquire 50,000 shares of Common Stock at an exercise price per share equal to the fair market value of Common Stock on the date of grant. These options will vest and become exercisable in three equal installments on each anniversary of the grant date. Upon the date of each annual stockholders’ meeting, each non-employee director who has been a member of the Board of Directors for at least 11 months prior to the date of the stockholders’ meeting will receive an automatic grant of options to acquire 25,000 shares of the Company’s Common Stock at an exercise price equal to the fair market value of the Company’s Common Stock at the date of grant. These options will vest and become exercisable in three equal installments on each anniversary of the grant date. As of April 1, 2006, there were options to purchase 525,000 shares outstanding under this program.

      Options granted typically vest over a period of three years from the date of grant. At April 1, 2006 and April 2, 2005, the number of options exercisable was 7,463,679 and 7,904,875 respectively, and the weighted-average exercise price of those options was $4.15 and $4.96. As of April 1, 2006 there were 2,497,075 shares available for grant.

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      A summary of all stock option transactions follows (in thousands, except per share data):

				Weighted
				Average
	Shares			Exercise Price
Options outstanding at April 6, 2002		10,558		$	6.62
Granted		3,556			0.53
Exercised		—			—
Forfeited		(3,881	)		5.42
Options outstanding at April 5, 2003		10,233			4.97
Granted		3,385			2.11
Exercised		(1,352	)		0.96
Forfeited		(1,434	)		4.97
Options outstanding at April 3, 2004		10,832			4.97
Granted		2,331			2.46
Exercised		(501	)		1.33
Forfeited		(1,255	)		6.34
Options outstanding at April 2, 2005		11,407			4.12
Granted		1,051			1.58
Exercised		(610	)		.92
Forfeited		(2,239	)		5.74
Options outstanding at April 1, 2006		9,609		$	3.70

      The per share weighted average fair value of stock options granted during fiscal years 2006, 2005 and 2004 was $1.11, $1.54, and $1.49, respectively, on the date of grant.

      A summary of stock options outstanding at April 1, 2006 follows (in thousands, except per share data):

							Exercisable(1)
			Weighted
			Average		Weighted				Weighted
	Number of		Remaining		Average				Average
	Options		Contractual		Exercise		Number of		Exercise
Range of Exercise Price	Outstanding		Life		Price		Options		Price
$0.27-$0.38		180		6.61	$	0.33		180	$	0.33
0.55-0.55		1,188		6.25		0.55		1,188		0.55
0.57-1.49		1,129		7.21		1.32		687		1.24
1.54-1.75		1,041		8.51		1.69		550		1.71
1.80-2.12		880		6.20		1.99		803		1.99
2.20-2.20		1,569		7.64		2.20		1,222		2.20
2.25-2.70		1,065		8.36		2.65		434		2.61
2.72-4.12		1,190		5.65		3.64		1,033		3.72
4.56-19.13		970		2.97		7.44		971		7.44
22.38-36.88		397		3.80		30.27		396		30.27
		9,609		6.56	$	3.70		7,464	$	4.15

Note:

(1)  Options exercisable at April 1, 2006, April 2, 2005 and April 3, 2004, were 7,463,679 7,904,875 and 6,902,848 respectively.

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Employee Stock Purchase Plan

      On July 11, 2001, the Company’s shareholders approved the Stock Purchase Plan. A maximum of 1,200,000 shares of common stock is authorized for issuance under the Stock Purchase Plan. Under the Stock Purchase Plan, all employees of the Company, and its designated parents or subsidiaries, whose customary employment is more than five months in any calendar year and more than 20 hours per week are eligible to participate. The Stock Purchase Plan was implemented through overlapping offer periods of 24 months duration commencing each January 1 and July 1, except that the initial offer period commenced on July 11, 2001 and ended on June 30, 2003. Purchase periods generally commence on the first day of each offer period and terminate on the next following June 30 or December 31 respectively. The price per share at which shares of common stock are to be purchased under the Stock Purchase Plan during any purchase period is eighty-five percent (85%) of the fair market value of the common stock on the first day of the offer period or eighty-five percent (85%) of the fair market value of the common stock on the last day of the purchase period, whichever is lower. During fiscal year 2006, 2005 and 2004, 140,334 103,883 and 133,000 shares of common stock, respectively, were issued pursuant to the Stock Purchase Plan.

Issuance of Restricted Stock

      During the fourth quarter of fiscal year 2005, the Company granted 200,000 shares of restricted stock to the Company’s CEO. Based on the fair market value at the date of grant, the Company will record $540 in compensation expense ratably over the vesting period of the restricted stock. The restricted stock vests one-third on the first anniversary date of the grant and the remaining two-thirds vests monthly thereafter over the following two years. The shares will be fully vested on the third anniversary date of the grant. The Company recorded $180 and $30 in compensation expense in fiscal year 2006 and 2005, respectively.

      During the third quarter of fiscal year 2004, the Company granted 85,000 shares of restricted stock to employees. Based on the fair market value at the date of grant, the Company will record $271 in compensation expense ratably over the vesting period of the restricted stock. The restricted stock vests 50% at the end of the first year and the remaining 50% at the end of the second year. The Company recorded $57 and $136 in compensation expense in fiscal year 2006 and 2005 respectively. As of April 1, 2006, these shares were fully vested.

(8)  COMMITMENTS AND CONTINGENCIES

Leases

      The Company leases facilities and certain equipment under non-cancelable operating leases. Under the lease agreements for facilities, the Company is required to pay insurance, taxes, utilities and building maintenance and is subject to certain consumer-price-index adjustments.

      Future minimum lease payments at April 1, 2006 under all non-cancelable operating leases for subsequent fiscal years are as follows:

2007	$	3,054
2008		2,698
2009		1,102
2010		947
2011		347
Thereafter		—
	$	8,148

      Rent expense totaled $2,612, $3,426 and $2,372, for fiscal years 2006, 2005 and 2004, respectively.

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Litigation

      The Company is, from time to time, subject to claims and suits arising in the ordinary course of business. In its opinion, the ultimate resolution of these matters is not expected to have a materially-adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.

Employment Agreements/ Indemnification

      The Company has entered into agreements with certain executive officers of the Company that call for payment of compensation totaling 12 month’s base salary and the acceleration of vesting of stock options under certain circumstances related to a change in control of the Company. As of April 1, 2006, the total estimated payout related to these agreements would be $1,404.

      The Company has agreed to indemnify its directors and officers, to the extent legally permissible, against all liabilities reasonably incurred in connection with any action in which such individual may be involved by reason of such individual being or having been a director or officer of the Company.

      The Company enters into agreements in the ordinary course of business with customers, OEM’s, system distributors and integrators. Certain of these agreements require the Company to indemnify the other party against certain claims relating to property damage, personal injury or the acts or omissions of the Company, its employees, agents or representatives. In addition, from time to time the Company may have made certain guarantees regarding the performance of our systems to our customers.

      The Company also has agreements with certain vendors, financial institutions, lessors and service providers pursuant to which the Company has agreed to indemnify the other party for specified matters, such as acts and omissions of the Company, its employees, agents or representatives.

(9) BUSINESS SEGMENT AND INTERNATIONAL INFORMATION

      The Company is a systems integrator providing storage solutions for the mid-range enterprise market and has one reportable business segment. The Company has two operating segments which are identified by geographic regions, United States and Europe. These operating segments are aggregated into one reporting segment as they have similar economic characteristics. The Company’s operations are structured to achieve consolidated objectives. As a result, significant interdependence and overlap exists among the Company’s geographic areas. Accordingly, revenue, operating loss and identifiable assets shown for each geographic area may not be the amounts which would have been reported if the geographic areas were independent of one another. Revenue and transfers between geographic areas are generally priced to recover cost, plus an appropriate mark-up for profit. Operating loss is revenue less cost of revenues and direct operating expenses.

      A summary of the Company’s operations by geographic area is presented below:

			2006		2005		2004
Revenue:
	United States		$	92,973	$	76,646	$	41,408
	Germany			23,833		23,383		15,430
	France			22,416		21,803		13,248
	United Kingdom			15,821		9,706		12,625
	Ireland			—		1,075		454
		Total revenue	$	155,043	$	132,613	$	83,165

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				April 2,		April 2,		April 3,
				2005		2005		2004
Identifiable assets:
	United States			$	51,297	$	29,431	$	22,184
	Germany				7,722		11,133		6,139
	France				13,460		12,985		8,562
	United Kingdom				6,765		3,587		4,048
	Ireland				194		546		877
			Tangible assets		79,438		57,682		41,810
Goodwill — United States					3,059		3,059		3,059
Goodwill — Europe					2,125		2,125		2,125
		Total assets		$	84,622	$	62,866	$	46,994

      The Company’s revenues by product type are summarized below:

	2006		2005		2004
Server	$	78,573	$	68,847	$	28,716
Tape libraries		16,555		9,446		12,024
Software		21,198		15,410		5,702
Service		38,717		38,910		36,723
	$	155,043	$	132,613	$	83,165

      No single customer accounted for more than 10% of revenue in fiscal year 2006, 2005 and 2004.

(10)  RELATED-PARTY TRANSACTIONS

      In the normal course of business, the Company sells and purchases goods and services to and from subsidiaries of Canopy. Goods and services purchased from the subsidiaries of Canopy totaled $120 in both fiscal years 2006 and 2005. Goods and services sold to the subsidiaries of Canopy in fiscal year 2004 were $85. There were no sales to subsidiaries of Canopy in fiscal 2006 and 2005. Through December 17, 2004, Ralph J. Yarro III, one of the Company’s Directors, was a Director, President and Chief Executive Officer of Canopy. Also through December 17, 2004, Darcy G. Mott, one of the Company’s Directors, was Vice President, Treasurer and Chief Financial Officer of Canopy. Effective March 10, 2005, Mr. Yarro and Mr. Mott resigned from their positions as Directors of the Company. Mr. Mustard replaced Mr. Yarro as President and CEO of Canopy until December 23, 2005 when Mr. Mustard resigned from Canopy. Mr. Mustard is a Director of the Company. As of April 1, 2006, Canopy beneficially owned 22% of the Company’s common stock, assuming conversion of the Series A and Series B and related outstanding warrants. Canopy also acts as a guarantor related to the Company’s loan agreement with Comerica (see Note 5 and Note 13).

      As discussed in Note 7, EMC was a participating investor in the Series A and Series B offerings. EMC contributed $4,000 of the $15,000 gross proceeds in the Series A offering and $5,000 of the $20,000 gross proceeds in the Series B offering. As of April 1, 2006, EMC beneficially owned 7,808,405 shares, or 12% of the Company’s common stock assuming conversion of the Series A and Series B and related warrants. At April 1, 2006 and April 2, 2005, there was $27,459 and $13,300 payable to EMC and $1,686 and $920 in trade receivables due from EMC, respectively. The sale of EMC products represented 81% of product revenue for both the fiscal years April 1, 2006 and April 2, 2005.

      As discussed in Note 7, the holders of the Series A convertible stock appointed Mr. Pehl to the Company’s Board of Directors. Mr. Pehl is a director at Advent International. As of April 1, 2006, Advent beneficially owned 35% of the company’s common stock, assuming conversion of the Series A and Series B and related outstanding warrants.

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(11)  EMPLOYEE BENEFITS

      The Company maintains an employee savings plan which is intended to qualify under section 401(k) of the Internal Revenue Code. The Company’s contributions to the plan are determined at the discretion of the Board of Directors. During fiscal years 2006, 2005 and 2004, the Company did not contribute to the plan.

(12)  QUARTERLY FINANCIAL DATA (UNAUDITED)

      Selected quarterly financial data for continuing operations for fiscal years 2006 and 2005 are as follows:

															Net
															Income
												Net Loss			(loss) per
						Operating						Attributable			Share,
		Total		Gross		Income			Net Income			to Common			Basic and
		Revenue		Profit		(loss)			(loss)			Shareholders			Diluted
2006
Fourth quarter		$	43,915	$	8,589	$	(117	)	$	201		$	(1,253	)		(0.03	)
Third quarter			40,162		7,887		(1,557	)		(1,787	)		(2,988	)		(0.08	)
Second quarter			31,635		6,401		(3,463	)		(3,513	)		(4,148	)		(0.12	)
First quarter			39,331		8,078		(2,090	)		(3,003	)		(3,622	)		(0.10	)
	Total	$	155,043	$	30,955	$	(7,227	)	$	(8,102	)	$	(12,011	)
2005
Fourth quarter		$	35,562	$	4,487	$	(8,223	)	$	(8,908	)	$	(9,515	)		(0.27	)
Third quarter			39,515		7,772		(3,255	)		(2,612	)		(3,205	)		(0.09	)
Second quarter			31,500		7,213		(2,408	)		(2,478	)		(2,981	)		(0.09	)
First quarter			26,036		6,047		(1,697	)		(1,789	)		(1,919	)		(0.06	)
	Total	$	132,613	$	25,519	$	(15,583	)	$	(15,787	)	$	(17,620	)

      The Company has experienced significant quarterly fluctuations in operating results and anticipates that these fluctuations may continue into the future. These fluctuations have been and may continue to be caused by a number of factors, including: competitive pricing pressures, the timing of customer orders (a large majority of which have historically been placed in the last month of each quarter), the timing of the introduction of EMC’s new products, shifts in product mix and the timing of sales and marketing expenditures. Future operating results may fluctuate as a result of these and other factors, including EMC’s ability to continue to develop innovative products, the introduction of new products by the Company’s competitors and decreases in gross profit margin for mature products.

      In the fourth quarter of fiscal 2006, the Company recorded approximately $600 in non-recurring beneficial adjustments primarily due to a favorable VAT tax settlement in France, recorded to selling, general and administrative expense (See Note 6), and an adjustment to a long-term subcontract arrangement recorded to service cost of sales.

      In the fourth quarter of fiscal 2005, the Company recorded an inventory provision of $1,567 related to excess spare parts inventory (See Note 3). Also in the fourth quarter of fiscal 2005, the Company recorded a restructuring charge of $2,024 primarily related to the restructuring of the European operations (See Note 2).

      The Company had historically operated without a significant backlog of orders and, as a result, net product revenue in any quarter was dependent upon orders booked and products shipped during that quarter. However, as a result of the EMC relationship, the Company operates with a more significant backlog since its order shipments depend on the availability of EMC products and both the Company and EMC have concurrent quarter ends. Even though the orders shipped determines the Company’s revenue for any given quarter, its order backlog may not be a reliable indicator of its future revenue since its customers have the rights to cancel or delay shipment of their orders. A significant portion of the Company’s operating expenses

68

are relatively fixed in nature and planned expenditures are based primarily upon sales forecasts. If revenue does not meet the Company’s expectations in any given quarter, the adverse effect on the Company’s liquidity and operating results may be magnified by the Company’s inability to reduce expenditures quickly enough to compensate for the revenue shortfall. Further, as is common in the computer industry, the Company historically has experienced an increase in the number of orders and shipments in the latter part of each quarter and it expects this pattern to continue into the future. The Company’s failure to receive anticipated orders or to complete shipments in the latter part of a quarter could have a materially adverse effect on the Company’s results of operations for that quarter.

(13)  SUBSEQUENT EVENTS

      On June 6, 2006, the Company entered into an Asset Purchase Agreement with Collective Technologies, LLC. Pursuant to the Asset Purchase Agreement, the Company will acquire specified assets and liabilities of Collective for a purchase price consisting of:

•  $6,000 in cash;

•  a note in the amount of $2,000 bearing interest at 5% and due in twelve quarterly payments beginning 90 days after closing;

•  2,272,727 shares of the Company’s common stock;

•  a warrant to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $1.32 per share;

•  assumption of certain liabilities.

      The shares issued as consideration in the transaction will be subject to a 12 month lock-up agreement and will have piggyback registration rights. The purchase price is subject to certain adjustments specified in the Asset Purchase Agreement. The Company will also issue up to 306,303 shares of restricted stock and up to 1,608,481 stock options to former employees of Collective that it acquires in the transaction, or increase the purchase price in lieu thereof in certain instances. The transaction is subject to customary closing conditions.

      On June 7, 2006, due to the Company’s improved financial position and established payment history, EMC terminated its security agreement and released its security interest in all of the Company’s assets. On a go-forward basis the Company’s purchasing credit limit with EMC will be determined based on the needs of the business and the Company’s financial position.

      On June 20, 2006, the Company entered into the Fourth Amendment to the Comerica loan agreement extending the maturity date to November 30, 2006. All other terms of the Comerica loan agreement remained in place (See Note 5). Also, on June 20, 2006, the Company executed an amendment to its waiver and consent agreement with Canopy which terminated the requirement to pay-down the Company’s indebtedness to Comerica and extended Canopy’s letter of credit guarantee through December 31, 2006. In exchange for this amendment, the Company agreed to issue a warrant to purchase 125,000 shares of the Company’s common stock at an exercise price of $1.23 per share, the market price on the date of grant. The warrant is exercisable immediately and has a ten year life.

69

SCHEDULE II

MTI TECHNOLOGY CORPORATION

VALUATION AND QUALIFYING ACCOUNTS

FOR THE FISCAL YEARS ENDED APRIL 1, 2006, APRIL 2, 2005 AND APRIL 3, 2004

				Allowance for		Amounts
		Balance at		Bad Debts		Charged			Balance at
		Beginning of		and Sales		Against			End of
		Period		Returns		Reserve			Period
		(In thousands)
Description
Year ended April 1, 2006
	Allowance for doubtful accounts	$	251	$	197	$	(87	)	$	361
	Allowance for sales returns		200		402		(449	)		153
		$	451	$	599	$	(536	)	$	514
Year ended April 2, 2005
	Allowance for doubtful accounts	$	237	$	14	$	—		$	251
	Allowance for sales returns		200		170		(170	)		200
		$	437	$	184	$	(170	)	$	451
Year ended April 3, 2004
	Allowance for doubtful accounts	$	276	$	25	$	(64	)	$	237
	Allowance for sales returns		200		—		—			200
		$	476	$	25	$	(64	)	$	437

70

EXHIBIT INDEX

      (a) The following documents are filed as a part of this Annual Report on Form 10-K:

      (1) Financial Statements and Financial Statement Schedule. See Index to Consolidated Financial Statements and Financial Statement Schedule at Item 15(a)(1) and 15(a)(2) on Page 36 of this Report.

      (2) Exhibits. Exhibits identified below as on file with the Securities and Exchange Commission are incorporated herein by reference as exhibits hereto.

			Incorporated by Reference
Exhibit
Number		Exhibit Description	Form		Exhibit(s)		Filing Date
	2.1	Asset Purchase Agreement, dated June 6, 2006, between MTI Technology Corporation and Collective Technologies, LLC
	3.1	Restated Certificate of Incorporation of the Company		S-1		3.1	February 11, 1994
	3.2	Certificate of Amendment of Restated Certificate of Incorporation of the Company		14-C		A	April 3, 2000
	3.3	Amended and Restated Bylaws of the Company		10-Q		3.3	February 19, 2002
	3.4	Certificate of Designation of Series B Convertible Preferred Stock		8-K		3.1	November 3, 2005
	3.5	Certificate of Designation of Series A Convertible Preferred Stock		8-K		3.2	November 3, 2005
	4.1	Specimen of Amended Stock Certificate		10-K		4.2	July 11, 2003
	4.2	Form of Common Stock Purchase Warrant		8-K		4.1	November 3, 2005
	4.3	Amended and Restated Investor Rights Agreement, dated November 2, 2005, by and among the Company and the Investors set forth therein		8-K		10.1	November 3, 2005
	4.4	Amended and Restated Registration Rights Agreement, dated January 11, 2002, between the Company and Silicon Valley Bank		10-Q		4.8	February 19, 2002
	10.1	Letter Agreement, dated October 11, 2005, by and among the Company, EMC Corporation and certain affiliates of Advent International Corporation		8-K		10.1	October 12, 2005
	10.2	Severance and Release Agreement dated November 21, 2005 by and between the Company and Jon Caputo		8-K		10.1	November 22, 2005
	10.3*	Form of Nonqualified Stock Option Agreement under the Stock Incentive Plan		S-1		10.14	March 21, 1994
	10.4*	Form of Indemnification Agreement for Officers of the Company		10-K		10.2	July 11, 2003
	10.5*	Form of Indemnification Agreement for Directors of the Company		10-K		10.3	July 11, 2003
	10.6 *	Form of Change of Control Agreement 1987 Incentive Stock Option and Nonqualified		8-K		10.1	February 13, 2006
	10.7*	Stock Option Plan of the Company		S-1		10.21	February 11, 1994
	10.8*	Form of Incentive Stock Option Agreement under the Stock Incentive Plan		S-1		10.30	March 21, 1994
	10.9*	Form of Nonqualified Common Stock Option Agreement under the 1987 Stock Option Plan		S-1		10.23	February 11, 1994
	10.10	Directors’ Non-Qualified Stock Option Plan		S-1		10.32	March 21, 1994

			Incorporated by Reference
Exhibit
Number		Exhibit Description	Form		Exhibit(s)		Filing Date
	10.11	Loan and Security Agreement, dated November 13, 2002, by and between Comerica Bank California and the Company		10-Q		10.70	November 19, 2002
	10.12*	1996 Stock Incentive Plan, as amended		10-Q		10.29	November 16, 1999
	10.13	Severance Agreement, dated as of July 15, 1998, between the Company and Tom Raimondi		10-K		10.30	August 2, 1999
	10.14	Severance Agreement, dated as of February 7, 2001, between the Company and Keith Clark		10-K		10.24	June 12, 2001
	10.15*	MTI Technology Corporation 2001 Stock Incentive Plan		10-K		10.30	June 12, 2001
	10.16*	MTI Technology Corporation 2001 Non-Employee Director Option Program		10-K		C	July 15, 2003
	10.17*	MTI Technology Corporation 2001 Employee Stock Purchase Plan		10-K		10.32	June 12, 2001
	10.18	Third Amendment to Loan and Security Agreement, dated as of June 15, 2005, by and between Comerica Bank and the Company		10-K		10.95	July 18, 2005
	10.19*	Summary of Executive Compensation and Bonus Arrangements
	10.20*	Summary of Director Compensation Arrangements
	10.21	Contract of Employment between the Company and Keith Clark		10-K		10.1	August 1, 2005
	10.22	Lease Agreement, dated August 2, 2005, by and between CalWest Industrial Holdings, LLC and the Company		8-K		10.1	August 8, 2005
	10.23	Securities Purchase Agreement, dated August 19, 2005, by and among the Company, EMC Corporation, and certain affiliates of Advent International Corporation		8-K		10.1	August 22, 2005
	10.24*	Form of Restricted Stock Award Agreement under the 2001 Stock Incentive Plan
	10.25*	Form of Stock Option Award Agreement (Officers) under the 2001 Stock Incentive Plan
	10.26*	Form of Stock Option Award Agreement (Employees) under the 2001 Stock Incentive Plan
	10.27	EMC Security Agreement, dated December 30, 2004		8-K		99.1	January 6, 2005
	10.28	Termination of EMC Security Agreement, dated December 30, 2004
	10.29	Amendment to Second Waiver and Consent, dated June 20, 2006, between the Company and The Canopy Group		8-K		10.2	June 26, 2006
	10.30	Second Waiver and Consent, dated December 28, 2004, between the Company and The Canopy Group
	10.31	Fourth Amendment to Loan and Security Agreement, dated June 20, 2006, between Comerica Bank and the Company		8-K		10.1	June 26, 2006
	10.32	Warrant, dated June 20, 2006, issued by the Company to The Canopy Group		8-K		10.3	June 26, 2006
	10.33*	MTI Technology Corporation 2006 Stock Incentive Plan (CT)

			Incorporated by Reference
Exhibit
Number		Exhibit Description	Form	Exhibit(s)	Filing Date
	10.34*	Form of Restricted Stock Award Agreement under the 2006 Stock Incentive Plan (CT)
	10.35*	Form of Stock Option Award Agreement (Officers) under the 2006 Stock Incentive Plan (CT)
	10.36*	Form of Stock Option Award Agreement (Employees) under the 2006 Stock Incentive Plan (CT)
	21.1	List of Subsidiaries
	23.1	Consent of — Grant Thornton LLP
	24.1	Powers of Attorney
	31.1	Certification by CEO pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification by CFO pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*  Management or compensatory plan or arrangement.

EX-2.1

                                                                     EXHIBIT 2.1
                                                               EXECUTION VERSION

                            ASSET PURCHASE AGREEMENT

                                 BY AND BETWEEN

                           MTI TECHNOLOGY CORPORATION,
                             A DELAWARE CORPORATION,
                                    PURCHASER

                                       AND

                          COLLECTIVE TECHNOLOGIES, LLC,
                      A DELAWARE LIMITED LIABILITY COMPANY,
                                     SELLER

                               Dated June 6, 2006

                             Morrison & Foerster LLP
                            19900 MacArthur Boulevard
                            Irvine, California 92612



                                TABLE OF CONTENTS


                                                                              PAGE
                                                                              ----
                                                                            
ARTICLE 1.     THE TRANSACTION..............................................     1

      1.1   Purchased Assets................................................     1
      1.2   Excluded Assets.................................................     3
      1.3   Assumed Liabilities.............................................     3
      1.4   Excluded Liabilities............................................     4
      1.5   Non-Assignable Assets...........................................     5

ARTICLE 2.     CONSIDERATION FOR TRANSFER...................................     6

      2.1   Purchase Price..................................................     6
      2.2   Purchase Price Adjustments......................................     7
      2.3   Allocation of Purchase Price....................................     8
      2.4   Transfer Taxes; Prorations......................................     9

ARTICLE 3.     CLOSING AND CLOSING DELIVERIES...............................     9

      3.1   Closing; Time and Place.........................................     9
      3.2   Deliveries by Seller............................................     9
      3.3   Deliveries by Purchaser.........................................    10
      3.4   Delivery by Purchaser and Seller................................    11

ARTICLE 4.     REPRESENTATIONS AND WARRANTIES OF SELLER.....................    11

      4.1   Organization, Good Standing, Qualification......................    11
      4.2   Charter Documents; Books and Records............................    12
      4.3   Capitalization..................................................    12
      4.4   Authority; Binding Nature of Agreements.........................    12
      4.5   No Conflicts; Required Consents.................................    12
      4.6   Subsidiaries....................................................    13
      4.7   Financial Statements............................................    13
      4.8   Absence of Undisclosed Liabilities..............................    13
      4.9   Absence of Changes..............................................    13
      4.10  Transactions with Affiliates....................................    14
      4.11  Account Receivables.............................................    14
      4.12  Inventory.......................................................    14
      4.13  Material Contracts..............................................    14
      4.14  Title; Sufficiency; Condition of Assets.........................    17
      4.15  Real Property Leases............................................    17
      4.16  Intellectual Property...........................................    17
      4.17  Customers, Distributors and Suppliers...........................    19
      4.18  Seller Products, Services and Warranty..........................    21
      4.19  Employees and Consultants.......................................    21
      4.20  Seller Benefit Plans............................................    22
      4.21  Compliance with Laws............................................    22
      4.22  Governmental Approvals..........................................    23
      4.23  Proceedings and Orders..........................................    23


                                       i


                                TABLE OF CONTENTS
                                  (Continued)


                                                                                    PAGE
                                                                                    ----
                                                                                 
      4.24  Environmental Matters..............................................     23
      4.25  Taxes..............................................................     24
      4.26  Brokers............................................................     25
      4.27  No Other Agreement.................................................     25
      4.28  No Other Representations and Warranties............................     25
      4.29  Private Placement..................................................     25

ARTICLE 5.     REPRESENTATIONS AND WARRANTIES OF PURCHASER.....................     27

      5.1   Organization and Good Standing.....................................     27
      5.2   Authority; Binding Nature of Agreements............................     27
      5.3   No Conflicts; Required Consents....................................     28
      5.4   Brokers............................................................     28
      5.5   SEC Filings, Financial Statements..................................     28
      5.6   Shares.............................................................     28

ARTICLE 6.     PRE-CLOSING COVENANTS...........................................     29

      6.1   Seller's Conduct of the Business Prior to Closing..................     29
      6.2   Restrictions on Seller's Conduct of the Business Prior to Closing..     29
      6.3   No Solicitation....................................................     31
      6.4   Certain Notifications..............................................     32
      6.5   Updating the Disclosure Schedules..................................     32
      6.6   Access to Information..............................................     33
      6.7   Best Efforts.......................................................     33
      6.8   Consents...........................................................     33
      6.9   Indemnity..........................................................     33

ARTICLE 7.     POST CLOSING COVENANTS..........................................     34

      7.1   Seller Intellectual Property.......................................     34
      7.2   Cooperation........................................................     34
      7.3   Change of Corporate Name...........................................     35
      7.4   Records and Documents..............................................     35
      7.5   Collection of Receivables..........................................     35
      7.6   Noncompetition Agreement...........................................     36
      7.7   Nondisclosure......................................................     37
      7.8   Listing of Shares..................................................     38

ARTICLE 8.     EMPLOYEES.......................................................     38

      8.1   Transferred Employees..............................................     38
      8.2   Employee Benefit Arrangements......................................     38
      8.3   Post-Closing Employee Benefits.....................................     38
      8.4   Compliance with Legal Requirements and Other Obligations...........     39
      8.5   No Benefit to Seller Employees Intended............................     39

ARTICLE 9.     CONDITIONS TO CLOSING...........................................     40


                                       ii


                                TABLE OF CONTENTS
                                  (Continued)


                                                                              PAGE
                                                                              ----
                                                                           
      9.1   Conditions to Purchaser's Obligation to Close...................    40
      9.2   Conditions to Seller's Obligation to Close......................    41
      9.3   Conditions to Obligations of Each Party to Close................    41

ARTICLE 10.    TERMINATION..................................................    42

      10.1  Circumstances for Termination...................................    42
      10.2  Effect of Termination...........................................    42
      10.3  Fees for Termination............................................    42

ARTICLE 11.    INDEMNIFICATION..............................................    43

      11.1  Survival of Representations and Warranties......................    43
      11.2  Indemnification by Seller.......................................    43
      11.3  Indemnification by Purchaser....................................    43
      11.4  Procedures for Indemnification..................................    43
      11.5  Limitations on Indemnification..................................    45
      11.6  Sole Remedy.....................................................    46
      11.7  Set Off.........................................................    46

ARTICLE 12.    MISCELLANEOUS PROVISIONS.....................................    46

      12.1  Expenses........................................................    46
      12.2  Further Assurances..............................................    46
      12.3  Amendments and Waivers..........................................    46
      12.4  Notices.........................................................    46
      12.5  Governing Law...................................................    47
      12.6  Dispute Resolution..............................................    47
      12.7  Exhibits and Schedules..........................................    48
      12.8  Assignments Prohibited; Successors and Assigns..................    48
      12.9  No Third-Party Beneficiaries....................................    48
      12.10 Counterparts....................................................    48
      12.11 Entire Agreement................................................    48
      12.12 Interpretation..................................................    48
      12.13 Number of Days..................................................    49
      12.14 Construction....................................................    49
      12.15 Provisional Relief; Specific Performance........................    49
      12.16 Recovery of Fees by Prevailing Party............................    49
      12.17 Disclosure Letter...............................................    50
      12.18 Time of the Essence.............................................    50
      12.19 Confidentiality; Publicity......................................    50
      12.20 Cumulative Remedies.............................................    50
      12.21 Liquidated Damages..............................................    50
      12.22 Corporate Securities Law........................................    51


                                      iii


                       EXHIBITS, SCHEDULES AND APPENDICES

Exhibits

                     
Exhibit A               Certain Definitions
Exhibit 2.1(a)(ii)      Promissory Note
Exhibit 2.1(a)(iv)      Warrant
Exhibit 3.2(a)          General Assignment and Bill of Sale
Exhibit 3.2(b)          Assignment and Assumption
Exhibit 3.2(e)          Lock-Up Agreement
Exhibit 3.2(f)          Employment Agreements
Exhibit 3.4             Registration Rights Agreement
Exhibit 6.9             Indemnification Agreements
Exhibit 7.1             Acknowledgments of License
Exhibit 9.1(d)          Estoppel Letters
Exhibit 9.1(e)          Opinion of Seller's Counsel
Exhibit 9.2(e)          Opinion of Purchaser's Counsel



Schedules

                     
Schedule 1.1(a)         Receivables
Schedule 1.1(b)         Inventory
Schedule 1.1(c)         Machinery and Equipment
Schedule 1.1(d)         Owned and Leased Vehicles
Schedule 1.1(e)         Personal Property
Schedule 1.1(f)         Leased Real Property
Schedule 1.1(g)         Personal Property Leases
Schedule 1.1(h)         Intellectual Property
Schedule 1.1(i)         Deposits and Advances
Schedule 1.1(j)         Rebates and Credits
Schedule 1.1(k)         Seller Contracts
Schedule 1.1(l)         Governmental Approvals
Schedule 1.1(m)         Claims
Schedule 1.2(e)         Excluded Personal Property
Schedule 1.3            Assumed Liabilities
Schedule 4              Seller Disclosure Schedule
Schedule 5              Purchaser Disclosure Schedule
Schedule 8.1            Transferred Employees
Schedule 8.3(b)         Restricted Stock and Option Issuances



                                       i


                            ASSET PURCHASE AGREEMENT

      THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into
this sixth day of June, 2006, by and between MTI Technology Corporation, a
Delaware corporation (the "Purchaser"), and Collective Technologies, LLC, a
Delaware limited liability company (the "Seller"). Certain capitalized terms
used in this Agreement are defined on Exhibit A hereto.

                                    RECITALS

      WHEREAS, Seller is engaged in IT infrastructure services, including
architectural consulting, system implementation and staff augmentation (the
"Business"); and

      WHEREAS, Purchaser desires to purchase from Seller and Seller desires to
sell to Purchaser substantially all of the assets, properties, rights and claims
of, or related to, the Business on the terms and conditions set forth herein.

      NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
representations, warranties, covenants and promises contained herein, the
adequacy and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

                                    AGREEMENT

ARTICLE 1. THE TRANSACTION

      1.1 PURCHASED ASSETS. Subject to the terms and conditions of this
Agreement, at the Closing, Seller shall sell, transfer, convey, assign, grant
and deliver to Purchaser, and Purchaser shall purchase from Seller, all of
Seller's right, title and interest in, to and under the assets, properties,
goodwill and rights of Seller of every nature, kind and description, tangible
and intangible, wherever located, whether or not carried on the books of Seller
(other than the Excluded Assets) (collectively, the "Purchased Assets"),
including the following:

            (a) Receivables. Other than amounts owed under the Accenture
Agreements (as defined below), all accounts and notes receivable, negotiable
instruments and chattel papers (the "Receivables"), including the Receivables
listed on Schedule 1.1(a);

            (b) Inventory. All inventory of Seller products and its components,
wherever located and whether held by Seller or third parties, including all raw
materials, work in process, samples, packaging, supplies, service parts,
purchased parts and goods and the finished goods listed on Schedule 1.1(b)
(collectively, the "Inventory") and any and all rights to market and sell all
such Inventory;

            (c) Machinery and Equipment. All tools, dies, jigs, molds, patterns,
machinery and equipment (including manufacturing assembly and test equipment),
wherever located and whether held by Seller or third parties (the "Machinery and
Equipment"), including the Machinery and Equipment listed on Schedule 1.1(c);

                                       1


            (d) Owned and Leased Vehicles. All vehicles owned by Seller and all
rights in, to and under vehicle leases to which Seller is a party (collectively,
the "Owned and Leased Vehicles"), including the Owned and Leased Vehicles listed
on Schedule 1.1(d);

            (e) Personal Property. All personal property, office furnishings and
furniture, display racks, shelves, decorations, supplies and other tangible
personal property (the "Personal Property"), including the Personal Property
listed on Schedule 1.1(e);

            (f) Leased Real Property. All rights in, to and under the real
estate leases listed on Schedule 1.1(f) (the "Real Property Leases"), together
with all of Seller's right, title and interest in and to all land, buildings,
structures, easements, appurtenances, improvements (including construction in
progress) and fixtures located thereon (the "Leased Real Property");

            (g) Personal Property Leases. All rights in, to and under leases of
personal property to which Seller is a party (the "Personal Property Leases"),
including the Personal Property Leases listed on Schedule 1.1(g);

            (h) Intellectual Property. All Seller Intellectual Property,
including the Seller Intellectual Property listed on Schedule 1.1(h);

            (i) Deposits and Advances. All performance and other bonds, security
and other deposits, advances, advance payments, prepaid credits and deferred
charges (the "Deposits and Advances"), including the Deposits and Advances
listed on Schedule 1.1(i);

            (j) Rebates and Credits. All rights in, to and under claims for
refunds, rebates or other discounts due from suppliers or vendors and rights to
offset in respect thereof (the "Rebates and Credits"), including those Rebates
and Credits listed on Schedule 1.1(j);

            (k) Seller Contracts. Other than the Accenture Agreements, all
rights in, to and under any and all Contracts to which Seller is a party or may
be bound or receive benefits or receive and/or grant rights in and/or to the
Seller Intellectual Property or by which the Purchased Assets or Assumed
Liabilities may be affected (collectively, "Seller Contracts"), including those
listed on Schedule 1.1(k); provided, that, for the avoidance of doubt, Seller
Contracts shall not include any Contracts solely between or among Edward Ateyeh,
Jr., Wade Saadi and Edgar Saadi if Seller is not a party to such Contracts and
could not be bound or receive benefits thereunder, and if the Purchased Assets
or Assumed Liabilities could not be affected thereby and shall not include the
Agreement Among Shareholders dated on or about the date hereof among Seller,
Pencom Systems Incorporated, Edward Ateyeh, Jr., Wade Saadi and Edgar Saadi;

            (l) Governmental Approvals. All Governmental Approvals (and pending
applications therefor), including the Governmental Approvals listed on Schedule
1.1(l);

            (m) Claims. All claims, choses-in-action, rights in action, rights
to tender claims or demands to Seller's insurance companies, rights to any
insurance proceeds, and other similar claims (the "Seller Claims"), including
the Seller Claims listed on Schedule 1.1(m);

            (n) Books and Records. All books, files, papers, agreements,
correspondence, databases, information systems, programs, software, documents,
records and documentation

                                       2


thereof related to any of the Purchased Assets or the Assumed Liabilities, or
used in the conduct of the Business, on whatever medium (the "Books and
Records"); and

            (o) Other Assets. All other assets, properties, rights and claims
related to the operations or conduct of the Business or which arise in or from
the conduct thereof.

      1.2 EXCLUDED ASSETS. Notwithstanding Section 1.1, the following assets of
Seller (the "Excluded Assets") shall not be included in the Purchased Assets:

            (a) Cash. Cash, cash equivalents and marketable securities;

            (b) Certain Debt. Any intercompany or intracompany receivable cash
balances owed to Seller by any of its Affiliates;

            (c) Entity Documents. Seals, certificates of organization, minute
books, member transfer records, or other similar records related to the
organization of Seller;

            (d) Employee Benefit Contracts. Seller Benefit Plans and contracts
of insurance for employee group medical, dental and life insurance plans;

            (e) Certain Other Property. The assets listed on Schedule 1.2(e);

            (f) Accenture Agreements. Any rights or obligations under Seller's
License Agreement (including the acknowledgement thereof) with Morgan Stanley &
Co. Incorporated, dated July 16, 2004, and Seller's Asset Purchase Agreement
with Accenture, dated June 21, 2004, including the incorporated License
Agreement between Accenture and Seller (including the acknowledgement thereof
and any other documents or contracts executed and delivered by Seller in
connection therewith (collectively, the "Accenture Agreements"), true and
correct copies of which have been provided to Purchaser, including without
limitation, any amounts payable to Seller thereunder;

            (g) Insurance Policies. All insurance policies (except to the extent
specified in Section 1.1(m)) and all refunds for unearned premiums;

            (h) Records. All personnel, financial, tax, and accounting records
and other records that Seller is required by law to retain in its possession;

            (i) Deposits. Any Deposits and Advances, Rebates and Credits or
Seller Claims related to any Excluded Liability; and

            (j) Rights Under Certain Agreements. All rights under a Transaction
Agreement.

      1.3 ASSUMED LIABILITIES. Subject to the terms and conditions of this
Agreement, at the Closing, Seller shall assign, and Purchaser shall assume only
the Assumed Liabilities. Thereafter, Purchaser shall pay and discharge all such
Assumed Liabilities as and when such Assumed Liabilities become due and owing.
For the purposes of this Agreement, the "Assumed Liabilities" shall mean only
the following Liabilities of Seller:

                                       3


            (a) Any Liability arising at or after the Closing under the Seller
Contracts;

            (b) Any Liability reflected on the Interim Balance Sheet or incurred
after the Interim Balance Sheet Date in the ordinary course of business, to the
extent it remains as a Liability of the Business at the Closing and is reflected
on the Audited Closing Balance Sheet;

            (c) Any Liability for accrued but unused vacation time of
Transferred Employees reflected on the Audited Closing Balance Sheet ("Vacation
Accrual");

            (d) One-half of any Transfer Taxes; and

            (e) The Liabilities of Seller specifically listed on Schedule 1.3.

      1.4 EXCLUDED LIABILITIES. Except for the Assumed Liabilities, Purchaser
shall not assume and shall not be liable or responsible for any Liability of
Seller or any Affiliate of Seller (collectively, the "Excluded Liabilities").
Without limiting the foregoing, Purchaser shall not be obligated to assume, and
does not assume, and hereby disclaims any of the following Liabilities of Seller
or its Affiliates:

            (a) Any Liability attributable to any assets, properties or
Contracts that are not included in the Purchased Assets, including the Accenture
Agreements, except Liabilities attributable to Non-Assignable Assets, for which
Seller and Purchaser have reached a mutually acceptable arrangement pursuant to
Section 1.5(b);

            (b) Any Liability for breaches of any Seller Contract prior to the
Closing or any Liability for payments or amounts due under any Seller Contract
prior to the Closing;

            (c) Any Liability for Taxes attributable to or imposed upon Seller
or its Affiliates, or attributable to or imposed upon the Purchased Assets for
the Pre-Closing Period, including one-half of any Transfer Taxes;

            (d) Any Liability arising from accidents, occurrences, misconduct,
negligence, breach of fiduciary duty or statements made or omitted to be made
(including libelous or defamatory statements) prior to the Closing, whether or
not covered by workers' compensation or other forms of insurance;

            (e) Any Liability arising as a result of any legal or equitable
action or judicial or administrative Proceeding initiated at any time, to the
extent related to any action or omission prior to the Closing relating to (i)
infringement or misappropriation of any Intellectual Property Rights or any
other rights of any Person (including any right of privacy or publicity); (ii)
breach of product warranties; (iii) injury, death, property damage or other
losses arising with respect to or caused by Seller Products or the manufacturer
or design thereof; or (iv) violations of any Legal Requirements (including
federal and state securities laws);

            (f) Other than any portion thereof specifically included in the
Assumed Liabilities under Section 1.3(b), any Liability arising out of any
Seller Benefit Plans or any contract of insurance for employee group medical,
dental or life insurance plans;

                                       4


            (g) Other than the Vacation Accrual and any portion of any Liability
for making payments to employees specifically included in the Assumed
Liabilities under Section 1.3(b), any Liability for making payments of any kind
to employees (including as a result of the Transaction, the termination of an
employee by Seller, or other claims arising out of the terms of employment with
Seller) of Seller or with respect to payroll taxes relating to employees of
Seller;

            (h) Any Liability incurred in connection with the making or
performance of this Agreement and the Transaction not reflected on the Audited
Closing Balance Sheet;

            (i) Any Liability not reflected on the Audited Closing Balance Sheet
for expenses and fees incurred by Seller incidental to the preparation of the
Transaction Agreements, preparation or delivery of materials or information
requested by Purchaser, and the consummation of the Transaction, including all
broker, counsel and accounting fees;

            (j) Any Liability for the violation of any Legal Requirement
applicable to Seller, the Purchased Assets or the Assumed Liabilities prior to
the Closing;

            (k) Other than any portion thereof specifically included in the
Assumed Liabilities under Section 1.3(b), any Liability to any stockholders,
members, or other equity holders;

            (l) Any Liability to holders of options to purchase securities of,
or interests in, Seller or any of its Affiliates; and

            (m) Any costs or expenses incurred in connection with shutting down,
deinstalling or removing equipment not purchased by Purchaser and any costs or
expenses associated with any Seller Contracts not assumed by Purchaser
hereunder.

      1.5 NON-ASSIGNABLE ASSETS.

            (a) Notwithstanding the foregoing, if any of the Seller Contracts or
other Purchased Assets are not assignable or transferable (each, a
"Non-Assignable Asset") without the consent of, or waiver by, a third party
(each, an "Assignment Consent"), either as a result of the provisions thereof or
applicable Legal Requirements, and any of such Assignment Consents are not
obtained by Seller prior to the Closing, Seller shall continue its efforts to
obtain the Assignment Consents after Closing, and, in either case, this
Agreement and the related instruments of transfer shall not constitute an
assignment or transfer of such Non-Assignable Assets, and Purchaser shall not
assume Seller's rights or obligations under such Non-Assignable Asset (and such
Non-Assignable Asset shall not be included in the Purchased Assets). Without
limiting Seller's obligations under Section 6.8, Seller shall use its Best
Efforts to obtain all such Assignment Consents as soon as reasonably practicable
after the Closing and thereafter assign to Purchaser such Non-Assignable Assets.
Following any such assignment, such assets shall be deemed Purchased Assets for
purposes of this Agreement. This Section 1.5(a) shall at all times remain
subject to Article 9.

            (b) After the Closing, Seller shall cooperate with Purchaser in any
commercially reasonable arrangement designed to provide Purchaser with all of
the benefits of

                                       5


the Non-Assignable Assets as if the appropriate Assignment Consents had been
obtained, including by granting subleases and establishing arrangements whereby
Purchaser shall undertake the work necessary to perform and meet the obligations
under Seller Contracts; provided, that Seller shall not be required to incur any
material Liability, cost or expense in connection therewith.

ARTICLE 2. CONSIDERATION FOR TRANSFER

      2.1 PURCHASE PRICE.

            (a) Subject to Section 2.2, as full consideration for the sale,
assignment, transfer and delivery of the Purchased Assets by Seller to
Purchaser, Purchaser shall deliver to Seller at the Closing an executed
Assignment and Assumption and consideration (together with any amounts payable
under Section 2.2, the "Purchase Price"), payable in the following manner:

                  (i) A wire transfer of immediately available U.S. funds in an
aggregate amount of Six Million Dollars ($6,000,000) (the "Cash Amount");

                  (ii) A promissory note in the form of Exhibit 2.1(a)(ii) (the
"Note") in the amount of Two Million Dollars ($2,000,000);

                  (iii) A certificate for two million two hundred seventy-two
thousand seven hundred twenty-seven (2,272,727) shares (collectively, the
"Shares") of Purchaser's common stock; and

                  (iv) A warrant ("Warrant") to purchase one million (1,000,000)
shares of Purchaser's common stock at an exercise price of $1.32 per share in
the form set forth as Exhibit 2.1(a)(iv).

            (b) At Closing Purchaser shall discharge liabilities of Seller to
Pencom Systems, Incorporated included in the Assumed Liabilities ("Affiliate
Liabilities") in an amount equal to the least of (i) amounts outstanding five
(5) Business Days prior to Closing under that certain Account Purchase Agreement
(the "Wells Fargo Agreement"), dated November 22, 2004, between Wells Fargo
Business Credit, Inc. and Seller, (ii) One Million Five Hundred Thousand Dollars
($1,500,000), or (iii) the aggregate amount outstanding under such Affiliate
Liabilities less Five Hundred Thousand Dollars ($500,000). Purchaser shall
discharge any remaining liabilities of Seller to Pencom Systems, Incorporated
included in the Assumed Liabilities within five (5) Business Days of the Final
Resolution Date, subject to set off by an amount equal to the Net Asset
Adjustment, if applicable under Section 2.2(d). All liabilities of Seller to
Pencom Systems, Incorporated included in the Assumed Liabilities, including any
amounts discharged pursuant hereto, shall be fully reflected on the Preliminary
Closing Balance Sheet and the Audited Closing Balance Sheet, and shall be
subject to and included in the Net Asset Adjustment described below. Pencom
Systems, Incorporated agrees to the provisions of this Section 2.1(b), including
the set off described in the preceding sentences.

                                       6


      2.2 PURCHASE PRICE ADJUSTMENTS.

            (a) Seller shall deliver to Purchaser at least three (3) days prior
to the expected Closing Date an estimate of the Net Assets of Seller as of the
Closing Date, calculated in accordance with GAAP and consistent with the
accounting methods and practices used on the Interim Balance Sheet (the
"Preliminary Closing Balance Sheet"). The Purchase Price shall be increased,
dollar for dollar, by the amount by which the Net Assets are greater than One
Million Dollars ($1,000,000) and shall be decreased, dollar for dollar, by the
amount by which the Net Assets are less than such amount. The "Net Assets" of
the Business shall be the excess of (i) the book value of the Purchased Assets
over (ii) the book value of the Assumed Liabilities, except that no reserve for
doubtful accounts shall be included in such determination.

            (b) As promptly as practicable, but in no event later than one
hundred fifty (150) days following the Closing Date, Purchaser shall cause the
following to be prepared and delivered to Seller (collectively, the "Audited
Closing Balance Sheet"): (i) an audited balance sheet of the Business as of the
Closing Date which reflects the book value of the Purchased Assets and the
Assumed Liabilities, together with an audit report thereon by an independent
accounting firm hired by Purchaser ("Purchaser's Accountant"), prepared in
accordance with GAAP on a basis consistent with the accounting methods and
practices used on the Interim Balance Sheet; and (ii) a statement based on such
Audited Closing Balance Sheet which sets forth in detail a calculation of the
Net Assets of the Business on the Closing Date. Purchaser shall, and shall cause
the Purchaser's Accountant to, provide Seller and Seller's accountant ("Seller's
Accountant") any and all work papers used in the preparation of the Audited
Closing Balance Sheet. Purchaser shall permit Seller to render all reasonable
assistance in connection with the preparation and audit of the Audited Closing
Balance Sheet. Except as set forth below, the Audited Closing Balance Sheet and
the accompanying Net Asset calculation shall be deemed to be and shall be final,
binding and conclusive on the parties upon the earlier of (the "Final Resolution
Date"): (A) Seller's delivery of a written notice to Purchaser of its approval
of the Audited Closing Balance Sheet; (B) the failure of Seller to notify
Purchaser in writing of a dispute with the Audited Closing Balance Sheet within
thirty (30) days of the delivery of such documents to Seller ; (C) the
resolution of all disputes, pursuant to Section 2.2(c), by Purchaser's
Accountant and Seller's Accountant; and (D) the resolution of all disputes,
pursuant to Section 2.2(c), by the Independent Accounting Firm.

            (c) Seller may dispute any amounts reflected on the Audited Closing
Balance Sheet by delivery of a written notice to Purchaser (the "Audited Closing
Balance Sheet Dispute Notice"). If Seller delivers an Audited Closing Balance
Sheet Dispute Notice to Purchaser, Purchaser's Accountant and Seller's
Accountant shall attempt to reconcile the parties' differences, and any
resolution by them as to any disputed amounts shall be final, binding and
conclusive on the parties. If Purchaser's Accountant and Seller's Accountant are
unable to reach a resolution within thirty (30) days after the delivery of the
Audited Closing Balance Sheet Dispute Notice, Purchaser's Accountant and
Seller's Accountant shall submit their respective determinations and
calculations and the items remaining in dispute for resolution to an independent
accounting firm of international reputation mutually acceptable to Purchaser and
Seller (the "Independent Accounting Firm"). The parties shall cause the
Independent Accounting Firm to submit a report to Purchaser and Seller with a
determination regarding the remaining disputed items, within thirty (30) days
after submission of the matter, and such report

                                       7


shall be final, binding and conclusive on Purchaser and Seller. The fees, costs
and expenses of the Independent Accounting Firm shall be paid by Purchaser and
Seller in the same proportion that the aggregate amount of such remaining
disputed items so submitted to the Independent Accounting Firm that is
unsuccessfully disputed by each such party as finally determined by the
Independent Accounting Firm bears to the total amount of such remaining disputed
items.

            (d) The Purchase Price shall be increased or decreased on a
dollar-for-dollar basis by the amount by which the actual Net Assets of the
Business determined in accordance with Sections 2.2(b) and 2.2(c) is greater or
less than the amount of the estimated Net Assets of the Business determined in
accordance with Section 2.2(a). Any such adjustment to the Purchase Price shall
be referred to as a "Net Asset Adjustment." If the Purchase Price increases as a
result of the Net Asset Adjustment, Purchaser shall pay any additional amount
due to Seller by wire transfer of immediately available funds within five (5)
Business Days of the Final Resolution Date. If the Purchase Price declines as a
result of the Net Asset Adjustment, Purchaser, at Purchaser's sole option, may:
(i) deduct the amount by which the Purchase Price declines from the amount owed
under the Note; (ii) request within five (5) Business Days of the Final
Resolution Date that Seller, and upon such request Seller shall, return the
amount by which the Purchase Price declines to Purchaser by wire transfer of
immediately available funds within five (5) Business Days of such request or
(iii) deduct the amount by which the Purchase Price declines from the amount, if
any, owed to Pencom Systems Incorporated under Section 2.1(b). The party
required to make a payment under this Section 2.2 shall also pay interest on
such amount required to be paid from and including the Closing Date but
excluding the date of payment thereof at the prime rate published by The Wall
Street Journal, as that rate may vary from time to time, or if no longer
published, a comparable rate.

            (e) The Purchase Price shall be increased by an amount equal to the
Dollar value set forth next to the name of any person or persons on Schedule
8.3(b) who has exercised any option to acquire equity securities of Seller on or
after the date of this Agreement and will, therefore, not receive any grant of
restricted stock or options under Section 8.3(b). Such amount shall be set off
against any Net Asset Adjustment and paid concurrent with the payment thereof as
set forth in Section 2.2(d) above.

      2.3 ALLOCATION OF PURCHASE PRICE. As soon as practicable after the
applicable party has received cash or credit for the Net Asset Adjustment
pursuant to Section 2.2, Purchaser shall provide to Seller Purchaser's
allocation of the Purchase Price, as adjusted pursuant to Section 2.2, among the
various classes of Purchased Assets (as such classes are defined for the
purposes of Section 1060 of the Code), which shall be subject to Seller's
approval which shall not be unreasonably withheld. All allocations made pursuant
to this Section 2.3 shall be made in accordance with the requirements of Section
1060 of the Code. None of the parties shall take a position on any Tax Return
(including IRS Form 8594), before any Tax Authority or in any judicial
Proceeding that is in any manner inconsistent with such allocation by Purchaser
without the written consent of the other parties to this Agreement or unless
specifically required pursuant to a determination by an applicable Tax
Authority, in which case, notice shall be given to each party hereto of such
determination and the applicable position taken therein. Seller shall promptly
advise Purchaser of the existence of any tax audit, controversy or litigation
related to any allocation hereunder.

                                       8


      2.4 TRANSFER TAXES; PRORATIONS.

            (a) Notwithstanding any Legal Requirements to the contrary, each of
Seller and Purchaser shall be responsible for and shall pay one-half of any
Transfer Taxes when due. Purchaser shall file all necessary tax returns and
other documentation with respect to all such Transfer Taxes; provided, however,
that, if required by any Legal Requirement, Seller will join in the execution of
any such tax returns and other documentation. Each of Seller and Purchaser shall
provide copies of any filings with respect to Transfer Taxes to the other.

            (b) Seller shall be responsible for and shall pay any Taxes arising
or resulting from or in connection with the conduct of the Business or the
ownership of the Purchased Assets attributable to the Pre-Closing Period.
Purchaser shall be responsible for and shall pay any Taxes arising or resulting
from or in connection with the conduct of the Business or the ownership of the
Purchased Assets attributable to the Post-Closing Period.

            (c) All real property, personal property, ad valorem or other
similar Taxes (not including income Taxes) levied with respect to the Purchased
Assets or the Business for a taxable period which includes (but does not end on)
the Closing Date shall be apportioned between Purchaser and Seller based on the
number of days included in such period through the Closing Date and the number
of days included in such period from and after the Closing Date, and the
Purchase Price shall be adjusted to reflect such apportionment.

            (d) On or before the Closing Date, Seller shall furnish to Purchaser
Tax clearance certificates, under California Revenue and Taxation Code Section
6812 and California Unemployment Insurance Code Section 1732 or otherwise as
applicable, releasing Purchaser from liability with respect to any sales or use
Tax or employment Tax liability of Seller.

ARTICLE 3. CLOSING AND CLOSING DELIVERIES

      3.1 CLOSING; TIME AND PLACE. The closing of the purchase and sale provided
for in this Agreement (the "Closing") shall occur at the offices of Morrison &
Foerster LLP, 19900 MacArthur Blvd., Irvine, CA 92612, at 10:00 A.M. on the
second (2nd) Business Day following the satisfaction or waiver of each of the
conditions set forth in Article 9 or at such other date, time or place as the
parties may agree upon in writing (the "Closing Date").

      3.2 DELIVERIES BY SELLER. At the Closing, Seller shall (i) take all steps
necessary to place Purchaser in actual possession and operating control of the
Business and the Purchased Assets and (ii) deliver the following items, duly
executed by Seller as applicable, all of which shall be in a form and substance
reasonably acceptable to Purchaser and Purchaser's counsel:

            (a) General Assignment and Bill of Sale. General Assignment and Bill
of Sale covering all of the applicable Purchased Assets, substantially in the
form attached hereto as Exhibit 3.2(a) (the "General Assignment and Bill of
Sale");

            (b) Assignment and Assumption Agreement. Assignment and Assumption
Agreement, covering all of the Assumed Liabilities, substantially in the form
attached hereto as Exhibit 3.2(b) (the "Assignment and Assumption");

                                       9


            (c) Intellectual Property Assignment. Any and all documents
necessary to properly record the assignment to Purchaser of all of Seller's
right, title and interest in and to the Seller Intellectual Property, including
trademarks, patents and copyrights, in a form mutually satisfactory to Seller
and Purchaser;

            (d) Other Conveyance Instruments. Such other specific instruments of
sale, transfer, conveyance and assignment as Purchaser may request;

            (e) Lock-Up Agreements. Seller, Pencom Systems, Incorporated, and
each of their shareholders or members shall have executed and delivered a
Lock-Up Agreement substantially in the form attached hereto as Exhibit 3.2(e)
("Lock-Up Agreement");

            (f) Employment Agreements. Employment Agreements, substantially in
the form attached hereto as Exhibit 3.2(f) ("Employment Agreements") shall be
executed and delivered by each of Edward Ateyeh, Jr. and William Kerley;

            (g) Assignments of Leases. Assignments of all Real Property Leases
and Personal Property Leases;

            (h) Owned and Leased Vehicles. Vehicle titles and assignments
sufficient to transfer title to the Owned and Leased Vehicles;

            (i) Certificate of Organization. Form of Certificate of Amendment to
Seller's Charter documents, sufficient to change Seller's legal name to one
dissimilar to Collective Technologies consistent with Section 7.3;

            (j) Seller Contracts. Originals of all Seller Contracts;

            (k) Payoff and Release Letters. Payoff and release letters agreeing
to release liens against the Business or any of the Purchased Assets in form and
substance reasonably satisfactory to Purchaser;

            (l) Books and Records. The Books and Records;

            (m) Certificate of Representations and Warranties and Member
Approval. A certificate executed on behalf of Seller by its President,
certifying the matters in Section 9.1(a); and

            (n) Certificate of Good Standing. A certificate from the Secretary
of State of Delaware, as of a date no earlier than three (3) Business Days prior
to the Closing Date, as to Seller's good standing and payment of all applicable
taxes.

      3.3 DELIVERIES BY PURCHASER. At the Closing, Purchaser shall deliver the
following items, duly executed by Purchaser as applicable, all of which shall be
in a form and substance reasonably acceptable to Seller and Seller's counsel:

                                       10


            (a) Wire Transfer. A wire transfer to Silicon Valley Bank for credit
to Seller's account (which account shall be specified in writing by Seller at
least two (2) Business Days prior to the Closing), in the Cash Amount; and

            (b) Shares. Certificate(s) representing the Shares, in the name of
Seller delivered to Seller;

            (c) Note. The Note executed by Purchaser;

            (d) Warrant. The Warrant executed by Purchaser;

            (e) Certificate of Representations and Warranties. A certificate
executed on behalf of Purchaser by its Chief Executive Officer, certifying the
matters in Section 9.2(a); and

            (f) Employment Agreements. The Employment Agreements executed by
Purchaser.

      3.4 DELIVERY BY PURCHASER AND SELLER. At the Closing, Purchaser and Seller
shall deliver the following items, duly executed by the appropriate parties, all
of which shall be in a form and substance reasonably acceptable to the
non-delivering party and its counsel:

            (a) Acknowledgements of License. The Acknowledgements of License;

            (b) Registration Rights Agreement. A Registration Rights Agreement,
substantially in the form of Exhibit 3.4 (the "Registration Rights Agreement").

            (c) Assignment and Assumption Agreement. The Assignment and
Assumption Agreement; and

            (d) Other Documentation. Such other certificates, instruments or
documents required pursuant to the provisions of this Agreement or otherwise
necessary or appropriate to transfer the Purchased Assets and Assumed
Liabilities in accordance with the terms hereof and consummate the Transaction,
and to vest in Purchaser and its successors and assigns full, complete,
absolute, legal and equitable title to the Purchased Assets, free and clear of
all Encumbrances other than Permitted Encumbrances, including such certificates,
instruments and documents to be executed or delivered by Seller pursuant to this
Article 3.

ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF SELLER

      Except as specifically set forth on Schedule 4 (the "Seller Disclosure
Schedule") attached to this Agreement (the parts of which are numbered to
correspond to the individual Section numbers of this Article 4), Seller hereby
represents and warrants to Purchaser as follows:

      4.1 ORGANIZATION, GOOD STANDING, QUALIFICATION. The Seller Disclosure
Schedule sets forth Seller's jurisdiction of organization and each state or
other jurisdiction in which Seller is qualified to do business. Seller (a) is a
limited liability company duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization; (b) is duly qualified to
conduct business and is in good standing under the laws of each jurisdiction in
which

                                       11


the failure to be so qualified would have a Material Adverse Effect on Seller;
and (c) has full corporate power and authority required to own, lease and
operate its assets and to carry on its business (including the Business) as now
being conducted.

      4.2 CHARTER DOCUMENTS; BOOKS AND RECORDS.

            (a) Seller has delivered to Purchaser accurate, correct and complete
copies of (i) the charter and organizational documents of Seller, including all
amendments thereto, as presently in effect; and all books of account and other
financial records of Seller.

            (b) The books of account and other financial records of Seller are
accurate and complete and have been maintained in accordance with sound business
practices.

            (c) Seller is not in violation of any of the provisions of its
charter documents, and to the Knowledge of Seller, no condition or circumstance
exists that likely would (with or without notice or lapse of time) constitute or
result directly or indirectly in such a violation.

      4.3 CAPITALIZATION. Seller has provided Purchaser with a true and accurate
list of each holder of interests in Seller and Pencom Systems, Incorporated and
their respective state of residence. No other interests are issued or
outstanding.

      4.4 AUTHORITY; BINDING NATURE OF AGREEMENTS. Seller has all requisite
limited liability company power and authority to execute and deliver this
Agreement and all other Transaction Agreements to which it is a party and to
carry out the provisions of this Agreement and the other Transaction Agreements.
The execution, delivery and performance by Seller of this Agreement and the
other Transaction Agreements have been approved by all requisite action on the
part of Seller. This Agreement has been duly and validly executed and delivered
by Seller. Each of this Agreement and the other Transaction Agreements
constitutes, or upon execution and delivery, will constitute, the legal, valid
and binding obligation of Seller, enforceable against Seller in accordance with
its terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws and equitable principles related to or
limiting creditors' rights generally and by general principles of equity.

      4.5 NO CONFLICTS; REQUIRED CONSENTS. The execution, delivery and
performance of this Agreement or any other Transaction Agreement by Seller do
not and will not (with or without notice or lapse of time):

            (a) conflict with, violate or result in any breach of (i) any of the
provisions of Seller's charter and organization documents; (ii) any of the terms
or requirements of any Governmental Approval held by Seller or any of its
employees or that otherwise relates to the Business or any of the Purchased
Assets or Assumed Liabilities; or (iii) any provision of any Seller Contract;

            (b) give any Governmental Authority or other Person the right to (i)
validly challenge the Transaction; (ii) exercise any remedy or obtain any relief
under any Legal Requirement or any Order to which Seller, or any of the
Purchased Assets or Assumed Liabilities, is subject; (iii) declare a default of,
exercise any remedy under, accelerate the

                                       12


performance of, cancel, terminate, modify or receive any payment under any
Seller Contract; or (iv) revoke, suspend or modify any Governmental Approval;

            (c) cause Seller to become subject to, or to become liable for the
payment of, any Tax other than Taxes included in Excluded Liabilities and
Transfer Taxes;

            (d) result in the imposition or creation of any Encumbrance upon or
with respect to any of the Purchased Assets; or

            (e) require Seller to obtain any Consent or make or deliver any
filing or notice to a Governmental Authority.

      4.6 SUBSIDIARIES. Seller does not own any shares of capital stock or other
securities of, or control, directly or indirectly, any other Entity.

      4.7 FINANCIAL STATEMENTS.

            (a) Seller has previously delivered to Purchaser the following
financial statements (collectively, the "Financial Statements"): (i) the
unaudited balance sheets, and the related unaudited statements of operations and
cash flows of the Business as of and for the fiscal years ended December 31,
2003, 2004, and 2005, together with the notes thereto; and (ii) the unaudited
balance sheets (the "Interim Balance Sheet"), and the related unaudited
statements of operations and cash flows of Seller as of and for the three (3)
months ended March 31, 2006 (the "Interim Balance Sheet Date").

            (b) All of the Financial Statements (i) are consistent with the
Books and Records of Seller; (ii) present fairly and in all material respects
the financial condition of Seller as of the respective dates thereof and the
results of operations and cash flows of Seller for the periods covered thereby;
and (iii) have been prepared in accordance with GAAP, applied on a consistent
basis throughout the periods covered; provided, however, that the Interim
Balance Sheet is subject to year-end adjustments consistent with past practice
(which will not be material individually or in the aggregate) and does not
contain all of the footnotes required by GAAP. All reserves established by
Seller and set forth in the Interim Balance Sheet other than reserves for
accounts receivable are adequate for the purposes for which they were
established.

            (c) The Seller Disclosure Schedule sets forth an accurate, correct
and complete breakdown and aging of each of Seller's accounts payable (including
to all of its suppliers) as of March 31, 2006;

      4.8 ABSENCE OF UNDISCLOSED LIABILITIES. Seller has no Liabilities other
than (a) those set forth in the Interim Balance Sheet; (b) those incurred in the
ordinary course of business and not required to be set forth in the Interim
Balance Sheet under GAAP; (c) those incurred in the ordinary course of business
since the date of the Interim Balance Sheet; and (d) those incurred in
connection with the execution of any of the Transaction Agreements.

      4.9 ABSENCE OF CHANGES. Since the Interim Balance Sheet Date, (a) Seller
has conducted the Business in the ordinary course of business; (b) no event or
circumstance has occurred that could reasonably have a Material Adverse Effect
on Seller; and (c) Seller has not

                                       13


taken any action, agreed to take any action, or omitted to take any action that
would constitute a breach of Section 6.1 or 6.2 if such action or omission were
taken between the date of this Agreement and the Closing Date.

      4.10 TRANSACTIONS WITH AFFILIATES. Except as set forth in the Financial
Statements, no Affiliate (a) is indebted to Seller, nor is Seller indebted (or
committed to make loans or extend or guarantee credit) to any Affiliate other
than with respect to any of Seller's obligations to pay accrued salaries,
reimbursable expenses or other standard employee benefits; (b) has any direct or
indirect interest in any asset (including the Purchased Assets), property or
other right used in the conduct of or otherwise related to the Business; (c) has
any claim or right against Seller, and no event has occurred, and no condition
or circumstance exists, that might (with or without notice or lapse of time)
directly or indirectly give rise to or serve as a basis for any claim or right
in favor of any Affiliate against Seller; (d) is a party to any Seller Contract
or has had any direct or indirect interest in, any Seller Contract, transaction
or business dealing of any nature involving Seller; or (e) received from or
furnished to Seller any goods or services (with or without consideration) since
the Interim Balance Sheet Date.

      4.11 ACCOUNT RECEIVABLES. Schedule 1.1(a) sets forth an accurate and
complete list of all Receivables existing as of March 31, 2006. Each Receivable
is (a) a valid and legally binding obligation of the account debtor enforceable
in accordance with its terms, free and clear of all Encumbrances other than
Permitted Encumbrances, and not subject to setoffs, adverse claims,
counterclaims, assessments, defaults, prepayments, defenses, and conditions
precedent; (b) a true and correct statement of the account for merchandise
actually sold and delivered to, or for services actually performed for and
accepted by, such account debtor; and (c) fully collectible and will be
collected within one hundred twenty (120) days after the Closing Date, subject
to trade discounts provided in the ordinary course of business and any allowance
for doubtful accounts contained in the Interim Balance Sheet.

      4.12 INVENTORY. All of the items in Seller's Inventory are (a) valued on
the Financial Statements at the lower of cost and market value, on a first-in,
first-out basis in accordance with GAAP; (b) of good and merchantable quality,
fit for the purpose for which they are intended, and saleable and useable in the
ordinary course of business; (c) free of defects and damage; and (d) in
quantities adequate and not excessive in relation to the circumstances of
Seller's Business and in accordance with Seller's past inventory stocking
practices. All of the items in Seller's Inventory meet Seller's current
standards and specifications.

      4.13 MATERIAL CONTRACTS.

            (a) Schedule 1.1(k) sets forth an accurate, correct and complete
list of all unperformed or continuing Seller Contracts to which any of the
descriptions set forth below may apply (the "Material Contracts"):

                  (i) Personal Property Leases, Contracts affecting any Seller
      Intellectual Property or Seller's Information Systems or Software,
      Contracts with Contractors, Seller Benefit Plans and Governmental
      Approvals;

                                       14


                  (ii) Any Contract for capital expenditures or for the purchase
      of goods or services in excess of $20,000, except those fully performed or
      those incurred in the ordinary course of business and to be performed in
      three (3) months or less;

                  (iii) Any Contract obligating Seller to sell or deliver any
      product or service at a price which does not cover the cost (including
      labor, materials and production overhead) plus the customary profit margin
      associated with such product or service;

                  (iv) Any Contract involving financing or borrowing of money,
      or evidencing indebtedness, any liability for borrowed money, any
      obligation for the deferred purchase price of property in excess of
      $20,000 (excluding normal trade payables) or guaranteeing in any way any
      Contract in connection with any Person;

                  (v) Any joint venture, partnership, cooperative arrangement or
      any other Contract involving a sharing of profits;

                  (vi) Any advertising Contract not terminable without payment
      or penalty on thirty (30) days (or less) notice;

                  (vii) Any Contract affecting any right, title or interest in
      or to Real Property;

                  (viii) Any Contract with any Governmental Authority;

                  (ix) Any Contract relating to any license or royalty
      arrangement;

                  (x) The charter, bylaws and other organizational or
      constitutive documents of Seller and any Contract among members of Seller;

                  (xi) Any Contract for the purchase or sale of any assets other
      than in the ordinary course of business or for the option or preferential
      rights to purchase or sell any assets;

                  (xii) Any Contract to indemnify any Person or to share in or
      contribute to the liability of any Person;

                  (xii) Any Contract containing covenants not to compete in any
      line of business or with any Person in any geographical area;

                  (xiv) Any Contract related to the acquisition of a business or
      the equity of any other Entity;

                  (xv) Any other Contract which (i) provides for payment or
      performance by either party thereto having an aggregate value of $50,000
      or more; (ii) is not terminable without payment or penalty on thirty (30)
      days (or less) notice; or (iii) is between, inter alia, an Affiliate and
      Seller;

                                       15


                  (xvi) Any other Contract that involves future payments,
      performance of services or delivery of goods or materials to or by Seller
      of an aggregate amount or value in excess of $50,000, on an annual basis,
      or that otherwise is material to the Business; and

                  (xvii) Any proposed arrangement of a type that, if entered
      into, would be a Contract described in any of (i) through (xvi) above.

For the avoidance of doubt, Material Contracts shall not include any Contracts
solely between or among Edward Ateyeh, Jr., Wade Saadi and Edgar Saadi if Seller
is not a party to such Contracts or Seller could not be bound or receive
benefits thereunder, and if the Purchased Assets or Assumed Liabilities could
not be affected thereby, and shall not include the Agreement among Shareholders
dated on or about the date hereof among Seller, Pencom Systems Incorporated,
Edward Ateyeh, Jr., Wade Saadi and Edgar Saadi.

            (b) Seller has delivered to Purchaser accurate, correct and complete
copies of all Material Contracts (or written summaries of the material terms
thereof, if not in writing), including all amendments, supplements,
modifications and waivers thereof. All nonmaterial Contracts of Seller do not,
in the aggregate, represent a material portion of the Liabilities of Seller.

            (c) Each Seller Contract is currently valid and in full force and
effect, and is enforceable by Seller in accordance with its terms except where
the failure to be valid and in full force and effect would not have a Material
Adverse Effect.

            (d) Seller is not in default, and no party has notified Seller that
it is in default, under any Seller Contract, except for such defaults that could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Seller. To the Knowledge of Seller, no event has occurred, and
no circumstance or condition exists, that could reasonably (with or without
notice or lapse of time) (a) result in a violation or breach of any of the
provisions of any Seller Contract; (b) give any Person the right to declare a
default or exercise any remedy under any Seller Contract; (c) give any Person
the right to accelerate the maturity or performance of any Seller Contract or to
cancel, terminate or modify any Seller Contract; or (d) otherwise have a
Material Adverse Effect on Seller in connection with any Seller Contract. Seller
has not waived any of its material rights under any Seller Contract.

            (e) To the Knowledge of Seller, each Person against which Seller has
or may acquire any rights under any material Seller Contract is solvent and able
to satisfy such Person's material obligations and liabilities to Seller.

            (f) The performance of the Seller Contracts will not result in any
violation of or failure by Seller to comply with any Legal Requirement except
where the violation or failure to comply with such Legal Requirement would not
have a Material Adverse Effect.

            (g) The Material Contracts constitute all of the Contracts
reasonably necessary to enable Seller to conduct the Business in the manner in
which such Business is currently being conducted.

                                       16


      4.14 TITLE; SUFFICIENCY; CONDITION OF ASSETS.

            (a) Seller has good and marketable title to, is the exclusive legal
and equitable owner of, and has the unrestricted power and right to sell, assign
and deliver the Purchased Assets. The Purchased Assets are free and clear of all
Encumbrances of any kind or nature, except restrictions imposed in any
Governmental Approval and Permitted Encumbrances. Upon Closing, Purchaser will
acquire exclusive, good and marketable title or license to or a valid leasehold
interest in (as the case may be) the Purchased Assets.

            (b) To Seller's Knowledge, the Purchased Assets include all the
assets reasonably necessary to permit Purchaser to conduct the Business after
the Closing in a manner substantially equivalent to the manner as it is being
conducted on the date of this Agreement in compliance with all Legal
Requirements.

            (c) The tangible Purchased Assets taken as a whole are (i) in good
operating condition and repair, ordinary wear and tear excepted; and (ii)
suitable and adequate for continued use in the manner in which they are
presently being used.

            (d) Seller does not own and has not owned any Real Property.

      4.15 REAL PROPERTY LEASES. Schedule 1.1(f) sets forth an accurate, correct
and complete list of all Real Property Leases (including the street address of
each Leased Real Property and the name of the lessor) and a list of Contracts
affecting each Leased Real Property. Seller has been in lawful possession of the
premises covered by each Real Property Lease since the commencement of the
original term of such Lease. Seller has delivered to Purchaser accurate, correct
and complete copies of each Real Property Lease. To Seller's Knowledge (without
any duty to inquire of any third party), there are no Environmental Reports for
the Real Property subject to the Real Property Leases. All Real Property Leases
are in good standing and are valid and effective in accordance with their
respective terms and there exists no default thereunder or occurrence or
condition which could result in a default thereunder or termination thereof.

      4.16 INTELLECTUAL PROPERTY.

            (a) Schedule 1.1(h) lists all Seller Intellectual Property
reasonably necessary to conduct the Business as currently conducted, specifying
in each case whether such Seller Intellectual Property is owned or controlled by
or for, licensed to, or otherwise held by or for the benefit of Seller,
including all Registered Intellectual Property Rights owned by, filed in the
name of or applied for by Seller and used in the Business (the "Seller
Registered Intellectual Property Rights").

            (b) Each item of Seller Intellectual Property is free and clear of
any Encumbrances, except for Permitted Encumbrances and non-exclusive licenses
granted to end-user customers in the ordinary course of business.

            (c) The Seller Intellectual Property constitutes all the
Intellectual Property Rights used in or reasonably necessary to the conduct of
the Business as it is currently conducted.

                                       17


            (d) Seller has the right to use each item of Seller Intellectual
Property in the manner currently used by Seller in the conduct of the Business,
and upon Closing, each item of the Seller Intellectual Property will be owned by
Purchaser or will be immediately available for use by Purchaser on terms and
conditions substantially identical to those under which Seller presently uses
such Seller Intellectual Property, without any affirmative act by Purchaser or
any other Person. Such ownership and right to use are (and upon Closing, will
be) free and clear of any Encumbrances, except for Permitted Encumbrances and
non-exclusive licenses granted to end-user customers in the ordinary course of
business.

            (e) Seller has not transferred ownership of, or granted any
exclusive license of or right to use, or authorized the retention of any
exclusive rights to use or joint ownership of, any Intellectual Property Rights
that is Seller Intellectual Property to any Person. Seller has no Knowledge of
any facts, circumstances or information that reasonably would be expected to
materially and adversely affect or impede the ability of Seller to use any
Seller Intellectual Property in the conduct of the Business as it is currently
conducted or, to the Knowledge of Seller, by Purchaser following the Closing.
Seller has not misrepresented, or failed to disclose, and has no Knowledge of
any misrepresentation or failure to disclose, any fact or circumstances in any
application for any Seller Registered Intellectual Property Right that would
constitute fraud or a misrepresentation with respect to such application or that
would otherwise affect the validity or enforceability of any Seller Registered
Intellectual Property Right.

            (f) All necessary registration, maintenance and renewal fees in
connection with each item of Seller Registered Intellectual Property Rights have
been paid and all necessary documents and certificates in connection with such
Seller Registered Intellectual Property Rights have been filed with the relevant
patent, copyright, trademark or other authorities in the United States or
foreign jurisdictions, as the case may be, for the purposes of maintaining such
Seller Registered Intellectual Property Rights. There are no actions that must
be taken by Seller within one hundred twenty (120) days following the Closing
Date, including the payment of any registration, maintenance or renewal fees or
the filing of any responses to office actions, documents, applications or
certificates for the purposes of obtaining, maintaining, perfecting, preserving
or renewing any Registered Intellectual Property Rights. To the maximum extent
provided for by, and in accordance with, applicable laws and regulations, Seller
has recorded in a timely manner each such assignment of a Registered
Intellectual Property Right assigned to Seller with the relevant governmental
authority, including the United States Patent and Trademark Office (the "PTO"),
the U.S. Copyright Office or their respective counterparts in any relevant
foreign jurisdiction, as the case may be.

            (g) Seller has taken commercially reasonable and customary actions
to maintain and protect (i) Seller's Intellectual Property, and (ii) the
secrecy, confidentiality, value and Seller's rights in the Confidential
Information and Trade Secrets of Seller and those provided by any Person to
Seller, including by having and enforcing a policy requiring all current and
former employees, consultants and contractors of Seller to execute appropriate
confidentiality and intellectual property assignment agreements. Seller has no
Knowledge of any violation or unauthorized disclosure of any Trade Secret or
Confidential Information related to the Business, the Purchased Assets or the
Assumed Liabilities, or obligations of confidentiality with respect to such.

                                       18


            (h) To the Knowledge of Seller, the Business as it is currently
conducted does not and will not, and will not when operated by Purchaser
substantially in the same manner following the Closing: (i) infringe or
misappropriate any Intellectual Property Rights of any Person; (ii) violate any
right of any Person (including, without limitation, any right to privacy or
publicity), (iii) defame any Person; or (iv) constitute unfair competition or
trade practices under the laws of any jurisdiction. The Seller has not received
any written notice or claim from any Person: (A) asserting any ownership
interest in any Seller Intellectual Property; (B) of any actual, alleged,
possible or potential infringement, misappropriation or unauthorized use or
disclosure by the Seller of any Intellectual Property Right, defamation of any
Person, violation of any right of any Person (including, without limitation, any
right to privacy or publicity), or violation of any unfair competition or trade
practice law by the Seller or any aspect of the Business as currently conducted;
or (C) suggesting or inviting the Seller to take a license or otherwise obtain
the right to use any Intellectual Property Right in connection with the Business
as currently conducted. To the Knowledge of the Seller, and no Person is
violating, infringing or misappropriating any Seller Intellectual Property
Right.

            (i) There are no Proceedings before any Governmental Authority
(including before the PTO) anywhere in the world related to any of the Seller
Intellectual Property, including any Seller Registered Intellectual Property
Rights.

            (j) No Seller Intellectual Property or Seller Product is subject to
any Proceeding or any outstanding decree, Order, judgment, office action or
settlement agreement or stipulation that restricts in any manner the use,
transfer or licensing thereof by Seller or that may affect the validity, use or
enforceability of such Seller Intellectual Property.

            (k) Schedule 1.1(k) lists all Seller Contracts affecting any
Intellectual Property Rights. Seller is not in material breach of, nor has
Seller failed to perform in any material respect under, any such Seller
Contracts and, to Seller's Knowledge, no other party to any such Seller
Contracts, is in material breach thereof or has failed to perform in any
material respect thereunder.

            (l) To the Knowledge of Seller, there is no Seller Contract
affecting any Seller Intellectual Property under which there is any material
dispute regarding the scope of such Seller Contract, or performance under such
Seller Contract, including with respect to any payments to be made or received
by Seller thereunder.

      4.17 CUSTOMERS, DISTRIBUTORS AND SUPPLIERS.

            (a) Customers. All Seller Contracts with customers were entered into
by or on behalf of Seller and were entered into in the ordinary course of
business for usual quantities and at normal prices. The Seller Disclosure
Schedule sets forth an accurate, correct and complete:

                  (i) list of the 25 largest customers of the Business,
determined on the basis of sales revenues, for each of the fiscal years ended
December 31, 2003, 2004 and 2005, and the three (3) month period ended March 31,
2006;

                                       19


                  (ii) breakdown of the revenues received from each customer
that accounted for more than $10,000 of the gross revenues of Seller, on an
annualized basis, for each of the fiscal years ended December 31, 2003, 2004 and
2005, and the three (3) month period ended March 31, 2006; and

                  (iii) breakdown of all customer deposits of greater than
$10,000 held by Seller as of the date of this Agreement.

            (b) Suppliers. All Seller Contracts with suppliers were entered into
by or on behalf of Seller and were entered into in the ordinary course of
business for usual quantities and at normal prices. The Seller Disclosure
Schedule sets forth an accurate, correct and complete:

                  (i) list of the 25 largest suppliers of the Business,
determined on the basis of costs of items purchased for each of the fiscal years
ended December 31, 2003, 2004 and 2005 and the three (3) month period ended
March 31, 2006;

                  (ii) breakdown of the amounts paid to each supplier that
received more than $10,000 from Seller (on an annualized basis) for each of the
fiscal years ended December 31, 2005, 2004, and 2005 and the three (3) month
period ended March 31, 2006; and

                  (iii) list of all sole source suppliers of Seller.

            (c) Seller has not entered into any Contract under which Seller is
restricted from selling, licensing or otherwise distributing any Seller products
or services to any class of customers, in any geographic area, during any period
of time or in any segment of the market.

            (d) Seller has not received any notice or other communication, has
not received any other information indicating, and otherwise has no Knowledge,
that any current customer or supplier identified in the Seller Disclosure
Schedule may cease dealing with Seller, may otherwise materially reduce the
volume of business transacted by such Person with Seller or otherwise is
materially dissatisfied with the service Seller provides such Person. Seller has
no reason to believe that any such Person will cease to do business with
Purchaser after, or as a result of, consummation of the Transaction, or that
such Person is threatened with bankruptcy or insolvency. Seller has no Knowledge
of any fact, condition or event which could reasonably, by itself or in the
aggregate, adversely affect its relationship with any such Person. Since March
31, 2006, there has been no cancellation of backlogged orders in excess of the
average rate of cancellation prior to such date.

            (e) Neither Seller nor any of its officers or employees has directly
or indirectly given or agreed to give any rebate, gift or similar benefit to any
customer, supplier, distributor, broker, governmental employee or other Person,
who was, is or may be in a position to help or hinder the Business (or assist in
connection with any actual or proposed transaction) which could subject Seller
(or Purchaser after consummation of the Transaction) to any damage or penalty in
any civil, criminal or governmental litigation or Proceeding or which would have
a Material Adverse Effect on Seller (or Purchaser after consummation of the
Transaction).

                                       20


      4.18 SELLER PRODUCTS, SERVICES AND WARRANTY. All services rendered by
Seller have been in material conformity with all applicable contractual
commitments and all expressed or implied warranties.

      4.19 EMPLOYEES AND CONSULTANTS.

            (a) Employees and Contracts. No employee of Seller has been granted
the right to continued employment by Seller except as set forth in the standard
offer letter provided to Purchaser or to any material compensation following
termination of employment with Seller in excess of two (2) weeks' notice. Seller
has no Knowledge that any officer, director, employee or consultant of Seller
(collectively, the "Contractors") intends to terminate his or her employment or
other engagement with Seller, nor does Seller have a present intention to
terminate the employment or engagement of any Contractor.

            (b) Compensation. The Seller Disclosure Schedule sets forth an
accurate, correct and complete list of all (i) employees of Seller, including
each employee's name, title or position, present annual compensation (including
bonuses, commissions and deferred compensation), accrued and unused paid
vacation and other paid leave, years of service, interests in any incentive
compensation plan, and estimated entitlements to receive supplementary
retirement benefits or allowances (whether pursuant to a contractual obligation
or otherwise) and (ii) individuals who are currently performing services for
Seller related to the Business who are classified as "consultants" or
"independent contractors." The Seller Disclosure Schedule sets forth all (i)
bonuses, severance payments, termination pay and other special compensation of
any kind paid to, accrued with respect to, or that would be payable to (as a
result of the Transaction), any present or former Contractor since the Interim
Balance Sheet Date; (ii) increases in any employee's wage or salary since the
Interim Balance Sheet Date; or (iii) increases or changes in any other benefits
or insurance provided to any employees since the Interim Balance Sheet Date. No
employee of Seller is eligible for payments that would constitute "parachute
payments" under Section 280G of the Code.

            (c) Disputes. There are no claims, disputes or controversies pending
or, to the Knowledge of Seller, threatened involving any employee or group of
employees. Seller has not suffered or sustained any work stoppage and no such
work stoppage is threatened.

            (d) Compliance with Legal Requirements. Seller has complied in all
material respects with all Legal Requirements related to the employment of its
employees, including provisions related to wages, hours, leaves of absence,
equal opportunity, occupational health and safety, workers' compensation,
severance, employee handbooks or manuals, collective bargaining and the payment
of social security and other Taxes.

            (e) WARN Act. Seller is in full compliance with the Worker
Readjustment and Notification Act (the "WARN Act") (29 USC Section 2101),
including all obligations to promptly and correctly furnish all notices required
to be given thereunder in connection with any "plant closing" or "mass layoff"
to "affected employees", "representatives" and any state dislocated worker unit
and local government officials. No reduction in the notification period under
the WARN Act is being relied upon by Seller. The Seller Disclosure Schedule sets
forth an accurate, correct and complete list of all employees terminated (except
with cause, by voluntarily

                                       21


departure or by normal retirement), laid off or subjected to a reduction of more
than 50% in hours or work during the two full calendar months and the partial
month preceding the date hereof.

            (f) Unions. Seller has no collective bargaining agreements with any
of its employees. There is no labor union organizing or election activity
pending or, to the Knowledge of Seller, threatened with respect to Seller.

      4.20 SELLER BENEFIT PLANS.

            (a) The Seller Disclosure Schedule sets forth an accurate, correct
and complete list of each Seller Benefit Plan. To the Knowledge of Seller, each
Seller Benefit Plan has been maintained in compliance in all material respects
with its terms and with the requirements under applicable law, including but not
limited to ERISA and the Code.

            (b) None of the Seller Benefit Plans is a (i) a Multiemployer Plan,
(ii) a Defined Benefit Plan, or (iii) a plan that is subject to Section 412 of
the Code; and neither Seller nor any ERISA Affiliate has at any time within the
past six (6) years contributed to, maintained, or incurred any liability with
respect to any such plan.

            (c) Each Seller Benefit Plan which is intended to be qualified under
Section 401(a) of the Code (and any related trust intended to be exempt from tax
under Section 501(a) of the Code) is the subject of a favorable IRS
determination, notification, or opinion letter issued after January 1, 1997 and
has been administered in substantial compliance with the Economic Growth and Tax
Relief Reconciliation Act of 2001 and subsequent legislation enacted through the
date hereof, and Section 501 of the Code. To the Knowledge of the Company,
nothing has occurred since the issuance of the IRS's most recent favorable
determination letter (or opinion or notification letter, if applicable) that
could adversely affect the qualification of such Seller Benefit Plan or the tax
exempt status of its related trust.

            (d) No Seller Benefit Plan provides benefits, including death or
medical benefits (whether or not insured), with respect to employees or former
employees of Seller and its ERISA Affiliates beyond retirement or other
termination of service, other than coverage required by Section 4980B of the
Code and Sections 601 through 608 of ERISA (and, if applicable, comparable state
law).

            (e) Nothing contained in any of the Seller Benefit Plans will
obligate Purchaser to provide any benefits to employees, former employees or
beneficiaries of employees or former employees, or to make any contributions to
any plans from and after the Closing.

      4.21 COMPLIANCE WITH LAWS. Seller is, and at all times since January 1,
2004 has been, in compliance in all respects with each Legal Requirement that is
applicable to Seller or any of Seller's properties, assets (including the
Purchased Assets), operations or businesses (including the Business), and no
event has occurred, and no condition or circumstance exists, that could
reasonably (with or without notice or lapse of time) constitute, or result
directly or indirectly in, a default under, a breach or violation of, or a
failure comply with, any such Legal Requirement in any respect, in each case
except for defaults under, breaches or violations of, or failures to comply
with, any such Legal Requirements that could not, individually or in the

                                       22


aggregate, reasonably be expected to have a Material Adverse Effect on Seller.
Seller has not received any notice from any third party regarding any actual,
alleged or potential violation of any Legal Requirement.

      4.22 GOVERNMENTAL APPROVALS.

            (a) Seller has all Governmental Approvals that are reasonably
necessary in connection with Seller's ownership and use of its properties or
assets (including the Purchased Assets) or Seller's operation of its businesses
(including the Business). Schedule 1.1(l) contains an accurate, correct and
complete list and summary description of each such Governmental Approval. Each
such Governmental Approval, filing and notification is valid and in full force
and effect, and there is not pending or, to the Knowledge of Seller, threatened
any Proceeding which could result in the suspension, termination, revocation,
cancellation, limitation or impairment of any such Governmental Approval. No
violations have been recorded in respect of any such Governmental Approvals, and
Seller knows of no meritorious basis therefor. No fines or penalties are due and
payable in respect of any such Governmental Approval or any violation thereof.

            (b) Seller has delivered to Purchaser accurate and complete copies
of all of the Governmental Approvals identified in Schedule 1.1(l), including
all renewals thereof and all amendments thereto.

      4.23 PROCEEDINGS AND ORDERS.

            (a) There is no Proceeding pending or, to the Knowledge of Seller,
threatened against or affecting Seller, any of Seller's properties, assets
(including the Purchased Assets), operations or businesses (including the
Business), or Seller's rights relating thereto. To Seller's Knowledge, no event
has occurred, and no condition or circumstance exists, that could reasonably
directly or indirectly give rise to or serve as a basis for the commencement of
any such Proceeding where there is a reasonable likelihood of an adverse result
that could have a Material Adverse Effect. Seller has delivered to Purchaser
true, accurate and complete copies of all pleadings, correspondence and other
documents relating to any such Proceeding. No insurance company has asserted in
writing that any such Proceeding is not covered by the applicable policy related
thereto.

            (b) Neither Seller nor any of Seller's properties, assets (including
the Purchased Assets), operations or businesses (including the Business), nor
Seller's rights relating to any of the foregoing, is subject to any Order or any
proposed Order.

      4.24 ENVIRONMENTAL MATTERS. Seller is now and, to the Knowledge of the
Seller, has been at all times in compliance in all material respects with all
Environmental Laws. The Seller has now and at all times has had all the
necessary permits required under Environmental Laws for the operation of its
business, and is not and has not been in violation of any of the terms and
conditions of any of its permits, except for such violations as individually and
in the aggregate would not have a Material Adverse Effect on the Seller. The
Seller has not received any notice or other communication (in writing or
otherwise) that alleges that the Seller is not in compliance with any
Environmental Law. The Seller has not generated, manufactured, produced,

                                       23


transported, imported, used, treated, refined, processed, handled, stored,
discharged, released, or disposed of any Hazardous Materials (whether lawfully
or unlawfully) at any of the leased premises occupied or controlled by the
Seller on or at any time prior to the Closing Date other than common household
and office products in de minimis quantities. To the Knowledge of the Seller,
there are no circumstances that may prevent or interfere with the Company's
compliance in any material respect with any Environmental Law.

      4.25 TAXES.

            (a) Seller has timely filed all Tax Returns that it was required to
file, and such Tax Returns are true, correct and complete in all material
respects. All Taxes shown to be payable on such Tax Returns or on subsequent
assessments with respect thereto have been paid in full on a timely basis, and
no other Taxes are payable by Seller with respect to any period ending prior to
the date of this Agreement, whether or not shown due or reportable on such Tax
Returns. Seller has withheld and paid all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party. Seller has no liability
for unpaid Taxes accruing after the date of its latest Financial Statements
except for Taxes incurred in the ordinary course of business. There are no liens
for Taxes on the properties of Seller, other than liens for Taxes not yet due
and payable.

            (b) The Seller Disclosure Schedule (i) lists all income and
franchise Tax Returns filed by Seller for all taxable periods since December 31,
2000, (ii) indicates any Tax Returns filed by Seller since 1995 that have been
audited, and (iii) indicates any Tax Returns filed by Seller that currently are
subject of audit. To the Knowledge of Seller, no other audit of any Tax Return
is currently pending or threatened. No claim has ever been made by any
Governmental Authority in a jurisdiction where Seller does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction. Seller has
delivered or made available to Purchaser correct and complete copies of all Tax
Returns filed, examination reports, and statements of deficiencies assessed or
agreed to by Seller since 1995. Seller has not waived any statute of limitations
in respect of any Tax or agreed to an extension of time with respect to any Tax
assessment or deficiency which waiver or extension currently remains open.

            (c) Seller is not a party to or bound by any tax indemnity
agreement, tax sharing agreement or similar Contract which could give rise to
liability of Purchaser on or after the Closing Date. Seller is not a party to
any joint venture, partnership, or other arrangement or Contract which could be
treated as a partnership or "disregarded entity" for United States federal
income tax purposes.

            (d) Seller is not obligated under any agreement, Contract or
arrangement that may result in the payment of any amount that would not be
deductible by reason of Section 280G or Section 404 of the Code.

            (e) Pencom Systems, Incorporated has treated itself as owner of each
of the Purchased Assets for Tax purposes. None of the Purchased Assets is the
subject of a "safe-harbor lease" within the provisions of former Section
168(f)(8) of the Code, as in effect prior to amendment by the Tax Equity and
Fiscal Responsibility Act of 1982. None of the Purchased

                                       24


Assets directly or indirectly secures any debt the interest on which is tax
exempt under Section 103(a) of the Code. None of the Purchased Assets is
"tax-exempt use property" within the meaning of Section 168(h) of the Code.

            (f) Seller is a "United States person" within the meaning of Section
7701(a)(30) of the Code.

            (g) Purchaser is not subject to liability as a transferee pursuant
to Code Section 6901 et seq. or otherwise, nor will Purchaser be subject to such
liability as a direct or indirect result of Purchaser's acquisition of the
Purchased Assets.

      4.26 BROKERS. Seller has not retained any broker or finder or incurred any
liability or obligation for any brokerage fees, commissions or finders fees with
respect to this Agreement or the Transaction.

      4.27 NO OTHER AGREEMENT. Other than for sales of assets in the ordinary
course of business, neither Seller, nor any of its Representatives, has entered
into any unperformed Contract with respect to the sale or other disposition of
any assets (including the Purchased Assets) except as set forth in this
Agreement.

      4.28 NO OTHER REPRESENTATIONS AND WARRANTIES. Each representation and
warranty set forth in this Article 4 will not merge on Closing or by reason of
the execution and delivery of any Contract at the Closing, will remain in force
on and immediately after the Closing Date in accordance with this Agreement, is
given with the intention that liability is not limited to breaches discovered
before Closing, is separate and independent and is not limited by reference to
any other representation or warranty or any other provision of this Agreement,
and is made and given with the intention of inducing Purchaser to enter into
this Agreement.

      4.29 PRIVATE PLACEMENT.

            (a) Seller is acquiring the Shares to be received in the Transaction
for investment for Seller's own account, not as a nominee or agent and not with
a view to the resale or distribution of any part thereof except pursuant to a
valid exemption from registration or pursuant to an effective registration
statement, and Seller has no present intention of selling, granting any
participation in, or otherwise distributing the same except pursuant to a valid
exemption from registration or pursuant to an effective registration statement.
Purchaser acknowledges that it has been informed that Seller intends to transfer
and assign the Shares to Pencom Systems, Incorporated which in turn intends to
transfer and assign the Shares to one or more of its shareholders (which consist
exclusively of Edward Ateyeh, Jr., Wade Saadi and Edgar Saadi), and Purchaser
hereby consents to such transfers and assignments and agrees to take all actions
reasonably requested by any such applicable transferee to effectuate any such
applicable transfer and assignment on the books and records of Purchaser,
provided that, unless such transfer and assignment is made pursuant to an
effective registration statement under the Securities Act, such transferee
agrees in writing to be subject to the terms hereof and in connection therewith
makes the representations contained in this Section 4.29 to the same extent as
if such transferee were Seller hereunder.

                                       25


            (b) Seller has received all the information it considers necessary
or appropriate for deciding whether to obtain the Shares as consideration in
this Transaction. Seller has had an opportunity to ask questions and receive
answers from Purchaser regarding the rights, preferences and privileges under
the Shares and the business, properties, prospects and financial condition of
Purchaser; provided, that this representation and warranty in no way limits
Seller's ability to rely on the Purchaser's representations and warranties in
Article 5.

            (c) Seller acknowledges that it is able to fend for itself, can bear
the economic risk of owning the Shares, and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of owning the Shares. Seller acknowledges that its ownership of the Shares
involves a high degree of risk and that Seller is able, without materially
impairing its financial condition, to hold the Shares for an indefinite period
of time and to suffer a complete loss of its investment.

            (d) Seller is an "accredited investor" within the meaning of Rule
501 of Regulation D promulgated under the Securities Act, as presently in effect
and, for the purpose of Section 25102(f) of the California Corporations Code,
Seller is excluded from the count of "purchasers" pursuant to Rule 260.102.13
thereunder.

            (e) Seller understands that the Shares are characterized as
"restricted securities" under the federal securities laws in that they are being
acquired from Purchaser in a transaction not involving a public offering and
that under such laws and applicable regulations such Shares may be resold
without registration under the Securities Act only in certain limited
circumstances. In this connection, Seller is familiar with Rule 144 promulgated
under the Securities Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act. SELLER UNDERSTANDS AND
ACKNOWLEDGES HEREIN THAT AN INVESTMENT IN PURCHASER'S SHARES INVOLVES AN
EXTREMELY HIGH DEGREE OF RISK AND MAY RESULT IN A COMPLETE LOSS OF ITS
INVESTMENT.

            (f) Without in any way limiting the representations set forth above,
Seller agrees not to make any disposition of all or any portion of the Shares
unless and until:

                  (i) There is then in effect a registration statement under the
      Act covering such proposed disposition and such disposition is made in
      accordance with such registration statement; or

                  (ii) (A) Seller shall have notified Purchaser of the proposed
      disposition and shall have furnished Purchaser with a detailed statement
      of the circumstances surrounding the proposed disposition and (B) if
      reasonably requested by Purchaser, Seller shall have furnished Purchaser
      with an opinion of counsel reasonably satisfactory to Purchaser that such
      disposition will not require registration of such shares under the
      Securities Act;

      provided, however, that notwithstanding the provisions of the foregoing
      clauses (i) and (ii), no such registration statement or opinion of counsel
      shall be necessary for a transfer by Seller to Pencom Systems,
      Incorporated or by Pencom Systems, Incorporated to Edward Ateyeh, Jr.,
      Wade Saadi or Edgar Saadi, if any such transferee agrees in writing

                                       26


      to be subject to the terms hereof and in connection therewith makes the
      representations contained in this Section 4.29 to the same extent as if he
      or she were Seller hereunder

            (g) It is understood that the certificates evidencing the Shares may
bear one or all of the following legends unless and until registered under the
Act:

                  (i) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR
      SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT
      IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF
      COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
      OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT."

                  (ii) Any legend required by applicable state securities laws,
      including without limitation, any legal requirement by the California
      Department of Corporations and Sections 417 and 418 of the California
      Corporations Code.

            (h) Seller understands that the representations, warranties,
covenants and acknowledgements set forth in this Section 4.29 constitute a
material inducement to Purchaser to enter into this Agreement.

            (i) Seller acknowledges that it is not relying upon any person, firm
or corporation, other than Purchaser and its officers and directors, in making
its investment or decision to invest in Purchaser.

ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER

      Except as specifically set forth on the Schedule 5 (the "Purchaser
Disclosure Schedule") attached to this Agreement (the parts of which are
numbered to correspond to the applicable Section numbers of this Agreement) or
in Purchaser's reports or filings with the Securities and Exchange Commission,
Purchaser hereby represents and warrants as of the date hereof to Seller as
follows:

      5.1 ORGANIZATION AND GOOD STANDING. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization.

      5.2 AUTHORITY; BINDING NATURE OF AGREEMENTS. Purchaser has all requisite
corporate power and authority to execute and deliver this Agreement and all
other Transaction Agreements to which it is a party and to carry out the
provisions of this Agreement and the other Transaction Agreements. The
execution, delivery and performance by Purchaser of this Agreement and the other
Transaction Agreements have been approved by all requisite action on the part of
Purchaser. This Agreement has been duly and validly executed and delivered by
Purchaser. Each of this Agreement and the other Transaction Agreements
constitutes, or upon execution and delivery, will constitute, the legal, valid
and binding obligation of Purchaser, enforceable against Purchaser in accordance
with its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws and equitable principles
related to or limiting creditors' rights generally and by general principles of
equity.

                                       27


      5.3 NO CONFLICTS; REQUIRED CONSENTS. The execution, delivery and
performance of this Agreement or any other Transaction Agreement by Purchaser do
not and will not (with or without notice or lapse of time), except to the extent
all necessary consents or approvals have been received and filings made prior to
Closing:

            (a) conflict with, violate or result in any breach of (i) any of the
provisions of Purchaser's Certificate of Incorporation or bylaws; (ii) any
resolutions adopted by Purchaser's stockholders, or its board of directors or
committees thereof; (iii) any of the terms or requirements of any Governmental
Approval held by Purchaser or any of its employees or that otherwise relates to
Purchaser's business; or (iv) any provision of a Contract to which Purchaser is
a party;

            (b) give any Governmental Authority or other Person the right to (i)
challenge the Transaction; (ii) exercise any remedy or obtain any relief under
any Legal Requirement or any Order to which Purchaser or any of its assets is
subject; or (iii) declare a default of, exercise any remedy under, accelerate
the performance of, cancel, terminate or modify any Contract to which Purchaser
is a party; or

            (c) require Purchaser to obtain any Consent or make or deliver any
filing or notice to a Governmental Authority.

      5.4 BROKERS. Purchaser has not retained any broker or finder or incurred
any liability or obligation for any brokerage fees, commissions or finders fees
with respect to this Agreement or the Transaction.

      5.5 SEC FILINGS, FINANCIAL STATEMENTS.

            (a) Purchaser has timely filed all forms, reports and documents
required to be filed by it with the Securities and Exchange Commission since
April 2, 2005 (the "SEC Reports"). The SEC Reports complied as to form in all
material respects with the applicable requirements of the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended, as the
case may be, and the applicable rules and regulations promulgated thereunder,
and did not, at the time they were filed, or if amended as of the date of such
amendment, 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 the light of the circumstances under which they were
made, not misleading.

            (b) Each of the consolidated financial statements (including, in
each case, any notes thereto) contained in the SEC Reports was prepared in
accordance with GAAP applied on a consistent basis throughout the process
indicated (except as may be indicated in the notes thereto) and each fairly
presents, in all material respects, the consolidated financial position, results
of operation and cash flows of Purchaser as of the respective dates thereof and
for the respective periods indicated therein, subject in the case of interim
period, to normal and necessary year-end adjustments and the omission of
footnotes.

      5.6 SHARES. The Shares have been duly authorized, and will be validly
issued, fully paid and nonassessable when issued at Closing pursuant to the
terms of this Agreement.

                                       28


ARTICLE 6. PRE-CLOSING COVENANTS

6.1 SELLER'S CONDUCT OF THE BUSINESS PRIOR TO CLOSING. From the date of this
Agreement until the Closing Date, Seller shall, and shall cause its members,
officers, directors and employees, to:

            (a) Conduct the Business in the ordinary course of business;

            (b) Pay all of its Liabilities and Taxes when due, subject to good
faith disputes over such Liabilities or Taxes;

            (c) Maintain insurance coverage in accordance with Seller's past
practices; and

            (d) Use commercially reasonable efforts to (i) preserve intact all
rights of the Business to retain its employees and (ii) maintain good
relationships with employees, licensors, licensees, suppliers, contractors,
distributors, customers, and others having business dealings with the Business.

      6.2 RESTRICTIONS ON SELLER'S CONDUCT OF THE BUSINESS PRIOR TO CLOSING.
From the date of this Agreement until the Closing Date, Seller shall not, and
shall cause its members, officers, directors and employees, not to:

            (a) Enter into, create, incur or assume (i) any borrowings under
capital leases or (ii) any obligations which would have a Material Adverse
Effect on Seller or Purchaser's ability to conduct the Business in substantially
the same manner and condition as currently conducted by Seller;

            (b) Acquire by merging or consolidating with, or by purchasing any
equity securities or assets (which are material, individually or in the
aggregate, to Seller) of, or by any other manner, any business or any Entity;

            (c) Sell, transfer, lease, license or otherwise encumber any of the
Purchased Assets, except for the sale of Inventory and the granting of
non-exclusive licenses in the ordinary course of business;

            (d) Take any action not announced prior to the date of this
Agreement to the customers, suppliers or distributors of Seller, including
providing promotions, coupons, discounts or price increases, except in the
ordinary course of business consistent with Seller's past practices;

            (e) Enter into any agreements or commitments with another Person,
except on commercially reasonable terms in the ordinary course of business;

            (f) Violate in any material respect any Legal Requirement applicable
to Seller;

                                       29


            (g) Materially change or announce any change to the Seller products
or any services sold by Seller;

            (h) Violate or amend in any material respect or terminate any Seller
Contract or Governmental Approval, except amendments and terminations in the
ordinary course of business consistent with Seller's past practices;

            (i) Commence a Proceeding other than (i) for the routine collection
of Receivables, (ii) for injunctive relief on the grounds that Seller has
suffered immediate and irreparable harm not compensable in money damages if
Seller has obtained the prior written consent of Purchaser, such consent not to
be unreasonably withheld or (iii) with respect to the Excluded Assets or
Excluded Liabilities;

            (j) Purchase, lease, license or otherwise acquire any assets, except
for supplies acquired by Seller in the ordinary course of business;

            (k) Make any capital expenditure in excess of Twenty-Five Thousand
Dollars ($25,000), individually or in the aggregate;

            (l) Borrow from any Person by way of a loan, advance, guaranty,
endorsement, indemnity, or warranty; provided that borrowings in the ordinary
course of business under the Wells Fargo Agreement are permitted;

            (m) Change its credit practices, accounting methods or practices or
standards used to maintain its books, accounts or business records;

            (n) Incur or become subject to any Liability, contingent or
otherwise, except current Liabilities in the ordinary course of business;

            (o) Make any material change affecting the Business, including (i)
changes in wholesaler alignments, inventory levels, management organization or
personnel arrangements with sales brokers, advertising agencies, market research
projects, advertising and promotion budgets or the content of advertisements or
working capital levels (payables, receivables and inventory); (ii) changes in
discretionary costs, such as advertising, maintenance and repairs, research and
development, and training; (iii) any capital expenditures or deferrals of
capital expenditures; (iv) deviations from operating budgets or plans on sales
and profitability; or (v) other than in the ordinary course of business, changed
any of its business policies, including, advertising, investments, marketing,
pricing, purchasing, production, personnel, sales, returns, budget or product
acquisition policies;

            (p) Amend its charter or organizational documents in any manner that
could adversely effect Seller's ability to consummate the transactions
contemplated hereby and perform its obligations hereunder;

            (q) Accelerate, amend or change the period of exercisability or
vesting of Seller Options or other rights granted under the Seller Stock Option
Plan or any Seller Benefit Plans, except as specifically contemplated in this
Agreement;

                                       30


            (r) Issue, sell, or authorize the issuance or sale of any options,
warrants, or other rights to acquire any shares of such capital stock or any
other ownership interest in Seller;

            (s) Hire any new employee other than in the ordinary course of
business, terminate any officer or key employee of Seller, increase the annual
level of compensation of any existing employee except for regular, scheduled
compensation increases in the ordinary course of business, establish or adopt
any Employee Benefit Plan, or grant any bonuses, benefits or other forms of
direct or indirect compensation to any employee, officer, director or
consultant;

            (t) Make or change any election in respect of Taxes, adopt or change
any accounting method in respect of Taxes, file any amendment to a Tax Return,
enter into any closing agreement, settle any claim or assessment in respect of
Taxes, or consent to any extension or waiver of the limitation period applicable
to any claim or assessment in respect of Taxes, in each case only to the extent
such action could affect the liability of Purchaser for Taxes of Seller;

            (u) Fail to maintain all Inventory at current levels or fail to
maintain the Purchased Assets, taken as a whole, in good repair, order and
condition, reasonable wear and tear excepted; or

            (v) Enter into any Contract or agree, in writing or otherwise, to
take any of the actions described in Section 6.2(a) through (u) above, or any
action that would make any of its representations or warranties contained in
this Agreement untrue or incorrect in any material respect or prevent it from
performing or cause it not to perform in any material respect its covenants
hereunder. Notwithstanding the foregoing, Seller shall be permitted to
distribute cash to its members, discharge liabilities to affiliates and cause
its affiliates to forgive or contribute to Seller the forgiveness of liabilities
owed to them as long as the Net Assets at Closing are not less than One Million
Dollars ($1,000,000).

      6.3 NO SOLICITATION. Until the earlier of (a) the Closing and (b) the
termination of this Agreement pursuant to its terms, Purchaser and Seller shall:
(i) immediately halt any discussions with third parties regarding any
transaction, the closing of which would be inconsistent with or interfere with
or prevent or delay the Closing of the Transaction (any such transaction, a
"Competing Transaction"); and (ii) not hold any discussion with, provide any
information to or respond to any inquiry made by any third party concerning a
proposed Competing Transaction, or cooperate in any way with, agree to, assist
or participate in, solicit, consider, facilitate or otherwise encourage, any
effort or attempt by any third party to do or seek any of the foregoing. If at
any time a party is approached in any manner by a third party concerning a
Competing Transaction (such third party, a "Competing Party") such party shall
promptly inform the Competing Party that it is unable to communicate with such
Competing Party with respect to a Competing Transaction and promptly inform the
other party of such contact and the terms of such proposal or inquiry. Solely
with respect to Purchaser, "Competing Transaction" shall mean any acquisition by
it of a business that provides the same or substantially the same services that
Seller provides to its customers.

                                       31


      6.4 CERTAIN NOTIFICATIONS.

            (a) From the date of this Agreement until the Closing, Seller shall
promptly notify Purchaser in writing regarding any:

                  (i) Action taken by Seller not in the ordinary course of
      business and any circumstance or event that could reasonably be expected
      to have a Material Adverse Effect on the Business;

                  (ii) Fact, circumstance, event, or action by Seller (A) which,
      if known on the date of this Agreement, would have been required to be
      disclosed in or pursuant to this Agreement; or (B) the existence,
      occurrence, or taking of which would result in any of the representations
      and warranties of Seller contained in this Agreement or in any Transaction
      Agreement not being true and correct when made or at Closing;

                  (iii) Breach of any covenant or obligation of Seller
      hereunder; and

                  (iv) Circumstance or event which will result in, or could
      reasonably be expected to result in, the failure of Seller to timely
      satisfy any of the closing conditions specified in Article 9 of this
      Agreement.

            (b) From the date of this Agreement until the Closing, Purchaser
shall promptly notify Seller in writing regarding any:

                  (i) Filing of Purchaser with the SEC;

                  (ii) Fact, circumstance, event or action by Purchaser (A)
      which, if known on the date of this Agreement, would have been required to
      be disclosed in or pursuant to this Agreement; or (B) the existence,
      occurrence, or taking of which would result in any of the representations
      and warranties of Purchaser contained in this Agreement or in any
      Transaction Agreement not being true and correct when made or at Closing;

                  (iii) Breach of any covenant or obligation of Purchaser
      hereunder; and

                  (iv) Circumstances or event which will result in, or could
      reasonably be expected to result in, the failure of Purchaser to fully
      satisfy any of the closing conditions specified in Article 9 of this
      Agreement.

      6.5 UPDATING THE DISCLOSURE SCHEDULES. If any event, condition, fact or
circumstance that is required to be disclosed pursuant to Section 6.4 would
require a change to the Seller or Purchaser Disclosure Schedule if the Seller or
Purchaser Disclosure Schedule were dated as of the date of the occurrence,
existence or discovery of such event, condition, fact or circumstance, then
Seller or Purchaser, as applicable shall promptly deliver to Purchaser or
Seller, as applicable an update to the Seller or Purchaser, as applicable
Disclosure Schedule specifying such change and shall use its Best Efforts to
remedy same, as applicable; provided, however, that no such update shall be
deemed to supplement or amend the Seller or Purchaser Disclosure Schedule for
the purpose of (i) determining the accuracy of any of the representations

                                       32


and warranties made by Seller or Purchaser in this Agreement or (ii) determining
whether any of the conditions set forth in Article 9 have been satisfied.

      6.6 ACCESS TO INFORMATION. From the date of this Agreement until the
Closing, each of Seller and Purchaser shall (a) permit Purchaser and Seller, as
applicable and its Representatives to have free and complete access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of Seller or Purchaser, as applicable, to all premises,
properties, personnel, Persons having business relationships with Seller or
Purchaser, as applicable (including suppliers, licensees, customers and
distributors), books, records (including Tax records), Contracts, and documents
of or pertaining to Seller; (b) furnish Purchaser or Seller with all financial,
operating and other data and information related to the Business (including
copies thereof), as Purchaser or Seller may reasonably request; and (c)
otherwise cooperate and assist, to the extent reasonably requested by Purchaser
or Seller, with Purchaser's investigation of the Business and Seller's
investigation of Purchaser, the Purchased Assets and the Assumed Liabilities.
Neither party hereto shall communicate with Persons known by such party to have
business relationships with the other party hereto regarding this Agreement, the
transactions contemplated hereby, or the other party hereto, unless such
communications are approved in advance by the other party hereto. No information
or knowledge obtained in any investigation pursuant to this Section 6.6 shall
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the Transaction.

      6.7 BEST EFFORTS. From the date of this Agreement until the Closing, each
of Seller and Purchaser shall use their respective Best Efforts to cause to be
fulfilled and satisfied all of the other party's conditions to Closing set forth
in Article 9.

      6.8 CONSENTS. As promptly as possible after the date of this Agreement,
Seller shall use its Best Efforts to obtain all Consents and make and deliver
all filings and notices listed or required to be listed on Schedule 4.5(e) other
than Consents, filings or notices from or to Dell Computer Corporation and its
affiliates or subsidiaries, and Purchaser shall use its Best Efforts to obtain
all Consents and make and deliver all filings and notices listed or required to
be listed on Schedule 5.3(c). Purchaser shall not be required to (a) agree to
any material changes in, or the imposition of any material condition to the
transfer to Purchaser of, any Seller Contract or Governmental Approval as a
condition to obtaining any Consent; or (b) dispose of or make any changes to its
business, expend any material funds or incur any other burden in order to comply
with this Section 6.8. Seller shall not be required to (i) agree to any material
changes in, or the imposition of any material condition to the transfer to
Purchaser of, any Seller Contract or Governmental Approval as a condition to
obtaining any Consent; or (ii) dispose of or make any changes to its business,
expend any material funds or incur any other burden in order to comply with this
Section 6.8.

      6.9 INDEMNITY. Each of Edward Ateyeh, Jr., Wade Saadi and Edgar Saadi
shall enter into an Indemnification Agreement substantially in the form of
Exhibit 6.9 (the "Indemnification Agreements") hereto.

                                       33


ARTICLE 7. POST CLOSING COVENANTS

      7.1 SELLER INTELLECTUAL PROPERTY.

            (a) Seller agrees that, from and after the Closing Date and except
as otherwise provided in the Acknowledgements of License, it shall not, and it
shall cause its Representatives not to, use any of the Seller Intellectual
Property. If Seller or any assignee of Seller owns or has any right or interest
in any Seller Intellectual Property that cannot be, or for any reason is not,
assigned to Purchaser at the Closing, Seller shall grant or cause to be granted
to Purchaser, at the Closing, a worldwide, royalty-free, fully paid up,
perpetual, irrevocable, transferable, sublicensable, and exclusive license to
Exercise All Rights in and to such Seller Intellectual Property.

            (b) If Purchaser is unable to enforce its Intellectual Property
Rights against a third party as a result of any Legal Requirement that prohibits
enforcement of such rights by a transferee of such rights, Seller agrees to
assign to Purchaser such rights as may be required by Purchaser to enforce its
Intellectual Property Rights in its own name. If such assignment still does not
permit Purchaser to enforce its Intellectual Property Rights against the third
party, Seller agrees to initiate proceedings against such third party in
Seller's name; provided, however, that Purchaser shall be entitled to
participate in such proceedings and provided further that Purchaser shall be
responsible for the costs and expenses of such proceedings and all other costs
and expenses other than those for which Purchaser is entitled to indemnification
under Section 11.2.

            (c) Purchaser and Seller shall enter into the acknowledgements of
license (the "Acknowledgements of License") substantially in the form of Exhibit
7.1.

      7.2 COOPERATION. After the Closing, upon the request of Purchaser, Seller
shall (i) execute and deliver any and all further materials, documents and
instruments of conveyance, transfer or assignment as may reasonably be requested
by Purchaser to effect, record or verify the transfer to, and vesting in
Purchaser, of Seller's right, title and interest in and to the Purchased Assets,
free and clear of all Encumbrances other than Permitted Encumbrances, in
accordance with the terms of this Agreement; and (ii) cooperate with Purchaser,
at Purchaser's expense, to enforce the terms of any Seller Contracts, including
terms relating to confidentiality and Intellectual Property Rights, and to
contest or defend against any Proceeding relating to the Transaction or to the
operation of Seller's Business before the Closing Date. After the Closing, upon
the request of Seller, Purchaser shall execute and deliver any and all further
materials, documents and instruments of conveyance, transfer or assumption as
may reasonably be requested by Seller to effect, record or verify the transfer
to, and assumption by Purchaser, of the Assumed Liabilities. After the Closing,
Seller shall (a) cooperate with Purchaser in its efforts to continue and
maintain for the benefit of Purchaser those business relationships of Seller
existing prior to the Closing and relating to the business to be operated by
Purchaser after the Closing; (b) satisfy the Excluded Liabilities in a manner
that is not detrimental to any of such relationships; (c) refer to Purchaser all
inquiries relating to such business; and (d) promptly deliver to Purchaser (x)
any mail, packages and other communications addressed to Seller relating to the
Business, Purchased Assets or Assumed Liabilities and (y) any cash or other
property that Seller receives and that properly belongs to Purchaser, payments
with respect to Receivables, and

                                       34


interest payable thereon. Neither Seller nor any of its officers, employees,
agents or stockholders shall take any action that would tend to materially
diminish the value of the Purchased Assets after the Closing or that would
materially interfere with the business of Purchaser to be engaged in after the
Closing, including disparaging the name or business of Purchaser.

      7.3 CHANGE OF CORPORATE NAME. On the Closing Date or as soon as
practicable thereafter, Seller shall change its legal name, by filing the
Certificate of Amendment delivered to Purchaser pursuant to Section 3.2(i) (or
any revision of such Certificate of Amendment necessary to comply as to form
under Delaware law) with the Secretary of State of the State of Delaware, to a
new name which does not include the term Collective Technologies or the acronym
or abbreviation "CT" or any variations, translations or combinations thereof or
similar names and otherwise is not likely to be confused with its present name
so as to make Seller's present name available to Purchaser. Seller shall deliver
to Purchaser a file-stamped copy of such filing as soon as practicable following
its filing with and acceptance by the Secretary of State of the State of
Delaware. From and after the Closing, Seller shall not, without the prior
written consent of Purchaser, use the term "Collective Technologies" or the
acronym or abbreviation "CT" or any variations, translations or combinations
thereof or similar names in connection with any business; provided, however,
that Seller may reference that "Collective Technologies" or "CT" was formerly a
subsidiary of Pencom Systems, Incorporated, or that a particular individual was
formerly associated with or employed by "Collective Technologies" or "CT," in
documents of a historical or biographical nature.

      7.4 RECORDS AND DOCUMENTS. For a period of ten (10) years after the
Closing, at Purchaser's request, Seller shall provide Purchaser and its
Representatives with access to and the right to make copies of those records and
documents related to the Business, possession of which is retained by Seller, as
may be reasonably necessary in connection with Purchaser's conduct of the
Business after the Closing. If during such period Seller elects to dispose of
such records and documents, Seller shall give Purchaser sixty (60) days' prior
written notice, during which period Purchaser shall have the right to take such
records and documents, at Purchaser's expense, without further consideration.
For a period of ten (10) years after the Closing, at Seller's request, Purchaser
shall provide Sellers and its Representatives with access to and the right to
make copies of those records and documents related to the conduct of the
Business prior to the Closing, possession of which is delivered to Purchaser, as
may be reasonably necessary in connection with filing taxes, responding to
audits or any other bona fide business reason. If during such period Purchaser
elects to dispose of such records and documents, Purchaser shall give Seller
sixty (60) days' prior written notice, during which period Seller shall have the
right to take such records and documents, at Seller's expense, without further
consideration.

      7.5 COLLECTION OF RECEIVABLES.

            (a) Payments received by Purchaser from account debtors as payment
for a Receivable shall be applied against the oldest unpaid balance of such
account debtor, unless the account debtor designates another application, in
which case the application designated may be followed in applying the payment.
In return for payment of claims for defaulted Receivables, Purchaser shall
reassign the account or note involved to Seller. The uncollected receivables
reassigned to Seller as provided herein shall be transferred by Purchaser
subject to no defenses or

                                       35


setoffs by the debtor which did not arise as a result of the conduct of the
Business prior to Closing.

            (b) Purchaser shall be entitled, in its sole discretion, to reassign
and transfer to Seller any Receivables which have not been collected in full by
one hundred twenty (120) days after the Closing Date and Seller shall be
required to accept any such uncollected Receivable which have been so reassigned
and transferred. If Purchaser determines to so reassign and transfer any such
uncollected Receivables, the Purchase Price, as may have been adjusted pursuant
to the terms hereof, shall be reduced as set forth in Section 2.2 by an amount
equal to the aggregate face amount of such uncollected Receivables. Purchaser
shall use commercially reasonable efforts to collect all Receivables in full by
one hundred twenty (120) days after the Closing Date. Purchaser shall provide to
Seller an accurate and complete account aging and collection report regarding
outstanding Receivables within the first five (5) Business Days of each calendar
month occurring within one hundred twenty (120) days after the Closing Date.
Seller may, with the prior written consent of Purchaser, assist Purchaser in
collecting outstanding Receivables during the one hundred twenty (120) day
period following the Closing Date.

      7.6 NONCOMPETITION AGREEMENT.

            (a) For and in consideration of the Transaction contemplated herein,
during the period commencing with the Closing Date and ending on the second
anniversary of the Closing Date (the "Noncompetition Period"), Seller shall not
engage in any "Competitive Activity" in the "Restricted Territory" (as both are
defined below).

            (b) "Competitive Activity" shall mean directly or indirectly (or
having any interest in, or performing any services for, any Person directly or
indirectly) (i) engaging in any activity that is the same as, similar to, or
competitive with Business; (ii) engaging in the development or distribution of
any product that is the same as, similar to, or competitive with any Seller
Product being developed or distributed by Purchaser during the Noncompetition
Period; (iii) employing, soliciting for employment, or recommending for
employment any Person employed by Purchaser or any Affiliate or Subsidiary of
Purchaser during such Person's employment with Purchaser (or any Affiliate or
Subsidiary of Purchaser) or for one year thereafter; or (iv) diverting or
attempting to divert from Purchaser or any Affiliate or Subsidiary of Purchaser
any business of any kind in which they are engaged, including the solicitation
of or interference with any suppliers, contractors, or customers.

            (c) "Restricted Territory" shall mean every state, territory,
country, or jurisdiction in which Seller has carried on the Business prior to
the Closing Date.

            (d) Notwithstanding the foregoing, the provisions of this Section
7.6 shall not prevent Seller from beneficially owning up to five percent (5%),
on a full-diluted basis, of the total shares of all classes of stock outstanding
of any corporation having securities listed on the NYSE, the American Stock
Exchange, or traded on NASDAQ.

            (e) It is the understanding of the parties that the scope of the
covenants contained in this Section 7.6, both as to time and area covered, are
necessary to protect the rights of Purchaser and the goodwill that is a part of
the Business of Seller to be acquired by Purchaser.

                                       36


It is the parties' intention that these covenants be enforced to the greatest
extent (but to no greater extent) in time, area, and degree of participation as
is permitted by the law of that jurisdiction whose law is found to be applicable
to any acts in breach of these covenants. It being the purpose of this Agreement
to govern competition by Seller in the Restricted Territory, these covenants
shall be governed by and construed according to that law (from among those
jurisdictions arguably applicable to this Agreement and those in which a breach
of this Agreement is alleged to have occurred or to be threatened) which best
gives them effect. The prohibitions in each of subsections (a)-(d) in Section
7.6 above shall be deemed, and shall be construed as separate and independent
agreements between Purchaser on the one hand, and Seller, on the other. If any
such agreement or any part of such agreement is held invalid, void or
unenforceable by any court of competent jurisdiction, such invalidity, voidness,
or unenforceability shall in no way render invalid, void, or unenforceable any
other part of them or any separate agreement not declared invalid, void or
unenforceable; and this Agreement shall in such case be construed as if the
invalid, void, or unenforceable provisions were omitted.

            (f) The parties agree that the covenants of Seller not to compete
contained in this Section 7.6 may be assigned by Purchaser to any Person to whom
may be transferred the Business of Seller by the sale or transfer of their
business and assets or otherwise. It is the parties' intention that these
covenants of Seller shall inure to the benefit of any Person that may succeed to
the Business and Purchased Assets of Seller (as acquired by Purchaser under this
Agreement) with the same force and effect as if these covenants were made
directly with such successor.

      7.7 NONDISCLOSURE.

            (a) Seller recognizes and acknowledges that it has had in the past,
currently has, and in the future may possibly have, access to certain
Confidential Information (as defined below) of Seller that is a valuable,
special and unique asset of the Business. Seller agrees that it shall not
disclose such Confidential Information to any Person, for any purpose or reason
whatsoever, except (a) to authorized Representatives of Purchaser and (b) to
counsel and other advisers to Seller provided that such advisers agree to the
confidentiality provisions of this Section 7.7.

            (b) "Confidential Information" shall mean all Trade Secrets and
other confidential and/or proprietary information of a Person, including
information derived from reports, investigations, research, work in progress,
codes, marketing and sales programs, financial projections, cost summaries,
pricing formula, contract analyses, financial information, projections,
confidential filings with any state or federal agency, and all other
confidential concepts, methods of doing business, ideas, materials or
information prepared or performed for, by or on behalf of such Person by its
employees, officers, directors, agents, representatives, or consultants.
Information shall not be deemed Confidential Information hereunder if (i) such
information becomes available to or known by the public generally through no
fault of Seller or (ii) disclosure is required by law or the Order of any
Governmental Authority under color of law, provided, however, that prior to
disclosing any information pursuant to this clause (ii), Seller shall, if
possible, give prior written notice thereof to Purchaser and, at Purchaser's
election, either provide Purchaser with the opportunity to contest such
disclosure or seek to obtain a protective order narrowing the scope of such
disclosure and/or use of the Confidential

                                       37


Information; or (iii) Seller reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against Seller. Nothing
herein shall be construed as prohibiting Purchaser from pursuing any other
available remedy for such breach or threatened breach, including the recovery of
Damages.

            (c) The parties agree that, in the event of breach or threatened
breach of Seller's covenants in this Section 7.7, the damage or imminent damage
to the value and the goodwill of Purchaser and the Business will be irreparable
and extremely difficult to estimate, making any remedy at law or in damages
inadequate. Accordingly, the parties agree that Purchaser shall be entitled to
injunctive relief against Seller in the event of any breach or threatened breach
of any of such covenants by Seller, in addition to any other relief (including
Damages) available to Purchaser under this Agreement or under applicable law.

      7.8 LISTING OF SHARES. Purchaser shall use its Best Efforts to cause the
Shares to be listed on the Nasdaq Capital Market as soon as reasonably
practicable following the Closing.

ARTICLE 8. EMPLOYEES

      8.1 TRANSFERRED EMPLOYEES. Purchaser shall offer employment, to be
effective as of the Closing Date and contingent upon the Closing, on terms to be
determined by Purchaser, to those employees of Seller who are listed on Schedule
8.1 (collectively, the "Transferred Employees"); provided that each such
Transferred Employees shall be offered a base salary not less than the base
salary for each such person set forth on Seller's Disclosure Schedule as such
person's current base salary. Seller shall terminate the employment, to be
effective as of the Closing Date, of any employees of the Business who are not
Transferred Employees. Effective as of Closing, Seller waives any noncompetition
or other restrictions in any agreement between Seller and any Transferred
Employee with respect to any employment by Purchaser. The parties acknowledge
and agree that it is not the intention of the parties that any Contracts of
employment of any employees of Seller shall be assumed by Purchaser as a result
of the Transaction. Seller shall use commercially reasonable efforts to (a)
encourage the Transferred Employees to continue their employment with Seller
until Closing and thereupon to accept employment with Purchaser and (b) assist
Purchaser in employing Transferred Employees.

      8.2 EMPLOYEE BENEFIT ARRANGEMENTS. In order to secure an orderly and
effective transition of the employee benefit arrangements for Transferred
Employees and their respective beneficiaries and dependents, Seller and
Purchaser shall cooperate, both before and after the Closing Date, to (a)
exchange information related to the Transferred Employees, including employment
records, benefits information, and financial statements and (b) take any other
actions with respect to the Transferred Employees and their respective
beneficiaries and dependents.

      8.3 POST-CLOSING EMPLOYEE BENEFITS.

            (a) After the Closing, Purchaser shall arrange for each Transferred
Employee to receive benefits under Purchaser's benefit plans that are, in the
aggregate and taking into account benefits provided pursuant to the provisions
of applicable law, no less favorable in substance than those provided to other
similarly situated (as to seniority, job description, salary

                                       38


and location) employees of Purchaser and its subsidiaries from time to time (the
"Purchaser Plans"); provided, however, that this Section 8.3(a) shall not
obligate Purchaser to provide any particular benefit plans nor shall it limit
Purchaser's general ability to modify, amend, or terminate any of its benefit
plans.

            (b) Purchaser shall issue shares of its restricted stock and options
to purchase common stock at fair market value on the date of grant to the
persons and in the amounts listed on Schedule 8.3(b) as soon as reasonably
practicable following the Closing, subject to Purchaser first obtaining any
necessary federal and state securities law qualifications, permits and
registrations in connection therewith; provided that as to any such person the
person shall not have exercised any option to acquire equity securities of
Seller after the date hereof. In the event any person on Schedule 8.3(b)
exercises any such option, the Purchase Price shall be adjusted as set forth in
Section 2.2 (e) and such person shall receive no restricted stock pursuant to
this Section 8.3(b). Purchaser shall, at its sole expense, use commercially
reasonable efforts to obtain any necessary federal and state securities law
qualifications, permits and registrations in connection with such issuances.
Purchaser shall further, at its sole expense, use commercially reasonable
efforts to register the shares of restricted stock and options it issues
pursuant to this Section 8.3(b) with the Securities and Exchange Commission on
Form S-8. All of the shares subject to each respective grant of restricted stock
made pursuant to this Section 8.3(b) shall vest six (6) months after the
respective grant date; provided, however, that if Purchaser shall terminate the
employment of any such grantee without cause prior to the date that is six (6)
months after the applicable grant date, then such grantee's grant of restricted
stock pursuant to this Section 8.3(b) shall vest in full on the date of such
grantee's termination of employment. The remaining terms and conditions of each
such grant of restricted stock and option shall be as set forth in Purchaser's
standard form of Restricted Stock Award Agreement and Stock Option Award
Agreement.

            (c) Subject to Section 8.3(a), nothing in Section 8.1 or this
Section 8.3 shall be construed to entitle any Transferred Employee to continue
his or her employment with Purchaser for any period of time, nor to interfere
with the rights of Purchaser or Seller to discharge or discipline any
Transferred Employee, to change the terms of any Transferred Employee's
employment, or to amend or terminate any employee benefit plans at any time.

      8.4 COMPLIANCE WITH LEGAL REQUIREMENTS AND OTHER OBLIGATIONS. Prior to the
Closing, at its sole cost and expense, Seller shall take all actions necessary
to comply with all appropriate Legal Requirements in connection with Seller's
employment of its employees, including any Legal Requirements under the WARN
Act. Seller shall be solely responsible, before and after the Closing, for the
payment of any amounts required to be paid under any Legal Requirement,
including the WARN Act and any similar state laws, as a result of the
termination or layoff of any employee of Seller who is not a Transferred
Employee in connection with this Transaction. Prior to the Closing, Seller shall
perform all of its contractual and other obligations in connection with the
employment of its employees.

      8.5 NO BENEFIT TO SELLER EMPLOYEES INTENDED. This Article 8 is not
intended to, and does not, create any rights or obligations to or for the
benefit of anyone other than Purchaser and Seller.

                                       39


ARTICLE 9. CONDITIONS TO CLOSING

      9.1 CONDITIONS TO PURCHASER'S OBLIGATION TO CLOSE. The obligations of
Purchaser to consummate the Transaction shall be subject to the satisfaction, on
or prior to the Closing Date, of each of the following conditions, any of which
may be waived by Purchaser in writing:

            (a) Representations, Warranties and Covenants. (i) All of the
representations and warranties of Seller in this Agreement shall have been true
and correct in all material respects (considered collectively and individually)
as of the date of this Agreement and shall be true and correct in all material
respects (considered collectively and individually) as of the Closing Date (or,
to the extent such representations and warranties speak only as of an earlier
date, they shall be true and correct in all material respects as of such earlier
date); (ii) all of the representations and warranties of Seller in Sections 4.4
and 4.7 of this Agreement and all of the other representations and warranties of
Seller in this Agreement that contain an express materiality qualification shall
have been true and correct in all respects (considered collectively and
individually) as of the date of this Agreement and shall be true and correct in
all respects (considered collectively and individually) as of the Closing Date
(or, to the extent such representations and warranties speak only as of an
earlier date, they shall be true and correct in all respects as of such earlier
date); and (iii) Seller shall have performed, in all material respects
(considered collectively and individually), all covenants and obligations in
this Agreement required to be performed by Seller as of the Closing Date;

            (b) Documents. Seller shall have delivered to Purchaser all of the
documents and agreements set forth in Sections 3.2 and 3.4;

            (c) Consents. Seller shall have delivered to Purchaser all
Assignment Consents and other Consents (a) required (i) for the transfer of the
Business and the Purchased Assets (other than Seller Contracts and Government
Approvals) or (ii) for the consummation of the Transaction (other than the
transfer or assignment to Purchaser of any Seller Contracts and Government
Approvals in connection therewith) and (b) listed on Schedule 9.1(c); provided,
however, that if Seller shall not have obtained any Consent with respect to a
Contract listed on Schedule 9.1(c), in lieu thereof, Seller shall have entered
into a subcontract with Purchaser reasonably acceptable in form and substance to
each of them under which Seller engages Purchaser, and Purchaser agrees, to
perform the services required under such Contract on a pass-through basis;

            (d) Estoppel Letters. Seller shall have delivered to Purchaser
Estoppel Letters, substantially in the form attached hereto as Exhibit 9.1(d)
(the "Estoppel Letters"), from each lessor of Real Property or Personal
Property;

            (e) Opinion of Counsel. Seller shall have delivered to Purchaser an
Opinion of Seller's counsel, substantially in the form attached hereto as
Exhibit 9.1(e) ("Opinion of Seller's Counsel");

            (f) No Proceedings. Since the date of this Agreement, no Proceeding
shall have been commenced or threatened against Purchaser, or against any
Representative of Purchaser (i) involving any challenge to, or seeking Damages
or other relief in connection with,

                                       40


the Transaction; or (ii) that may have the effect of preventing, delaying,
making illegal, imposing limitations or conditions on or otherwise interfering
with the Transaction; and

            (g) Material Adverse Condition. Seller shall not have suffered a
Material Adverse Effect since the date of this Agreement.

      9.2 CONDITIONS TO SELLER'S OBLIGATION TO CLOSE. The obligations of Seller
to consummate the Transaction shall be subject to the satisfaction, on or prior
to the Closing Date, of each of the following conditions, any of which may be
waived by Seller in writing:

            (a) Representations, Warranties and Covenants. (i) All of the
representations and warranties of Purchaser in this Agreement shall have been
true and correct in all material respects (considered collectively and
individually) as of the date of this Agreement and shall be true and correct in
all material respects (considered collectively and individually) as of the
Closing Date (or, to the extent such representations and warranties speak only
as of an earlier date, they shall be true and correct in all material respects
as of such earlier date); (ii) all of the representations and warranties of
Purchaser in this Agreement that contain an express materiality qualification
shall have been true and correct in all respects (considered collectively and
individually) as of the date of this Agreement and shall be true and correct in
all respects (considered collectively and individually) as of the Closing Date
(or, to the extent such representations and warranties speak only as of an
earlier date, they shall be true and correct in all respects as of such earlier
date); and (iii) Purchaser shall have performed, in all material respects
(considered collectively and individually), all covenants and obligations in
this Agreement required to be performed by Purchaser as of the Closing Date;

            (b) Deliveries. Purchaser shall have delivered to Seller all of the
documents and agreements set forth in Sections 3.3 and 3.4;

            (c) Restricted Stock Approval. Purchaser's Board of Directors or
Compensation Committee shall have duly authorized and approved the issuances of
restricted stock and options to be issued pursuant to Section 8.3(b) and the
options and restricted stock to be issued pursuant to the Employment Agreements,
subject only to Purchaser obtaining any necessary federal and state securities
law qualifications, permits and registrations in connection with such issuances,
and shall have reserved a sufficient number of shares of Purchaser's common
stock to satisfy its obligations under Section 8.3(b);

            (d) Consents. Purchaser shall have delivered to Seller all Consents
listed on Schedule 5.3;

            (e) Opinion of Counsel. Purchaser shall have delivered to Seller an
Opinion of Purchaser's counsel, substantially in the form attached hereto as
Exhibit 9.2(e) ("Opinion of Purchaser's Counsel") and

            (f) Material Adverse Condition. Purchaser shall not have suffered a
Material Adverse Effect since the date of this Agreement.

      9.3 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO CLOSE. The respective
obligations of each party to this Agreement to consummate the Transaction shall
be subject to the

                                       41


satisfaction, on or prior to the Closing Date, of each of the following
condition(s), any of which may be waived by Purchaser or Seller, as applicable,
in writing:

            (a) No Legal Impediments to Closing. There shall not be in effect
any Order issued by any Governmental Authority preventing the consummation of
the Transaction, seeking any Damages as a result of the Transaction, or
otherwise affecting the right or ability of Purchaser to own, operate or control
the Business, the Purchased Assets or the Assumed Liabilities, nor shall any
Proceeding be pending that seeks any of the foregoing. There shall not be any
Legal Requirement prohibiting Seller from selling or Purchaser from owning,
operating or controlling the Business, the Purchased Assets or the Assumed
Liabilities or that makes this Agreement or the consummation of the Transaction
illegal.

ARTICLE 10. TERMINATION

      10.1 CIRCUMSTANCES FOR TERMINATION. At any time prior to the Closing, this
Agreement may be terminated by written notice explaining the reason for such
termination (without prejudice to other remedies which may be available to the
parties under this Agreement, at law or in equity):

            (a) by the mutual written consent of Purchaser and Seller;

            (b) by either Purchaser or Seller if (i) (A) the non-terminating
party is in material breach of any material provision of this Agreement and such
breach shall not have been cured within thirty (30) days of receipt by such
party of written notice from the terminating party of such breach or (B) the
non-terminating party is in breach of Section 6.3; and (ii) the terminating
party is not, on the date of termination, in material breach of any material
provision of this Agreement;

            (c) by either Purchaser or Seller if (i) the Closing has not
occurred on or prior to the date that is sixty (60) days after the date hereof
(the "Outside Closing Date") for any reason; and (ii) the terminating party is
not, on the date of termination, in material breach of any material provision of
this Agreement; and

            (d) by either Purchaser or Seller if (i) satisfaction of a closing
condition of the terminating party in Article 9 is impossible; and (ii) the
terminating party is not, on the date of termination, in material breach of any
material provision of this Agreement.

      10.2 EFFECT OF TERMINATION. Subject to Section 10.3, if this Agreement is
terminated in accordance with Section 10.1, all obligations of the parties
hereunder shall terminate, except for the obligations set forth in this Article
10; provided, however, that nothing herein shall relieve any party from
liability for the breach of any of its representations, warranties, covenants or
agreements set forth in this Agreement.

      10.3 FEES FOR TERMINATION. If (a) a party breaches Section 6.3 and this
Agreement terminates, (b) the other party has satisfied all closing conditions
contained in Article 9 for which the party is responsible, and (c) a Competing
Transaction is consummated by the breaching party then the breaching party shall
promptly pay the nonbreaching party One Million Dollars ($1,000,000) as a
termination fee ("Fee").

                                       42


ARTICLE 11. INDEMNIFICATION

      11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Seller or Purchaser in this Agreement or any other Transaction
Agreement shall survive the Closing until the one year anniversary of the
Closing Date (the "Survival Date"); provided, however, that (a) all
representations and warranties under Section 4.25 shall survive until thirty
(30) days after expiration of all applicable statutes of limitations; and (b)
any claim for indemnification based upon a breach of any such representation or
warranty and asserted prior to the Survival Date by written notice in accordance
with Section 11.4 shall survive until final resolution of such claim. The
representations and warranties contained in this Agreement (and any right to
indemnification for breach thereof) shall not be affected by any investigation,
verification or examination by any party hereto or by any Representative of any
such party or by any such party's Knowledge of any facts with respect to the
accuracy or inaccuracy of any such representation or warranty.

      11.2 INDEMNIFICATION BY SELLER. Subject to the limitations set forth in
this Article 11, Seller and Pencom Systems, Incorporated, shall jointly and
severally indemnify and hold harmless Purchaser and its Representatives from and
against any and all Damages, whether or not involving a third-party claim,
including attorneys' fees (collectively, "Purchaser Damages"), arising out of,
relating to or resulting from (a) any breach of a representation or warranty of
Seller contained in this Agreement or in any other Transaction Agreement; (b)
any breach of a covenant of Seller contained in this Agreement or in any other
Transaction Agreement; (c) Excluded Assets or Excluded Liabilities; (d) any
Taxes of Seller for any period or with respect to the Business or the Purchased
Assets attributable to a Pre-Closing Period; or (e) any amount by which the Net
Assets of the Business are less than One Million Dollars ($1,000,000) as
determined pursuant to Section 2.2; provided that Seller shall not be liable for
amounts pursuant to (e), above, to the extent Purchaser has received the Net
Asset Adjustment pursuant to Section 2.2(d).

      11.3 INDEMNIFICATION BY PURCHASER. Subject to the limitations set forth in
this Article 11, Purchaser shall indemnify and hold harmless Seller and its
Representatives (collectively, the "Seller Indemnified Persons") from and
against any and all Damages, whether or not involving a third-party claim,
including attorneys' fees (collectively, "Seller Damages"), arising out of,
relating to or resulting from (a) any breach of a representation or warranty of
Purchaser contained in this Agreement or in any other Transaction Agreement; (b)
any breach of a covenant of Purchaser contained in this Agreement or in any
other Transaction Agreement; (c) an Assumed Liability; (d) any amount by which
the Net Assets of the Business exceed One Million Dollars ($1,000,000) as
determined pursuant to Section 2.2 or (e) the operation of the Business after
Closing; provided, that Purchaser shall not be liable for amounts pursuant to
(d), above, to the extent Seller has received the Net Asset Adjustment pursuant
to Section 2.2(d).

      11.4 PROCEDURES FOR INDEMNIFICATION. The party making a claim under this
Article 11 is referred to as the "Indemnitee" and the party against whom such
claims are asserted under this Article 11 is referred as the "Indemnitor." All
claims by an Indemnitee under this Article 11 shall be asserted and resolved as
follows:

                                       43


            (a) In the event that any claim or demand by a third party for which
an Indemnitor would be liable to an Indemnitee hereunder is asserted against or
sought to be collected from such Indemnitee, the Indemnitee shall with
reasonable promptness (but in no event later than five (5) Business Days after
the Indemnitee knew or should have known about the existence of such claim)
notify in writing the Indemnitor of such claim or demand, specifying the nature
of the specific basis for such claim or demand, and the amount or the estimated
amount thereof to the extent then feasible which estimate shall not be
conclusive of the final amount of such claim and demand (the "Claim Notice"). To
the extent a claim will be made under the Indemnification Agreement among
Purchaser, Edward Ateyeh, Jr., Wade Saadi and Edgar Saadi, notice shall also be
given in accordance with such Indemnification Agreement. Notwithstanding
anything herein to the contrary, failure of the Indemnitee to give the
Indemnitor notice as provided herein shall not relieve the Indemnitor of the
obligation hereunder except to the extent that the Indemnitor is prejudiced
thereby. The Indemnitor shall within ten (10) days of receipt of a Claim Notice
notify the Indemnitee whether it will defend such third party claim or demand on
behalf of the Indemnitee. In the event the Indemnitor elects to defend such
claim or demand on behalf of the Indemnitee, it shall retain counsel (who shall
be reasonably acceptable to the Indemnitee) to represent the Indemnitee and
shall pay the reasonable fees and disbursements of such counsel with regard
thereto; provided, however, that any Indemnitee is hereby authorized prior to
the date on which it receives written notice from the Indemnitor designating
such counsel, to retain counsel, whose fees and expenses shall be at the expense
of the Indemnitor, to file any motion, answer or other pleading and take such
other action which it reasonably shall deem necessary to protect its interests
or those of the Indemnitor until the date on which the Indemnitee received such
notice from the Indemnitor. In the event the Indemnitor elects to defend such
claim or demand, the Indemnitee shall have the right to retain its own counsel,
but the fees and expenses of such counsel shall be at the expense of such
Indemnitee unless (x) the Indemnitor and the Indemnitee shall have mutually
agreed in writing to the retention of such counsel or (y) the named parties of
any such proceeding (including any impleaded parties) include both the
Indemnitor and the Indemnitee and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. The Indemnitor shall not, in connection with any proceedings or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one such firm for the Indemnitee (except to the extent the
Indemnitee retained counsel to protect its (or the Indemnitor's) right prior to
the selection of counsel by the Indemnitor as set forth above). If requested by
the Indemnitor, the Indemnitee agrees to cooperate with the Indemnitor and its
counsel in contesting any claim or demand which the Indemnitor defends. A claim
or demand may not be settled by the Indemnitor without the prior written consent
of the Indemnitee unless the settlement is for cash and as part of such
settlement the Indemnitee shall receive a full and unconditional release
reasonably satisfactory to the Indemnitee. If the Indemnitor does not elect to
defend such third party claim or demand or does not defend such third party
claim or demand in good faith, the Indemnitee shall have the right, in addition
to any other right or remedy it may have hereunder, at the Indemnitor's
reasonable expense, to defend such third party claim or demand; provided,
however, that (a) the Indemnitor shall not have any obligation to participate in
the defense of, or defend, any such third party claim or demand; and (b) the
Indemnitor's defense of, or its participation in the defense of any such third
party claim or demand, shall not in any way diminish or lessen the obligations
of the Indemnitor under the agreements of indemnification set forth in this
Article 11.

                                       44


            (b) In the event any Indemnitee shall have a claim against any
Indemnitor hereunder which does not involve a claim or demand being asserted
against or sought to be collected from it by a third party, the Indemnitee shall
send a written Claim Notice with respect to such claim to the Indemnitor. If the
Indemnitor does not notify the Indemnitee within twenty (20) Business Days of
receipt of such Claim Notice that it disputes such claim, the amount of such
claims shall be conclusively deemed a liability of the Indemnitor hereunder.

            (c) So long as any right to indemnification exists pursuant to this
Article 11, the affected parties each agree to retain all books and records
related to the Claim Notice. In each instance where the Indemnitor elects to
defend a claim or demand on behalf of the Indemnitee, the Indemnitee shall have
the right to be kept fully informed by the Indemnitor and its legal counsel with
respect to any legal proceedings. Any information or documents made available to
any party hereunder and designated as confidential by the party providing such
information or documents and which is not otherwise generally available to the
public and not already within the knowledge of the party to whom the information
is provided (unless otherwise covered by the confidentiality provisions of any
other agreement among the parties hereto, or any of them), and except as may be
required by applicable law, shall not be disclosed to any third party (except
for the representatives of the party being provided with the information, in
which event the party being provided with the information shall request its
representatives not to disclose any such information which is otherwise required
hereunder to be kept confidential.)

      11.5 LIMITATIONS ON INDEMNIFICATION.

            (a) Notwithstanding anything herein to the contrary, Seller shall
not be obligated to indemnify Purchaser under this Article 11: (i) unless the
aggregate of all Purchaser Damages exceeds One Hundred Fifty Thousand Dollars
($150,000) (the "Seller's Basket"), in which case the Purchaser shall be
entitled to recover all Purchaser Damages in excess of the Seller's Basket
(provided, however, that notwithstanding the foregoing, if Purchaser shall
suffer any individual loss or series of related losses which is indemnifiable
under this Articles 11 and is in excess of One Hundred Fifty Thousand Dollars
($150,000), then Purchaser shall be entitled to recover all Purchaser Damages);
or (ii) to the extent the aggregate of all Purchaser Damages exceeds the
Purchase Price ("Seller's Indemnification Cap"); provided, however, that the
Seller's Basket and the Seller's Indemnification Cap shall not apply to any
Seller indemnification obligation (x) arising out of, relating to or resulting
from fraud or intentional misrepresentation by Seller; (y) arising out of,
relating to or resulting under Section 11.2(b), (c), (d) or (e), Section 4.4 or
Section 4.14(a); or (z) if the Transaction does not close.

            (b) Notwithstanding anything herein to the contrary, Purchaser shall
not be obligated to indemnify Seller under this Article 11: (i) unless the
aggregate of all Seller Damages exceeds One Hundred Fifty Thousand Dollars
($150,000) (the "Purchaser's Basket"), in which case Seller shall be entitled to
recover all Seller Damages in excess of the Purchaser's Basket; or (ii) to the
extent that the aggregate of all Seller Damages exceeds Three Million Dollars
($3,000,000) (the "Purchaser's Indemnification Cap"); provided, however, that
the Purchaser's Indemnification Cap and the Purchaser's Basket shall not apply
to any Purchaser indemnification obligation (x) arising out of, relating to or
resulting from fraud or intentional misrepresentation by Purchaser; (y) arising
out of, relating to or resulting under Section 11.3(b) or (c); or (z) if the
Transaction does not close.

                                       45


      11.6 SOLE REMEDY. Except with respect to fraud or gross negligence,
indemnification under this Article 11 shall be the sole recourse and remedy
available for matters arising out of the Transaction.

      11.7 SET OFF. Purchaser shall be permitted to satisfy claims for
indemnification hereunder by offsetting the amount owed for indemnification
against amounts owed under the Note. In addition to any rights of setoff that
any Person may have at common law or otherwise, each Person shall have the right
to set off any amount that may be owed to it by the other under this Article 11
against any amount otherwise payable by such Person hereunder.

ARTICLE 12. MISCELLANEOUS PROVISIONS

      12.1 EXPENSES. Subject to Section 10.3, whether or not the Transaction is
consummated, each party shall pay its own costs and expenses in connection with
this Agreement and the Transaction (including the fees and expenses of its
advisers, accountants and legal counsel).

      12.2 FURTHER ASSURANCES. Each party agrees (a) to furnish upon request to
each other party such further information, (b) to execute and deliver to each
other party such other documents, and (c) to do such other acts and things, all
as another party may reasonably request for the purpose of carrying out the
intent of this Agreement and the Transaction.

      12.3 AMENDMENTS AND WAIVERS. This Agreement may not be amended,
supplemented or modified except by an agreement in writing signed by each of the
parties. Any party may waive compliance by any other party with any term or
provision of this Agreement that such other party was or is obligated to comply
with or perform with respect to such waiving party; provided, however, that such
waiver shall not operate as a waiver of, or estoppel with respect to, any other
or subsequent failure. No waiver shall be effective unless it is in writing and
is signed by the party asserted to have granted such waiver. Neither the failure
nor any delay on the part of either party to exercise any right, remedy, power
or privilege under this Agreement shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, remedy, power or privilege preclude
any other or further exercise of the same or of any other right, remedy, power
or privilege, nor shall any waiver of any right, remedy, power or privilege with
respect to any occurrence be construed as a waiver of such right, remedy, power
or privilege with respect to any other occurrence.

      12.4 NOTICES. All notices, consents, requests, demands and other
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given, made and received (i) when
delivered personally or by telecopy, (ii) one (1) day following the day when
deposited with a reputable, established overnight courier service for delivery
to the intended addressee, or (iii) three (3) days following the day when
deposited with the United States Postal Service as first class, registered or
certified mail, postage prepaid and addressed as set forth below:

                                       46


            (a)   If to Collective Technologies, LLC:

                  c/o Pencom Systems, Incorporated
                  40 Fulton Street - 18th Floor
                  New York, NY  10038
                  Attention:  Wade Saadi
                  Telephone No.:  (212) 513-7777
                  Facsimile No.:  (212) 227-1854

                  With a copy, given in the manner prescribed above, to:
                  Wick Phillips, LLP
                  500 N. Akard, Suite 2150
                  Dallas, TX 75201
                  Attention:  Edward H. Molter
                  Telephone No.:  (214) 692-6200
                  Facsimile No.:  (214) 692-6255

            (b)   If to MTI Technology Corporation:

                  17595 Cartwright Road
                  Irvine, CA 92614
                  Attention:  Chief Financial Officer
                  Telephone No.:  (949) 251-1101
                  Facsimile No.:  (949) 251-1102

                  With a copy, given in the manner prescribed above, to:
                  Morrison & Foerster LLP
                  19900 MacArthur Boulevard
                  Irvine, CA 92612
                  Attention:  Tamara P. Tate
                  Telephone No.:  (949) 251-7500
                  Facsimile No.:  (949) 251-0900

      Any party may alter its notice address by notifying the other parties of
such change of address in conformity with the provisions of this section.

      12.5 GOVERNING LAW. This Agreement is to be construed in accordance with
and governed by the internal laws of the State of Delaware, without giving
effect to any choice of law rule that would cause the application of the laws of
any jurisdiction other than the internal laws of the State of Delaware to the
rights and duties of the parties.

      12.6 DISPUTE RESOLUTION. Any controversy, claim or dispute arising out of
or relating to this Agreement or the breach thereof, whether based on contract,
tort, statute or other legal or equitable theory (the "Dispute") shall be
settled by binding arbitration administered by the American Arbitration
Association in accordance with its applicable rules then in effect. The

                                       47


arbitration shall be governed by the United States Arbitration Act, 9 U.S.C.
Sections 1-16. The award of the arbitrator shall be final and binding, and
judgment on the award may be entered, confirmed and enforced in any court having
jurisdiction thereof. The place of the arbitration shall be Dover, Delaware;
however, preliminary conferences and hearings may be held in such other
place(s), or by telephone, as the arbitrator(s) or the parties select from time
to time for the purpose of compelling or receiving testimony or documentary
evidence or otherwise.

      12.7 EXHIBITS AND SCHEDULES. All Exhibits and Schedules attached hereto
are hereby incorporated by reference into, and made a part of, this Agreement.

      12.8 ASSIGNMENTS PROHIBITED; SUCCESSORS AND ASSIGNS. No party shall
assign, or suffer or permit an assignment (by operation of law or otherwise) of,
its rights or obligations under or interest in this Agreement without the prior
written consent of the other parties. Any purported assignment or other
disposition by a party, except as permitted herein, shall be null and void. In
the event of a breach of this provision, the non-breaching party shall have the
option, in addition to any other remedy available at law or in equity, to
terminate this Agreement at any time subsequent to such breach. Subject to the
foregoing, this Agreement shall be binding upon and shall inure to the benefit
of the parties and their respective successors and permitted assigns.

      12.9 NO THIRD-PARTY BENEFICIARIES. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors and permitted assigns, and the parties do not intend to
confer third-party beneficiary rights upon any other person.

      12.10 COUNTERPARTS. This Agreement may be executed (including, without
limitation, by facsimile signature) in one or more counterparts, with the same
effect as if the parties had signed the same document. Each counterpart so
executed shall be deemed to be an original, and all such counterparts shall be
construed together and shall constitute one agreement.

      12.11 ENTIRE AGREEMENT. This Agreement and the other Transaction
Agreements contain the entire understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements and understandings, inducements or conditions, express or implied,
oral or written. The parties intend that this Agreement and the other
Transaction Agreements be the several, complete and exclusive embodiment of
their agreement, and that any evidence, oral or written, of a prior or
contemporaneous agreement that alters or modifies this Agreement shall not be
admissible in any Proceeding concerning this Agreement. The express terms hereof
control and supersede any course of performance and/or usage of the trade
inconsistent with any of the terms hereof.

      12.12 INTERPRETATION. Unless otherwise indicated herein, with respect to
any reference made in this Agreement to a Section (or Article, Subsection,
Paragraph, Subparagraph or Clause), Exhibit or Schedule, such reference shall be
to a section (or article, subsection, paragraph, subparagraph or clause) of, or
an exhibit or schedule to, this Agreement. The table of contents and any
article, section, subsection, paragraph or subparagraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Any reference made in this
Agreement to a statute or statutory

                                       48


provision shall mean such statute or statutory provision as it has been amended
through the date as of which the particular portion of the Agreement is to take
effect, or to any successor statute or statutory provision relating to the same
subject as the statutory provision so referred to in this Agreement, and to any
then-applicable rules or regulations promulgated thereunder. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed, as the context indicates, to be followed by the words "but (is/are) not
limited to." The words "herein," "hereof," "hereunder" and words of like import
shall refer to this Agreement as a whole (including its Schedules and Exhibits),
unless the context clearly indicates to the contrary (for example, that a
particular section, schedule or exhibit is the intended reference). Words used
herein, regardless of the number and gender specifically used, shall be deemed
and construed to include any other number, singular or plural, and any other
gender, masculine, feminine or neuter, as the context indicates is appropriate.
Where specific language is used to clarify or illustrate by example a general
statement contained herein, such specific language shall not be deemed to
modify, limit or restrict the construction of the general statement which is
being clarified or illustrated.

      12.13 NUMBER OF DAYS. In computing the number of days for purposes of this
Agreement, all days shall be counted, including Saturdays, Sundays and holidays;
provided, however, that if the final day of any time period falls on a Saturday,
Sunday or holiday on which national banks are or may elect to be closed, then
the final day shall be deemed to be the next day which is not a Saturday, Sunday
or such holiday.

      12.14 CONSTRUCTION. The construction of this Agreement shall not take into
consideration the party who drafted or whose representative drafted any portion
of this Agreement, and no canon of construction shall be applied that resolves
ambiguities against the drafter of a document. Each party acknowledges that: (a)
it has read this Agreement; (b) it has been represented in the preparation,
negotiation and execution of this Agreement by legal counsel of its own choice
or has voluntarily declined to seek such counsel; and (c) it understands the
terms and consequences of this Agreement and is fully aware of the legal and
binding effect of this Agreement.

      12.15 PROVISIONAL RELIEF; SPECIFIC PERFORMANCE. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement are not performed in accordance with their specific terms or were
otherwise breached. Accordingly, it is agreed that the parties shall be entitled
to seek an injunction or injunctions to prevent breaches of this Agreement and
to enforce specifically the terms and provisions of this Agreement in any state
or federal court of the State of Delaware, in addition to any other remedy to
which they are entitled at law or in equity.

      12.16 RECOVERY OF FEES BY PREVAILING PARTY. If any legal action,
including, without limitation, an action for arbitration or injunctive relief,
is brought relating to this Agreement or the breach or alleged breach hereof,
the prevailing party in any final judgment or arbitration award, or the
non-dismissing party in the event of a voluntary dismissal by the party
instituting the action, shall be entitled to the full amount of all reasonable
expenses, including all court costs, arbitration fees and actual attorneys' fees
paid or incurred in good faith.

                                       49


      12.17 DISCLOSURE LETTER. The disclosures in the Disclosure Letters, and
those in any supplement thereto, shall be deemed to relate only to the
representations and warranties in the Section of the Agreement to which they
expressly relate and not to any other representation or warranty in this
Agreement. In the event of any inconsistency between the statements in the body
of this Agreement and those in the Disclosure Letters (other than an exception
expressly set forth as such in the Disclosure Letters with respect to a
specifically identified representation or warranty), the statements in the body
of this Agreement will control.

      12.18 TIME OF THE ESSENCE. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.

      12.19 CONFIDENTIALITY; PUBLICITY. The parties acknowledge that the
transaction described herein is of a confidential nature and shall not be
disclosed prior to the Closing except to consultants, advisors and Affiliates,
or as required by law. None of the parties hereto shall make any public
disclosure of the terms of this Agreement prior to the Closing, except as
required by law. In the event disclosure is required under applicable law, the
party making such disclosure shall use reasonable efforts to provide the other
with a reasonable opportunity to review and comment on the disclosure in advance
of its release. The parties shall endeavor to make only those press releases or
other public disclosures as are required by law. In the event disclosure is
required under applicable law, the party providing such disclosure shall use
reasonable efforts to provide the other with a reasonable opportunity to review
and comment on such disclosure in advance of its release.

      12.20 CUMULATIVE REMEDIES. The rights and remedies of either party as set
forth in this Agreement are not exclusive and are in addition to any other
rights and remedies now or hereafter provided by law or at equity.

      12.21 LIQUIDATED DAMAGES. The parties agree that the Fee provided in
Section 10.3 is fair and reasonable in light of the anticipated harm that would
ensue from any event triggering payment of the Fee, the difficulties in proving
the loss and ascertaining the amount of loss to the aggrieved party, the
limitation on liability herein and the inconvenience or non-feasibility of
otherwise obtaining an adequate remedy. The parties further acknowledge and
agree that the Fee is not a penalty. If a court of competent jurisdiction shall
nonetheless, by a final, non-appealable judgment, determine that the amount of
the Fee exceeds the maximum amount permitted by law, then the amount of the Fee
shall be reduced to the maximum amount permitted by law in the circumstances, as
determined by such court of competent jurisdiction.

                                       50


      12.22 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES THAT ARE THE
SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
QUALIFICATION BY SECTION 25100, 25102 or 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.

                     [SIGNATURES FOLLOW ON A SEPARATE PAGE]

                                       51


         IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by their respective officers thereunto duly authorized
all as of the date first written above.

                                   "Purchaser"

                                   MTI Technology Corporation

                                   By:    /s/ Thomas P. Raimondi
                                          -----------------------------------
                                   Name:  Thomas P. Raimondi
                                   Title: CEO

                                   "Seller"

                                   Collective Technologies, LLC

                                   By:    /s/ Edward C. Ateyeh
                                          ------------------------------------
                                   Name:  Edward C. Ateyeh
                                   Title: CEO

                                   Solely for purposes of Articles 2, 11 and 12

                                   Pencom Systems, Incorporated

                                   By:    /s/ Edward C. Ateyeh
                                          ------------------------------------
                                   Name:  Edward C. Ateyeh
                                   Title: EXEC. VP

                                 Signature Page



                                    EXHIBIT A

                               CERTAIN DEFINITIONS

"Accenture Agreements" shall have the meaning specified in Section 1.2(f).

"Acknowledgements of License" shall have the meaning specified in Section
7.1(c).

"Affiliate" shall mean any member of the immediate family (including spouse,
brother, sister, descendant, ancestor or in-law) of any officer, director or
stockholder of Seller or any corporation, partnership, trust or other entity in
which Seller or any such family member has a five percent (5%) or greater
interest or is a director, officer, partner or trustee. The term Affiliate shall
also include any entity which controls, or is controlled by, or is under common
control with any of the individuals or entities described in the preceding
sentence.

"Affiliate Liabilities" shall have the meaning specified in Section 2.1(b).

"Agreement" shall mean the Asset Purchase Agreement to which this Exhibit A is
attached (including the Seller Disclosure Schedule and all other schedules and
exhibits attached hereto), as it may be amended from time to time.

"Assignment and Assumption" shall have the meaning specified in Section 3.2(b).

"Assignment Consent" shall have the meaning specified in Section 1.5(a).

"Assumed Liabilities" shall have the meaning specified in Section 1.3.

"Audited Closing Balance Sheet" shall have the meaning specified in Section
2.2(b).

"Audited Closing Balance Sheet Dispute Notice" shall have the meaning specified
in Section 2.2(c).

"Best Efforts" shall mean the efforts that a prudent Person desiring to achieve
a particular result would use in similar circumstances to achieve such result as
expeditiously as possible provided, however, that a person required to use his
Best Efforts under this Agreement will not be thereby required to take actions
that would result in a materially adverse change in the benefits to such person
of this Agreement and the Transaction, or to dispose of or make any change to
its business, expend any material funds or incur any other material burden.

"Books and Records" shall have the meaning specified in Section 1.1(n).

"Breach" shall mean the occurrence of any inaccuracy in or breach of, or any
failure to comply with or perform, a representation, warranty, covenant,
obligation or other provision of any Contract.

"Business" shall have the meaning set forth in the first Recital.

                                      A-1


"Business Day" means any day other than (i) a Saturday or a Sunday or (ii) a day
on which banking and savings and loan institutions in the States of Texas or
California are authorized or required by law to be closed.

"Cash Amount" shall have the meaning specified in Section 2.1(a)(i).

"Claim Notice" shall have the meaning specified in Section 11.4(a).

"Closing" shall have the meaning specified in Section 3.1.

"Closing Date" shall have the meaning specified in Section 3.1.

"Code" shall mean the Internal Revenue Code of 1986, as amended.

"Competing Party" shall have the meaning specified in Section 6.3.

"Competing Transaction" shall have the meaning specified in Section 6.3.

"Competitive Activity" shall have the meaning specified in Section 7.6(b).

"Confidential Information" shall have the meaning specified in Section 7.7(b).

"Consent" shall mean any approval, consent, ratification, permission, waiver or
authorization (including any Governmental Approval).

"Contract" shall mean any agreement, contract, consensual obligation, promise,
understanding, arrangement, commitment or undertaking of any nature (whether
written or oral and whether express or implied), whether or not legally binding.

"Contractors" shall have the meaning specified in Section 4.19(a).

"Copyrights" shall mean all copyrights, including in and to works of authorship
and all other rights corresponding thereto throughout the world, whether
published or unpublished, including rights to prepare, reproduce, perform,
display and distribute copyrighted works and copies, compilations and derivative
works thereof.

"Damages" shall mean and include any loss, damage, injury, decline in value,
lost opportunity, Liability, claim, demand, settlement, judgment, award, fine,
penalty, Tax, fee (including any legal fee, accounting fee, expert fee or
advisory fee), charge, cost (including any cost of investigation) or expense of
any nature.

"Defined Benefit Plan" shall mean either a plan described in Section 3(35) of
ERISA or a plan subject to the minimum funding standards set forth in Section
302 of ERISA and Section 412 of the Code.

"Deposits and Advances" shall have the meaning specified in Section 1.1(i).

"Dispute" shall have the meaning specified in Section 12.6.

                                      A-2


"Employee Benefit Plan" shall have the meaning specified in Section 3(3) of
ERISA.

"Employment Agreements" shall have the meaning specified in Section 3.2(f).

"Encumbrance" shall mean any lien, pledge, hypothecation, charge, mortgage,
security interest, encumbrance, equity, trust, equitable interest, claim,
preference, right of possession, lease, tenancy, license, encroachment,
covenant, infringement, interference, Order, proxy, option, right of first
refusal, preemptive right, community property interest, legend, defect,
impediment, exception, reservation, limitation, impairment, imperfection of
title, condition or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).

"Entity" shall mean any corporation (including any non-profit corporation),
general partnership, limited partnership, limited liability partnership, joint
venture, estate, trust or company (including any limited liability company or
joint stock company).

"Environmental Laws" shall mean all federal, state, local or foreign Legal
Requirements relating to pollution, protection of human health or the
environment, or Hazardous Materials.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.

"ERISA Affiliate" shall mean each trade or business, whether or not
incorporated, that would be treated as a single employer with Seller under
Section 4001 of ERISA or Section 414(b), (c), (m) or (o) of the Code.

"Estoppel Letters" shall have the meaning specified in Section 9.1(d).

"Excluded Assets" shall have the meaning specified in Section 1.2.

"Excluded Liabilities" shall have the meaning specified in Section 1.4.

"Exercise All Rights" shall mean to exercise or practice any and all rights now
or hereafter provided by law (by treaty, statute, common law or otherwise)
anywhere in the world to inventors, authors, creators and/or owners of
intellectual or intangible property; including the right to make, use, disclose,
sell, offer to sell, distribute, import, rent, lease, lend, reproduce, prepare
derivative works of and otherwise modify, perform and display (whether publicly
or otherwise), broadcast, transmit, use and/or otherwise exploit such
intellectual or intangible property and/or any product, component or service
embodying, related to or subject to such intellectual or intangible property;
and the right to assign, transfer, license and/or sublicense (with the right to
sublicense further) any of the foregoing, and the right to have and/or authorize
others do any of the foregoing.

"Fee" shall have the meaning specified in Section 10.3.

"Final Resolution Date" shall have the meaning specified in Section 2.2(b).

                                      A-3


"Financial Statements" shall have the meaning specified in Section 4.7(a).

"GAAP" means U.S. generally accepted accounting principles in effect on the date
on which they are to be applied pursuant to this Agreement, applied consistently
throughout the relevant periods.

"General Assignment and Bill of Sale" shall have the meaning specified in
Section 3.2(a).

"Governmental Approval" shall mean any: (a) permit, license, certificate,
concession, approval, consent, ratification, permission, clearance,
confirmation, exemption, waiver, franchise, certification, designation, rating,
registration, variance, qualification, accreditation or authorization issued,
granted, given or otherwise made available by or under the authority of any
Governmental Authority or pursuant to any Legal Requirement; or (b) right under
any Contract with any Governmental Authority.

"Governmental Authority" shall mean any: (a) nation, principality, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; (c) governmental or quasi governmental authority of any nature
(including any governmental division, subdivision, department, agency, bureau,
branch, office, commission, council, board, instrumentality, officer, official,
representative, organization, unit, body or Entity and any court or other
tribunal); (d) multinational organization or body; or (e) individual, Entity or
body exercising, or entitled to exercise, any executive, legislative, judicial,
administrative, regulatory, police, military or taxing authority or power of any
nature.

"Hazardous Materials" shall mean any substance, chemical, waste or other
material which is listed, defined or otherwise identified as hazardous, toxic or
dangerous under any applicable law; as well as any petroleum, petroleum product
or by-product, crude oil, natural gas, natural gas liquids, liquefied natural
gas, or synthetic gas useable for fuel, and "source," "special nuclear," and
"by-product" material as defined in the Atomic Energy Act of 1954, 42 U.S.C.
Sections 2011 et seq.

"Indemnification Agreements" shall have the meaning specified in Section 6.9.

"Indemnitee" shall have the meaning specified in Section 11.4.

"Indemnitor" shall have the meaning specified in Section 11.4.

"Independent Accounting Firm" shall have the meaning specified in Section
2.2(c).

"Intellectual Property Rights" shall mean any or all rights in and to
intellectual property and intangible industrial property rights, including,
without limitation, Patents, Trade Secrets, Copyrights, Mask Works, Trademarks,
and any and all rights similar, corresponding or equivalent to any of the
foregoing anywhere in the world, together with (i) all registrations and
applications for registrations therefor and (ii) all rights to any of the
foregoing (including: (a) all rights received under any license or other
arrangement with respect to the foregoing, (b) all rights or causes of action
for infringement or misappropriation (past, present or future) of any of the
foregoing and (c) all rights to apply for or register any of the foregoing).

                                      A-4


"Interim Balance Sheet" shall have the meaning specified in Section 4.7(a).

"Interim Balance Sheet Date" shall have the meaning specified in Section 4.7(a).

"Inventory" shall have the meaning specified in Section 1.1(b).

"IRS" means the Internal Revenue Service.

"Knowledge" An individual shall be deemed to have "Knowledge" of a particular
fact or other matter if: (i) such individual is actually aware of such fact or
other matter or (ii) a prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of his normal
duties. Seller's Knowledge shall mean the Knowledge of Edward Ateyeh, Jr.,
William Kerley and Philip Hornsey. Purchaser's Knowledge shall mean the
Knowledge of Thomas P. Raimondi, Jr. and Scott J. Poteracki.

"Leased Real Property" shall have the meaning set forth in Section 1.1(f).

"Legal Requirement" shall mean any federal, state, local, municipal, foreign or
other law, statute, legislation, constitution, principle of common law,
resolution, ordinance, code, Order, edict, decree, proclamation, treaty,
convention, rule, regulation, permit, ruling, directive, pronouncement,
requirement (licensing or otherwise), specification, determination, decision,
opinion or interpretation that is, has been or may in the future be issued,
enacted, adopted, passed, approved, promulgated, made, implemented or otherwise
put into effect by or under the authority of any Governmental Authority.

"Liability" shall mean any debt, obligation, duty or liability of any nature
(including any unknown, undisclosed, unmatured, unaccrued, unasserted,
contingent, indirect, conditional, implied, vicarious, derivative, joint,
several or secondary liability), regardless of whether such debt, obligation,
duty or liability would be required to be disclosed on a balance sheet prepared
in accordance with generally accepted accounting principles and regardless of
whether such debt, obligation, duty or liability is immediately due and payable.

"Lock-Up Agreement" shall have the meaning specified in Section 3.2(e).

"Machinery and Equipment" shall have the meaning specified in Section 1.1(c).

"Mask Works" shall mean all mask works, mask work registrations and applications
therefor, and any equivalent or similar rights in semiconductor masks, layouts,
architectures or topology.

"Material Adverse Effect" means (i) with respect to Purchaser, any event, change
or effect that, when taken individually or together with all other adverse
events, changes and effects, is or is reasonably likely (a) to be materially
adverse to the condition (financial or otherwise), properties, assets,
liabilities, business, operations, results of operations or prospects of
Purchaser or its subsidiaries, taken as a whole or (b) to prevent or materially
delay consummation of the Transaction or otherwise to prevent Purchaser or its
subsidiaries from performing their obligations under this Agreement and (ii)
with respect to Seller, any event, change or effect that, when taken
individually or together with all other adverse events, changes and effects, is
or is reasonably likely (a) to be materially adverse to the condition (financial
or otherwise), properties,

                                      A-5


assets (including Purchased Assets), liabilities (including Assumed
Liabilities), business, operations, results of operations or prospects of
Seller, its Subsidiaries, or the Business or (b) to prevent or materially delay
consummation of the Transaction or otherwise to prevent Seller from performing
its obligations under this Agreement; provided that in each such case it shall
exclude (w) general economic or conditions affecting the industry generally, (x)
announcement of the Transaction, and (y) changes in the reported stock price or
volume.

"Material Contracts" shall have the meaning specified in Section 4.13(a).

"Multiemployer Plan" shall mean a plan described in Section 3(37) of ERISA.

"Net Assets" shall have the meaning specified in Section 2.2(a).

"Net Asset Adjustment" shall have the meaning specified in Section 2.2(d).

"Non-Assignable Asset" shall have the meaning specified in Section 1.5(a).

"Noncompetition Period" shall have the meaning specified in Section 7.6(a).

"Note" shall have the meaning specified in Section 2.1(a)(ii).

"Opinion of Purchaser's Counsel" shall have the meaning specified in Section
9.2(e).

"Opinion of Seller's Counsel" shall have the meaning specified in Section
9.1(e).

"Order" shall mean any: (a) temporary, preliminary or permanent order, judgment,
injunction, edict, decree, ruling, pronouncement, determination, decision,
opinion, verdict, sentence, stipulation, subpoena, writ or award that is or has
been issued, made, entered, rendered or otherwise put into effect by or under
the authority of any court, administrative agency or other Governmental
Authority or any arbitrator or arbitration panel; or (b) Contract with any
Governmental Authority that is or has been entered into in connection with any
Proceeding.

"Ordinary Course of Business" shall describe any action taken by a party if (a)
such action is consistent with such party's past practices and is taken in the
ordinary course of such party's normal day to day operations; (b) such action is
taken in accordance with sound and prudent business practices; (c) such action
is not required to be authorized by such party's stockholders, board of
directors or any committee thereof and does not require any other separate or
special authorization of any nature; and (d) such action is similar in nature
and magnitude to actions customarily taken, without any separate or special
authorization, in the ordinary course of the normal day to day operations of
other Entities that are engaged in businesses similar to such party's business.

"Outside Closing Date" shall have meaning specified in Section 10.1(c).

"Owned and Leased Vehicles" shall have the meaning specified in Section 1.1(d).

"Patents" shall mean all United States and foreign patents and utility models
and applications therefor and all reissues, divisions, re-examinations,
renewals, extensions, provisionals,

                                      A-6


continuations and continuations-in-part thereof, and equivalent or similar
rights anywhere in the world in inventions and discoveries, including invention
disclosures related to the Business or any Purchased Assets or Assumed
Liabilities.

"Permitted Encumbrances" shall mean any Encumbrance that (a) is clearly
reflected in the Financial Statements; (b) is a lien of a landlord, carrier,
warehouseman, mechanic, materialman, or any other lien arising in the Ordinary
Course of Business by operation of law with respect to liability that is not yet
due or delinquent; (c) is a lien for Taxes not yet due; or (d) is a purchase
money security interest arising in the Ordinary Course of Business.

"Person" shall mean any individual, Entity or Governmental Authority.

"Personal Property" shall have the meaning specified in Section 1.1(e).

"Personal Property Leases" shall have the meaning specified in Section 1.1(g).

"Post-Closing Period" shall mean any taxable period beginning after the close of
business on the day prior to Closing Date or, in the case of any tax period
which includes, but does not begin, after the close of business on the day prior
to Closing Date, the portion of such period beginning after the close of
business on the day prior to Closing Date.

"Pre-Closing Period" shall mean any taxable period ending on or before the close
of business on the day prior to Closing Date or, in the case of any taxable
period which includes, but does not end on, the day prior to Closing Date, the
portion of such period up to and including the day prior to Closing Date.

"Preliminary Closing Balance Sheet" shall have the meaning specified in Section
2.2(a).

"Proceeding" shall mean any action, suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or appellate
proceeding), prosecution, contest, hearing, inquiry, inquest, audit, examination
or investigation that is, has been or may in the future be commenced, brought,
conducted or heard at law or in equity or before any Governmental Authority or
any arbitrator or arbitration panel.

"PTO" shall have the meaning specified in Section 4.16(f).

"Purchase Price" shall have the meaning specified in Section 2.1(a).

"Purchased Assets" shall have the meaning specified in Section 1.1.

"Purchaser" shall mean MTI Technology Corporation, a Delaware corporation.

"Purchaser Damages" shall have the meaning specified in Section 11.2.

"Purchaser Disclosure Schedule" shall have the meaning specified in Article 5.

"Purchaser Plans" shall have the meaning specified in Section 8.3(a).

"Purchaser's Accountant" shall have the meaning specified in Section 2.2(b).

                                      A-7


"Purchaser's Indemnification Cap" shall have the meaning specified in Section
11.5(b).

"Purchaser's Basket" shall have the meaning specified in Section 11.5(b).

"Real Property" shall mean all real property, land, buildings, structures,
easements, appurtenances, improvements and fixtures.

"Real Property Leases" shall have the meaning specified in Section 1.1(f).

"Rebates and Credits" shall have the meaning specified in Section 1.1(j).

"Receivables" shall have the meaning specified in Section 1.1(a).

"Registered Intellectual Property Rights" shall mean all United States,
international and foreign: (a) Patents, including applications therefor; (b)
registered Trademarks, applications to register Trademarks, including
intent-to-use applications, or other registrations or applications related to
Trademarks; (c) Copyright registrations and applications to register Copyrights;
(d) Mask Work registrations and applications to register Mask Works; and (e) any
other Intellectual Property Rights that is the subject of an application,
certificate, filing, registration or other document issued by, filed with, or
recorded by, any state, government or other public legal authority at any time.

"Representatives" shall mean officers, directors, employees, attorneys,
accountants, advisors, agents, distributors, licensees, shareholders,
subsidiaries and lenders of a party. In addition, all Affiliates of Seller shall
be deemed to be "Representatives" of Seller.

"Restricted Territory" shall have the meaning specified in Section 7.6(c).

"SEC Reports" shall have the meaning specified in Section 5.5(a).

"Securities Act" shall mean the Securities Act of 1933, as amended.

"Seller" shall mean Collective Technologies, LLC, a Delaware limited liability
company.

"Seller Benefit Plans" shall mean any "employee benefit plan," as defined in
Section 3(3) of ERISA, any employment, severance or similar contract or
arrangement, or any plan, policy, fund, program or contract or arrangement
providing for compensation, bonus, profit-sharing, stock option, or other stock
related rights or other forms of incentive or deferred compensation, vacation
benefits, insurance coverage (including any self-insured arrangements), health
or medical benefits, disability benefits, workers' compensation, supplemental
unemployment benefits, and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance or other benefits) that
is maintained, administered, or contributed to by any ERISA Affiliate.

"Seller Claims" shall have the meaning specified in Section 1.1(m).

"Seller Contracts" shall have the meaning specified in Section 1.1(k).

                                      A-8


"Seller Damages" shall have the meaning specified in Section 11.3.

"Seller Disclosure Schedule" shall have the meaning specified in Article 4.

"Seller Intellectual Property" shall mean all Intellectual Property Rights
related to the Business, the Purchased Assets or the Assumed liabilities and
held by Seller, whether owned or controlled, licensed, owned or controlled by or
for, licensed to, or otherwise held by or for the benefit of Seller including
the Seller Registered Intellectual Property Rights.

"Seller Options" shall mean all outstanding options, whether vested or unvested,
granted, awarded or issued from or under the Seller Stock Option Plan.

"Seller Registered Intellectual Property Rights" shall have the meaning
specified in Section 4.16(a).

"Seller Stock Option Plan" means the 1997 Stock Option/Stock Issue and Plan of
Seller, as amended and restated as of March 1, 2002.

"Seller's Accountant" shall have the meaning specified in Section 2.2(b).

"Seller's Basket" shall have the meaning specified in Section 11.5(a).

"Seller's Indemnification Cap" shall have the meaning specified in Section
11.5(a).

"Seller's Indemnified Person" shall have the meaning specified in Section 11.3.

"Shares" shall have the meaning specified in Section 2.1(a)(iii).

"Subsidiary" means another Person, an amount of the voting securities, other
voting ownership or voting partnership interests of which is sufficient to elect
at least a majority of its board of directors or other governing body (or, if
there are no such voting interests, 50% or more of the equity interests of
which) is owned directly or indirectly by such first Person

"Survival Date" shall have the meaning specified in Section 11.1.

"Tax" (and, with correlative meaning, "Taxes" and "Taxable") means any net
income, alternative or add-on minimum tax, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount and any interest
on such penalty, addition to tax or additional amount, imposed by any Tax
Authority.

"Tax Authority" means Governmental Authority responsible for the imposition,
assessment or collection of any Tax (domestic or foreign).

"Tax Return" shall mean any return, statement, declaration, notice, certificate
or other document that is or has been filed with or submitted to, or required to
be filed with or submitted to, any

                                      A-9


Governmental Authority in connection with the determination, assessment,
collection or payment of any Tax or in connection with the administration,
implementation or enforcement of or compliance with any Legal Requirement
related to any Tax.

"Trade Secrets" shall mean all trade secrets under applicable law and other
rights in know-how and confidential or proprietary information, processing,
manufacturing or marketing information, including new developments, inventions,
processes, ideas or other proprietary information that provide Seller with
advantages over competitors who do not know or use it and documentation thereof
(including related papers, blueprints, drawings, chemical compositions,
formulae, diaries, notebooks, specifications, designs, methods of manufacture
and data processing software, compilations of information) and all claims and
rights related thereto.

"Trademarks" shall mean any and all trademarks, service marks, logos, trade
names, corporate names, Internet domain names and addresses and general-use
e-mail addresses, and all goodwill associated therewith throughout the world.

"Transaction" shall mean, collectively, the transactions contemplated by this
Agreement.

"Transaction Agreements" shall mean this Agreement and all other agreements,
certificates, instruments, documents and writings delivered by Purchaser and/or
Seller in connection with the Transaction.

"Transferred Employees" shall have the meaning specified in Section 8.1.

"Transfer Taxes" shall mean all federal, state, local or foreign sales, use,
transfer, real property transfer, mortgage recording, stamp duty, value-added or
similar Taxes that may be imposed in connection with the transfer of Purchased
Assets or assumption of Assumed Liabilities, together with any interest,
additions to Tax or penalties with respect thereto and any interest in respect
of such additions to Tax or penalties.

"Vacation Accrual" shall have the meaning specified in Section 1.3(c).

"WARN Act" shall have the meaning specified in Section 4.19(e).

"Warrant" shall have the meaning specified in Section 2.1(a)(iv).

"Wells Fargo Agreement" shall have the meaning specified in Section 2.1(b).

                                      A-10

EX-10.19

                                                                   EXHIBIT 10.19

            SUMMARY OF EXECUTIVE COMPENSATION AND BONUS ARRANGEMENTS

      As of June 1, 2006, the table below summarizes the current annual salary
and bonus arrangements with each of the Company's executive officers. All of the
compensation arrangements with the executive officers, including with respect to
annual salaries and bonuses, are reviewed and may be modified from time to time
by the Compensation Committee of the Board of Directors. The Compensation
Committee approved the annual salary and bonus arrangements noted in the table
below.

      On May 25, 2005, the Compensation Committee adopted an executive bonus
plan effective May 25, 2005, a description of which is discussed below.

      The Company's executive officers are "at-will" employees. Currently, there
are no written or oral employment arrangements with the executive officers,
except that Keith Clark received a Contract of Employment dated July 5, 2000, a
copy of such is filed as an exhibit to the Annual Report on Form 10-K for the
fiscal year ended April 2, 2005. The Company's executive officers received
standard forms of Indemnification Agreement and Change of Control Agreement.
From time to time, the executive officers are granted stock options, subject to
the approval of the Compensation Committee. The Company's standard forms of
Indemnification Agreement, Change of Control Agreement and the 2001 Stock
Incentive Plan are on file with the SEC.



                                                                SALARY       BONUS
EXECUTIVE OFFICER                                                  ($)         ($)
- ---------------------------------------------------------      -------       -----
                                                                       
Thomas P. Raimondi, Jr...................................      400,000(2)      (1)
   President, Chief Executive Officer and
   Chairman of the Board

Keith Clark..............................................      344,243(3)
   Executive Vice President, European Operations

Scott Poteracki..........................................      270,000         (1)
   Executive Vice President, Chief Financial Officer
   and Secretary

Richard L. Ruskin........................................      304,545(4)
   Executive Vice President, U.S. Sales And Marketing

Todd Williams.............................................     165,000(5)
   Vice President, Corporate Controller and Principal
   Accounting Officer


- ----------
(1)   Effective May 25, 2005, Messrs. Raimondi and Poteracki are eligible for
      annual bonuses of $120,000 and $90,000, respectively. The following
      guidelines apply to the annual incentive portion of the executives'
      compensation: (i) any incentive payments earned will be paid during the
      first quarter following the close of the current fiscal year; (ii) annual
      operating profitability for the Company, as determined by the Compensation
      Committee in its discretion, is a prerequisite for any annual incentive
      payments; and (iii) the specific incentive elements for each executive
      will be established by the Compensation Committee based on the approved
      annual financial plan.

(2)   Mr. Raimondi's annual base salary was increased, effective May 25, 2005
      from $337,000 to $400,000.



(3)   Mr. Clark's salary is paid in British Pounds and translated to U.S.
      Dollars at the applicable exchange rates.

(4)   Mr. Ruskin's current annual base salary is $225,000. In addition, he is
      eligible for commission compensation which was $79,545 in fiscal year
      2006.

(5)   Mr. Williams's annual base salary was increased in April 2006, from
      $150,000 to $165,000.

                         SUMMARY OF EXECUTIVE BONUS PLAN

On May 25, 2005, the Compensation Committee of the Board of Directors adopted an
executive bonus plan effective May 25, 2005. Under this executive bonus plan,
eligible executive officers may earn annual incentive compensation with the
following guidelines:

      -     any incentive payments earned will be paid during the first quarter
            following the close of the current fiscal year;

      -     annual operating profitability for the Company, as determined by the
            Compensation Committee in its discretion, is a prerequisite for any
            annual incentive payments; and

      -     the specific incentive elements for each executive will be
            established by the Compensation Committee based on the approved
            annual financial plan.

As of June 1, 2006, the Chief Executive Officer and Chief Financial Officer are
eligible to participate in this executive bonus plan.

EX-10.20

                                                                   EXHIBIT 10.20

                  SUMMARY OF DIRECTOR COMPENSATION ARRANGEMENT

      Each non-employee director receive annual compensation in the amount of
$25,000, paid in quarterly installments at the beginning of each fiscal quarter.
In addition, each Compensation Committee member, Audit Committee member,
Nominating Committee member, Chairman of each Committee and Lead Director
receive annual fees of $2,500, $5,000, $2,500, $5,000 and $15,000 respectively.
Employee directors do not receive any additional cash compensation for serving
on the Board of Directors, but are reimbursed for expenses incurred in attending
the meetings. Each non-employee director is included in the Company's executive
medical plan. Non-employee directors are permitted to participate in the
Company's investment and tax planning program.

      Each non-employee director is granted a nonqualified option to purchase
50,000 shares of common stock under the 2001 Non-Employee Director Option
Program (the "Program") upon election or appointment to the Board of Directors.
These options vest and become exercisable in three equal installments on each
anniversary of the grant date. In addition, the Program provides that each
non-employee director who is a director immediately prior to an annual meeting
of the stockholders and who continues to be a director after such meeting,
provided that such director has served as such for at least 11 months, will be
granted an option to purchase 25,000 shares of common stock on the related
annual meeting date. Options granted under the Program vest and become
exercisable in three equal installments on each anniversary of their respective
grant date.

EX-10.24

                                                                   EXHIBIT 10.24

                           MTI TECHNOLOGY CORPORATION
                        RESTRICTED STOCK AWARD AGREEMENT
                                      UNDER
                            2001 STOCK INCENTIVE PLAN

      THIS RESTRICTED STOCK AWARD AGREEMENT (the "Agreement") is entered into as
of ___________, 20__, by and between __________________________. (hereinafter
referred to as "Grantee"), and MTI Technology Corporation, a Delaware
corporation (hereinafter referred to as the "Company"), pursuant to the
Company's 2001 Stock Incentive Plan (the "Plan"). Any capitalized term not
defined herein shall have the same meaning ascribed to it in the Plan.

                                    RECITALS:

      A. Grantee is an Employee, Director, Consultant or other person who
provides services to the Company or a parent or subsidiary of the Company, as
those terms are defined in Sections 424(e) and 424(f) of the Internal Revenue
Code of 1986, as amended (the "Code"), and in connection therewith has rendered
services for and on behalf of the Company.

      B. WHEREAS, the Company desires to issue shares of its common stock to
Grantee to encourage the continued service of Grantee as an employee of the
Company and to exert added effort towards its growth and success, which service
is of benefit to the Company;

      C. WHEREAS, the Company desires to impose certain restrictions on the
shares of common stock granted hereunder for the benefit of the Company; and

      D. WHEREAS, such grant is being made to Grantee in addition to, and not in
lieu of, any other form of compensation otherwise payable or to be paid to
Grantee.

      NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, and for other good and valuable consideration, the parties agree as
follows:

      1. ISSUANCE OF SHARES. The Company hereby offers to issue to Grantee an
aggregate of ______________(_________) SHARES OF COMMON STOCK OF THE COMPANY
(the "Shares") AT THE NOMINAL EXERCISE PRICE OF $________ PER SHARE ON
____________, 20__, on the terms and conditions herein set forth. Unless this
offer is earlier revoked in writing by the Company, Grantee shall have ten (10)
days from the date of the delivery of this Agreement to Grantee to accept the
offer of the Company by executing and delivering to the Company two copies of
this Agreement, without condition or reservation of any kind whatsoever.

      2. VESTING OF SHARES.

            (A) Subject to Grantee's "Continuous Service" and Section 2(b)
below, the Shares acquired hereunder shall vest and become "Vested Shares" as
follows:

                                       1


                  ONE-THIRD (1/3) OF THE SHARES SHALL VEST TWELVE (12) MONTHS
            AFTER THE VESTING COMMENCEMENT DATE. ONE-TWENTY-FOURTH (1/24TH) OF
            THE REMAINING UNVESTED SHARES SHALL VEST AT THE END OF THE 13TH
            MONTH AND EACH MONTH THEREAFTER, SUCH THAT THE SHARES WILL BE ONE
            HUNDRED PERCENT (100%) VESTED AFTER THIRTY-SIX (36) MONTHS OF
            CONTINUOUS SERVICES FROM VESTING COMMENCEMENT DATE.

            Shares which have not yet become vested are herein called "Unvested
Shares." No additional shares shall vest after the date of termination of
Grantee's Continuous Service. For these purposes, THE "VESTING COMMENCEMENT
DATE" SHALL BE ______________, 20__.

            As used herein, the term "Continuous Service" means that the
provision of services to the Company or a Related Entity in any capacity of
Employee, Director or Consultant, is not interrupted or terminated.

            (B) Notwithstanding Section 2(a), if Grantee holds Shares at the
time a Corporate Transaction occurs, all "Forfeiture Rights" (as defined in 3(b)
below) shall automatically terminate immediately prior to the consummation of
such Corporate Transaction and the Shares subject to those terminated Forfeiture
Rights shall immediately vest in full except to the extent that this Agreement
is continued, assumed, or substituted for by the acquiring or successor entity
(or parent thereof) in connection with such Corporate Transaction.
Notwithstanding the foregoing sentence, if pursuant to a Corporate Transaction
the acquiring or successor entity (or parent thereof) provides for the
continuance or assumption of this Agreement or the substitution for this
Agreement of a new agreement of comparable value covering shares of a successor
corporation (with appropriate adjustments as to the number and kind of shares),
then the Forfeiture Rights shall not terminate and vesting of the Shares shall
not accelerate in connection with such Corporate Transaction; provided, however,
if Grantee's Continuous Service is terminated without Cause or pursuant to a
voluntary termination for Good Reason within twelve (12) months following such
Corporate Transaction, all Forfeiture Rights shall terminate and vesting of the
Shares or any substituted shares shall accelerate in full automatically
effective upon such termination of Continuous Service.

            If the Forfeiture Rights automatically terminate in accordance with
the provisions of this Section 2(b), then the Administrator shall cause written
notice of the Corporate Transaction to be given to Grantee not less than fifteen
(15) days prior to the anticipated effective date of the proposed transaction.

            (C) If Grantee holds Shares at the time a Change in Control occurs,
then if Grantee's Continuous Service is terminated without Cause or pursuant to
a voluntary termination for Good Reason within twelve (12) months following such
Change in Control, all Forfeiture Rights shall terminate and vesting of the
Shares or any substituted shares shall accelerate in full automatically
effective upon such termination of Continuous Service.

                                       2


      3. FORFEITURE RIGHTS UPON TERMINATION OF SERVICE.

            (A) DEPOSIT OF UNVESTED SHARES. Grantee shall deposit with the
Company certificates representing the Unvested Shares, together with a duly
executed stock assignment separate from certificate in blank (a form of which is
attached hereto as EXHIBIT B), which shall be held by the Secretary of the
Company. Grantee shall be entitled to vote and to receive dividends and
distributions on all such deposited Unvested Shares.

            (B) FORFEITURE AND CANCELLATION OF UNVESTED SHARES UPON TERMINATION.
In the event of termination of Grantee's Continuous Service, all Unvested Shares
as of the Termination Date shall be immediately forfeited, cancelled and shall
become null and void (the "Forfeiture Rights"). The Company shall cancel the
certificates then deposited with the Company evidencing the Unvested Shares and
reissue a new certificate to Grantee evidencing only the Vested Shares, if any,
as of the Termination Date.

            (C) TERMINATION. The provisions of this Section 3 shall
automatically terminate, and the Shares shall not be subject to the Forfeiture
Rights (and thus shall become Vested Shares), in accordance with Section 2(b)
above.

            (D) ASSIGNMENT. The Company may assign its rights under this Section
3 without the consent of the Grantee.

      4. RESTRICTIONS ON UNVESTED SHARES. Unvested Shares may not be sold,
transferred, pledged, or otherwise disposed of, except that such Unvested Shares
may be transferred to a trust established for the sole benefit of the Grantee
and/or his or her spouse, children or grandchildren. Any Unvested Shares that
are transferred as provided herein remain subject to the terms and conditions of
this Agreement.

      5. ADJUSTMENTS UPON CHANGES IN CAPITAL STRUCTURE. In the event that the
outstanding Shares of Common Stock of the Company are hereafter increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of a recapitalization, stock split,
combination of shares, reclassification, stock dividend, or other change in the
capital structure of the Company, then Grantee shall be entitled to new or
additional or different shares of stock or securities, in order to preserve, as
nearly as practical, but not to increase, the benefits of Grantee under this
Agreement, in accordance with the provisions of Section 4.2 of the Plan. Such
new, additional or different shares shall be deemed "Shares" for purposes of
this Agreement and subject to all of the terms and conditions hereof.

      6. SHARES FREE AND CLEAR. All Shares returned to the Company pursuant to
this Agreement shall be delivered by Grantee free and clear of all claims, liens
and encumbrances of every nature (except the provisions of this Agreement and
any conditions concerning the Shares relating to compliance with applicable
federal or state securities laws), and the Company shall acquire full and
complete title and right to all of such Shares, free and clear of any claims,
liens and encumbrances of every nature (again, except for the provisions of this
Agreement and such securities laws).

                                       3


      7. LIMITATION OF COMPANY'S LIABILITY FOR NONISSUANCE; UNPERMITTED
TRANSFERS.

            (A) The Company agrees to use its reasonable best efforts to obtain
from any applicable regulatory agency such authority or approval as may be
required in order to issue and sell the Shares to Grantee pursuant to this
Agreement. The inability of the Company to obtain, from any such regulatory
agency, authority or approval deemed by the Company's counsel to be necessary
for the lawful issuance and sale of the Shares hereunder and under the Plan
shall relieve the Company of any liability in respect of the nonissuance or sale
of such Shares as to which such requisite authority or approval shall not have
been obtained.

            (B) The Company shall not be required to: (i) transfer on its books
any Shares of the Company which shall have been sold or transferred in violation
of any of the provisions set forth in this Agreement, or (ii) treat as owner of
such shares or to accord the right to vote as such owner or to pay dividends to
any transferee to whom such shares shall have been so transferred.

      8. NOTICES. Any notice, demand or request required or permitted to be
given under this Agreement shall be in writing and shall be deemed given when
delivered personally or three (3) days after being deposited in the United
States mail, as certified or registered mail, with postage prepaid, (or by such
other method as the Administrator may from time to time deem appropriate), and
addressed, if to the Company, at its principal place of business, Attention: the
Chief Financial Officer, and if to the Grantee, at his or her most recent
address as shown in the employment or stock records of the Company.

      9. BINDING OBLIGATIONS. All covenants and agreements herein contained by
or on behalf of any of the parties hereto shall bind and inure to the benefit of
the parties hereto and their permitted successors and assigns.

      10. CAPTIONS AND SECTION HEADINGS. Captions and section headings used
herein are for convenience only, and are not part of this Agreement and shall
not be used in construing it.

      11. AMENDMENT. This Agreement may not be amended, waived, discharged, or
terminated other than by written agreement of the parties.

      12. ENTIRE AGREEMENT. This Agreement and the Plan constitute the entire
agreement between the parties with respect to the subject matter hereof and
supersede all prior or contemporaneous written or oral agreements and
understandings of the parties, either express or implied.

      13. ASSIGNMENT. Grantee shall have no right, without the prior written
consent of the Company, to (i) sell, assign, mortgage, pledge or otherwise
transfer any interest or right created hereby, or (ii) delegate his or her
duties or obligations under this Agreement. This Agreement is made solely for
the benefit of the parties hereto, and no other person, partnership, association
or corporation shall acquire or have any right under or by virtue of this
Agreement.

                                       4


      14. SEVERABILITY. Should any provision or portion of this Agreement be
held to be unenforceable or invalid for any reason, the remaining provisions and
portions of this Agreement shall be unaffected by such holding.

      15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one agreement and any
party hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be binding upon Grantee and the Company at such time as the
Agreement, in counterpart or otherwise, is executed by Grantee and the Company.

      16. APPLICABLE LAW. This Agreement shall be construed in accordance with
the laws of the State of California without reference to choice of law
principles, as to all matters, including, but not limited to, matters of
validity, construction, effect or performance.

      17. NO AGREEMENT TO EMPLOY. Nothing in this Agreement shall affect any
right with respect to continuance of employment by the Company or any of its
subsidiaries. The right of the Company or any of its subsidiaries to terminate
at will the Grantee's employment at any time (whether by dismissal, discharge or
otherwise), with or without cause, is specifically reserved, subject to any
other written employment agreement to which the Company and Grantee may be a
party.

      18. "MARKET STAND-OFF" AGREEMENT. Grantee agrees in connection with any
registration of the Company's securities that, upon the request of the Company
or the underwriters managing any public offering of the Company's securities,
Grantee will not sell or otherwise dispose of any Shares without the prior
written consent of the Company or such underwriters, as the case may be, for a
period of time (not to exceed 180 days) from the effective date of such
registration as the Company or the underwriters may specify.

      19. WITHHOLDING. Grantee agrees to make appropriate arrangements with the
Company (or a Parent or Subsidiary employing or retaining Grantee) for the
satisfaction of all Federal, state, local and foreign income and employment
withholding tax requirements applicable to the issuance of the Shares as
contemplated by this Agreement.

      20. TAX ELECTIONS. Grantee understands that Grantee (and not the Company)
shall be responsible for the Grantee's own tax liability that may arise as a
result of the acquisition of the Shares. Grantee acknowledges that Grantee has
considered the advisability of all tax elections in connection with the issuance
of the Shares, including the making of an election under Section 83(b) under the
Internal Revenue Code of 1986, as amended ("Code"); Grantee further acknowledges
that the Company has no responsibility for the making of such Section 83(b)
election. In the event Grantee determines to make a Section 83(b) election,
Grantee agrees to timely provide a copy of the election to the Company as
required under the Code.

                                       5


      21. ATTORNEYS' FEES. If any party shall bring an action in law or equity
against another to enforce or interpret any of the terms, covenants and
provisions of this Agreement, the prevailing party in such action shall be
entitled to recover reasonable attorneys' fees and costs.

                            [Signature Page Follows]

                                       6


      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.

THE COMPANY:                                               GRANTEE:
MTI TECHNOLOGY CORPORATION

By:    ______________________________           ______________________________
                                                Signature

Name:  ______________________________           ______________________________
                                                Print Name

Title: ______________________________

                                       7


                                    EXHIBIT A

                       CONSENT AND RATIFICATION OF SPOUSE

      The undersigned, the spouse of ____________________ a party to the
attached Restricted Stock Award Agreement (the "Agreement"), dated as of
___________, 20__, hereby consents to the execution of said Agreement by such
party; and ratifies, approves, confirms and adopts said Agreement, and agrees to
be bound by each and every term and condition thereof as if the undersigned had
been a signatory to said Agreement, with respect to the Shares (as defined in
the Agreement) made the subject of said Agreement in which the undersigned has
an interest, including any community property interest therein.

      I also acknowledge that I have been advised to obtain independent counsel
to represent my interests with respect to this Agreement but that I have
declined to do so and I hereby expressly waive my right to such independent
counsel.

Date: ___________________________             _______________________________
                                              Signature

                                              _______________________________
                                              Print Name





                                    EXHIBIT B

                   STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE

      FOR VALUE RECEIVED, the undersigned, _______________________, hereby
assigns and transfers unto MTI Technology Corporation, a Delaware corporation
("MTI"), a total of _____ shares of the Common Stock of MTI, standing in its
name on the books of said Corporation represented by Certificate No. __________,
and does hereby irrevocably constitute and appoint _______________ as its
attorney, to transfer said shares on the share register of the within named
Corporation, with full power of substitution.

Date: ___________________________             _______________________________
                                              Signature

                                              _______________________________
                                              Print Name

EX-10.25

                                                                   EXHIBIT 10.25

              MTI TECHNOLOGY CORPORATION 2001 STOCK INCENTIVE PLAN

                          NOTICE OF STOCK OPTION AWARD

      Grantee's Name and Address:      _________________________________________

                                       _________________________________________

                                       _________________________________________

      You have been granted an option to purchase shares of Common Stock,
subject to the terms and conditions of this Notice of Stock Option Award (the
"Notice"), the MTI Technology Corporation 2001 Stock Incentive Plan, as amended
from time to time (the "Plan") and the Stock Option Award Agreement (the "Option
Agreement") attached hereto, as follows. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this Notice.

      Award Number:                        20
      Date of Award:                     _______________________________________
      Vesting Commencement Date:         _______________________________________
      Exercise Price per Share:            $
      Total Number of Shares subject
         to the Option:                   ______________________________________
      Total Exercise Price:                $
      Type of Option:                      [ ]  Incentive Stock Option
                                           [X]  Non-Qualified Stock Option
      Expiration Date:                   _______________________________________
      Post-Termination Exercise Period:    Three (3) Months

Vesting Schedule:

      Subject to Grantee's Continuous Service and other limitations set forth in
this Notice, the Plan and the Option Agreement, the Option may be exercised, in
whole or in part, in accordance with the following schedule:

            36-MONTH (3 YEAR) VESTING WITH 6-MONTH CLIFF AND MONTHLY THEREAFTER:

                        Six-thirty-sixths (6/36th) of the shares subject to the
            Option shall vest six (6) months after the Vesting Commencement
            Date. One-thirtieth (1/30th) of the remaining unvested shares
            subject to the Option shall vest at the end of the 7th month and
            each month thereafter, such that the Option will be one hundred
            percent (100%) vested after thirty-six (36) months of Continuous
            Services from the Vesting Commencement Date.

      During any authorized leave of absence, the vesting of the Option as
provided in this schedule shall cease after the leave of absence exceeds a
period of ninety (90) days. Vesting of the Option shall resume upon the
Grantee's termination of the leave of absence and return to service to the
Company or a Related Entity.

                                       1


      In the event of the Grantee's change in status from Employee to Consultant
or from an Employee whose customary employment is 20 hours or more per week to
an Employee whose customary employment is fewer than 20 hours per week, vesting
of the Option shall continue only to the extent determined by the Administrator
as of such change in status.

      In the event of termination of the Grantee's Continuous Service for Cause,
the Grantee's right to exercise the Option shall terminate concurrently with the
termination of the Grantee's Continuous Service.

      IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice
and agree that the Option is to be governed by the terms and conditions of this
Notice, the Plan, and the Option Agreement.

                                            MTI Technology Corporation,
                                            A Delaware corporation

                                      By: ______________________________________

                                   Title:  Chief Financial Officer

THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SUBJECT TO THE OPTION SHALL
VEST, IF AT ALL, ONLY DURING THE PERIOD OF THE GRANTEE'S CONTINUOUS SERVICE (NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE OPTION OR ACQUIRING SHARES
HEREUNDER). THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS
NOTICE, THE OPTION AGREEMENT, OR THE PLAN SHALL CONFER UPON THE GRANTEE ANY
RIGHT WITH RESPECT TO FUTURE AWARDS OR CONTINUATION OF GRANTEE'S CONTINUOUS
SERVICE, NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE'S RIGHT OR THE RIGHT
OF THE GRANTEE'S EMPLOYER TO TERMINATE GRANTEE'S CONTINUOUS SERVICE, WITH OR
WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE. THE GRANTEE ACKNOWLEDGES THAT UNLESS
THE GRANTEE HAS A WRITTEN EMPLOYMENT AGREEMENT WITH THE COMPANY TO THE CONTRARY,
GRANTEE'S STATUS IS AT WILL.

The Grantee acknowledges receipt of a copy of the Plan and the Option Agreement,
and represents that he or she is familiar with the terms and provisions thereof,
and hereby accepts the Option subject to all of the terms and provisions hereof
and thereof. The Grantee has reviewed this Notice, the Plan, and the Option
Agreement in their entirety, has had an opportunity to obtain the advice of
counsel prior to executing this Notice, and fully understands all provisions of
this Notice, the Plan and the Option Agreement. The Grantee hereby agrees that
all disputes arising out of or relating to this Notice, the Plan and the Option
Agreement shall be resolved in accordance with Section 13 of the Option
Agreement. The Grantee further agrees to notify the Company upon any change in
the residence address indicated in this Notice.

Dated:  _________________________       Signed:  _____________________________
                                                      Grantee

                                       2


                                                             AWARD NUMBER: 20

              MTI TECHNOLOGY CORPORATION 2001 STOCK INCENTIVE PLAN

                          STOCK OPTION AWARD AGREEMENT

      1. Grant of Option. MTI Technology Corporation, a Delaware corporation
(the "Company"), hereby grants to the Grantee (the "Grantee") named in the
Notice of Stock Option Award (the "Notice"), an option (the "Option") to
purchase the Total Number of Shares of Common Stock subject to the Option (the
"Shares") set forth in the Notice, at the Exercise Price per Share set forth in
the Notice (the "Exercise Price") subject to the terms and provisions of the
Notice, this Stock Option Award Agreement (the "Option Agreement") and the
Company's 2001 Stock Incentive Plan, as amended from time to time (the "Plan"),
which are incorporated herein by reference. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this Option
Agreement.

      If designated in the Notice as an Incentive Stock Option, the Option is
intended to qualify as an Incentive Stock Option as defined in Section 422 of
the Code. However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of Shares subject to Options designated as Incentive
Stock Options which become exercisable for the first time by the Grantee during
any calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares covered
thereby in excess of the foregoing limitation, shall be treated as Non-Qualified
Stock Options. For this purpose, Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the date the Option with respect to such
Shares is awarded.

      2. Exercise of Option.

            (a) Right to Exercise.

                  (i) The Option shall be exercisable during its term in
accordance with the Vesting Schedule set out in the Notice and with the
applicable provisions of the Plan and this Option Agreement. The Option shall be
subject to the provisions of Section 11 of the Plan relating to the
exercisability or termination of the Option in the event of a Corporate
Transaction, Change in Control or Related Entity Disposition. The Grantee shall
be subject to reasonable limitations on the number of requested exercises during
any monthly or weekly period as determined by the Administrator. In no event
shall the Company issue fractional Shares.

                  (ii) Immediately prior to the consummation of any Corporate
Transaction or Change in Control any unvested stock options under this Option
Agreement shall be automatically fully vested and exercisable. Any options so
vested shall remain fully exercisable until the expiration or sooner termination
of this Option Agreement.

                                       1


                  (iii) Effective upon the consummation of the Corporate
Transaction or Change in Control, all outstanding options under this Option
Agreement shall terminate and cease to remain outstanding, except to the extent
assumed by the successor company or its parent.

            (b) Method of Exercise. The Option shall be exercisable only by
delivery of an Exercise Notice (attached as Exhibit A) which shall state the
election to exercise the Option, the whole number of Shares in respect of which
the Option is being exercised, such other representations and agreements as to
the holder's investment intent with respect to such Shares and such other
provisions as may be required by the Administrator. The Exercise Notice shall be
signed by the Grantee and shall be delivered in person, by certified mail, or by
such other method as determined from time to time by the Administrator to the
Company accompanied by payment of the Exercise Price. The Option shall be deemed
to be exercised upon receipt by the Company of such written notice accompanied
by the Exercise Price, which, to the extent selected, shall be deemed to be
satisfied by use of the broker-dealer sale and remittance procedure to pay the
Exercise Price provided in Section 3(d), below.

            (c) Taxes. No Shares will be delivered to the Grantee or other
person pursuant to the exercise of the Option until the Grantee or other person
has made arrangements acceptable to the Administrator for the satisfaction of
applicable income tax, employment tax, and social security tax withholding
obligations, including, without limitation, obligations incident to the receipt
of Shares or the disqualifying disposition of Shares received on exercise of an
Incentive Stock Option. Upon exercise of the Option, the Company or the
Grantee's employer may offset or withhold (from any amount owed by the Company
or the Grantee's employer to the Grantee) or collect from the Grantee or other
person an amount sufficient to satisfy such tax obligations and/or the
employer's withholding obligations.

      3. Method of Payment. Payment of the Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Grantee; provided,
however, that such exercise method does not then violate any Applicable Law and,
provided further, that the portion of the Exercise Price equal to the par value
of the Shares must be paid in cash or other legal consideration permitted by the
Delaware General Corporation Law:

            (a) cash;

            (b) check;

            (c) surrender of Shares or delivery of a properly executed form of
attestation of ownership of Shares as the Administrator may require (including
withholding of Shares otherwise deliverable upon exercise of the Option) which
have a Fair Market Value on the date of surrender or attestation equal to the
aggregate Exercise Price of the Shares as to which the Option is being exercised
(but only to the extent that such exercise of the Option would not result in an
accounting compensation charge with respect to the Shares used to pay the
exercise price); or

                                       2


            (d) payment through a broker-dealer sale and remittance procedure
pursuant to which the Grantee (i) shall provide written instructions to a
Company designated brokerage firm to effect the immediate sale of some or all of
the purchased Shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased Shares and (ii) shall provide written
directives to the Company to deliver the certificates for the purchased Shares
directly to such brokerage firm in order to complete the sale transaction.

      4. Restrictions on Exercise. The Option may not be exercised if the
issuance of the Shares subject to the Option upon such exercise would constitute
a violation of any Applicable Laws. In addition, the Option, if an Incentive
Stock Option, may not be exercised until such time as the Plan has been approved
by the stockholders of the Company.

      5. Termination or Change of Continuous Service. In the event the Grantee's
Continuous Service terminates, other than for Cause, the Grantee may, to the
extent otherwise so entitled at the date of such termination (the "Termination
Date"), exercise the Option during the Post-Termination Exercise Period. In the
event of termination of the Grantee's Continuous Service for Cause, the
Grantee's right to exercise the Option shall, except as otherwise determined by
the Administrator, terminate concurrently with the termination of the Grantee's
Continuous Service. In no event shall the Option be exercised later than the
Expiration Date set forth in the Notice. In the event of the Grantee's change in
status from Employee, Director or Consultant to any other status of Employee,
Director or Consultant, the Option shall remain in effect and, except to the
extent otherwise determined by the Administrator, continue to vest; provided,
however, that with respect to any Incentive Stock Option that shall remain in
effect after a change in status from Employee to Director or Consultant, such
Incentive Stock Option shall cease to be treated as an Incentive Stock Option
and shall be treated as a Non-Qualified Stock Option on the day three (3) months
and one (1) day following such change in status. Except as provided in Sections
6 and 7 below, to the extent that the Grantee is not entitled to exercise the
Option on the Termination Date, or if the Grantee does not exercise the Option
within the Post-Termination Exercise Period, the Option shall terminate.

      6. Disability of Grantee. In the event the Grantee's Continuous Service
terminates as a result of his or her Disability, the Grantee may, but only
within twelve (12) months from the Termination Date (and in no event later than
the Expiration Date), exercise the Option to the extent he or she was otherwise
entitled to exercise it on the Termination Date; provided, however, that if such
Disability is not a "disability" as such term is defined in Section 22(e)(3) of
the Code and the Option is an Incentive Stock Option, such Incentive Stock
Option shall cease to be treated as an Incentive Stock Option and shall be
treated as a Non-Qualified Stock Option on the day three (3) months and one (1)
day following the Termination Date. To the extent that the Grantee is not
entitled to exercise the Option on the Termination Date, or if the Grantee does
not exercise the Option to the extent so entitled within the time specified
herein, the Option shall terminate.

      7. Death of Grantee. In the event of the termination of the Grantee's
Continuous Service as a result of his or her death, or in the event of the
Grantee's death during the Post-Termination Exercise Period or during the twelve
(12) month period following the Grantee's termination of Continuous Service as a
result of his or her Disability, the Grantee's estate, or a

                                       3


person who acquired the right to exercise the Option by bequest or inheritance,
may exercise the Option, but only to the extent the Grantee could exercise the
Option at the date of termination, within twelve (12) months from the date of
death (but in no event later than the Expiration Date). To the extent that the
Grantee is not entitled to exercise the Option on the date of death, or if the
Option is not exercised to the extent so entitled within the time specified
herein, the Option shall terminate.

      8. Transferability of Option. The Option, if an Incentive Stock Option,
may not be transferred in any manner other than by will or by the laws of
descent and distribution and may be exercised during the lifetime of the Grantee
only by the Grantee; provided, however, that the Grantee may designate a
beneficiary of the Grantee's Incentive Stock Option in the event of the
Grantee's death on a beneficiary designation form provided by the Administrator.
The Option, if a Non-Qualified Stock Option may be transferred to any person by
will and by the laws of descent and distribution. Non-Qualified Stock Options
also may be transferred during the lifetime of the Grantee by gift and pursuant
to a domestic relations order to members of the Grantee's Immediate Family to
the extent and in the manner determined by the Administrator. The terms of the
Option shall be binding upon the executors, administrators, heirs, successors
and transferees of the Grantee.

      9. Term of Option. The Option may be exercised no later than the
Expiration Date set forth in the Notice or such earlier date as otherwise
provided herein.

      10. Tax Consequences. Set forth below is a brief summary as of the date of
this Option Agreement of some of the federal tax consequences of exercise of the
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE GRANTEE SHOULD
CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.

            (a) Exercise of Incentive Stock Option. If the Option qualifies as
an Incentive Stock Option, there will be no regular federal income tax liability
upon the exercise of the Option, although the excess, if any, of the Fair Market
Value of the Shares on the date of exercise over the Exercise Price will be
treated as income for purposes of the alternative minimum tax for federal tax
purposes and may subject the Grantee to the alternative minimum tax in the year
of exercise.

            (b) Exercise of Incentive Stock Option Following Disability. If the
Grantee's Continuous Service terminates as a result of Disability that is not
total and permanent disability as defined in Section 22(e)(3) of the Code, to
the extent permitted on the date of termination, the Grantee must exercise an
Incentive Stock Option within three (3) months of such termination for the
Incentive Stock Option to be qualified as an Incentive Stock Option.

            (c) Exercise of Non-Qualified Stock Option. On exercise of a
Non-Qualified Stock Option, the Grantee will be treated as having received
compensation income (taxable at ordinary income tax rates) equal to the excess,
if any, of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price. If the Grantee is an Employee or a former

                                       4


Employee, the Company will be required to withhold from the Grantee's
compensation or collect from the Grantee and pay to the applicable taxing
authorities an amount in cash equal to a percentage of this compensation income
at the time of exercise, and may refuse to honor the exercise and refuse to
deliver Shares if such withholding amounts are not delivered at the time of
exercise.

            (d) Disposition of Shares. In the case of a Non-Qualified Stock
Option, if Shares are held for more than one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes and subject to tax at a maximum rate of 20%. In the case of
an Incentive Stock Option, if Shares transferred pursuant to the Option are held
for more than one year after receipt of the Shares and are disposed more than
two years after the Date of Award, any gain realized on disposition of the
Shares also will be treated as capital gain for federal income tax purposes and
subject to the same tax rates and holding periods that apply to Shares acquired
upon exercise of a Non-Qualified Stock Option. If Shares purchased under an
Incentive Stock Option are disposed of prior to the expiration of such one-year
or two-year periods, any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
difference between the Exercise Price and the lesser of (i) the Fair Market
Value of the Shares on the date of exercise, or (ii) the sale price of the
Shares.

      11. Entire Agreement: Governing Law. The Notice, the Plan and this Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and the Grantee with respect to the subject matter
hereof, and may not be modified adversely to the Grantee's interest except by
means of a writing signed by the Company and the Grantee. Nothing in the Notice,
the Plan and this Option Agreement (except as expressly provided therein) is
intended to confer any rights or remedies on any persons other than the parties.
The Notice, the Plan and this Option Agreement are to be construed in accordance
with and governed by the internal laws of the State of California (as permitted
by Section 1646.5 of the California Civil Code, or any similar successor
provision) without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of California to the rights and duties of the parties. Should any
provision of the Notice, the Plan or this Option Agreement be determined by a
court of law to be illegal or unenforceable, such provision shall be enforced to
the fullest extent allowed by law and the other provisions shall nevertheless
remain effective and shall remain enforceable.

      12. Headings. The captions used in the Notice and this Option Agreement
are inserted for convenience and shall not be deemed a part of the Option for
construction or interpretation.

      13. Dispute Resolution The provisions of this Section 13 shall be the
exclusive means of resolving disputes arising out of or relating to the Notice,
the Plan and this Option Agreement. The Company, the Grantee, and the Grantee's
assignees pursuant to Section 8 (the "parties") shall attempt in good faith to
resolve any disputes arising out of or relating to the Notice, the Plan and this
Option Agreement by negotiation between individuals who have authority to settle
the controversy. Negotiations shall be commenced by either party by notice of

                                       5


a written statement of the party's position and the name and title of the
individual who will represent the party. Within thirty (30) days of the written
notification, the parties shall meet at a mutually acceptable time and place,
and thereafter as often as they reasonably deem necessary, to resolve the
dispute. If the dispute has not been resolved by negotiation, the parties agree
that any suit, action, or proceeding arising out of or relating to the Notice,
the Plan or this Option Agreement shall be brought in the United States District
Court for the Central District of California (or should such court lack
jurisdiction to hear such action, suit or proceeding, in a California state
court in the County of Orange) and that the parties shall submit to the
jurisdiction of such court. The parties irrevocably waive, to the fullest extent
permitted by law, any objection the party may have to the laying of venue for
any such suit, action or proceeding brought in such court. THE PARTIES ALSO
EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH
SUIT, ACTION OR PROCEEDING. If any one or more provisions of this Section 13
shall for any reason be held invalid or unenforceable, it is the specific intent
of the parties that such provisions shall be modified to the minimum extent
necessary to make it or its application valid and enforceable.

      14. Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail (if the parties are within
the United States) or upon deposit for delivery by an internationally recognized
express mail courier service (for international delivery of notice), with
postage and fees prepaid, addressed to the other party at its address as shown
beneath its signature in the Notice, or to such other address as such party may
designate in writing from time to time to the other party.

                                       6


                                    EXHIBIT A

              MTI TECHNOLOGY CORPORATION 2001 STOCK INCENTIVE PLAN

                                 EXERCISE NOTICE

MTI Technology Corporation
17595 Cartwright Road
Irvine, CA 92614

Attention: Secretary

      1. Exercise of Option. Effective as of today, ______________, ___ the
undersigned (the "Grantee") hereby elects to exercise the Grantee's option to
purchase ___________ shares of the Common Stock (the "Shares") of MTI Technology
Corporation (the "Company") under and pursuant to the Company's 2001 Stock
Incentive Plan, as amended from time to time (the "Plan") and the [ ] Incentive
[ ] Non-Qualified Stock Option Award Agreement (the "Option Agreement") and
Notice of Stock Option Award (the "Notice") dated ______________, ________.
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Exercise Notice.

      2. Representations of the Grantee. The Grantee acknowledges that the
Grantee has received, read and understood the Notice, the Plan, and the Option
Agreement and agrees to abide by and be bound by their terms and conditions.

      3. Rights as Stockholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Shares, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such stock certificate promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in Section 10 of the Plan.

      4. Delivery of Payment. The Grantee herewith delivers to the Company the
full Exercise Price for the Shares, which, to the extent selected, shall be
deemed to be satisfied by use of the broker-dealer sale and remittance procedure
to pay the Exercise Price provided in Section 3(d) of the Option Agreement.

      5. Tax Consultation. The Grantee understands that the Grantee may suffer
adverse tax consequences as a result of the Grantee's purchase or disposition of
the Shares. The Grantee represents that the Grantee has consulted with any tax
consultants the Grantee deems advisable in connection with the purchase or
disposition of the Shares and that the Grantee is not relying on the Company for
any tax advice



                                       1


      6. Taxes. The Grantee agrees to satisfy all applicable federal, state and
local income and employment tax withholding obligations and herewith delivers to
the Company the full amount of such obligations or has made arrangements
acceptable to the Company to satisfy such obligations. In the case of an
Incentive Stock Option, the Grantee also agrees, as partial consideration for
the designation of the Option as an Incentive Stock Option, to notify the
Company in writing within thirty (30) days of any disposition of any shares
acquired by exercise of the Option if such disposition occurs within two (2)
years from the Date of Award or within one (1) year from the date the Shares
were transferred to the Grantee. If the Company is required to satisfy any
federal, state or local income or employment tax withholding obligations as a
result of such an early disposition, the Grantee agrees to satisfy the amount of
such withholding in a manner that the Administrator prescribes.

      7. Successors and Assigns. The Company may assign any of its rights under
this Exercise Notice to single or multiple assignees, and this agreement shall
inure to the benefit of the successors and assigns of the Company. This Exercise
Notice shall be binding upon the Grantee and his or her heirs, executors,
administrators, successors and assigns.

      8. Headings. The captions used in this Exercise Notice are inserted for
convenience and shall not be deemed a part of this agreement for construction or
interpretation.

      9. Dispute Resolution. The provisions of Section 13 of the Option
Agreement shall be the exclusive means of resolving disputes arising out of or
relating to this Exercise Notice.

      10. Governing Law; Severability. This Exercise Notice is to be construed
in accordance with and governed by the internal laws of the State of California
(as permitted by Section 1646.5 of the California Civil Code, or any similar
successor provision) without giving effect to any choice of law rule that would
cause the application of the laws of any jurisdiction other than the internal
laws of the State of California to the rights and duties of the parties. Should
any provision of this Exercise Notice be determined by a court of law to be
illegal or unenforceable, such provision shall be enforced to the fullest extent
allowed by law and the other provisions shall nevertheless remain effective and
shall remain enforceable.

      11. Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, (if the parties are within
the United States) or upon deposit for delivery by an internationally recognized
express mail courier service (for international delivery of notice) with postage
and fees prepaid, addressed to the other party at its address as shown below
beneath its signature, or to such other address as such party may designate in
writing from time to time to the other party.

      12. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this agreement.

      13. Entire Agreement. The Notice, the Plan, and the Option Agreement are
incorporated herein by reference, and together with this Exercise Notice
constitute the entire



                                       2


agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and the
Grantee with respect to the subject matter hereof, and may not be modified
adversely to the Grantee's interest except by means of a writing signed by the
Company and the Grantee. Nothing in the Notice, the Plan, the Option Agreement
and this Exercise Notice (except as expressly provided therein) is intended to
confer any rights or remedies on any persons other than the parties.

Submitted by:                              Accepted by:

GRANTEE:                                   MTI Technology Corporation

                                           By: _________________________________

______________________________________     Title: ______________________________
            (Signature)
Address:                                   Address:

______________________________________     17595 Cartwright Road
______________________________________     Irvine, CA 92614


                                       3

EX-10.26

                                                                   EXHIBIT 10.26

              MTI TECHNOLOGY CORPORATION 2001 STOCK INCENTIVE PLAN

                          NOTICE OF STOCK OPTION AWARD

      Grantee's Name and Address:      _________________________________________

                                       _________________________________________

                                       _________________________________________


      You have been granted an option to purchase shares of Common Stock,
subject to the terms and conditions of this Notice of Stock Option Award (the
"Notice"), the MTI Technology Corporation 2001 Stock Incentive Plan, as amended
from time to time (the "Plan") and the Stock Option Award Agreement (the "Option
Agreement") attached hereto, as follows. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this Notice.

      Award Number:                        20
      Date of Award:                     _______________________________________
      Vesting Commencement Date:         _______________________________________
      Exercise Price per Share:            $
      Total Number of Shares subject
      to the Option:                     _______________________________________
      Total Exercise Price:                $
      Type of Option:                      [ ]  Incentive Stock Option
                                           [X]  Non-Qualified Stock Option
      Expiration Date:                   _______________________________________
      Post-Termination Exercise Period:    Three (3) Months

Vesting Schedule:

      Subject to Grantee's Continuous Service and other limitations set forth in
this Notice, the Plan and the Option Agreement, the Option may be exercised, in
whole or in part, in accordance with the following schedule:

            36-MONTH (3 YEAR) VESTING WITH 6-MONTH CLIFF AND MONTHLY THEREAFTER:

                        Six-thirty-sixths (6/36th) of the shares subject to the
            Option shall vest six (6) months after the Vesting Commencement
            Date. One-thirtieth (1/30th) of the remaining unvested shares
            subject to the Option shall vest at the end of the 7th month and
            each month thereafter, such that the Option will be one hundred
            percent (100%) vested after thirty-six (36) months of Continuous
            Services from the Vesting Commencement Date.

      During any authorized leave of absence, the vesting of the Option as
provided in this schedule shall cease after the leave of absence exceeds a
period of ninety (90) days. Vesting of the Option shall resume upon the
Grantee's termination of the leave of absence and return to service to the
Company or a Related Entity.

                                       1


      In the event of the Grantee's change in status from Employee to Consultant
or from an Employee whose customary employment is 20 hours or more per week to
an Employee whose customary employment is fewer than 20 hours per week, vesting
of the Option shall continue only to the extent determined by the Administrator
as of such change in status.

      In the event of termination of the Grantee's Continuous Service for Cause,
the Grantee's right to exercise the Option shall terminate concurrently with the
termination of the Grantee's Continuous Service.

      IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice
and agree that the Option is to be governed by the terms and conditions of this
Notice, the Plan, and the Option Agreement.

                                            MTI Technology Corporation,
                                            A Delaware corporation

                                      By: ______________________________________

                                   Title:  Chief Financial Officer

THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SUBJECT TO THE OPTION SHALL
VEST, IF AT ALL, ONLY DURING THE PERIOD OF THE GRANTEE'S CONTINUOUS SERVICE (NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE OPTION OR ACQUIRING SHARES
HEREUNDER). THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS
NOTICE, THE OPTION AGREEMENT, OR THE PLAN SHALL CONFER UPON THE GRANTEE ANY
RIGHT WITH RESPECT TO FUTURE AWARDS OR CONTINUATION OF GRANTEE'S CONTINUOUS
SERVICE, NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE'S RIGHT OR THE RIGHT
OF THE GRANTEE'S EMPLOYER TO TERMINATE GRANTEE'S CONTINUOUS SERVICE, WITH OR
WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE. THE GRANTEE ACKNOWLEDGES THAT UNLESS
THE GRANTEE HAS A WRITTEN EMPLOYMENT AGREEMENT WITH THE COMPANY TO THE CONTRARY,
GRANTEE'S STATUS IS AT WILL.

The Grantee acknowledges receipt of a copy of the Plan and the Option Agreement,
and represents that he or she is familiar with the terms and provisions thereof,
and hereby accepts the Option subject to all of the terms and provisions hereof
and thereof. The Grantee has reviewed this Notice, the Plan, and the Option
Agreement in their entirety, has had an opportunity to obtain the advice of
counsel prior to executing this Notice, and fully understands all provisions of
this Notice, the Plan and the Option Agreement. The Grantee hereby agrees that
all disputes arising out of or relating to this Notice, the Plan and the Option
Agreement shall be resolved in accordance with Section 13 of the Option
Agreement. The Grantee further agrees to notify the Company upon any change in
the residence address indicated in this Notice.

Dated: _________________________        Signed: ___________________________
                                                     Grantee

                                       2


                                                              AWARD NUMBER: 20

              MTI TECHNOLOGY CORPORATION 2001 STOCK INCENTIVE PLAN

                          STOCK OPTION AWARD AGREEMENT

      1. Grant of Option. MTI Technology Corporation, a Delaware corporation
(the "Company"), hereby grants to the Grantee (the "Grantee") named in the
Notice of Stock Option Award (the "Notice"), an option (the "Option") to
purchase the Total Number of Shares of Common Stock subject to the Option (the
"Shares") set forth in the Notice, at the Exercise Price per Share set forth in
the Notice (the "Exercise Price") subject to the terms and provisions of the
Notice, this Stock Option Award Agreement (the "Option Agreement") and the
Company's 2001 Stock Incentive Plan, as amended from time to time (the "Plan"),
which are incorporated herein by reference. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this Option
Agreement.

      If designated in the Notice as an Incentive Stock Option, the Option is
intended to qualify as an Incentive Stock Option as defined in Section 422 of
the Code. However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of Shares subject to Options designated as Incentive
Stock Options which become exercisable for the first time by the Grantee during
any calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares covered
thereby in excess of the foregoing limitation, shall be treated as Non-Qualified
Stock Options. For this purpose, Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the date the Option with respect to such
Shares is awarded.

      2. Exercise of Option.

            (a) Right to Exercise. The Option shall be exercisable during its
term in accordance with the Vesting Schedule set out in the Notice and with the
applicable provisions of the Plan and this Option Agreement. The Option shall be
subject to the provisions of Section 11 of the Plan relating to the
exercisability or termination of the Option in the event of a Corporate
Transaction, Change in Control or Related Entity Disposition. The Grantee shall
be subject to reasonable limitations on the number of requested exercises during
any monthly or weekly period as determined by the Administrator. In no event
shall the Company issue fractional Shares.

            (b) Method of Exercise. The Option shall be exercisable only by
delivery of an Exercise Notice (attached as Exhibit A) which shall state the
election to exercise the Option, the whole number of Shares in respect of which
the Option is being exercised, such other representations and agreements as to
the holder's investment intent with respect to such Shares and such other
provisions as may be required by the Administrator. The Exercise Notice shall be
signed by the Grantee and shall be delivered in person, by certified mail, or by
such other method as determined from time to time by the Administrator to the
Company accompanied by payment of the Exercise Price. The Option shall be deemed
to be exercised upon receipt by the Company

                                       1


of such written notice accompanied by the Exercise Price, which, to the extent
selected, shall be deemed to be satisfied by use of the broker-dealer sale and
remittance procedure to pay the Exercise Price provided in Section 3(d), below.

            (c) Taxes. No Shares will be delivered to the Grantee or other
person pursuant to the exercise of the Option until the Grantee or other person
has made arrangements acceptable to the Administrator for the satisfaction of
applicable income tax, employment tax, and social security tax withholding
obligations, including, without limitation, obligations incident to the receipt
of Shares or the disqualifying disposition of Shares received on exercise of an
Incentive Stock Option. Upon exercise of the Option, the Company or the
Grantee's employer may offset or withhold (from any amount owed by the Company
or the Grantee's employer to the Grantee) or collect from the Grantee or other
person an amount sufficient to satisfy such tax obligations and/or the
employer's withholding obligations.

      3. Method of Payment. Payment of the Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Grantee; provided,
however, that such exercise method does not then violate any Applicable Law and,
provided further, that the portion of the Exercise Price equal to the par value
of the Shares must be paid in cash or other legal consideration permitted by the
Delaware General Corporation Law:

            (a) cash;

            (b) check;

            (c) surrender of Shares or delivery of a properly executed form of
attestation of ownership of Shares as the Administrator may require (including
withholding of Shares otherwise deliverable upon exercise of the Option) which
have a Fair Market Value on the date of surrender or attestation equal to the
aggregate Exercise Price of the Shares as to which the Option is being exercised
(but only to the extent that such exercise of the Option would not result in an
accounting compensation charge with respect to the Shares used to pay the
exercise price); or

            (d) payment through a broker-dealer sale and remittance procedure
pursuant to which the Grantee (i) shall provide written instructions to a
Company designated brokerage firm to effect the immediate sale of some or all of
the purchased Shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased Shares and (ii) shall provide written
directives to the Company to deliver the certificates for the purchased Shares
directly to such brokerage firm in order to complete the sale transaction.

      4. Restrictions on Exercise. The Option may not be exercised if the
issuance of the Shares subject to the Option upon such exercise would constitute
a violation of any Applicable Laws. In addition, the Option, if an Incentive
Stock Option, may not be exercised until such time as the Plan has been approved
by the stockholders of the Company.

                                       2


      5. Termination or Change of Continuous Service. In the event the Grantee's
Continuous Service terminates, other than for Cause, the Grantee may, to the
extent otherwise so entitled at the date of such termination (the "Termination
Date"), exercise the Option during the Post-Termination Exercise Period. In the
event of termination of the Grantee's Continuous Service for Cause, the
Grantee's right to exercise the Option shall, except as otherwise determined by
the Administrator, terminate concurrently with the termination of the Grantee's
Continuous Service. In no event shall the Option be exercised later than the
Expiration Date set forth in the Notice. In the event of the Grantee's change in
status from Employee, Director or Consultant to any other status of Employee,
Director or Consultant, the Option shall remain in effect and, except to the
extent otherwise determined by the Administrator, continue to vest; provided,
however, that with respect to any Incentive Stock Option that shall remain in
effect after a change in status from Employee to Director or Consultant, such
Incentive Stock Option shall cease to be treated as an Incentive Stock Option
and shall be treated as a Non-Qualified Stock Option on the day three (3) months
and one (1) day following such change in status. Except as provided in Sections
6 and 7 below, to the extent that the Grantee is not entitled to exercise the
Option on the Termination Date, or if the Grantee does not exercise the Option
within the Post-Termination Exercise Period, the Option shall terminate.

      6. Disability of Grantee. In the event the Grantee's Continuous Service
terminates as a result of his or her Disability, the Grantee may, but only
within twelve (12) months from the Termination Date (and in no event later than
the Expiration Date), exercise the Option to the extent he or she was otherwise
entitled to exercise it on the Termination Date; provided, however, that if such
Disability is not a "disability" as such term is defined in Section 22(e)(3) of
the Code and the Option is an Incentive Stock Option, such Incentive Stock
Option shall cease to be treated as an Incentive Stock Option and shall be
treated as a Non-Qualified Stock Option on the day three (3) months and one (1)
day following the Termination Date. To the extent that the Grantee is not
entitled to exercise the Option on the Termination Date, or if the Grantee does
not exercise the Option to the extent so entitled within the time specified
herein, the Option shall terminate.

      7. Death of Grantee. In the event of the termination of the Grantee's
Continuous Service as a result of his or her death, or in the event of the
Grantee's death during the Post-Termination Exercise Period or during the twelve
(12) month period following the Grantee's termination of Continuous Service as a
result of his or her Disability, the Grantee's estate, or a person who acquired
the right to exercise the Option by bequest or inheritance, may exercise the
Option, but only to the extent the Grantee could exercise the Option at the date
of termination, within twelve (12) months from the date of death (but in no
event later than the Expiration Date). To the extent that the Grantee is not
entitled to exercise the Option on the date of death, or if the Option is not
exercised to the extent so entitled within the time specified herein, the Option
shall terminate.

      8. Transferability of Option. The Option, if an Incentive Stock Option,
may not be transferred in any manner other than by will or by the laws of
descent and distribution and may be exercised during the lifetime of the Grantee
only by the Grantee; provided, however, that the Grantee may designate a
beneficiary of the Grantee's Incentive Stock Option in the event of the
Grantee's death on a beneficiary designation form provided by the Administrator.
The Option, if a Non-Qualified Stock Option may be transferred to any person by
will and by the laws of

                                       3


descent and distribution. Non-Qualified Stock Options also may be transferred
during the lifetime of the Grantee by gift and pursuant to a domestic relations
order to members of the Grantee's Immediate Family to the extent and in the
manner determined by the Administrator. The terms of the Option shall be binding
upon the executors, administrators, heirs, successors and transferees of the
Grantee.

      9. Term of Option. The Option may be exercised no later than the
Expiration Date set forth in the Notice or such earlier date as otherwise
provided herein.

      10. Tax Consequences. Set forth below is a brief summary as of the date of
this Option Agreement of some of the federal tax consequences of exercise of the
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE GRANTEE SHOULD
CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.

            (a) Exercise of Incentive Stock Option. If the Option qualifies as
an Incentive Stock Option, there will be no regular federal income tax liability
upon the exercise of the Option, although the excess, if any, of the Fair Market
Value of the Shares on the date of exercise over the Exercise Price will be
treated as income for purposes of the alternative minimum tax for federal tax
purposes and may subject the Grantee to the alternative minimum tax in the year
of exercise.

            (b) Exercise of Incentive Stock Option Following Disability. If the
Grantee's Continuous Service terminates as a result of Disability that is not
total and permanent disability as defined in Section 22(e)(3) of the Code, to
the extent permitted on the date of termination, the Grantee must exercise an
Incentive Stock Option within three (3) months of such termination for the
Incentive Stock Option to be qualified as an Incentive Stock Option.

            (c) Exercise of Non-Qualified Stock Option. On exercise of a
Non-Qualified Stock Option, the Grantee will be treated as having received
compensation income (taxable at ordinary income tax rates) equal to the excess,
if any, of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price. If the Grantee is an Employee or a former Employee, the Company
will be required to withhold from the Grantee's compensation or collect from the
Grantee and pay to the applicable taxing authorities an amount in cash equal to
a percentage of this compensation income at the time of exercise, and may refuse
to honor the exercise and refuse to deliver Shares if such withholding amounts
are not delivered at the time of exercise.

            (d) Disposition of Shares. In the case of a Non-Qualified Stock
Option, if Shares are held for more than one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes and subject to tax at a maximum rate of 20%. In the case of
an Incentive Stock Option, if Shares transferred pursuant to the Option are held
for more than one year after receipt of the Shares and are disposed more than
two years after the Date of Award, any gain realized on disposition of the
Shares also will be treated as capital gain for federal income tax purposes and
subject to the same tax rates and holding

                                       4


periods that apply to Shares acquired upon exercise of a Non-Qualified Stock
Option. If Shares purchased under an Incentive Stock Option are disposed of
prior to the expiration of such one-year or two-year periods, any gain realized
on such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the difference between the Exercise Price and the
lesser of (i) the Fair Market Value of the Shares on the date of exercise, or
(ii) the sale price of the Shares.

      11. Entire Agreement: Governing Law. The Notice, the Plan and this Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and the Grantee with respect to the subject matter
hereof, and may not be modified adversely to the Grantee's interest except by
means of a writing signed by the Company and the Grantee. Nothing in the Notice,
the Plan and this Option Agreement (except as expressly provided therein) is
intended to confer any rights or remedies on any persons other than the parties.
The Notice, the Plan and this Option Agreement are to be construed in accordance
with and governed by the internal laws of the State of California (as permitted
by Section 1646.5 of the California Civil Code, or any similar successor
provision) without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of California to the rights and duties of the parties. Should any
provision of the Notice, the Plan or this Option Agreement be determined by a
court of law to be illegal or unenforceable, such provision shall be enforced to
the fullest extent allowed by law and the other provisions shall nevertheless
remain effective and shall remain enforceable.

      12. Headings. The captions used in the Notice and this Option Agreement
are inserted for convenience and shall not be deemed a part of the Option for
construction or interpretation.

      13. Dispute Resolution The provisions of this Section 13 shall be the
exclusive means of resolving disputes arising out of or relating to the Notice,
the Plan and this Option Agreement. The Company, the Grantee, and the Grantee's
assignees pursuant to Section 8 (the "parties") shall attempt in good faith to
resolve any disputes arising out of or relating to the Notice, the Plan and this
Option Agreement by negotiation between individuals who have authority to settle
the controversy. Negotiations shall be commenced by either party by notice of a
written statement of the party's position and the name and title of the
individual who will represent the party. Within thirty (30) days of the written
notification, the parties shall meet at a mutually acceptable time and place,
and thereafter as often as they reasonably deem necessary, to resolve the
dispute. If the dispute has not been resolved by negotiation, the parties agree
that any suit, action, or proceeding arising out of or relating to the Notice,
the Plan or this Option Agreement shall be brought in the United States District
Court for the Central District of California (or should such court lack
jurisdiction to hear such action, suit or proceeding, in a California state
court in the County of Orange) and that the parties shall submit to the
jurisdiction of such court. The parties irrevocably waive, to the fullest extent
permitted by law, any objection the party may have to the laying of venue for
any such suit, action or proceeding brought in such court. THE PARTIES ALSO
EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH
SUIT, ACTION OR PROCEEDING. If any one or more provisions of this Section 13
shall for any reason be held invalid or unenforceable, it is the

                                       5


specific intent of the parties that such provisions shall be modified to the
minimum extent necessary to make it or its application valid and enforceable.

      14. Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail (if the parties are within
the United States) or upon deposit for delivery by an internationally recognized
express mail courier service (for international delivery of notice), with
postage and fees prepaid, addressed to the other party at its address as shown
beneath its signature in the Notice, or to such other address as such party may
designate in writing from time to time to the other party.



                                    EXHIBIT A

              MTI TECHNOLOGY CORPORATION 2001 STOCK INCENTIVE PLAN

                                 EXERCISE NOTICE

MTI Technology Corporation
17595 Cartwright Road
Irvine, CA 92614

Attention: Secretary

      1. Exercise of Option. Effective as of today, ______________, ___ the
undersigned (the "Grantee") hereby elects to exercise the Grantee's option to
purchase ___________ shares of the Common Stock (the "Shares") of MTI Technology
Corporation (the "Company") under and pursuant to the Company's 2001 Stock
Incentive Plan, as amended from time to time (the "Plan") and the [ ] Incentive
[ ] Non-Qualified Stock Option Award Agreement (the "Option Agreement") and
Notice of Stock Option Award (the "Notice") dated ______________, ________.
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Exercise Notice.

      2. Representations of the Grantee. The Grantee acknowledges that the
Grantee has received, read and understood the Notice, the Plan, and the Option
Agreement and agrees to abide by and be bound by their terms and conditions.

      3. Rights as Stockholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Shares, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such stock certificate promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in Section 10 of the Plan.

      4. Delivery of Payment. The Grantee herewith delivers to the Company the
full Exercise Price for the Shares, which, to the extent selected, shall be
deemed to be satisfied by use of the broker-dealer sale and remittance procedure
to pay the Exercise Price provided in Section 3(d) of the Option Agreement.

      5. Tax Consultation. The Grantee understands that the Grantee may suffer
adverse tax consequences as a result of the Grantee's purchase or disposition of
the Shares. The Grantee represents that the Grantee has consulted with any tax
consultants the Grantee deems advisable in connection with the purchase or
disposition of the Shares and that the Grantee is not relying on the Company for
any tax advice


                                       1


      6. Taxes. The Grantee agrees to satisfy all applicable federal, state and
local income and employment tax withholding obligations and herewith delivers to
the Company the full amount of such obligations or has made arrangements
acceptable to the Company to satisfy such obligations. In the case of an
Incentive Stock Option, the Grantee also agrees, as partial consideration for
the designation of the Option as an Incentive Stock Option, to notify the
Company in writing within thirty (30) days of any disposition of any shares
acquired by exercise of the Option if such disposition occurs within two (2)
years from the Date of Award or within one (1) year from the date the Shares
were transferred to the Grantee. If the Company is required to satisfy any
federal, state or local income or employment tax withholding obligations as a
result of such an early disposition, the Grantee agrees to satisfy the amount of
such withholding in a manner that the Administrator prescribes.

      7. Successors and Assigns. The Company may assign any of its rights under
this Exercise Notice to single or multiple assignees, and this agreement shall
inure to the benefit of the successors and assigns of the Company. This Exercise
Notice shall be binding upon the Grantee and his or her heirs, executors,
administrators, successors and assigns.

      8. Headings. The captions used in this Exercise Notice are inserted for
convenience and shall not be deemed a part of this agreement for construction or
interpretation.

      9. Dispute Resolution. The provisions of Section 13 of the Option
Agreement shall be the exclusive means of resolving disputes arising out of or
relating to this Exercise Notice.

      10. Governing Law; Severability. This Exercise Notice is to be construed
in accordance with and governed by the internal laws of the State of California
(as permitted by Section 1646.5 of the California Civil Code, or any similar
successor provision) without giving effect to any choice of law rule that would
cause the application of the laws of any jurisdiction other than the internal
laws of the State of California to the rights and duties of the parties. Should
any provision of this Exercise Notice be determined by a court of law to be
illegal or unenforceable, such provision shall be enforced to the fullest extent
allowed by law and the other provisions shall nevertheless remain effective and
shall remain enforceable.

      11. Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, (if the parties are within
the United States) or upon deposit for delivery by an internationally recognized
express mail courier service (for international delivery of notice) with postage
and fees prepaid, addressed to the other party at its address as shown below
beneath its signature, or to such other address as such party may designate in
writing from time to time to the other party.

      12. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this agreement.

      13. Entire Agreement. The Notice, the Plan, and the Option Agreement are
incorporated herein by reference, and together with this Exercise Notice
constitute the entire


                                       2


agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and the
Grantee with respect to the subject matter hereof, and may not be modified
adversely to the Grantee's interest except by means of a writing signed by the
Company and the Grantee. Nothing in the Notice, the Plan, the Option Agreement
and this Exercise Notice (except as expressly provided therein) is intended to
confer any rights or remedies on any persons other than the parties.

Submitted by:                              Accepted by:

GRANTEE:                                   MTI Technology Corporation

                                           By: _________________________________

______________________________________     Title: ______________________________
            (Signature)
Address:                                   Address:

______________________________________     17595 Cartwright Road
______________________________________     Irvine, CA 92614


                                       3

EX-10.28

                                                                   EXHIBIT 10.28

             Termination of Letter Agreement and Security Agreement

      Whereas, EMC Corporation, a Massachusetts corporation, for itself and as
agent (the "Secured Party") and MTI Corporation, a Delaware corporation (the
"Company") are parties to that certain Security Agreement dated as of December
30, 2004 (the "Security Agreement") wherein the Company granted to the Secured
Party a security interest in certain of the Company's assets; and

      Whereas, the Secured Party and the Company are parties to that certain
Letter Agreement dated as of December 30, 2004 (the "Letter Agreement" and
together with the Security Agreement, the "Agreements"); and

      WHEREAS, the Secured Party and the Company desire to terminate the
Agreements.

      NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Secured Party and the Company
agree as follows:

      1. The Agreements are hereby terminated effective immediately. Without
limitation of the foregoing, the parties hereto agree that the Credit Line (as
defined in the Letter Agreement) is hereby terminated effective immediately.

      2. The Company hereby ratifies, confirms, and reaffirms all terms and
conditions of all other agreements with Secured Party (including the Supply
Agreements, as defined in the Security Agreement). The Company hereby
acknowledges and agrees that the Company has no offsets, defenses, claims, or
counterclaims against Secured Party with respect to the Obligations (as defined
in the Security Agreement), and that if the Company now has, or ever did have,
any offsets, defenses, claims, or counterclaims against the Secured Party,
whether known or unknown, at law or in equity, all of them are hereby expressly
WAIVED and the Company hereby RELEASES the Secured Party from any liability
thereunder. Nothing contained herein shall constitute a satisfaction of the
Obligations.

      IN WITNESS WHEREOF, intending to be legally bound, the Company and the
Secured Party have caused this Termination of Letter Agreement and Security
Agreement to be duly executed as of this 7th day of June, 2006.

                                     COMPANY

                                     MTI Technology Corporation

                                     By: /s/ Scott Poteracki
                                         --------------------------------------
                                     Name: Scott Poteracki
                                     Title: CFO



                                     SECURED PARTY, for itself and as agent

                                     EMC Corporation

                                     By: /s/ Gregory Mazmanian
                                        ----------------------------------------
                                     Name: Gregory Mazmanian
                                     Title: Director of Global Credit Operations

EX-10.30

                                                                   EXHIBIT 10.30

                            SECOND WAIVER AND CONSENT

      This Second Waiver and Consent is entered into as of this 28th day of
December, 2004, by and between The Canopy Group, Inc., a Utah corporation
("Canopy"), and MTI Technology Corporation, a Delaware corporation ("MTI")
(hereinafter collectively referred to as the "Parties"), with reference to the
following:

                                    RECITALS

      A. On June 27, 2002, the Parties entered into a Loan Agreement (the
"Canopy Loan Agreement") whereby Canopy granted credit and credit accommodations
for a revolving line of credit loan of up to Seven Million Dollars ($7,000,000)
for its working capital and other corporation purposes.

      B. On June 27, 2002, MTI executed a promissory note (the "Note") in the
amount of Seven Million Dollars ($7,000,000) in favor of Canopy secured by the
collateral described in that certain Security Agreement between MTI and Canopy
dated as of the date thereof (the "Security Agreement"), perfected by the filing
of a UCC Financing Statement.

      C. The collateral transferred, conveyed, assigned and granted to Canopy
pursuant to the terms of the Security Agreement includes a security interest in
MTI of all "general intangibles," as such term is defined in the UCC, including,
but not limited to, all patents and patent applications, and in all "accounts,"
as such term is defined in the UCC, including, but not limited to all of MTI's
accounts receivable.

      D. On November 13, 2002, Comerica Bank-California and MTI entered into a
Loan and Security Agreement (the "Comerica Loan"). In connection with the
Comerica Loan, Canopy secured the line of credit for MTI by guaranteeing the
Comerica Loan and provided a Seven Million Dollar ($7,000,0000) letter of credit
from Canopy's bank, Bank of America, for the purpose of creating a security
interest under the Comerica Loan (the "Comerica Loan Security Interest").

      E. On December 5, 2002, MTI paid off the outstanding balance of the Note;
the Security Agreement and the underlying security interest were continued for
the purpose of Canopy guaranteeing the Comerica Loan.

      F. As of June 14, 2004, MTI and Canopy entered into that certain First
Amendment to Loan Agreement, which documented the arrangement described in
recital E above, terminating MTI's right to borrow cash under the Canopy Loan
Agreement.

      G. Also as of June 14, 2004, Canopy and MTI entered into that certain
Waiver and Consent, pursuant to which Canopy consented to certain financing
activities of MTI and agreed to release its lien on certain of MTI's
intellectual property while retaining its lien on the remaining MTI assets as
collateral security for the obligations of MTI to Canopy described above.

      H. MTI and Canopy now desire to agree that Canopy will release its lien on
the Released Collateral (defined below) in return for MTI's commitment to pay
down the Comerica Loan, with the understanding that the Comerica Loan Security
Interest will continue in place and that MTI shall be allowed to incur
indebtedness from third parties and pledge the Released Collateral as collateral
security therefor. The "Released Collateral" shall mean the property described
on Exhibit A hereto.



      I. Canopy is MTI's major stockholder and beneficially holds approximately
42% of all outstanding common stock in MTI and agrees that it is in the best
interest of MTI and its stockholders that it waive and release any right, title
and interest it may have in and to the Released Collateral secured by the
Security Agreement.

      NOW, THEREFORE, to that end and in consideration of the premises,
covenants and agreements set forth below, and the mutual benefits to be derived
from the transactions described above and other good and valuable consideration,
the parties hereby agree as follows.

      1.    Canopy hereby waives and releases any rights, title and interest
            that it may have in and to the Released Collateral (the "Security
            Interest") and hereby authorizes MTI to cause partial UCC lien
            releases for the Released Collateral in the forms attached hereto as
            Exhibit B. Canopy will cooperate with MTI to provide to MTI any
            other documents, instruments and agreements reasonably required to
            confirm Canopy's release of the Released Collateral.

      2.    Canopy hereby approves and consents to MTI's incurrence of third
            party indebtedness and the pledge of the Released Collateral as
            collateral security therefor, and acknowledges that the consummation
            of any such transaction or transactions will not constitute a breach
            or default under any provision of the Canopy Loan Agreement or the
            Security Agreement (the "Canopy Agreements").

      3.    MTI hereby represents, warrants, covenants and agrees that:

            (a)   MTI has $5,500,000.00 outstanding under the Comerica Loan as
                  of the date hereof;

            (b)   MTI shall not incur any additional indebtedness under the
                  Comerica Loan, and shall pay all accrued interest on the
                  outstanding balance as the same becomes due; and

            (c)   on each of February 15, 2005, May 15, 2005 and August 15,
                  2005, MTI shall make a principal repayment under the Comerica
                  Loan equal to $1,833,000.00.

      4.    Canopy hereby acknowledges that as of the date hereof, there has not
            been any default by MTI under the Canopy Agreements, and that to the
            extent that any action undertaken by MTI as of the date hereof may
            be construed as a default under the Canopy Agreements because such
            action was not evidenced by a formal waiver ("Past Actions"), Canopy
            hereby waives any and all such Past Actions as a default under the
            Canopy Agreements.

      5.    All other terms of the Canopy Agreements shall remain in full force
            and effect except as to provisions expressly modified herein. This
            Waiver and Consent (a) is not intended for and shall not be
            construed for the benefit of any party not a signatory hereto; (b)
            shall be binding upon, and inure to the benefit of the parties
            hereto and their respective successors and assigns; and (c)
            constitutes the entire agreement (including all representations and
            promises made) among the parties with respect to the subject matter
            hereof.

                                       2



      6.    This Waiver and Consent may be executed in two or more counterparts,
            each of which shall be deemed an original and all of which together
            shall constitute one instrument.

      IN WITNESS WHEREOF, the undersigned has executed this Waiver and Consent
as of the date first set forth above.

                                 THE CANOPY GROUP, INC., a Utah corporation

                                 By: /s/ W. Mustard
                                    ----------------------------------------
                                 Its: President and CEO

                                 MTI TECHNOLOGY CORPORATION,
                                 a Delaware corporation

                                 By: /s/ Scott Poteracki
                                    ----------------------------------------
                                 Its: CFO

                                       3



                                    Exhibit A

The term "Released Collateral" shall mean the following properties, assets and
rights of the MTI, wherever located, whether now owned or hereafter acquired or
arising:

            (a) All of MTI's Accounts (defined below), and all of MTI's money,
contract rights, chattel paper, documents, deposit accounts, securities,
investment property and instruments with respect thereto, and all of MTI's
rights, remedies, security, liens and supporting obligations, in, to and in
respect of the foregoing, including, without limitation, rights of stoppage in
transit, replevin, repossession and reclamation and other rights and remedies of
an unpaid vendor, lienor or secured party, guaranties or other contracts of
suretyship with respect to the Accounts, deposits or other security for the
obligation of any account debtor, and credit and other insurance;

            (b) To the extent not listed above, all of MTI's now owned or
hereafter acquired deposit accounts into which Accounts or the proceeds of
Accounts are deposited, including any lockbox account into which Accounts are
deposited;

            (c) All of MTI's existing and future customer lists, claims, books,
records, ledger cards, contracts, licenses, formulae, and computer programs,
information, software, records, and data, as the same relate to the
documentation or enforcement of the Accounts;

            (d) All of MTI's now owned and hereafter acquired inventory (as
defined in the UCC (defined below)) consisting of goods manufactured or provided
by Secured Party (defined below), including without limitation all finished
goods, goods in transit and all returned, reclaimed or repossessed goods, in
each case which consist of goods manufactured or provided by Secured Party, and
all warehouse receipts, documents of title and other documents representing any
of the foregoing (collectively, "Inventory"); and

            (f) To the extent not listed above as original collateral, the
proceeds (including, without limitation, insurance proceeds) and products of all
of the foregoing, including all general intangibles relating to the Inventory
and the Accounts (including but not limited to payment intangibles,
letter-of-credit rights and commercial tort claims, and rights and claims under
insurance policies, in each case relating to the Inventory and the Accounts).

      For purposes hereof:

      (1) the term "Account" means any right to payment of a monetary
obligation, whether or not earned by performance, which relates to or arises
from goods and services manufactured or provided by the Secured Party, including
without limitation, goods sold or delivered to MTI, another MTI Company (defined
below), or customers of an MTI Company, or the installation by MTI or another
MTI Company of such goods. Without limiting the generality of the foregoing, the
term "Account" shall further include any "account" (as that term is defined in
the UCC now or hereafter in effect), any accounts receivable, any
"health-care-insurance receivables" (as that term is defined in the UCC now or
hereafter in effect), any "payment intangibles" (as that term is defined in the
UCC now or hereafter in effect) and all other rights to payment of every kind
and description, whether or not earned by performance, in each case which
relates to or arises from goods and services manufactured or provided by Secured
Party, including without limitation, goods sold or delivered to

                                       4



MTI another MTI Company, or customers of an MTI Company, or the installation by
an MTI Company of such goods.

      (2) The term "Secured Party" means EMC Corporation, a Massachusetts
corporation having its principal place of business at 176 South Street
Hopkinton, MA 01748-9103, as agent for itself, for VMWare, Inc. and for all of
EMC Corporation's subsidiaries, divisions and affiliates.

      (3) The term "MTI Company" means each of MTI and each subsidiary of
MTI, including without limitation the following MTI subsidiaries: MTI Technology
GMBH (Germany), MTI Technology Limited (Ireland), MTI France SA (France), MTI
Technology Ireland Ltd. (Ireland), MTI Technology BV (Holland), MTI Technology
Limited (Scotland), and MTI Technology BV - Irish Branch (Ireland).

                                       5


                                    Exhibit B

                             UCC-3 Partial Releases

                                       6


                  SCHEDULE A TO UCC-3 PARTIAL RELEASE

Debtor:           MTI Technology Corporation
                  14661 Franklin Avenue
                  Tustin, CA 92780

Secured Party:    The Canopy Group, Inc.
                  333 South 520 West, Suite 300
                  Lindon, UT 84042

      The Secured Party releases its security interest in the following
properties, assets and rights of the Debtor, whenever located, whether now owned
or hereafter acquired or arising:

            (a) All of Debtor's Accounts (defined below), and all of Debtor's
money, contract rights, chattel paper, documents, deposit accounts, securities,
investment property and instruments with respect thereto, and all of Debtor's
rights, remedies, security, liens and supporting obligations, in, to and in
respect of the foregoing, including, without limitation, rights of stoppage in
transit, replevin, repossession and reclamation and other rights and remedies of
an unpaid vendor, lienor or secured party, guaranties or other contracts of
suretyship with respect to the Accounts, deposits or other security for the
obligation of any account debtor, and credit and other insurance;

            (b) To the extent not listed above, all of Debtor's now owned or
hereafter acquired deposit accounts into which Accounts or the proceeds of
Accounts are deposited, including any lockbox account into which Accounts are
deposited;

            (c) All of Debtor's existing and future customer lists, claims,
books, records, ledger cards, contracts, licenses, formulae, and computer
programs, information, software, records, and data, as the same relate to the
documentation or enforcement of the Accounts;

            (d) All of Debtor's now owned and hereafter acquired inventory (as
defined in the UCC (defined below)) consisting of goods manufactured or provided
by EMC (defined below), including without limitation all finished goods, goods
in transit and all returned, reclaimed or repossessed goods, in each case which
consist of goods manufactured or provided by EMC, and all warehouse receipts,
documents of title and other documents representing any of the foregoing
(collectively, "Inventory"); and

            (f) To the extent not listed above as original collateral, the
proceeds (including, without limitation, insurance proceeds) and products of all
of the foregoing, including all general intangibles relating to the Inventory
and the Accounts (including but not limited to payment intangibles,
letter-of-credit rights and commercial tort claims, and rights and claims under
insurance policies, in each case relating to the Inventory and the Accounts).

      For purposes hereof:

      (1) the term "Account" means any right to payment of a monetary
obligation, whether or not earned by performance, which relates to or arises
from goods and services manufactured or provided by EMC, including without
limitation, goods sold or delivered to the

Debtor, another MTI Company (defined below), or customers of an MTI Company, or
the installation by Debtor or another MTI Company of such goods. Without
limiting the generality of the foregoing, the term "Account" shall further
include any "account" (as that term is defined in the UCC now or hereafter in
effect), any accounts receivable, any "health-care-insurance receivables" (as
that term is defined in the UCC now or hereafter in effect), any "payment
intangibles" (as that term is defined in the UCC now or hereafter in effect),
and all other rights to payment of every kind and description, whether or not
earned by performance, in each case which relates to or arises from goods and
services manufactured or provided by EMC, including without limitation, goods
sold or delivered to the Debtor, another MTI Company, or customers of an MTI
Company, or the installation by an MTI Company of such goods.

      The term "EMC" means EMC Corporation, a Massachusetts corporation having
its principal place of business at 176 South Street Hopkinton, MA 01748-9103, as
agent for itself, for VMWare, Inc. and for all of EMC Corporation's
subsidiaries, divisions and affiliates.

      The term "MTI Company" means each of MTI Technology Corporation and each
subsidiary of MTI Technology Corporation, including without limitation the
following MTI subsidiaries: MTI Technology GMBH (Germany), MTI Technology
Limited (Ireland), MTI France SA (France), MTI Technology Ireland Ltd.
(Ireland), MTI Technology BV (Holland), MTI Technology Limited (Scotland), and
MTI Technology BV - Irish Branch (Ireland).




UCC FINANCING STATEMENT AMENDMENT
FOLLOW INSTRUCTIONS (front and back) CAREFULLY

A. NAME & PHONE OF CONTACT AT FILER [optional]

B. SEND ACKNOWLEDGMENT TO: (Name and Address)

      Louise A. Luongo, Paralegal
      Wilmer Cutler Pickering Hale and Dorr LLP
      60 State Street
      Boston, MA 02109

                                                                                
                                                                                   THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY
1a. INITIAL FINANCING STATEMENT FILE #                                                         1b. This FINANCING STATEMENT
    21593866    6/28/02                                                                            AMENDMENT is to be filed [for
                                                                                                   record] (or recorded) in the
                                                                                                [ ] REAL ESTATE RECORDS.
- ------------------------------------------------------------------------------------------------------------------------------------
2.[ ] TERMINATION: Effectiveness of the Financing Statement identified above is terminated with respect to security interest(s) of
      the Secured Party authorizing this Termination Statement.
- ------------------------------------------------------------------------------------------------------------------------------------
3.[ ] CONTINUATION: Effectiveness of the Financing Statement identified above with respect to security interest(s) of the Secured
      Party authorizing this Continuation Statement is continued for the additional period provided by applicable law.
- ------------------------------------------------------------------------------------------------------------------------------------
4.[ ] ASSIGNMENT (full or partial): Give name of assignee in item 7a or 7b and address of assignee in item 7c; and also give name
      of assignor in item 9.
- ------------------------------------------------------------------------------------------------------------------------------------
5.[ ] AMENDMENT (PARTY INFORMATION): This Amendment affects [ ] Debtor or [ ] Secured Party of record. Check only one of these two
      boxes.

      Also check one of the following three boxes and provide appropriate information in items 6 and/or 7.



                                                                              
[ ] CHANGE name and/or address: Give current  [ ] DELETE name: Give record name     [ ] ADD name: Complete item 7a or 7b, and also
    record name in  item 6a or 6b; also give      to be deleted in item 6a or 6b.       item 7c; also complete items 7d-7g
    new name (if name change) in item 7a or                                             (if applicable).
    7b and/or new address (if address change)
    in item 7c.



                                                                                                                   
6. CURRENT RECORD INFORMATION:
   6a. ORGANIZATION'S NAME
       MTI TECHNOLOGY CORPORATION
OR
   6b. INDIVIDUAL'S LAST NAME                                      FIRST NAME                       MIDDLE NAME             SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
7. CHANGED (NEW) OR ADDED INFORMATION:
   7a. ORGANIZATION'S NAME

OR
   7b. INDIVIDUAL'S LAST NAME                                      FIRST NAME                       MIDDLE NAME             SUFFIX

7c. MAILING ADDRESS                                                CITY                             STATE    POSTAL CODE    COUNTRY

7d. TAX ID #: SSN OR EIN  ADD'L INFO RE  7e. TYPE OF ORGANIZATION  7f. JURISDICTION OF ORGANIZATION  7g. ORGANIZATIONAL ID #, if any
                          ORGANIZATION
                          DEBTOR                                                                                            [ ] NONE
- ------------------------------------------------------------------------------------------------------------------------------------
8. AMENDMENT (COLLATERAL CHANGE): check only one box.

   Describe collateral [X] deleted or [ ] added, or give entire [ ] restated collateral description, or describe collateral
   [ ] assigned.

   See attached Schedule A of deleted collateral, which collateral Secured Party releases.
- ------------------------------------------------------------------------------------------------------------------------------------
9. NAME OF SECURED PARTY OF RECORD AUTHORIZING THIS AMENDMENT (name of assignor, if this is an Assignment). If this is an Amendment
   authorized by a Debtor which adds collateral or adds the authorizing Debtor, or if this is a Termination authorized by a Debtor,
   check here [] and enter name of DEBTOR authorizing this Amendment.

   9a. ORGANIZATION'S NAME
       THE CANOPY GROUP, INC.
OR
   9b. INDIVIDUAL'S LAST NAME                                      FIRST NAME                        MIDDLE NAME             SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
10. OPTIONAL FILER REFERENCE DATA
      DE-SOS                                                                                #4869154
- ------------------------------------------------------------------------------------------------------------------------------------
FILING OFFICE COPY--NATIONAL UCC FINANCING STATEMENT AMENDMENT (FORM UCC3)(REV. 07/29/98)





UCC FINANCING STATEMENT AMENDMENT
FOLLOW INSTRUCTIONS (front and back) CAREFULLY

A. NAME & PHONE OF CONTACT AT FILER (optional)

B. SEND ACKNOWLEDGMENT TO: (Name and Address)

      Loulse A. Luongo, Parelegal
      Wilmer Cutler Pickering Hale and Dorr LLP
      60 State Street
      Boston, MA 02109

                                                                                
                                                                                   THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY
1a. INITIAL FINANCING STATEMENT FILE #                                                         1b. This FINANCING STATEMENT
    0207960341    3/18/02                                                                          AMENDMENT is to be filed (for
                                                                                                   record) (or recorded) in the
                                                                                               [ ] REAL ESTATE RECORDS.
- ------------------------------------------------------------------------------------------------------------------------------------
2.[ ] TERMINATION: Effectiveness of the Financing Statement identified above is terminated with respect to security interest(s) of
      the Secured Party authorizing this Termination Statement.
- ------------------------------------------------------------------------------------------------------------------------------------
3.[ ] CONTINUATION: Effectiveness of the Financing Statement identified above with respect to security interest(s) of the Secured
      Party authorizing this Continuation Statement is continued for the additional period provided by applicable law.
- ------------------------------------------------------------------------------------------------------------------------------------
4.[ ] ASSIGNMENT (full or partial): Give name of assignee in item 7a or 7b and address of assignee in item 7c; and also give name
      of assignor in item 9.
- ------------------------------------------------------------------------------------------------------------------------------------
5. AMENDMENT (PARTY INFORMATION): This Amendment affects [ ] Debtor or [ ] Secured Party of record. Check only one of these two
   boxes.

   Also check one of the following three boxes and provide appropriate information in items 6 and/or 7.



                                                                                
[ ] CHANGE name and/or address: Give current    [ ] DELETE name: Give record name     [ ] ADD name: Complete item 7a or 7b, and also
    record name in  item 6a or 6b; also give        to be deleted in item 6a or 6b.       item 7c; also complete items 7d-7g
    new name (if name change) in item 7a or                                               (if applicable).
    7b and/or new address (if address change)
    in item 7c.



                                                                                                                   
6. CURRENT RECORD INFORMATION:
   6a. ORGANIZATION'S NAME
       MTI TECHNOLOGY CORPORATION
OR
   6b. INDIVIDUAL'S LAST NAME                                      FIRST NAME                       MIDDLE NAME             SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
7. CHANGED (NEW) OR ADDED INFORMATION:
   7a. ORGANIZATION'S NAME
- ------------------------------------------------------------------------------------------------------------------------------------
OR
   7b. INDIVIDUAL'S LAST NAME                                      FIRST NAME                       MIDDLE NAME             SUFFIX

7c. MAILING ADDRESS                                                CITY                             STATE    POSTAL CODE    COUNTRY

7d. TAX ID #: SSN OR EIN  ADD'L INFO RE  7e. TYPE OF ORGANIZATION  7f. JURISDICTION OF ORGANIZATION  7g. ORGANIZATIONAL ID #, if any
                          ORGANIZATION
                          DEBTOR                                                                                           [ ] NONE
- ------------------------------------------------------------------------------------------------------------------------------------
8. AMENDMENT (COLLATERAL CHANGE): check only one box.

   Describe collateral [X] deleted or [ ] added, or give entire [ ] restated collateral description, or describe collateral
   [ ] assigned.

   See attached Schedule A of deleted collateral, which collateral Secured Party releases.

- ------------------------------------------------------------------------------------------------------------------------------------
9. NAME OF SECURED PARTY OF RECORD AUTHORIZING THIS AMENDMENT (name of assignor, if this is an Assignment). If this is an Amendment
   authorized by a Debtor which adds collateral or adds the authorizing Debtor, or if this is a Termination authorized by a Debtor,
   check here [ ] and enter name of DEBTOR authorizing this Amendment.

   9a. ORGANIZATION'S NAME
    THE CANOPY GROUP, INC.
OR
   9b. INDIVIDUAL'S LAST NAME                                      FIRST NAME                       MIDDLE NAME             SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
10. OPTIONAL FILER REFERENCE DATA
    CA-SOS                                                                                   #4889170
- ------------------------------------------------------------------------------------------------------------------------------------
FILING OFFICE COPY--NATIONAL UCC FINANCING STATEMENT AMENDMENT (FORM UCC3)(REV. 07/29/98)

EX-10.33

                                                                   Exhibit 10.33


                           MTI TECHNOLOGY CORPORATION
                         2006 STOCK INCENTIVE PLAN (CT)

        1. Purposes of the Plan. The purposes of this Plan are to attract and
retain the best available personnel, to provide additional incentives to
Employees, Directors and Consultants and to promote the success of the Company's
business.

        2. Definitions. The following definitions shall apply as used herein and
in the individual Award Agreements except as defined otherwise in an individual
Award Agreement. In the event a term is separately defined in an individual
Award Agreement, such definition shall supercede the definition contained in
this Section 2.

                (a) "Administrator" means the Board or any of the Committees
appointed to administer the Plan.

                (b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange
Act.

                (c) "Applicable Laws" means the legal requirements relating to
the Plan and the Awards under applicable provisions of federal securities laws,
state corporate and securities laws, the Code, the rules of any applicable stock
exchange or national market system, and the rules of any non-U.S. jurisdiction
applicable to Awards granted to residents therein.

                (d) "Assumed" means that pursuant to a Corporate Transaction
either (i) the Award is expressly affirmed by the Company or (ii) the
contractual obligations represented by the Award are expressly assumed (and not
simply by operation of law) by the successor entity or its Parent in connection
with the Corporate Transaction with appropriate adjustments to the number and
type of securities of the successor entity or its Parent subject to the Award
and the exercise or purchase price thereof which at least preserves the
compensation element of the Award existing at the time of the Corporate
Transaction as determined in accordance with the instruments evidencing the
agreement to assume the Award.

                (e) "Award" means the grant of an Option, SAR, Dividend
Equivalent Right, Restricted Stock, Restricted Stock Unit or other right or
benefit under the Plan.

                (f) "Award Agreement" means the written agreement evidencing the
grant of an Award executed by the Company and the Grantee, including any
amendments thereto.

                (g) "Board" means the Board of Directors of the Company.

                (h) "Cause" means, with respect to the termination by the
Company or a Related Entity of the Grantee's Continuous Service, that such
termination is for "Cause" as such term (or word of like import) is expressly
defined in a then-effective written agreement between the Grantee and the
Company or such Related Entity, or in the absence of such then-effective written
agreement and definition, is based on, in the determination of the
Administrator, the Grantee's: (i) refusal or failure to act in accordance with
any specific, lawful direction or order of the Company or Related Entity; (ii)
unfitness or unavailability for service or unsatisfactory performance (other
than as a result of Disability); (iii) performance of any act in bad faith and
to



                                       1


the detriment of the Company or a Related Entity; (iv) dishonesty,
intentional misconduct or material breach of any agreement with the Company or a
Related Entity; or (v) commission of a crime involving dishonesty, breach of
trust, or physical or emotional harm to any person. At least 30 days prior to
the termination of the Grantee's Continuous Service pursuant to (i) or (ii)
above, the Administrator shall provide the Grantee with notice of the Company's
or such Related Entity's intent to terminate, the reason therefor, and an
opportunity for the Grantee to cure such defects in his or her service to the
Company's or such Related Entity's satisfaction. During this 30 day (or longer)
period, no Award issued to the Grantee under the Plan may be exercised or
purchased.

                        (i) "Change in Control" means a change in ownership or
control of the Company effected through either of the following transactions:

                        (i) the direct or indirect acquisition by any person or
related group of persons (other than an acquisition from or by the Company or by
a Company-sponsored employee benefit plan or by a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities pursuant to
a tender or exchange offer made directly to the Company's stockholders which a
majority of the Continuing Directors who are not Affiliates or Associates of the
offeror do not recommend such stockholders accept, or

                        (ii) a change in the composition of the Board over a
period of twelve (12) months or less such that a majority of the Board members
(rounded up to the next whole number) ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who are
Continuing Directors.

                (j) "Code" means the Internal Revenue Code of 1986, as amended.

                (k) "Committee" means any committee composed of members of the
Board appointed by the Board to administer the Plan.

                (l) "Common Stock" means the common stock of the Company.

                (m) "Company" means MTI Technology Corporation, a Delaware
corporation, or any successor entity that adopts the Plan in connection with a
Corporate Transaction.

                (n) "Consultant" means any person (other than an Employee or a
Director, solely with respect to rendering services in such person's capacity as
a Director) who is engaged by the Company or any Related Entity to render
consulting or advisory services to the Company or such Related Entity.

                (o) "Continuing Directors" means members of the Board who either
(i) have been Board members continuously for a period of at least thirty-six
(36) months or (ii) have been Board members for less than thirty-six (36) months
and were elected or nominated for election as Board members by at least a
majority of the Board members described in clause (i) who were still in office
at the time such election or nomination was approved by the Board.



                                       2


                (p) "Continuous Service" means that the provision of services to
the Company or a Related Entity in any capacity of Employee, Director or
Consultant is not interrupted or terminated. In jurisdictions requiring notice
in advance of an effective termination as an Employee, Director or Consultant,
Continuous Service shall be deemed terminated upon the actual cessation of
providing services to the Company or a Related Entity notwithstanding any
required notice period that must be fulfilled before a termination as an
Employee, Director or Consultant can be effective under Applicable Laws. A
Grantee's Continuous Service shall be deemed to have terminated either upon an
actual termination of Continuous Service or upon the entity for which the
Grantee provides services ceasing to be a Related Entity. Continuous Service
shall not be considered interrupted in the case of (i) any approved leave of
absence, (ii) transfers among the Company, any Related Entity, or any successor,
in any capacity of Employee, Director or Consultant, or (iii) any change in
status as long as the individual remains in the service of the Company or a
Related Entity in any capacity of Employee, Director or Consultant (except as
otherwise provided in the Award Agreement). An approved leave of absence shall
include sick leave, military leave, or any other authorized personal leave. For
purposes of each Incentive Stock Option granted under the Plan, if such leave
exceeds three (3) months, and reemployment upon expiration of such leave is not
guaranteed by statute or contract, then the Incentive Stock Option shall be
treated as a Non-Qualified Stock Option on the day three (3) months and one (1)
day following the expiration of such three (3) month period.

                (q) "Corporate Transaction" means any of the following
transactions, provided, however, that the Administrator shall determine under
parts (iv) and (v) whether multiple transactions are related, and its
determination shall be final, binding and conclusive:

                        (i) a merger or consolidation in which the Company is
not the surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated;

                        (ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
the Company's subsidiary corporations)

                        (iii) approval by the Company's shareholders of any plan
or proposal for the complete liquidation or dissolution of the Company;

                        (iv) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding securities
are transferred to a person or persons different from those who held such
securities immediately prior to such merger; or

                        (v) acquisition by any person or related group of
persons (other than the Company or by a Company-sponsored employee benefit plan)
of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act)
of securities possessing more than fifty percent (50%) of the total combined
voting power of the Company's outstanding securities (whether or not in a
transaction also constituting a Change in Control), but excluding any such
transaction that the Administrator determines shall not be a Corporate
Transaction.



                                       3


                (r) "Covered Employee" means an Employee who is a "covered
employee" under Section 162(m)(3) of the Code.

                (s) "Director" means a member of the Board or the board of
directors of any Related Entity.

                (t) "Disability" means as defined under the long-term disability
policy of the Company or the Related Entity to which the Grantee provides
services regardless of whether the Grantee is covered by such policy. If the
Company or the Related Entity to which the Grantee provides service does not
have a long-term disability plan in place, "Disability" means that a Grantee is
unable to carry out the responsibilities and functions of the position held by
the Grantee by reason of any medically determinable physical or mental
impairment. A Grantee will not be considered to have incurred a Disability
unless he or she furnishes proof of such impairment sufficient to satisfy the
Administrator in its discretion.

                (u) "Dividend Equivalent Right" means a right entitling the
Grantee to compensation measured by dividends paid with respect to Common Stock.

                (v) "Employee" means any person, including an Officer or
Director, who is in the employ of the Company or any Related Entity, subject to
the control and direction of the Company or any Related Entity as to both the
work to be performed and the manner and method of performance. The payment of a
director's fee by the Company or a Related Entity shall not be sufficient to
constitute "employment" by the Company.

                (w) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

                (x) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:

                        (i) If the Common Stock is listed on one or more
established stock exchanges or national market systems, including without
limitation The Nasdaq National Market or The Nasdaq Capital Market of The Nasdaq
Stock Market, its Fair Market Value shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on the principal
exchange or system on which the Common Stock is listed (as determined by the
Administrator) on the date of determination (or, if no closing sales price or
closing bid was reported on that date, as applicable, on the last trading date
such closing sales price or closing bid was reported), as reported in The Wall
Street Journal or such other source as the Administrator deems reliable;

                        (ii) If the Common Stock is regularly quoted on an
automated quotation system (including the OTC Bulletin Board) or by a recognized
securities dealer, its Fair Market Value shall be the closing sales price for
such stock as quoted on such system or by such securities dealer on the date of
determination, but if selling prices are not reported, the Fair Market Value of
a share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the date of determination (or, if no such prices
were reported on that date, on the last date such prices were reported), as
reported in The Wall Street Journal or such other source as the Administrator
deems reliable; or



                                       4


                        (iii) In the absence of an established market for the
Common Stock of the type described in (i) and (ii), above, the Fair Market Value
thereof shall be determined by the Administrator in good faith.

                (y) "Good Reason" means the occurrence after a Corporate
Transaction or Change in Control of any of the following events or conditions
unless consented to by the Grantee (and the Grantee shall be deemed to have
consented to any such event or condition unless the Grantee provides written
notice of the Grantee's non-acquiescence within 30 days of the effective time of
such event or condition):

                        (i) a change in the Grantee's responsibilities or duties
which represents a material and substantial diminution in the Grantee's
responsibilities or duties as in effect immediately preceding the consummation
of a Corporate Transaction or Change in Control;

                        (ii) a reduction in the Grantee's base salary to a level
below that in effect at any time within six (6) months preceding the
consummation of a Corporate Transaction or Change in Control or at any time
thereafter; or

                        (iii) requiring the Grantee to be based at any place
outside a 50-mile radius from the Grantee's job location or residence prior to
the Corporate Transaction or Change in Control except for reasonably required
travel on business which is not materially greater than such travel requirements
prior to the Corporate Transaction or Change in Control.

                (z) "Grantee" means an Employee, Director or Consultant who
receives an Award under the Plan.

                (aa) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code

                (bb) "Non-Qualified Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.

                (cc) "Officer" means a person who is an officer of the Company
or a Related Entity within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.

                (dd) "Option" means an option to purchase Shares pursuant to an
Award Agreement granted under the Plan.

                (ee) "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.

                (ff) "Performance-Based Compensation" means compensation
qualifying as "performance-based compensation" under Section 162(m) of the Code.

                (gg) "Plan" means this 2006 Stock Incentive Plan (CT).



                                       5


                (hh) "Related Entity" means any Parent or Subsidiary of the
Company.

                (ii) "Replaced" means that pursuant to a Corporate Transaction
the Award is replaced with a comparable stock award or a cash incentive program
of the Company, the successor entity (if applicable) or Parent of either of them
which preserves the compensation element of such Award existing at the time of
the Corporate Transaction and provides for subsequent payout in accordance with
the same (or a more favorable) vesting schedule applicable to such Award. The
determination of Award comparability shall be made by the Administrator and its
determination shall be final, binding and conclusive.

                (jj) "Restricted Stock" means Shares issued under the Plan to
the Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture provisions,
and other terms and conditions as established by the Administrator.

                (kk) "Restricted Stock Units" means an Award which may be earned
in whole or in part upon the passage of time or the attainment of performance
criteria established by the Administrator and which may be settled for cash,
Shares or other securities or a combination of cash, Shares or other securities
as established by the Administrator.

                (ll) "Rule 16b-3" means Rule 16b-3 promulgated under the
Exchange Act or any successor thereto.

                (mm) "SAR" means a stock appreciation right entitling the
Grantee to Shares or cash compensation, as established by the Administrator,
measured by appreciation in the value of Common Stock.

                (nn) "Share" means a share of the Common Stock.

                (oo) "Subsidiary" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.

        3. Stock Subject to the Plan.

                (a) Subject to the provisions of Section 10, below, the maximum
aggregate number of Shares which may be issued pursuant to all Awards (including
Incentive Stock Options) is [INSERT MAXIMUM NUMBER OF SHARES ISSUABLE PURSUANT
TO SECTION 8.3 OF THE ASSET PURCHASE AGREEMENT] Shares. The Shares to be issued
pursuant to Awards may be authorized, but unissued, or reacquired Common Stock.

                (b) Any Shares covered by an Award (or portion of an Award)
which is forfeited, canceled or expires (whether voluntarily or involuntarily)
shall be deemed not to have been issued for purposes of determining the maximum
aggregate number of Shares which may be issued under the Plan. Shares that
actually have been issued under the Plan pursuant to an Award shall not be
returned to the Plan and shall not become available for future issuance under
the Plan, except that if unvested Shares are forfeited, or repurchased by the
Company at the lower of their original purchase price or their Fair Market Value
at the time of repurchase, such Shares shall become available for future grant
under the Plan. To the extent not prohibited by



                                       6


the listing requirements of The Nasdaq National Market (or other established
stock exchange or national market system on which the Common Stock is traded)
and Applicable Law, any Shares covered by an Award which are surrendered (i) in
payment of the Award exercise or purchase price or (ii) in satisfaction of tax
withholding obligations incident to the exercise of an Award shall be deemed not
to have been issued for purposes of determining the maximum number of Shares
which may be issued pursuant to all Awards under the Plan, unless otherwise
determined by the Administrator.

        4. Administration of the Plan.

                (a) Plan Administrator.

                        (i) Administration with Respect to Directors and
Officers. With respect to grants of Awards to Directors or Employees who are
also Officers or Directors of the Company, the Plan shall be administered by (A)
the Board or (B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws and to permit
such grants and related transactions under the Plan to be exempt from Section
16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board.

                        (ii) Administration With Respect to Consultants and
Other Employees. With respect to grants of Awards to Employees or Consultants
who are neither Directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a Committee designated by the Board, which
Committee shall be constituted in such a manner as to satisfy the Applicable
Laws. Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. The Board may authorize one or
more Officers to grant such Awards and may limit such authority as the Board
determines from time to time.

                        (iii) Administration With Respect to Covered Employees.
Notwithstanding the foregoing, grants of Awards to any Covered Employee intended
to qualify as Performance-Based Compensation shall be made only by a Committee
(or subcommittee of a Committee) which is comprised solely of two or more
Directors eligible to serve on a committee making Awards qualifying as
Performance-Based Compensation. In the case of such Awards granted to Covered
Employees, references to the "Administrator" or to a "Committee" shall be deemed
to be references to such Committee or subcommittee.

                        (iv) Administration Errors. In the event an Award is
granted in a manner inconsistent with the provisions of this subsection (a),
such Award shall be presumptively valid as of its grant date to the extent
permitted by the Applicable Laws.

                (b) Powers of the Administrator. Subject to Applicable Laws and
the provisions of the Plan (including any other powers given to the
Administrator hereunder), and except as otherwise provided by the Board, the
Administrator shall have the authority, in its discretion:

                        (i) to select the Employees, Directors and Consultants
to whom Awards may be granted from time to time hereunder;



                                       7


                        (ii) to determine whether and to what extent Awards are
granted hereunder;

                        (iii) to determine the number of Shares or the amount of
other consideration to be covered by each Award granted hereunder;

                        (iv) to approve forms of Award Agreements for use under
the Plan;

                        (v) to determine the terms and conditions of any Award
granted hereunder;

                        (vi) to amend the terms of any outstanding Award granted
under the Plan, provided that any amendment that would adversely affect the
Grantee's rights under an outstanding Award shall not be made without the
Grantee's written consent, provided, however, that an amendment or modification
that may cause an Incentive Stock Option to become a Non-Qualified Stock Option
shall not be treated as adversely affecting the rights of the Grantee;

                        (vii) to construe and interpret the terms of the Plan
and Awards, including without limitation, any notice of award or Award
Agreement, granted pursuant to the Plan;

                        (viii) to grant Awards to Employees, Directors and
Consultants employed outside the United States on such terms and conditions
different from those specified in the Plan as may, in the judgment of the
Administrator, be necessary or desirable to further the purpose of the Plan; and

                        (ix) to take such other action, not inconsistent with
the terms of the Plan, as the Administrator deems appropriate.

The express grant in the Plan of any specific power to the Administrator shall
not be construed as limiting any power or authority of the Administrator;
provided that the Administrator may not exercise any right or power reserved to
the Board. Any decision made, or action taken, by the Administrator or in
connection with the administration of this Plan shall be final, conclusive and
binding on all persons having an interest in the Plan.

                (c) Indemnification. In addition to such other rights of
indemnification as they may have as members of the Board or as Officers or
Employees of the Company or a Related Entity, members of the Board and any
Officers or Employees of the Company or a Related Entity to whom authority to
act for the Board, the Administrator or the Company is delegated shall be
defended and indemnified by the Company to the extent permitted by law on an
after-tax basis against all reasonable expenses, including attorneys' fees,
actually and necessarily incurred in connection with the defense of any claim,
investigation, action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any Award
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by the Company) or paid by them in
satisfaction of a judgment in any such claim, investigation, action, suit or
proceeding, except in relation to matters as to which it shall be adjudged in
such claim, investigation, action, suit or proceeding that such person is liable
for



                                       8


gross negligence, bad faith or intentional misconduct; provided, however, that
within thirty (30) days after the institution of such claim, investigation,
action, suit or proceeding, such person shall offer to the Company, in writing,
the opportunity at the Company's expense to defend the same.

        5. Eligibility. Awards other than Incentive Stock Options may be granted
to Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees of the Company or a Parent or a Subsidiary of the Company. An
Employee, Director or Consultant who has been granted an Award may, if otherwise
eligible, be granted additional Awards. Awards may be granted to such Employees,
Directors or Consultants who are residing in non-U.S. jurisdictions as the
Administrator may determine from time to time.

        6. Terms and Conditions of Awards.

                (a) Types of Awards. The Administrator is authorized under the
Plan to award any type of arrangement to an Employee, Director or Consultant
that is not inconsistent with the provisions of the Plan and that by its terms
involves or might involve the issuance of (i) Shares, (ii) cash or (iii) an
Option, a SAR, or similar right with a fixed or variable price related to the
Fair Market Value of the Shares and with an exercise or conversion privilege
related to the passage of time, the occurrence of one or more events, or the
satisfaction of performance criteria or other conditions. Such awards include,
without limitation, Options, SARs, sales or bonuses of Restricted Stock,
Restricted Stock Units or Dividend Equivalent Rights, and an Award may consist
of one such security or benefit, or two (2) or more of them in any combination
or alternative.

                (b) Designation of Award. Each Award shall be designated in the
Award Agreement. In the case of an Option, the Option shall be designated as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, an Option will qualify as an Incentive Stock
Option under the Code only to the extent the $100,000 dollar limitation of
Section 422(d) of the Code is not exceeded. The $100,000 limitation of Section
422(d) of the Code is calculated based on the aggregate Fair Market Value of the
Shares subject to Options designated as Incentive Stock Options which become
exercisable for the first time by a Grantee during any calendar year (under all
plans of the Company or any Parent or Subsidiary of the Company). For purposes
of this calculation, Incentive Stock Options shall be taken into account in the
order in which they were granted, and the Fair Market Value of the Shares shall
be determined as of the grant date of the relevant Option.

                (c) Conditions of Award. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, the following: (i) increase in share price, (ii) earnings per
share, (iii) total stockholder return, (iv) operating margin, (v) gross margin,
(vi) return on equity, (vii) return on assets, (viii) return on investment, (ix)
operating income, (x) net operating income, (xi) pre-tax profit, (xii) cash
flow, (xiii) revenue, (xiv) expenses, (xv) earnings before interest, taxes and
depreciation, (xvi) economic value added



                                       9


and (xvii) market share. The performance criteria may be applicable to the
Company, Related Entities and/or any individual business units of the Company or
any Related Entity. Partial achievement of the specified criteria may result in
a payment or vesting corresponding to the degree of achievement as specified in
the Award Agreement.

                (d) Acquisitions and Other Transactions. The Administrator may
issue Awards under the Plan in settlement, assumption or substitution for,
outstanding awards or obligations to grant future awards in connection with the
Company or a Related Entity acquiring another entity, an interest in another
entity or an additional interest in a Related Entity whether by merger, stock
purchase, asset purchase or other form of transaction.

                (e) Deferral of Award Payment. The Administrator may establish
one or more programs under the Plan to permit selected Grantees the opportunity
to elect to defer receipt of consideration upon exercise of an Award,
satisfaction of performance criteria, or other event that absent the election
would entitle the Grantee to payment or receipt of Shares or other consideration
under an Award. The Administrator may establish the election procedures, the
timing of such elections, the mechanisms for payments of, and accrual of
interest or other earnings, if any, on amounts, Shares or other consideration so
deferred, and such other terms, conditions, rules and procedures that the
Administrator deems advisable for the administration of any such deferral
program.

                (f) Separate Programs. The Administrator may establish one or
more separate programs under the Plan for the purpose of issuing particular
forms of Awards to one or more classes of Grantees on such terms and conditions
as determined by the Administrator from time to time.

                (g) Individual Limitations on Awards.

                        (i) Individual Limit for Options and SARs. The maximum
number of Shares with respect to which Options and SARs may be granted to any
Grantee in any calendar year shall be [INSERT MAXIMUM NUMBER OF OPTIONS ISSUABLE
TO ANY SINGLE PERSON PURSUANT TO SECTION 8.3 OF THE ASSET PURCHASE AGREEMENT]
Shares. The foregoing limitation shall be adjusted proportionately in connection
with any change in the Company's capitalization pursuant to Section 10, below.
To the extent required by Section 162(m) of the Code or the regulations
thereunder, in applying the foregoing limitations with respect to a Grantee, if
any Option or SAR is canceled, the canceled Option or SAR shall continue to
count against the maximum number of Shares with respect to which Options and
SARs may be granted to the Grantee. For this purpose, the repricing of an Option
(or in the case of a SAR, the base amount on which the stock appreciation is
calculated is reduced to reflect a reduction in the Fair Market Value of the
Common Stock) shall be treated as the cancellation of the existing Option or SAR
and the grant of a new Option or SAR.

                        (ii) Individual Limit for Restricted Stock and
Restricted Stock Units. For awards of Restricted Stock and Restricted Stock
Units that are intended to be Performance-Based Compensation, the maximum number
of Shares with respect to which such Awards may be granted to any Grantee in any
calendar year shall be [INSERT MAXIMUM NUMBER OF RESTRICTED SHARES ISSUABLE TO
ANY SINGLE PERSON PURSUANT TO SECTION



                                       10


8.3 OF THE ASSET PURCHASE AGREEMENT] Shares. The foregoing limitation shall be
adjusted proportionately in connection with any change in the Company's
capitalization pursuant to Section 10, below.

                        (iii) Deferral. If the vesting or receipt of Shares
under an Award is deferred to a later date, any amount (whether denominated in
Shares or cash) paid in addition to the original number of Shares subject to
such Award will not be treated as an increase in the number of Shares subject to
the Award if the additional amount is based either on a reasonable rate of
interest or on one or more predetermined actual investments such that the amount
payable by the Company at the later date will be based on the actual rate of
return of a specific investment (including any decrease as well as any increase
in the value of an investment).

                (h) Early Exercise. The Award Agreement may, but need not,
include a provision whereby the Grantee may elect at any time while an Employee,
Director or Consultant to exercise any part or all of the Award prior to full
vesting of the Award. Any unvested Shares received pursuant to such exercise may
be subject to a repurchase right in favor of the Company or a Related Entity or
to any other restriction the Administrator determines to be appropriate.

                (i) Term of Award. The term of each Award shall be the term
stated in the Award Agreement, provided, however, that the term of an Incentive
Stock Option shall be no more than ten (10) years from the date of grant
thereof. However, in the case of an Incentive Stock Option granted to a Grantee
who, at the time the Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary of the Company, the term of the Incentive Stock Option
shall be five (5) years from the date of grant thereof or such shorter term as
may be provided in the Award Agreement. Notwithstanding the foregoing, the
specified term of any Award shall not include any period for which the Grantee
has elected to defer the receipt of the Shares or cash issuable pursuant to the
Award.

                (j) Transferability of Awards. Incentive Stock Options may not
be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Grantee, only by the Grantee. Other Awards
shall be transferable (i) by will and by the laws of descent and distribution
and (ii) during the lifetime of the Grantee, to the extent and in the manner
authorized by the Administrator. Notwithstanding the foregoing, the Grantee may
designate one or more beneficiaries of the Grantee's Award in the event of the
Grantee's death on a beneficiary designation form provided by the Administrator.

                (k) Time of Granting Awards. The date of grant of an Award shall
for all purposes be the date on which the Administrator makes the determination
to grant such Award, or such other date as is determined by the Administrator.



                                       11


        7. Award Exercise or Purchase Price, Consideration and Taxes.

                (a) Exercise or Purchase Price. The exercise or purchase price,
if any, for an Award shall be as follows:

                        (i) In the case of an Incentive Stock Option:

                                (A) granted to an Employee who, at the time of
the grant of such Incentive Stock Option owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary of the Company, the per Share exercise price shall be not
less than one hundred ten percent (110%) of the Fair Market Value per Share on
the date of grant; or

                                (B) granted to any Employee other than an
Employee described in the preceding paragraph, the per Share exercise price
shall be not less than one hundred percent (100%) of the Fair Market Value per
Share on the date of grant.

                        (ii) In the case of a Non-Qualified Stock Option, the
per Share exercise price shall be not less than one hundred percent (100%) of
the Fair Market Value per Share on the date of grant.

                        (iii) In the case of Awards intended to qualify as
Performance-Based Compensation, the exercise or purchase price, if any, shall be
not less than one hundred percent (100%) of the Fair Market Value per Share on
the date of grant.

                        (iv) In the case of other Awards, such price as is
determined by the Administrator.

                        (v) Notwithstanding the foregoing provisions of this
Section 7(a), in the case of an Award issued pursuant to Section 6(d), above,
the exercise or purchase price for the Award shall be determined in accordance
with the provisions of the relevant instrument evidencing the agreement to issue
such Award.

                (b) Consideration. Subject to Applicable Laws, the consideration
to be paid for the Shares to be issued upon exercise or purchase of an Award
including the method of payment, shall be determined by the Administrator. In
addition to any other types of consideration the Administrator may determine,
the Administrator is authorized to accept as consideration for Shares issued
under the Plan the following; provided that the portion of the consideration
equal to the par value of the Shares must be paid in cash or other legal
consideration permitted by the Delaware General Corporation Law:

                        (i) cash;

                        (ii) check;

                        (iii) delivery of Grantee's promissory note with such
recourse, interest, security and redemption provisions as the Administrator
determines as appropriate;



                                       12


                        (iv) surrender of Shares or delivery of a properly
executed form of attestation of ownership of Shares as the Administrator may
require which have a Fair Market Value on the date of surrender or attestation
equal to the aggregate exercise price of the Shares as to which said Award shall
be exercised;

                        (v) surrender of Shares or delivery of a properly
executed form of attestation of ownership of Shares as the Administrator may
require which have a Fair Market Value on the date of surrender or attestation
equal to the aggregate exercise price of the Shares as to which said Award shall
be exercised;

                        (vi) with respect to Options, payment through a
broker-dealer sale and remittance procedure pursuant to which the Grantee (A)
shall provide written instructions to a Company designated brokerage firm to
effect the immediate sale of some or all of the purchased Shares and remit to
the Company sufficient funds to cover the aggregate exercise price payable for
the purchased Shares and (B) shall provide written directives to the Company to
deliver the certificates for the purchased Shares directly to such brokerage
firm in order to complete the sale transaction; or

                        (vii) any combination of the foregoing methods of
payment.

The Administrator may at any time or from time to time, by adoption of or by
amendment to the standard forms of Award Agreement described in Section
4(b)(iv), or by other means, grant Awards which do not permit all of the
foregoing forms of consideration to be used in payment for the Shares or which
otherwise restrict one or more forms of consideration.

                (c) Taxes. No Shares shall be delivered under the Plan to any
Grantee or other person until such Grantee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any non-U.S., federal,
state, or local income and employment tax withholding obligations, including,
without limitation, obligations incident to the receipt of Shares. Upon exercise
or vesting of an Award the Company shall withhold or collect from Grantee an
amount sufficient to satisfy such tax obligations, including, but not limited
to, by surrender of the whole number of Shares covered by the Award sufficient
to satisfy the minimum applicable tax withholding obligations incident to the
exercise or vesting of an Award.

        8. Exercise of Award.

                (a) Procedure for Exercise; Rights as a Stockholder.

                        (i) Any Award granted hereunder shall be exercisable at
such times and under such conditions as determined by the Administrator under
the terms of the Plan and specified in the Award Agreement.

                        (ii) An Award shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Award by the person entitled to exercise the Award and full
payment for the Shares with respect to which the Award is exercised has been
made, including, to the extent selected, use of the broker-dealer sale and
remittance procedure to pay the purchase price as provided in Section 7(vi).



                                       13


                (b) Exercise of Award Following Termination of Continuous
Service.

                        (i) An Award may not be exercised after the termination
date of such Award set forth in the Award Agreement and may be exercised
following the termination of a Grantee's Continuous Service only to the extent
provided in the Award Agreement.

                        (ii) Where the Award Agreement permits a Grantee to
exercise an Award following the termination of the Grantee's Continuous Service
for a specified period, the Award shall terminate to the extent not exercised on
the last day of the specified period or the last day of the original term of the
Award, whichever occurs first.

                        (iii) Any Award designated as an Incentive Stock Option
to the extent not exercised within the time permitted by law for the exercise of
Incentive Stock Options following the termination of a Grantee's Continuous
Service shall convert automatically to a Non-Qualified Stock Option and
thereafter shall be exercisable as such to the extent exercisable by its terms
for the period specified in the Award Agreement.

        9. Conditions Upon Issuance of Shares.

                (a) Shares shall not be issued pursuant to the exercise of an
Award unless the exercise of such Award and the issuance and delivery of such
Shares pursuant thereto shall comply with all Applicable Laws, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.

                (b) As a condition to the exercise of an Award, the Company may
require the person exercising such Award to represent and warrant at the time of
any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.

        10. Adjustments Upon Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of Shares covered by each
outstanding Award, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Awards have yet been granted or which
have been returned to the Plan, the exercise or purchase price of each such
outstanding Award, the maximum number of Shares with respect to which Awards may
be granted to any Grantee in any calendar year, as well as any other terms that
the Administrator determines require adjustment shall be proportionately
adjusted for (i) any increase or decrease in the number of issued Shares
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Shares, or similar transaction affecting the Shares,
(ii) any other increase or decrease in the number of issued Shares effected
without receipt of consideration by the Company, or (iii) as the Administrator
may determine in its discretion, any other transaction with respect to Common
Stock including a corporate merger, consolidation, acquisition of property or
stock, separation (including a spin-off or other distribution of stock or
property), reorganization, liquidation (whether partial or complete) or any
similar transaction; provided, however that conversion of any convertible
securities of the Company shall not be deemed to have been "effected without
receipt of consideration." In the event of any distribution of cash or other
assets to stockholders other than a normal cash



                                       14


dividend, the Administrator may also, in its discretion, make adjustments in
connection with the events described in (i) -- (iii) of this Section 10 or
substitute, exchange or grant Awards with respect to the shares of a Related
Entity (collectively "adjustments"). In determining adjustments to be made under
this Section 10, the Administrator may take into account such factors as it
deems appropriate, including (x) the restrictions of Applicable Law, (y) the
potential tax, accounting or other consequences of an adjustment and (z) the
possibility that some Grantees might receive an adjustment and a distribution or
other unintended benefit, and in light of such factors or circumstances may make
adjustments that are not uniform or proportionate among outstanding Awards,
modify vesting dates, defer the delivery of stock certificates or make other
equitable adjustments. Any such adjustments to outstanding Awards will be
effected in a manner that precludes the material enlargement of rights and
benefits under such Awards. Adjustments, if any, and any determinations or
interpretations, including any determination of whether a distribution is other
than a normal cash dividend, shall be made by the Administrator and its
determination shall be final, binding and conclusive. In connection with the
foregoing adjustments, the Administrator may, in its discretion, prohibit the
exercise of Awards during certain periods of time. Except as the Administrator
determines, no issuance by the Company of shares of any class, or securities
convertible into shares of any class, shall affect, and no adjustment by reason
hereof shall be made with respect to, the number or price of Shares subject to
an Award.

        11. Corporate Transactions and Changes in Control. Except as may be
provided in an Award Agreement:

                (a) In the event of any Corporate Transaction, each Award which
is at the time outstanding under the Plan automatically shall become fully
vested and exercisable and be released from any restrictions on transfer (other
than transfer restrictions applicable to Options) and repurchase or forfeiture
rights, immediately prior to the specified effective date of such Corporate
Transaction, for all of the Shares at the time represented by such Award.
Effective upon the consummation of the Corporate Transaction, all outstanding
Awards under the Plan shall terminate. However, all such Awards shall not
terminate if the Awards are, in connection with the Corporate Transaction,
assumed by the successor corporation or Parent thereof. In addition, an
outstanding Award under the Plan shall not so fully vest and be exercisable and
released from such limitations if and to the extent: (i) such Award is, in
connection with the Corporate Transaction, either assumed by the successor
corporation or Parent thereof or replaced with a comparable Award with respect
to shares of the capital stock of the successor corporation or Parent thereof or
(ii) such Award is to be replaced with a cash incentive program of the successor
corporation which preserves the compensation element of such Award existing at
the time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to such Award; provided,
however, that such Award (if assumed), the replacement Award (if replaced), or
the cash incentive program automatically shall become fully vested, exercisable
and payable and be released from any restrictions on transfer (other than
transfer restrictions applicable to Options) and repurchase or forfeiture rights
immediately upon termination of the Grantee's Continuous Service (substituting
the successor employer corporation for "Company or Related Entity" for the
definition of "Continuous Service") if such Continuous Service is terminated by
the successor company without Cause or voluntarily by the Grantee with Good
Reason within twelve (12) months of the Corporate



                                       15


Transaction. The determination of Award comparability above shall be made by the
Administrator.

                (b) Following a Change in Control (other than a Change in
Control which is also a Corporate Transaction) and upon the termination of the
Continuous Service of a Grantee if such Continuous Service is terminated by the
Company or Related Entity without Cause or voluntarily by the Grantee with Good
Reason within twelve (12) months of a Change in Control, each Award of such
Grantee which is at the time outstanding under the Plan automatically shall
become fully vested and exercisable and be released from any restrictions on
transfer (other than transfer restrictions applicable to Options) and repurchase
or forfeiture rights, immediately upon the termination of Continuous Service.

                (c) The portion of any Incentive Stock Option accelerated under
this Section 11 in connection with a Corporate Transaction or Change in Control
shall remain exercisable as an Incentive Stock Option under the Code only to the
extent the $100,000 dollar limitation of Section 422(d) of the Code is not
exceeded. To the extent such dollar limitation is exceeded, the accelerated
excess portion of such Option shall be exercisable as a Non-Qualified Stock
Option.

        12. Effective Date and Term of Plan. The Plan shall become effective
upon the earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated. Subject to Section 17, below, and Applicable
Laws, Awards may be granted under the Plan upon its becoming effective.

        13. Amendment, Suspension or Termination of the Plan.

                (a) The Board may at any time amend, suspend or terminate the
Plan; provided, however, that no such amendment shall be made without the
approval of the Company's stockholders to the extent such approval is required
by Applicable Laws.

                (b) No Award may be granted during any suspension of the Plan or
after termination of the Plan.

                (c) No suspension or termination of the Plan (including
termination of the Plan under Section 11, above) shall adversely affect any
rights under Awards already granted to a Grantee.

        14. Reservation of Shares.

                (a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.

                (b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in



                                       16


respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

        15. No Effect on Terms of Employment/Consulting Relationship. The Plan
shall not confer upon any Grantee any right with respect to the Grantee's
Continuous Service, nor shall it interfere in any way with his or her right or
the right of the Company or any Related Entity to terminate the Grantee's
Continuous Service at any time, with or without Cause, and with or without
notice. The ability of the Company or any Related Entity to terminate the
employment of a Grantee who is employed at will is in no way affected by its
determination that the Grantee's Continuous Service has been terminated for
Cause for the purposes of this Plan.

        16. No Effect on Retirement and Other Benefit Plans. Except as
specifically provided in a retirement or other benefit plan of the Company or a
Related Entity, Awards shall not be deemed compensation for purposes of
computing benefits or contributions under any retirement plan of the Company or
a Related Entity, and shall not affect any benefits under any other benefit plan
of any kind or any benefit plan subsequently instituted under which the
availability or amount of benefits is related to level of compensation. The Plan
is not a "Retirement Plan" or "Welfare Plan" under the Employee Retirement
Income Security Act of 1974, as amended.

        17. Stockholder Approval. The grant of Incentive Stock Options under the
Plan shall be subject to approval by the stockholders of the Company within
twelve (12) months before or after the date the Plan is adopted excluding
Incentive Stock Options issued in substitution for outstanding Incentive Stock
Options pursuant to Section 424(a) of the Code. Such stockholder approval shall
be obtained in the degree and manner required under Applicable Laws. The
Administrator may grant Incentive Stock Options under the Plan prior to approval
by the stockholders, but until such approval is obtained, no such Incentive
Stock Option shall be exercisable. In the event that stockholder approval is not
obtained within the twelve (12) month period provided above, all Incentive Stock
Options previously granted under the Plan shall be exercisable as Non-Qualified
Stock Options.

                18. Unfunded Obligation. Grantees shall have the status of
general unsecured creditors of the Company. Any amounts payable to Grantees
pursuant to the Plan shall be unfunded and unsecured obligations for all
purposes, including, without limitation, Title I of the Employee Retirement
Income Security Act of 1974, as amended. Neither the Company nor any Related
Entity shall be required to segregate any monies from its general funds, or to
create any trusts, or establish any special accounts with respect to such
obligations. The Company shall retain at all times beneficial ownership of any
investments, including trust investments, which the Company may make to fulfill
its payment obligations hereunder. Any investments or the creation or
maintenance of any trust or any Grantee account shall not create or constitute a
trust or fiduciary relationship between the Administrator, the Company or any
Related Entity and a Grantee, or otherwise create any vested or beneficial
interest in any Grantee or the Grantee's creditors in any assets of the Company
or a Related Entity. The Grantees shall have no claim against the Company or any
Related Entity for any changes in the value of any assets that may be invested
or reinvested by the Company with respect to the Plan.

                19. Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when



                                       17


otherwise indicated by the context, the singular shall include the plural and
the plural shall include the singular. Use of the term "or" is not intended to
be exclusive, unless the context clearly requires otherwise.



                                       18

EX-10.34

                                                                   Exhibit 10.34

                           MTI TECHNOLOGY CORPORATION
                        RESTRICTED STOCK AWARD AGREEMENT
                                      UNDER
                         2006 STOCK INCENTIVE PLAN (CT)

GRANT DATE:           RESTRICTED STOCK AWARD NUMBER:    ______ RESTRICTED SHARES

TOTAL SHARES GRANTED ON _________, 200_:                ______ RESTRICTED SHARES

SEE BELOW FOR VESTING SCHEDULE

        THIS RESTRICTED STOCK AWARD AGREEMENT (the "Agreement") is entered into
as of ____________, 200_ by and between ___________________ (hereinafter
referred to as "Grantee"), and MTI Technology Corporation, a Delaware
corporation (hereinafter referred to as the "Company"), pursuant to the
Company's 2006 Stock Incentive Plan (CT) (the "Plan"). Any capitalized term used
but not defined herein shall have the same meaning as ascribed to it in the
Plan.

                                    RECITALS:

        A. Grantee is an Employee, Director or Consultant who provides services
to the Company or a parent or subsidiary of the Company, as those terms are
defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as
amended (the "Code"), and in connection therewith has rendered and proposes to
render services to the Company.

        B. WHEREAS, the Company desires to issue shares of its common stock to
Grantee to encourage the continued service of Grantee to the Company and to
exert added effort towards its growth and success, which service is of benefit
to the Company;

        C. WHEREAS, the Company desires to impose certain restrictions on the
shares of common stock granted hereunder for the benefit of the Company; and

        D. WHEREAS, such grant is being made to Grantee in addition to, and not
in lieu of, any other form of compensation otherwise payable or to be paid to
Grantee.

        NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, and for other good and valuable consideration, the parties agree as
follows:

        1. ISSUANCE OF SHARES. The Company hereby offers to issue and sell to
Grantee an aggregate of ______________ (______) shares (the "Shares") of the
Company's common stock, $0.001 par value per share, at the nominal purchase
price of $0.01 per share on _______, 200_, on the terms and conditions herein
set forth. Unless this offer is earlier revoked in writing by the Company,
Grantee shall have ten (10) days from the date of the delivery of this Agreement
to Grantee to accept the offer of the Company by (a) executing and delivering to
the Company two copies of this Agreement, without condition or reservation of
any kind whatsoever, and (b) remitting to the Company an aggregate purchase
price for the Shares of $___________ by cash or check made payable to the
Company. The delivery by Grantee's spouse, if any, to the



                                       1


Company of a fully executed Consent and Ratification of Spouse, in the form
attached hereto as Exhibit A, is a further condition to the issuance of the
Shares pursuant hereto.

        2. VESTING OF SHARES.

                (a) Subject to Grantee's "Continuous Service" and Section 2(b)
below, the Shares acquired hereunder shall vest and become "Vested Shares" as
follows:


                36-MONTH (3 YEARS) VESTING WITH 12-MONTH CLIFF AND MONTHLY
                THEREAFTER: ONE-THIRD (1/3) OF THE SHARES SHALL VEST TWELVE (12)
                MONTHS AFTER THE VESTING COMMENCEMENT DATE. ONE-TWENTY-FOURTH
                (1/24TH) OF THE REMAINING UNVESTED SHARES SHALL VEST AT THE END
                OF THE 13TH MONTH AND EACH MONTH THEREAFTER, SUCH THAT THE
                SHARES WILL BE ONE HUNDRED PERCENT (100%) VESTED AFTER
                THIRTY-SIX (36) MONTHS OF CONTINUOUS SERVICES FROM VESTING
                COMMENCEMENT DATE.


 SHARES               VESTING DATE                      MONTHS
 ------               ------------                      ------
                                          
                                                1st Month to 12th Month
                                                      13th month
                                                      14th month
                                                      15th month
                                                      16th month
                                                      17th month
                                                      18th month
                                                      19th month
                                                      20th month
                                                      21st month
                                                      22nd month
                                                      23rd month
                                                      24th month
                                                      25th month
                                                      26th month
                                                      27th month
                                                      28th month
                                                      29th month
                                                      30th month
                                                      31st month
                                                      32nd month
                                                      33rd month
                                                      34th month
                                                      35th month
                                                      36th month



                Shares which have not yet become vested are herein called
"Unvested Shares." No additional shares shall vest after the date of termination
of Grantee's Continuous Service. For these purposes, the "Vesting Commencement
Date" shall be [INSERT DATE OF COMMENCEMENT OF GRANTEE'S EMPLOYMENT].



                                       2


                As used herein, the term "Continuous Service" means that the
provision of services to the Company or a Related Entity in any capacity of
Employee, Director or Consultant, is not interrupted or terminated.

                (b) Notwithstanding Section 2(a), if Grantee holds Shares at the
time a Corporate Transaction occurs, all "Forfeiture Rights" (as defined in 3(b)
below) shall automatically terminate immediately prior to the consummation of
such Corporate Transaction and the Shares subject to those terminated Forfeiture
Rights shall immediately vest in full except to the extent that this Agreement
is continued, assumed, or substituted for by the acquiring or successor entity
(or parent thereof) in connection with such Corporate Transaction.
Notwithstanding the foregoing sentence, if pursuant to a Corporate Transaction
the acquiring or successor entity (or parent thereof) provides for the
continuance or assumption of this Agreement or the substitution for this
Agreement of a new agreement of comparable value covering shares of a successor
corporation (with appropriate adjustments as to the number and kind of shares),
then the Forfeiture Rights shall not terminate and vesting of the Shares shall
not accelerate in connection with such Corporate Transaction; provided, however,
if Grantee's Continuous Service is terminated without Cause or pursuant to a
voluntary termination for Good Reason within twelve (12) months following such
Corporate Transaction, all Forfeiture Rights shall terminate and vesting of the
Shares or any substituted shares shall accelerate in full automatically
effective upon such termination of Continuous Service.

                If the Forfeiture Rights automatically terminate in accordance
with the provisions of this Section 2(b), then the Administrator shall cause
written notice of the Corporate Transaction to be given to Grantee not less than
fifteen (15) days prior to the anticipated effective date of the proposed
transaction.

                (c) If Grantee holds Shares at the time a Change in Control
occurs, then if Grantee's Continuous Service is terminated without Cause or
pursuant to a voluntary termination for Good Reason within twelve (12) months
following such Change in Control, all Forfeiture Rights shall terminate and
vesting of the Shares or any substituted shares shall accelerate in full
automatically effective upon such termination of Continuous Service.

        3. FORFEITURE RIGHTS UPON TERMINATION OF SERVICE.

                (a) DEPOSIT OF UNVESTED SHARES. Grantee shall deposit with the
Company certificates representing the Unvested Shares, together with a duly
executed stock assignment separate from certificate in blank (a form of which is
attached hereto as Exhibit B), which shall be held by the Secretary of the
Company. Grantee shall be entitled to vote and to receive dividends and
distributions on all such deposited Unvested Shares.

                (b) FORFEITURE AND CANCELLATION OF UNVESTED SHARES UPON
TERMINATION. In the event of termination of Grantee's Continuous Service, all
Unvested Shares as of the Termination Date shall be immediately forfeited,
cancelled and shall become null and void (the "Forfeiture Rights"), and the
Company shall cancel the certificates then deposited with the Company evidencing
the Unvested Shares, reissue a new certificate to Grantee evidencing only



                                       3


the Vested Shares, if any, as of the Termination Date, and refund to Grantee the
aggregate purchase price for the Unvested Shares.

                (c) TERMINATION. The provisions of this Section 3 shall
automatically terminate, and the Shares shall not be subject to the Forfeiture
Rights (and thus shall become Vested Shares), in accordance with Section 2(b)
above.

                (d) ASSIGNMENT. The Company may assign its rights under this
Section 3 without the consent of the Grantee.

        4. RESTRICTIONS ON UNVESTED SHARES. Unvested Shares may not be sold,
transferred, pledged, or otherwise disposed of, except that such Unvested Shares
may be transferred to a trust established for the sole benefit of the Grantee
and/or his or her spouse, children or grandchildren. Any Unvested Shares that
are transferred as provided herein remain subject to the terms and conditions of
this Agreement.

        5. ADJUSTMENTS UPON CHANGES IN CAPITAL STRUCTURE. In the event that the
outstanding shares of the Company's common stock are hereafter increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of a recapitalization, stock split,
combination of shares, reclassification, stock dividend, or other change in the
capital structure of the Company, then Grantee shall be entitled to new or
additional or different shares of stock or securities, in order to preserve, as
nearly as practical, but not to increase, the benefits of Grantee under this
Agreement, in accordance with the provisions of Section 10 of the Plan. Such
new, additional or different shares shall be deemed "Shares" for purposes of
this Agreement and subject to all of the terms and conditions hereof.

        6. SHARES FREE AND CLEAR. All Shares returned to the Company pursuant to
this Agreement shall be delivered by Grantee free and clear of all claims, liens
and encumbrances of every nature (except the provisions of this Agreement and
any conditions concerning the Shares relating to compliance with applicable
federal or state securities laws), and the Company shall acquire full and
complete title and right to all of such Shares, free and clear of any claims,
liens and encumbrances of every nature (again, except for the provisions of this
Agreement and such securities laws).

        7. LIMITATION OF COMPANY'S LIABILITY FOR NONISSUANCE; UNPERMITTED
TRANSFERS.


                (a) The Company agrees to use its reasonable best efforts to
obtain from any applicable regulatory agency such authority or approval as may
be required in order to issue and sell the Shares to Grantee pursuant to this
Agreement. The inability of the Company to obtain, from any such regulatory
agency, such authority or approval deemed by the Company's counsel to be
necessary for the lawful issuance and sale of the Shares hereunder and under the
Plan shall relieve the Company of any liability in respect of the nonissuance or
sale of such Shares as to which such requisite authority or approval shall not
have been obtained.



                                       4


                (b) The Company shall not be required to: (i) transfer on its
books any Shares of the Company which shall have been sold or transferred in
violation of any of the provisions set forth in this Agreement, or (ii) treat as
owner of such shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such shares shall have been so transferred.

        8. NOTICES. Any notice, demand or request required or permitted to be
given under this Agreement shall be in writing and shall be deemed given when
delivered personally or three (3) days after being deposited in the United
States mail, as certified or registered mail (or by such other method as the
Administrator may from time to time deem appropriate), with postage prepaid, and
addressed, if to the Company, at its principal place of business, Attention: the
Chief Financial Officer, and if to Grantee, at his or her most recent address as
shown in the records of the Company.

        9. BINDING OBLIGATIONS. All covenants and agreements herein contained by
or on behalf of any of the parties hereto shall bind and inure to the benefit of
the parties hereto and their permitted successors and assigns.

        10. CAPTIONS AND SECTION HEADINGS. Captions and section headings used
herein are for convenience only, and are not part of this Agreement and shall
not be used in construing it.

        11. AMENDMENT. This Agreement may not be amended, waived, discharged, or
terminated other than by written agreement of the parties.

        12. ENTIRE AGREEMENT. This Agreement and the Plan constitute the entire
agreement between the parties with respect to the subject matter hereof and
supersede all prior or contemporaneous written or oral agreements and
understandings of the parties, either express or implied.

        13. ASSIGNMENT. Grantee shall have no right, without the prior written
consent of the Company, to (i) sell, assign, mortgage, pledge or otherwise
transfer any interest or right created hereby except as set forth in Section 4
and by will or the laws of descent or distribution, or (ii) delegate his or her
duties or obligations under this Agreement. This Agreement is made solely for
the benefit of the parties hereto, and no other person, partnership,
association, corporation or other entity shall acquire or have any right under
or by virtue of this Agreement.

        14. SEVERABILITY. Should any provision or portion of this Agreement be
held to be unenforceable or invalid for any reason, the remaining provisions and
portions of this Agreement shall be unaffected by such holding.

        15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one agreement and any
party hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be binding upon



                                       5


Grantee and the Company at such time as the Agreement, in counterpart or
otherwise, is executed by Grantee and the Company.

        16. APPLICABLE LAW. This Agreement shall be construed in accordance with
the laws of the State of California without reference to choice of law
principles, as to all matters, including, but not limited to, matters of
validity, construction, effect or performance.

        17. NO AGREEMENT TO EMPLOY. Nothing in this Agreement shall affect any
right with respect to the continuance of employment by the Company or any of its
subsidiaries. The right of the Company or any of its subsidiaries to terminate
at will Grantee's employment or service as a Consultant, as applicable, at any
time (whether by dismissal, discharge or otherwise) and with or without cause,
is specifically reserved, subject to any other written employment or other
agreement to which the Company and Grantee may be a party.

        18. WITHHOLDING. Grantee agrees to make appropriate arrangements with
the Company (or a Parent or Subsidiary employing or retaining Grantee) for the
satisfaction of all Federal, state, local and foreign income, employment and
other withholding tax requirements applicable to the issuance of the Shares as
contemplated by this Agreement.

        19. TAX ELECTIONS.Grantee understands that Grantee (and not the Company)
shall be responsible for the Grantee's own tax liability that may arise as a
result of the acquisition of the Shares. Grantee acknowledges that Grantee has
considered the advisability of all tax elections in connection with the issuance
of the Shares, including the making of an election under Section 83(b) under the
Internal Revenue Code of 1986, as amended ("Code"); Grantee further acknowledges
that the Company has no responsibility for the making of such Section 83(b)
election. In the event Grantee determines to make a Section 83(b) election,
Grantee agrees to timely provide a copy of the election to the Company as
required under the Code.

        20. ATTORNEYS' FEES. If any party shall bring an action in law or equity
against another to enforce or interpret any of the terms, covenants and
provisions of this Agreement, the prevailing party in such action shall be
entitled to recover reasonable attorneys' fees and costs.

                            [Signature Page Follows]



                                       6



        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.


THE COMPANY:                                 GRANTEE:
MTI TECHNOLOGY CORPORATION

By:
        -------------------------------      -----------------------------------
                                             Signature

Name:
        -------------------------------      -----------------------------------
                                             Print Name

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



                                       7


                                    EXHIBIT A

                       CONSENT AND RATIFICATION OF SPOUSE


        The undersigned, the spouse of __________________ a party to the
attached Restricted Stock Award Agreement (the "Agreement"), dated as of
______________, hereby consents to the execution of said Agreement by such
party; and ratifies, approves, confirms and adopts said Agreement, and agrees to
be bound by each and every term and condition thereof as if the undersigned had
been a signatory to said Agreement, with respect to the Shares (as defined in
the Agreement) made the subject of said Agreement in which the undersigned has
an interest, including any community property interest therein.

        I also acknowledge that I have been advised to obtain independent
counsel to represent my interests with respect to this Agreement but that I have
declined to do so and I hereby expressly waive my right to such independent
counsel.


Date:
       -----------------------------    ----------------------------------------
                                        Signature


                                        ----------------------------------------
                                        Print Name



                                    Exhibit A



                                    EXHIBIT B

                   STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE


        FOR VALUE RECEIVED, the undersigned, _______________________, hereby
assigns and transfers unto MTI Technology Corporation, a Delaware corporation
("MTI"), a total of _____ shares of MTI's common stock, par value $0.001 per
share, standing in its name on the books of MTI represented by Certificate No.
__________, and does hereby irrevocably constitute and appoint _______________
as its attorney, to transfer said shares on MTI's share register, with full
power of substitution.


Date:
       -----------------------------    ----------------------------------------
                                        Signature


                                        ----------------------------------------
                                        Print Name



                                    Exhibit B

EX-10.35

                                                                   Exhibit 10.35

            MTI TECHNOLOGY CORPORATION 2006 STOCK INCENTIVE PLAN (CT)
                          NOTICE OF STOCK OPTION AWARD


        Grantee's Name and Address:
                                     -------------------------------------------

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

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


        You have been granted an option to purchase shares of Common Stock,
subject to the terms and conditions of this Notice of Stock Option Award (the
"Notice"), the MTI Technology Corporation 2006 Stock Incentive Plan (CT), as
amended from time to time (the "Plan") and the Stock Option Award Agreement (the
"Option Agreement") attached hereto, as follows. Unless otherwise defined
herein, the terms defined in the Plan shall have the same defined meanings in
this Notice.


        Award Number:
                                     -------------------------------------------
        Date of Award:
                                     -------------------------------------------
        Vesting Commencement Date:
                                     -------------------------------------------
        Exercise Price per Share:    $
                                     -------------------------------------------
        Total Number of Shares
        subject to the Option:
                                     -------------------------------------------
        Total Exercise Price:        $
                                     -------------------------------------------
        Type of Option:                    Incentive Stock Option
                                     -----
                                       X   Non-Qualified Stock Option
                                     -----
        Expiration Date:
                                     -------------------------------------------
        Post-Termination Exercise
        Period:                      Three (3) Months
                                     -------------------------------------------

Vesting Schedule:

        Subject to Grantee's Continuous Service and other limitations set forth
in this Notice, the Plan and the Option Agreement, the Option may be exercised,
in whole or in part, in accordance with the following schedule:

        36-MONTH (3 YEAR) VESTING WITH 6-MONTH CLIFF AND MONTHLY THEREAFTER:

                Six-thirty-sixths (6/36th) of the shares subject to the Option
        shall vest six (6) months after the Vesting Commencement Date.
        One-thirtieth (1/30th) of the remaining unvested shares subject to the
        Option shall vest at the end of the 7th month and each month thereafter,
        such that the Option will be one hundred percent (100%) vested after
        thirty-six (36) months of Continuous Services from the Vesting
        Commencement Date.

        During any authorized leave of absence, the vesting of the Option as
provided in this schedule shall cease after the leave of absence exceeds a
period of ninety (90) days. Vesting of the Option shall resume upon the
Grantee's termination of the leave of absence and return to service to the
Company or a Related Entity.



                                       1


        In the event of the Grantee's change in status from Employee to
Consultant or from an Employee whose customary employment is 20 hours or more
per week to an Employee whose customary employment is fewer than 20 hours per
week, vesting of the Option shall continue only to the extent determined by the
Administrator as of such change in status.

        In the event of termination of the Grantee's Continuous Service for
Cause, the Grantee's right to exercise the Option shall terminate concurrently
with the termination of the Grantee's Continuous Service.

        IN WITNESS WHEREOF, the Company and the Grantee have executed this
Notice and agree that the Option is to be governed by the terms and conditions
of this Notice, the Plan, and the Option Agreement.

                                        MTI Technology Corporation,
                                        A Delaware corporation

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

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


THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SUBJECT TO THE OPTION SHALL
VEST, IF AT ALL, ONLY DURING THE PERIOD OF THE GRANTEE'S CONTINUOUS SERVICE (NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE OPTION OR ACQUIRING SHARES
HEREUNDER). THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS
NOTICE, THE OPTION AGREEMENT, OR THE PLAN SHALL CONFER UPON THE GRANTEE ANY
RIGHT WITH RESPECT TO FUTURE AWARDS OR CONTINUATION OF GRANTEE'S CONTINUOUS
SERVICE, NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE'S RIGHT OR THE RIGHT
OF THE GRANTEE'S EMPLOYER TO TERMINATE GRANTEE'S CONTINUOUS SERVICE, WITH OR
WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE. THE GRANTEE ACKNOWLEDGES THAT UNLESS
THE GRANTEE HAS A WRITTEN EMPLOYMENT AGREEMENT WITH THE COMPANY TO THE CONTRARY,
GRANTEE'S STATUS IS AT WILL.

The Grantee acknowledges receipt of a copy of the Plan and the Option Agreement,
and represents that he or she is familiar with the terms and provisions thereof,
and hereby accepts the Option subject to all of the terms and provisions hereof
and thereof. The Grantee has reviewed this Notice, the Plan, and the Option
Agreement in their entirety, has had an opportunity to obtain the advice of
counsel prior to executing this Notice, and fully understands all provisions of
this Notice, the Plan and the Option Agreement. The Grantee hereby agrees that
all disputes arising out of or relating to this Notice, the Plan and the Option
Agreement shall be resolved in accordance with Section 13 of the Option
Agreement. The Grantee further agrees to notify the Company upon any change in
the residence address indicated in this Notice.

Dated:                                  Signed:
      -----------------------------            ---------------------------------
                                                          Grantee



                                       2


                                                              AWARD NUMBER:
                                                                           -----

            MTI TECHNOLOGY CORPORATION 2006 STOCK INCENTIVE PLAN (CT)

                          STOCK OPTION AWARD AGREEMENT

        1. Grant of Option. MTI Technology Corporation, a Delaware corporation
(the "Company"), hereby grants to the Grantee (the "Grantee") named in the
Notice of Stock Option Award (the "Notice"), an option (the "Option") to
purchase the Total Number of Shares of Common Stock subject to the Option (the
"Shares") set forth in the Notice, at the Exercise Price per Share set forth in
the Notice (the "Exercise Price") subject to the terms and provisions of the
Notice, this Stock Option Award Agreement (the "Option Agreement") and the
Company's 2006 Stock Incentive Plan (CT), as amended from time to time (the
"Plan"), which are incorporated herein by reference. Unless otherwise defined
herein, the terms defined in the Plan shall have the same defined meanings in
this Option Agreement.

        If designated in the Notice as an Incentive Stock Option, the Option is
intended to qualify as an Incentive Stock Option as defined in Section 422 of
the Code. However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of Shares subject to Options designated as Incentive
Stock Options which become exercisable for the first time by the Grantee during
any calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares covered
thereby in excess of the foregoing limitation, shall be treated as Non-Qualified
Stock Options. For this purpose, Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the date the Option with respect to such
Shares is awarded.

        2. Exercise of Option.

                (a) Right to Exercise.

                        (i) The Option shall be exercisable during its term in
accordance with the Vesting Schedule set out in the Notice and with the
applicable provisions of the Plan and this Option Agreement. The Option shall be
subject to the provisions of Section 11 of the Plan relating to the
exercisability or termination of the Option in the event of a Corporate
Transaction, Change in Control or Related Entity Disposition. The Grantee shall
be subject to reasonable limitations on the number of requested exercises during
any monthly or weekly period as determined by the Administrator. In no event
shall the Company issue fractional Shares.

                        (ii) Immediately prior to the consummation of any
Corporate Transaction or Change in Control any unvested stock options under this
Option Agreement shall be automatically fully vested and exercisable. Any
options so vested shall remain fully exercisable until the expiration or sooner
termination of this Option Agreement.

                        (iii) Effective upon the consummation of the Corporate
Transaction or Change in Control, all outstanding options under this Option
Agreement shall terminate and



                                       1


cease to remain outstanding, except to the extent assumed by the successor
company or its parent.


                (b) Method of Exercise. The Option shall be exercisable only by
delivery of an Exercise Notice (attached as Exhibit A) which shall state the
election to exercise the Option, the whole number of Shares in respect of which
the Option is being exercised, such other representations and agreements as to
the holder's investment intent with respect to such Shares and such other
provisions as may be required by the Administrator. The Exercise Notice shall be
signed by the Grantee and shall be delivered in person, by certified mail, or by
such other method as determined from time to time by the Administrator to the
Company accompanied by payment of the Exercise Price. The Option shall be deemed
to be exercised upon receipt by the Company of such written notice accompanied
by the Exercise Price, which, to the extent selected, shall be deemed to be
satisfied by use of the broker-dealer sale and remittance procedure to pay the
Exercise Price provided in Section 3(d), below.

                (c) Taxes. No Shares will be delivered to the Grantee or other
person pursuant to the exercise of the Option until the Grantee or other person
has made arrangements acceptable to the Administrator for the satisfaction of
applicable income tax, employment tax, and social security tax withholding
obligations, including, without limitation, obligations incident to the receipt
of Shares or the disqualifying disposition of Shares received on exercise of an
Incentive Stock Option. Upon exercise of the Option, the Company or the
Grantee's employer may offset or withhold (from any amount owed by the Company
or the Grantee's employer to the Grantee) or collect from the Grantee or other
person an amount sufficient to satisfy such tax obligations and/or the
employer's withholding obligations.

        3. Method of Payment. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Grantee;
provided, however, that such exercise method does not then violate any
Applicable Law and, provided further, that the portion of the Exercise Price
equal to the par value of the Shares must be paid in cash or other legal
consideration permitted by the Delaware General Corporation Law:

                (a) cash;

                (b) check;

                (c) surrender of Shares or delivery of a properly executed form
of attestation of ownership of Shares as the Administrator may require
(including withholding of Shares otherwise deliverable upon exercise of the
Option) which have a Fair Market Value on the date of surrender or attestation
equal to the aggregate Exercise Price of the Shares as to which the Option is
being exercised (but only to the extent that such exercise of the Option would
not result in an accounting compensation charge with respect to the Shares used
to pay the exercise price); or

                (d) payment through a broker-dealer sale and remittance
procedure pursuant to which the Grantee (i) shall provide written instructions
to a Company designated brokerage firm to effect the immediate sale of some or
all of the purchased Shares and remit to the



                                       2


Company, out of the sale proceeds available on the settlement date, sufficient
funds to cover the aggregate exercise price payable for the purchased Shares and
(ii) shall provide written directives to the Company to deliver the certificates
for the purchased Shares directly to such brokerage firm in order to complete
the sale transaction.

        4. Restrictions on Exercise. The Option may not be exercised if the
issuance of the Shares subject to the Option upon such exercise would constitute
a violation of any Applicable Laws. In addition, the Option, if an Incentive
Stock Option, may not be exercised until such time as the Plan has been approved
by the stockholders of the Company.

        5. Termination or Change of Continuous Service. In the event the
Grantee's Continuous Service terminates, other than for Cause, the Grantee may,
to the extent otherwise so entitled at the date of such termination (the
"Termination Date"), exercise the Option during the Post-Termination Exercise
Period. In the event of termination of the Grantee's Continuous Service for
Cause, the Grantee's right to exercise the Option shall, except as otherwise
determined by the Administrator, terminate concurrently with the termination of
the Grantee's Continuous Service. In no event shall the Option be exercised
later than the Expiration Date set forth in the Notice. In the event of the
Grantee's change in status from Employee, Director or Consultant to any other
status of Employee, Director or Consultant, the Option shall remain in effect
and, except to the extent otherwise determined by the Administrator, continue to
vest; provided, however, that with respect to any Incentive Stock Option that
shall remain in effect after a change in status from Employee to Director or
Consultant, such Incentive Stock Option shall cease to be treated as an
Incentive Stock Option and shall be treated as a Non-Qualified Stock Option on
the day three (3) months and one (1) day following such change in status. Except
as provided in Sections 6 and 7 below, to the extent that the Grantee is not
entitled to exercise the Option on the Termination Date, or if the Grantee does
not exercise the Option within the Post-Termination Exercise Period, the Option
shall terminate.

        6. Disability of Grantee. In the event the Grantee's Continuous Service
terminates as a result of his or her Disability, the Grantee may, but only
within twelve (12) months from the Termination Date (and in no event later than
the Expiration Date), exercise the Option to the extent he or she was otherwise
entitled to exercise it on the Termination Date; provided, however, that if such
Disability is not a "disability" as such term is defined in Section 22(e)(3) of
the Code and the Option is an Incentive Stock Option, such Incentive Stock
Option shall cease to be treated as an Incentive Stock Option and shall be
treated as a Non-Qualified Stock Option on the day three (3) months and one (1)
day following the Termination Date. To the extent that the Grantee is not
entitled to exercise the Option on the Termination Date, or if the Grantee does
not exercise the Option to the extent so entitled within the time specified
herein, the Option shall terminate.

        7. Death of Grantee. In the event of the termination of the Grantee's
Continuous Service as a result of his or her death, or in the event of the
Grantee's death during the Post-Termination Exercise Period or during the twelve
(12) month period following the Grantee's termination of Continuous Service as a
result of his or her Disability, the Grantee's estate, or a person who acquired
the right to exercise the Option by bequest or inheritance, may exercise the
Option, but only to the extent the Grantee could exercise the Option at the date
of termination, within twelve (12) months from the date of death (but in no
event later than the Expiration Date).



                                       3


To the extent that the Grantee is not entitled to exercise the Option on the
date of death, or if the Option is not exercised to the extent so entitled
within the time specified herein, the Option shall terminate.

        8. Transferability of Option. The Option, if an Incentive Stock Option,
may not be transferred in any manner other than by will or by the laws of
descent and distribution and may be exercised during the lifetime of the Grantee
only by the Grantee; provided, however, that the Grantee may designate a
beneficiary of the Grantee's Incentive Stock Option in the event of the
Grantee's death on a beneficiary designation form provided by the Administrator.
The Option, if a Non-Qualified Stock Option may be transferred to any person by
will and by the laws of descent and distribution. Non-Qualified Stock Options
also may be transferred during the lifetime of the Grantee by gift and pursuant
to a domestic relations order to members of the Grantee's Immediate Family to
the extent and in the manner determined by the Administrator. The terms of the
Option shall be binding upon the executors, administrators, heirs, successors
and transferees of the Grantee.

        9. Term of Option. The Option may be exercised no later than the
Expiration Date set forth in the Notice or such earlier date as otherwise
provided herein.

        10. Tax Consequences. Set forth below is a brief summary as of the date
of this Option Agreement of some of the federal tax consequences of exercise of
the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE GRANTEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE
SHARES.

                (a) Exercise of Incentive Stock Option. If the Option qualifies
as an Incentive Stock Option, there will be no regular federal income tax
liability upon the exercise of the Option, although the excess, if any, of the
Fair Market Value of the Shares on the date of exercise over the Exercise Price
will be treated as income for purposes of the alternative minimum tax for
federal tax purposes and may subject the Grantee to the alternative minimum tax
in the year of exercise.

                (b) Exercise of Incentive Stock Option Following Disability. If
the Grantee's Continuous Service terminates as a result of Disability that is
not total and permanent disability as defined in Section 22(e)(3) of the Code,
to the extent permitted on the date of termination, the Grantee must exercise an
Incentive Stock Option within three (3) months of such termination for the
Incentive Stock Option to be qualified as an Incentive Stock Option.

                (c) Exercise of Non-Qualified Stock Option. On exercise of a
Non-Qualified Stock Option, the Grantee will be treated as having received
compensation income (taxable at ordinary income tax rates) equal to the excess,
if any, of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price. If the Grantee is an Employee or a former Employee, the Company
will be required to withhold from the Grantee's compensation or collect from the
Grantee and pay to the applicable taxing authorities an amount in cash equal to
a percentage of this compensation income at the time of exercise, and may refuse
to honor the



                                       4


exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.

                (d) Disposition of Shares. In the case of a Non-Qualified Stock
Option, if Shares are held for more than one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes and subject to tax at a maximum rate of 20%. In the case of
an Incentive Stock Option, if Shares transferred pursuant to the Option are held
for more than one year after receipt of the Shares and are disposed more than
two years after the Date of Award, any gain realized on disposition of the
Shares also will be treated as capital gain for federal income tax purposes and
subject to the same tax rates and holding periods that apply to Shares acquired
upon exercise of a Non-Qualified Stock Option. If Shares purchased under an
Incentive Stock Option are disposed of prior to the expiration of such one-year
or two-year periods, any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
difference between the Exercise Price and the lesser of (i) the Fair Market
Value of the Shares on the date of exercise, or (ii) the sale price of the
Shares.

        11. Entire Agreement: Governing Law. The Notice, the Plan and this
Option Agreement constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede in their entirety all prior undertakings
and agreements of the Company and the Grantee with respect to the subject matter
hereof, and may not be modified adversely to the Grantee's interest except by
means of a writing signed by the Company and the Grantee. Nothing in the Notice,
the Plan and this Option Agreement (except as expressly provided therein) is
intended to confer any rights or remedies on any persons other than the parties.
The Notice, the Plan and this Option Agreement are to be construed in accordance
with and governed by the internal laws of the State of California (as permitted
by Section 1646.5 of the California Civil Code, or any similar successor
provision) without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of California to the rights and duties of the parties. Should any
provision of the Notice, the Plan or this Option Agreement be determined by a
court of law to be illegal or unenforceable, such provision shall be enforced to
the fullest extent allowed by law and the other provisions shall nevertheless
remain effective and shall remain enforceable.

        12. Headings. The captions used in the Notice and this Option Agreement
are inserted for convenience and shall not be deemed a part of the Option for
construction or interpretation.

        13. Dispute Resolution The provisions of this Section 13 shall be the
exclusive means of resolving disputes arising out of or relating to the Notice,
the Plan and this Option Agreement. The Company, the Grantee, and the Grantee's
assignees pursuant to Section 8 (the "parties") shall attempt in good faith to
resolve any disputes arising out of or relating to the Notice, the Plan and this
Option Agreement by negotiation between individuals who have authority to settle
the controversy. Negotiations shall be commenced by either party by notice of a
written statement of the party's position and the name and title of the
individual who will represent the party. Within thirty (30) days of the written
notification, the parties shall meet at a mutually acceptable time and place,
and thereafter as often as they reasonably deem necessary,



                                       5


to resolve the dispute. If the dispute has not been resolved by negotiation, the
parties agree that any suit, action, or proceeding arising out of or relating to
the Notice, the Plan or this Option Agreement shall be brought in the United
States District Court for the Central District of California (or should such
court lack jurisdiction to hear such action, suit or proceeding, in a California
state court in the County of Orange) and that the parties shall submit to the
jurisdiction of such court. The parties irrevocably waive, to the fullest extent
permitted by law, any objection the party may have to the laying of venue for
any such suit, action or proceeding brought in such court. THE PARTIES ALSO
EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH
SUIT, ACTION OR PROCEEDING. If any one or more provisions of this Section 13
shall for any reason be held invalid or unenforceable, it is the specific intent
of the parties that such provisions shall be modified to the minimum extent
necessary to make it or its application valid and enforceable.

        14. Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail (if the parties are within
the United States) or upon deposit for delivery by an internationally recognized
express mail courier service (for international delivery of notice), with
postage and fees prepaid, addressed to the other party at its address as shown
beneath its signature in the Notice, or to such other address as such party may
designate in writing from time to time to the other party.




                                       6


                                    EXHIBIT A
            MTI TECHNOLOGY CORPORATION 2006 STOCK INCENTIVE PLAN (CT)
                                 EXERCISE NOTICE

MTI Technology Corporation
17595 Cartwright Road
Irvine, CA 92614

Attention: Secretary

        1. Exercise of Option. Effective as of today, ______________, ___ the
undersigned (the "Grantee") hereby elects to exercise the Grantee's option to
purchase ___________ shares of the Common Stock (the "Shares") of MTI Technology
Corporation (the "Company") under and pursuant to the Company's 2006 Stock
Incentive Plan (CT), as amended from time to time (the "Plan") and the [ ]
Incentive [ ] Non-Qualified Stock Option Award Agreement (the "Option
Agreement") and Notice of Stock Option Award (the "Notice") dated
______________, ________. Unless otherwise defined herein, the terms defined in
the Plan shall have the same defined meanings in this Exercise Notice.

        2. Representations of the Grantee. The Grantee acknowledges that the
Grantee has received, read and understood the Notice, the Plan, and the Option
Agreement and agrees to abide by and be bound by their terms and conditions.

        3. Rights as Stockholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Shares, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such stock certificate promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in Section 10 of the Plan.

        4. Delivery of Payment. The Grantee herewith delivers to the Company the
full Exercise Price for the Shares, which, to the extent selected, shall be
deemed to be satisfied by use of the broker-dealer sale and remittance procedure
to pay the Exercise Price provided in Section 3(d) of the Option Agreement.

        5. Tax Consultation. The Grantee understands that the Grantee may suffer
adverse tax consequences as a result of the Grantee's purchase or disposition of
the Shares. The Grantee represents that the Grantee has consulted with any tax
consultants the Grantee deems advisable in connection with the purchase or
disposition of the Shares and that the Grantee is not relying on the Company for
any tax advice



                                       1


        6. Taxes. The Grantee agrees to satisfy all applicable federal, state
and local income and employment tax withholding obligations and herewith
delivers to the Company the full amount of such obligations or has made
arrangements acceptable to the Company to satisfy such obligations. In the case
of an Incentive Stock Option, the Grantee also agrees, as partial consideration
for the designation of the Option as an Incentive Stock Option, to notify the
Company in writing within thirty (30) days of any disposition of any shares
acquired by exercise of the Option if such disposition occurs within two (2)
years from the Date of Award or within one (1) year from the date the Shares
were transferred to the Grantee. If the Company is required to satisfy any
federal, state or local income or employment tax withholding obligations as a
result of such an early disposition, the Grantee agrees to satisfy the amount of
such withholding in a manner that the Administrator prescribes.

        7. Successors and Assigns. The Company may assign any of its rights
under this Exercise Notice to single or multiple assignees, and this agreement
shall inure to the benefit of the successors and assigns of the Company. This
Exercise Notice shall be binding upon the Grantee and his or her heirs,
executors, administrators, successors and assigns.

        8. Headings. The captions used in this Exercise Notice are inserted for
convenience and shall not be deemed a part of this agreement for construction or
interpretation.

        9. Dispute Resolution. The provisions of Section 13 of the Option
Agreement shall be the exclusive means of resolving disputes arising out of or
relating to this Exercise Notice.

        10. Governing Law; Severability. This Exercise Notice is to be construed
in accordance with and governed by the internal laws of the State of California
(as permitted by Section 1646.5 of the California Civil Code, or any similar
successor provision) without giving effect to any choice of law rule that would
cause the application of the laws of any jurisdiction other than the internal
laws of the State of California to the rights and duties of the parties. Should
any provision of this Exercise Notice be determined by a court of law to be
illegal or unenforceable, such provision shall be enforced to the fullest extent
allowed by law and the other provisions shall nevertheless remain effective and
shall remain enforceable.

        11. Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, (if the parties are within
the United States) or upon deposit for delivery by an internationally recognized
express mail courier service (for international delivery of notice) with postage
and fees prepaid, addressed to the other party at its address as shown below
beneath its signature, or to such other address as such party may designate in
writing from time to time to the other party.

        12. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this agreement.

        13. Entire Agreement. The Notice, the Plan, and the Option Agreement are
incorporated herein by reference, and together with this Exercise Notice
constitute the entire agreement of the parties with respect to the subject
matter hereof and supersede in their entirety



                                       2


all prior undertakings and agreements of the Company and the Grantee with
respect to the subject matter hereof, and may not be modified adversely to the
Grantee's interest except by means of a writing signed by the Company and the
Grantee. Nothing in the Notice, the Plan, the Option Agreement and this Exercise
Notice (except as expressly provided therein) is intended to confer any rights
or remedies on any persons other than the parties.

Submitted by:                           Accepted by:
GRANTEE:                                MTI Technology Corporation

                                        By:
                                           -------------------------------------
                                        Title:
- ---------------------------------             ----------------------------------
        (Signature)


Address:                                Address:
- -------                                 -------
                                        17595 Cartwright Road
- ---------------------------------       Irvine, CA 92614
- ---------------------------------


                                       3

EX-10.36

                                                                   Exhibit 10.36

            MTI TECHNOLOGY CORPORATION 2006 STOCK INCENTIVE PLAN (CT)
                          NOTICE OF STOCK OPTION AWARD


        Grantee's Name and Address:
                                          --------------------------------------

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

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


        You have been granted an option to purchase shares of Common Stock,
subject to the terms and conditions of this Notice of Stock Option Award (the
"Notice"), the MTI Technology Corporation 2006 Stock Incentive Plan (CT), as
amended from time to time (the "Plan") and the Stock Option Award Agreement (the
"Option Agreement") attached hereto, as follows. Unless otherwise defined
herein, the terms defined in the Plan shall have the same defined meanings in
this Notice.

        Award Number:
                                          --------------------------------------
        Date of Award:
                                          --------------------------------------
        Vesting Commencement Date:
                                          --------------------------------------
        Exercise Price per Share:         $
                                          --------------------------------------
        Total Number of Shares subject
        to the Option:
                                          --------------------------------------
        Total Exercise Price:             $
                                          --------------------------------------
        Type of Option:                         Incentive Stock Option
                                          -----
                                                Non-Qualified Stock Option
                                          -----
        Expiration Date:
                                          --------------------------------------
        Post-Termination Exercise Period:     Three (3) Months
                                          --------------------------------------

Vesting Schedule:

        Subject to Grantee's Continuous Service and other limitations set forth
in this Notice, the Plan and the Option Agreement, the Option may be exercised,
in whole or in part, in accordance with the following schedule:

        36-MONTH (3 YEAR) VESTING WITH 6-MONTH CLIFF AND MONTHLY THEREAFTER:

                Six-thirty-sixths (6/36th) of the shares subject to the Option
        shall vest six (6) months after the Vesting Commencement Date.
        One-thirtieth (1/30th) of the remaining unvested shares subject to the
        Option shall vest at the end of the 7th month and each month thereafter,
        such that the Option will be one hundred percent (100%) vested after
        thirty-six (36) months of Continuous Services from the Vesting
        Commencement Date.

        During any authorized leave of absence, the vesting of the Option as
provided in this schedule shall cease after the leave of absence exceeds a
period of ninety (90) days. Vesting of the Option shall resume upon the
Grantee's termination of the leave of absence and return to service to the
Company or a Related Entity.



                                       1


        In the event of the Grantee's change in status from Employee to
Consultant or from an Employee whose customary employment is 20 hours or more
per week to an Employee whose customary employment is fewer than 20 hours per
week, vesting of the Option shall continue only to the extent determined by the
Administrator as of such change in status.

        In the event of termination of the Grantee's Continuous Service for
Cause, the Grantee's right to exercise the Option shall terminate concurrently
with the termination of the Grantee's Continuous Service.

        IN WITNESS WHEREOF, the Company and the Grantee have executed this
Notice and agree that the Option is to be governed by the terms and conditions
of this Notice, the Plan, and the Option Agreement.

                                        MTI Technology Corporation,
                                        A Delaware corporation

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

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


THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SUBJECT TO THE OPTION SHALL
VEST, IF AT ALL, ONLY DURING THE PERIOD OF THE GRANTEE'S CONTINUOUS SERVICE (NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE OPTION OR ACQUIRING SHARES
HEREUNDER). THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS
NOTICE, THE OPTION AGREEMENT, OR THE PLAN SHALL CONFER UPON THE GRANTEE ANY
RIGHT WITH RESPECT TO FUTURE AWARDS OR CONTINUATION OF GRANTEE'S CONTINUOUS
SERVICE, NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE'S RIGHT OR THE RIGHT
OF THE GRANTEE'S EMPLOYER TO TERMINATE GRANTEE'S CONTINUOUS SERVICE, WITH OR
WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE. THE GRANTEE ACKNOWLEDGES THAT UNLESS
THE GRANTEE HAS A WRITTEN EMPLOYMENT AGREEMENT WITH THE COMPANY TO THE CONTRARY,
GRANTEE'S STATUS IS AT WILL.

The Grantee acknowledges receipt of a copy of the Plan and the Option Agreement,
and represents that he or she is familiar with the terms and provisions thereof,
and hereby accepts the Option subject to all of the terms and provisions hereof
and thereof. The Grantee has reviewed this Notice, the Plan, and the Option
Agreement in their entirety, has had an opportunity to obtain the advice of
counsel prior to executing this Notice, and fully understands all provisions of
this Notice, the Plan and the Option Agreement. The Grantee hereby agrees that
all disputes arising out of or relating to this Notice, the Plan and the Option
Agreement shall be resolved in accordance with Section 13 of the Option
Agreement. The Grantee further agrees to notify the Company upon any change in
the residence address indicated in this Notice.

Dated:                                  Signed:
      ----------------------------             ---------------------------------
                                                          Grantee



                                       2


                                                               AWARD NUMBER:
                                                                            ----

            MTI TECHNOLOGY CORPORATION 2006 STOCK INCENTIVE PLAN (CT)
                          STOCK OPTION AWARD AGREEMENT

        1. Grant of Option. MTI Technology Corporation, a Delaware corporation
(the "Company"), hereby grants to the Grantee (the "Grantee") named in the
Notice of Stock Option Award (the "Notice"), an option (the "Option") to
purchase the Total Number of Shares of Common Stock subject to the Option (the
"Shares") set forth in the Notice, at the Exercise Price per Share set forth in
the Notice (the "Exercise Price") subject to the terms and provisions of the
Notice, this Stock Option Award Agreement (the "Option Agreement") and the
Company's 2006 Stock Incentive Plan (CT), as amended from time to time (the
"Plan"), which are incorporated herein by reference. Unless otherwise defined
herein, the terms defined in the Plan shall have the same defined meanings in
this Option Agreement.

        If designated in the Notice as an Incentive Stock Option, the Option is
intended to qualify as an Incentive Stock Option as defined in Section 422 of
the Code. However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of Shares subject to Options designated as Incentive
Stock Options which become exercisable for the first time by the Grantee during
any calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares covered
thereby in excess of the foregoing limitation, shall be treated as Non-Qualified
Stock Options. For this purpose, Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the date the Option with respect to such
Shares is awarded.

        2. Exercise of Option.

                (a) Right to Exercise. The Option shall be exercisable during
its term in accordance with the Vesting Schedule set out in the Notice and with
the applicable provisions of the Plan and this Option Agreement. The Option
shall be subject to the provisions of Section 11 of the Plan relating to the
exercisability or termination of the Option in the event of a Corporate
Transaction, Change in Control or Related Entity Disposition. The Grantee shall
be subject to reasonable limitations on the number of requested exercises during
any monthly or weekly period as determined by the Administrator. In no event
shall the Company issue fractional Shares.

                (b) Method of Exercise. The Option shall be exercisable only by
delivery of an Exercise Notice (attached as Exhibit A) which shall state the
election to exercise the Option, the whole number of Shares in respect of which
the Option is being exercised, such other representations and agreements as to
the holder's investment intent with respect to such Shares and such other
provisions as may be required by the Administrator. The Exercise Notice shall be
signed by the Grantee and shall be delivered in person, by certified mail, or by
such other method as determined from time to time by the Administrator to the
Company accompanied by payment of the Exercise Price. The Option shall be deemed
to be exercised upon receipt by the



                                       1


Company of such written notice accompanied by the Exercise Price, which, to the
extent selected, shall be deemed to be satisfied by use of the broker-dealer
sale and remittance procedure to pay the Exercise Price provided in Section
3(d), below.

                (c) Taxes. No Shares will be delivered to the Grantee or other
person pursuant to the exercise of the Option until the Grantee or other person
has made arrangements acceptable to the Administrator for the satisfaction of
applicable income tax, employment tax, and social security tax withholding
obligations, including, without limitation, obligations incident to the receipt
of Shares or the disqualifying disposition of Shares received on exercise of an
Incentive Stock Option. Upon exercise of the Option, the Company or the
Grantee's employer may offset or withhold (from any amount owed by the Company
or the Grantee's employer to the Grantee) or collect from the Grantee or other
person an amount sufficient to satisfy such tax obligations and/or the
employer's withholding obligations.

        3. Method of Payment. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Grantee;
provided, however, that such exercise method does not then violate any
Applicable Law and, provided further, that the portion of the Exercise Price
equal to the par value of the Shares must be paid in cash or other legal
consideration permitted by the Delaware General Corporation Law:

                (a) cash;

                (b) check;

                (c) surrender of Shares or delivery of a properly executed form
of attestation of ownership of Shares as the Administrator may require
(including withholding of Shares otherwise deliverable upon exercise of the
Option) which have a Fair Market Value on the date of surrender or attestation
equal to the aggregate Exercise Price of the Shares as to which the Option is
being exercised (but only to the extent that such exercise of the Option would
not result in an accounting compensation charge with respect to the Shares used
to pay the exercise price); or

                (d) payment through a broker-dealer sale and remittance
procedure pursuant to which the Grantee (i) shall provide written instructions
to a Company designated brokerage firm to effect the immediate sale of some or
all of the purchased Shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased Shares and (ii) shall provide written
directives to the Company to deliver the certificates for the purchased Shares
directly to such brokerage firm in order to complete the sale transaction.

        4. Restrictions on Exercise. The Option may not be exercised if the
issuance of the Shares subject to the Option upon such exercise would constitute
a violation of any Applicable Laws. In addition, the Option, if an Incentive
Stock Option, may not be exercised until such time as the Plan has been approved
by the stockholders of the Company.

        5. Termination or Change of Continuous Service. In the event the
Grantee's Continuous Service terminates, other than for Cause, the Grantee may,
to the extent otherwise so



                                       2


entitled at the date of such termination (the "Termination Date"), exercise the
Option during the Post-Termination Exercise Period. In the event of termination
of the Grantee's Continuous Service for Cause, the Grantee's right to exercise
the Option shall, except as otherwise determined by the Administrator, terminate
concurrently with the termination of the Grantee's Continuous Service. In no
event shall the Option be exercised later than the Expiration Date set forth in
the Notice. In the event of the Grantee's change in status from Employee,
Director or Consultant to any other status of Employee, Director or Consultant,
the Option shall remain in effect and, except to the extent otherwise determined
by the Administrator, continue to vest; provided, however, that with respect to
any Incentive Stock Option that shall remain in effect after a change in status
from Employee to Director or Consultant, such Incentive Stock Option shall cease
to be treated as an Incentive Stock Option and shall be treated as a
Non-Qualified Stock Option on the day three (3) months and one (1) day following
such change in status. Except as provided in Sections 6 and 7 below, to the
extent that the Grantee is not entitled to exercise the Option on the
Termination Date, or if the Grantee does not exercise the Option within the
Post-Termination Exercise Period, the Option shall terminate.

        6. Disability of Grantee. In the event the Grantee's Continuous Service
terminates as a result of his or her Disability, the Grantee may, but only
within twelve (12) months from the Termination Date (and in no event later than
the Expiration Date), exercise the Option to the extent he or she was otherwise
entitled to exercise it on the Termination Date; provided, however, that if such
Disability is not a "disability" as such term is defined in Section 22(e)(3) of
the Code and the Option is an Incentive Stock Option, such Incentive Stock
Option shall cease to be treated as an Incentive Stock Option and shall be
treated as a Non-Qualified Stock Option on the day three (3) months and one (1)
day following the Termination Date. To the extent that the Grantee is not
entitled to exercise the Option on the Termination Date, or if the Grantee does
not exercise the Option to the extent so entitled within the time specified
herein, the Option shall terminate.

        7. Death of Grantee. In the event of the termination of the Grantee's
Continuous Service as a result of his or her death, or in the event of the
Grantee's death during the Post-Termination Exercise Period or during the twelve
(12) month period following the Grantee's termination of Continuous Service as a
result of his or her Disability, the Grantee's estate, or a person who acquired
the right to exercise the Option by bequest or inheritance, may exercise the
Option, but only to the extent the Grantee could exercise the Option at the date
of termination, within twelve (12) months from the date of death (but in no
event later than the Expiration Date). To the extent that the Grantee is not
entitled to exercise the Option on the date of death, or if the Option is not
exercised to the extent so entitled within the time specified herein, the Option
shall terminate.

        8. Transferability of Option. The Option, if an Incentive Stock Option,
may not be transferred in any manner other than by will or by the laws of
descent and distribution and may be exercised during the lifetime of the Grantee
only by the Grantee; provided, however, that the Grantee may designate a
beneficiary of the Grantee's Incentive Stock Option in the event of the
Grantee's death on a beneficiary designation form provided by the Administrator.
The Option, if a Non-Qualified Stock Option may be transferred to any person by
will and by the laws of descent and distribution. Non-Qualified Stock Options
also may be transferred during the lifetime of the Grantee by gift and pursuant
to a domestic relations order to members of the



                                       3


Grantee's Immediate Family to the extent and in the manner determined by the
Administrator. The terms of the Option shall be binding upon the executors,
administrators, heirs, successors and transferees of the Grantee.

        9. Term of Option. The Option may be exercised no later than the
Expiration Date set forth in the Notice or such earlier date as otherwise
provided herein.

        10. Tax Consequences. Set forth below is a brief summary as of the date
of this Option Agreement of some of the federal tax consequences of exercise of
the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE GRANTEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE
SHARES.

                (a) Exercise of Incentive Stock Option. If the Option qualifies
as an Incentive Stock Option, there will be no regular federal income tax
liability upon the exercise of the Option, although the excess, if any, of the
Fair Market Value of the Shares on the date of exercise over the Exercise Price
will be treated as income for purposes of the alternative minimum tax for
federal tax purposes and may subject the Grantee to the alternative minimum tax
in the year of exercise.

                (b) Exercise of Incentive Stock Option Following Disability. If
the Grantee's Continuous Service terminates as a result of Disability that is
not total and permanent disability as defined in Section 22(e)(3) of the Code,
to the extent permitted on the date of termination, the Grantee must exercise an
Incentive Stock Option within three (3) months of such termination for the
Incentive Stock Option to be qualified as an Incentive Stock Option.

                (c) Exercise of Non-Qualified Stock Option. On exercise of a
Non-Qualified Stock Option, the Grantee will be treated as having received
compensation income (taxable at ordinary income tax rates) equal to the excess,
if any, of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price. If the Grantee is an Employee or a former Employee, the Company
will be required to withhold from the Grantee's compensation or collect from the
Grantee and pay to the applicable taxing authorities an amount in cash equal to
a percentage of this compensation income at the time of exercise, and may refuse
to honor the exercise and refuse to deliver Shares if such withholding amounts
are not delivered at the time of exercise.

                (d) Disposition of Shares. In the case of a Non-Qualified Stock
Option, if Shares are held for more than one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes and subject to tax at a maximum rate of 20%. In the case of
an Incentive Stock Option, if Shares transferred pursuant to the Option are held
for more than one year after receipt of the Shares and are disposed more than
two years after the Date of Award, any gain realized on disposition of the
Shares also will be treated as capital gain for federal income tax purposes and
subject to the same tax rates and holding periods that apply to Shares acquired
upon exercise of a Non-Qualified Stock Option. If Shares purchased under an
Incentive Stock Option are disposed of prior to the expiration of such one-year
or two-year periods, any gain realized on such disposition will be treated as



                                       4


compensation income (taxable at ordinary income rates) to the extent of the
difference between the Exercise Price and the lesser of (i) the Fair Market
Value of the Shares on the date of exercise, or (ii) the sale price of the
Shares.

        11. Entire Agreement: Governing Law. The Notice, the Plan and this
Option Agreement constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede in their entirety all prior undertakings
and agreements of the Company and the Grantee with respect to the subject matter
hereof, and may not be modified adversely to the Grantee's interest except by
means of a writing signed by the Company and the Grantee. Nothing in the Notice,
the Plan and this Option Agreement (except as expressly provided therein) is
intended to confer any rights or remedies on any persons other than the parties.
The Notice, the Plan and this Option Agreement are to be construed in accordance
with and governed by the internal laws of the State of California (as permitted
by Section 1646.5 of the California Civil Code, or any similar successor
provision) without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of California to the rights and duties of the parties. Should any
provision of the Notice, the Plan or this Option Agreement be determined by a
court of law to be illegal or unenforceable, such provision shall be enforced to
the fullest extent allowed by law and the other provisions shall nevertheless
remain effective and shall remain enforceable.

        12. Headings. The captions used in the Notice and this Option Agreement
are inserted for convenience and shall not be deemed a part of the Option for
construction or interpretation.

        13. Dispute Resolution The provisions of this Section 13 shall be the
exclusive means of resolving disputes arising out of or relating to the Notice,
the Plan and this Option Agreement. The Company, the Grantee, and the Grantee's
assignees pursuant to Section 8 (the "parties") shall attempt in good faith to
resolve any disputes arising out of or relating to the Notice, the Plan and this
Option Agreement by negotiation between individuals who have authority to settle
the controversy. Negotiations shall be commenced by either party by notice of a
written statement of the party's position and the name and title of the
individual who will represent the party. Within thirty (30) days of the written
notification, the parties shall meet at a mutually acceptable time and place,
and thereafter as often as they reasonably deem necessary, to resolve the
dispute. If the dispute has not been resolved by negotiation, the parties agree
that any suit, action, or proceeding arising out of or relating to the Notice,
the Plan or this Option Agreement shall be brought in the United States District
Court for the Central District of California (or should such court lack
jurisdiction to hear such action, suit or proceeding, in a California state
court in the County of Orange) and that the parties shall submit to the
jurisdiction of such court. The parties irrevocably waive, to the fullest extent
permitted by law, any objection the party may have to the laying of venue for
any such suit, action or proceeding brought in such court. THE PARTIES ALSO
EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH
SUIT, ACTION OR PROCEEDING. If any one or more provisions of this Section 13
shall for any reason be held invalid or unenforceable, it is the specific intent
of the parties that such provisions shall be modified to the minimum extent
necessary to make it or its application valid and enforceable.



                                       5


        14. Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail (if the parties are within
the United States) or upon deposit for delivery by an internationally recognized
express mail courier service (for international delivery of notice), with
postage and fees prepaid, addressed to the other party at its address as shown
beneath its signature in the Notice, or to such other address as such party may
designate in writing from time to time to the other party.




                                       6


                                   EXHIBIT A

           MTI TECHNOLOGY CORPORATION 2006 STOCK INCENTIVE PLAN (CT)
                                 EXERCISE NOTICE

MTI Technology Corporation
17595 Cartwright Road
Irvine, CA 92614

Attention: Secretary

        1. Exercise of Option. Effective as of today, ______________, ___ the
undersigned (the "Grantee") hereby elects to exercise the Grantee's option to
purchase ___________ shares of the Common Stock (the "Shares") of MTI Technology
Corporation (the "Company") under and pursuant to the Company's 2006 Stock
Incentive Plan (CT), as amended from time to time (the "Plan") and the [ ]
Incentive [ ] Non-Qualified Stock Option Award Agreement (the "Option
Agreement") and Notice of Stock Option Award (the "Notice") dated
______________, ________. Unless otherwise defined herein, the terms defined in
the Plan shall have the same defined meanings in this Exercise Notice.

        2. Representations of the Grantee. The Grantee acknowledges that the
Grantee has received, read and understood the Notice, the Plan, and the Option
Agreement and agrees to abide by and be bound by their terms and conditions.

        3. Rights as Stockholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Shares, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such stock certificate promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in Section 10 of the Plan.

        4. Delivery of Payment. The Grantee herewith delivers to the Company the
full Exercise Price for the Shares, which, to the extent selected, shall be
deemed to be satisfied by use of the broker-dealer sale and remittance procedure
to pay the Exercise Price provided in Section 3(d) of the Option Agreement.

        5. Tax Consultation. The Grantee understands that the Grantee may suffer
adverse tax consequences as a result of the Grantee's purchase or disposition of
the Shares. The Grantee represents that the Grantee has consulted with any tax
consultants the Grantee deems advisable in connection with the purchase or
disposition of the Shares and that the Grantee is not relying on the Company for
any tax advice



                                       1


        6. Taxes. The Grantee agrees to satisfy all applicable federal, state
and local income and employment tax withholding obligations and herewith
delivers to the Company the full amount of such obligations or has made
arrangements acceptable to the Company to satisfy such obligations. In the case
of an Incentive Stock Option, the Grantee also agrees, as partial consideration
for the designation of the Option as an Incentive Stock Option, to notify the
Company in writing within thirty (30) days of any disposition of any shares
acquired by exercise of the Option if such disposition occurs within two (2)
years from the Date of Award or within one (1) year from the date the Shares
were transferred to the Grantee. If the Company is required to satisfy any
federal, state or local income or employment tax withholding obligations as a
result of such an early disposition, the Grantee agrees to satisfy the amount of
such withholding in a manner that the Administrator prescribes.

        7. Successors and Assigns. The Company may assign any of its rights
under this Exercise Notice to single or multiple assignees, and this agreement
shall inure to the benefit of the successors and assigns of the Company. This
Exercise Notice shall be binding upon the Grantee and his or her heirs,
executors, administrators, successors and assigns.

        8. Headings. The captions used in this Exercise Notice are inserted for
convenience and shall not be deemed a part of this agreement for construction or
interpretation.

        9. Dispute Resolution. The provisions of Section 13 of the Option
Agreement shall be the exclusive means of resolving disputes arising out of or
relating to this Exercise Notice.

        10. Governing Law; Severability. This Exercise Notice is to be construed
in accordance with and governed by the internal laws of the State of California
(as permitted by Section 1646.5 of the California Civil Code, or any similar
successor provision) without giving effect to any choice of law rule that would
cause the application of the laws of any jurisdiction other than the internal
laws of the State of California to the rights and duties of the parties. Should
any provision of this Exercise Notice be determined by a court of law to be
illegal or unenforceable, such provision shall be enforced to the fullest extent
allowed by law and the other provisions shall nevertheless remain effective and
shall remain enforceable.

        11. Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, (if the parties are within
the United States) or upon deposit for delivery by an internationally recognized
express mail courier service (for international delivery of notice) with postage
and fees prepaid, addressed to the other party at its address as shown below
beneath its signature, or to such other address as such party may designate in
writing from time to time to the other party.

        12. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this agreement.

        13. Entire Agreement. The Notice, the Plan, and the Option Agreement are
incorporated herein by reference, and together with this Exercise Notice
constitute the entire agreement of the parties with respect to the subject
matter hereof and supersede in their entirety


                                       2


all prior undertakings and agreements of the Company and the Grantee with
respect to the subject matter hereof, and may not be modified adversely to the
Grantee's interest except by means of a writing signed by the Company and the
Grantee. Nothing in the Notice, the Plan, the Option Agreement and this Exercise
Notice (except as expressly provided therein) is intended to confer any rights
or remedies on any persons other than the parties.

Submitted by:                           Accepted by:

GRANTEE:                                MTI Technology Corporation

                                        By:
                                           -------------------------------------
                                        Title:
- ------------------------------------          ----------------------------------
               (Signature)

Address:                                Address:
                                        17595 Cartwright Road
- ------------------------------------    Irvine, CA 92614
- ------------------------------------



                                       3

EX-21.1

EXHIBIT 21.1

SUBSIDIARIES OF MTI TECHNOLOGY CORPORATION

	JURISDICTION OF
SUBSIDIARY	INCORPORATION
MTI Technology GMBH	Germany
MTI Technology Limited	Scotland
MTI France SA	France
MTI Technology Ireland Ltd.	Ireland
MTI Technology BV	Holland
MTI Technology Limited	Ireland
MTI Technology BV-Irish Branch	Ireland

65

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated June 27, 2006, accompanying the consolidated financial statements and schedule included in the Annual Report of MTI Technology Corporation and subsidiaries on Form 10-K for the year ended April 1, 2006. We hereby consent to the incorporation by reference of said report in the Registration Statements of MTI Technology Corporation on Forms S-8 (Nos. 333-131403, 333-127302, 333-117401, 333-109060, 333-103065, 333-76972, 333-69030, 333-66716, 333-95915, 333-92623, 333-85579, 333-61957, 333-46363, 333-50377, 333-18501, 33-75180 and 33-80438) and Forms S-3 (Nos. 333-129941, 333-118657 and 333-85410).

/S/ GRANT THORNTON LLP

Irvine, California
June 27, 2006

66

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Thomas P. Raimondi, Jr., Chairman, President and Chief Executive Officer of MTI Technology Corporation (the “Company”), certify that:

1.	I have reviewed this Annual Report on Form 10-K for the fiscal year ended April 1, 2006, of the Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	[Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: June 29, 2006	By:	/s/ THOMAS P. RAIMONDI, JR.
		Thomas P. Raimondi, Jr.
		Chairman, President and Chief Executive Officer

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EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott Poteracki, Chief Financial Officer and Secretary of MTI Technology Corporation (the “Company”), certify that:

1.	I have reviewed this Annual Report on Form 10-K for the fiscal year ended April 1, 2006, of the Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	[Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: June 29, 2006	By:	/s/ SCOTT POTERACKI
		Scott Poteracki
		Chief Financial Officer and Secretary

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EX-32.1

Exhibit 32.1

Certification by the Chief Executive Officer
Pursuant to 18. U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K for the fiscal year ended April 1, 2006, of MTI Technology Corporation (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas P. Raimondi, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m(a) or Section 780(d)); and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

     In witness whereof, the undersigned has executed and delivered this certificate as of the date set forth opposite his signature below.

Date: June 29, 2006	/s/ THOMAS P. RAIMONDI, JR.
	Thomas P. Raimondi
	Chairman, President and Chief Executive Officer

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EX-32.2

Exhibit 32.2

Certification by the Chief Financial Officer
Pursuant to 18. U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K for the fiscal year ended April 1, 2006, of MTI Technology Corporation (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott Poteracki, Chief Financial Officer and Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m(a) or Section 780(d)); and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

     In witness whereof, the undersigned has executed and delivered this certificate as of the date set forth opposite his signature below.

Date: June 29, 2006	/s/ SCOTT POTERACKI
	Scott Poteracki
	Chief Financial Officer and Secretary

70