Document:

Purchase Agreement

    EXHIBIT 10.1

     

    PURCHASE
      AGREEMENT

     

    THIS
      PURCHASE AGREEMENT (“Agreement”)
      is
      made as of the 14th
      day of
      February, 2006, by and among Caprius, Inc., a Delaware corporation (the
“Company”),
      and
      the Investors set forth on the signature pages affixed hereto (each an
“Investor”
and
      collectively the “Investors”).

     

    Recitals

     

    A.    The
      Company and the Investors are executing and delivering this Agreement in
      reliance upon the exemption from securities registration afforded by the
      provisions of Regulation D (“Regulation
      D”),
      as
      promulgated by the U.S. Securities and Exchange Commission (the “SEC”)
      under
      the Securities Act of 1933, as amended; and

     

    B.    The
      Investors wish to purchase from the Company, and the Company wishes to sell
      and
      issue to the Investors, upon the terms and conditions stated in this Agreement,
      (i) shares of Series D Convertible Preferred Stock, stated value $12.40 per
      share (the “Preferred
      Stock”),
      such
      Preferred Stock to have the relative rights, preferences and designations set
      forth in the Certificate of Designations set forth in Exhibit
      A
      hereto
      (the “Certificate
      of Designations”),
      at a
      purchase price of $12.40 per share, (ii) 2006 Series A warrants to purchase
      shares of common stock, par value $0.01 per share, of the Company (together
      with
      any securities into which the common stock may be reclassified, the
“Common
      Stock”)
      at an
      exercise price of $1.50 per share (subject to adjustment) in the form attached
      hereto as Exhibit
      B
      (the
“2006
      Series A Warrants”),
      and
      (iii) 2006 Series B warrants to purchase shares of Common Stock at an exercise
      price of $2.00 per share in the form attached hereto as Exhibit
      C
      (the
“2006
      Series B Warrants”
and
      together with the 2006 Series A Warrants, the “Warrants”);
      and

     

    C.    Contemporaneous
      with the sale of the Common Stock and Warrants, the parties hereto will execute
      and deliver a Registration Rights Agreement, in the form attached hereto as
      Exhibit
      D
      (the
“Registration
      Rights Agreement”),
      pursuant to which the Company will agree to provide certain registration rights
      under the Securities Act of 1933, as amended, and the rules and regulations
      promulgated thereunder, and applicable state securities laws.

     

    In
      consideration of the mutual promises made herein and for other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      the
      parties hereto agree as follows:

     

    1.    Definitions.
      In
      addition to those terms defined above and elsewhere in this Agreement, for
      the
      purposes of this Agreement, the following terms shall have the meanings set
      forth below:

     

    “Affiliate”
means,
      with respect to any Person, any other Person which directly or indirectly
      through one or more intermediaries Controls, is controlled by, or is under
      common control with, such Person, as such terms are used in and construed under
      Rule 144 under the 1933 Act.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Business
      Day”
means
      a
      day, other than a Saturday or Sunday, on which banks in New York City are open
      for the general transaction of business.

     

    “Common
      Stock Equivalents”
means
      any securities of the Company or the Subsidiaries which would entitle the holder
      thereof to acquire at any time Common Stock, including without limitation,
      any
      debt, preferred stock, rights, options, warrants or other instrument that is
      at
      any time convertible into or exchangeable for, or otherwise entitles the holder
      thereof to receive, Common Stock.

     

    “Company’s
      Knowledge”
means,
      with respect to the executive officers (as defined in Rule 405 under the 1933
      Act), (i) the actual knowledge, awareness or belief possessed by such executive
      officers or (ii) the knowledge, awareness or belief that such executive officers
      would have possessed by using reasonable care and diligence under the
      circumstances.

     

    “Confidential
      Information”
means
      trade secrets, confidential information and know-how (including but not limited
      to ideas, formulae, compositions, processes, procedures and techniques, research
      and development information, computer program code, performance specifications,
      support documentation, drawings, specifications, designs, business and marketing
      plans, and customer and supplier lists and related information).

     

    “Control”
      (including the terms “controlling”, “controlled by” or “under common control
      with”) means the possession, direct or indirect, of the power to direct or cause
      the direction of the management and policies of a Person, whether through the
      ownership of voting securities, by contract or otherwise.

     

    “Conversion
      Shares”
means
      the shares of Common Stock issuable upon conversion of the Preferred
      Stock.

     

    “Effective
      Date”
means
      the date on which the initial Registration Statement is declared effective
      by
      the SEC.

     

    “Effectiveness
      Deadline”
means
      the date on which the initial Registration Statement is required to be declared
      effective by the SEC under the terms of the Registration Rights
      Agreement.

     

    “Escrow
      Agent”
shall
      have the meaning ascribed to such term in the Escrow Agreement.

     

    “Escrow
      Agreement”
means
      Escrow Agreement, dated as of January 23, 2006 among the Company, the Placement
      Agent provided for therein and the Escrow Agent.

     

    “Excluded
      Stock”
means
      (i) capital stock or options issued to employees, officers, directors or
      consultants (provided that in no event shall such issuance to consultants exceed
      100,000 shares (subject to adjustment for stock splits, stock dividends and
      recapitalizations) in any 12 month period) of the Company pursuant to any stock
      or option plan duly adopted by a majority of the non-employee members of the
      Board of Directors of the Company or a majority of the members of a committee
      of
      non-employee directors established for such purpose subsequent to the date
      hereof, (ii) shares of Common Stock issued upon the conversion or

     

    
      
        
        

      

      
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    exercise
      of options or other Common Stock Equivalents issued prior to the date hereof,
      provided that such securities have not been amended since the date hereof to
      increase the number of shares of Common Stock issuable thereunder or to lower
      the exercise or conversion price thereof, (iii) securities issued pursuant
      to
      this Agreement, and securities issued upon the exercise of those securities,
      and
      (iv) securities issued pursuant to acquisitions or strategic transactions
      approved by a majority of the disinterested directors, provided that any such
      issuance shall only be to a Person which is, itself or through its subsidiaries,
      an operating company in a business synergistic with the business of the Company
      and shall provide to the Company additional benefits in addition to the
      investment of funds, but shall not include a transaction in which the Company
      is
      issuing securities primarily for the purpose of raising capital or to an entity
      whose primary business is investing in securities.

     

    “Intellectual
      Property”
means
      all of the following: (i) patents, patent applications, patent disclosures
      and
      inventions (whether or not patentable and whether or not reduced to practice);
      (ii) trademarks, service marks, trade dress, trade names, corporate names,
      logos, slogans and Internet domain names, together with all goodwill associated
      with each of the foregoing; (iii) copyrights and copyrightable works; (iv)
      registrations, applications and renewals for any of the foregoing; and (v)
      proprietary computer software (including but not limited to data, data bases
      and
      documentation).

     

    “Material
      Adverse Effect”
means
      a
      material adverse effect on (i) the assets, liabilities, results of operations,
      condition (financial or otherwise), business, or prospects of the Company and
      its Subsidiaries taken as a whole, or (ii) the ability of the Company to perform
      its obligations under the Transaction Documents.

     

    “Minimum
      Amount”
means
      the sale of a minimum of 120,968 shares of Preferred Stock for gross proceeds
      of
      $1.5 million, together with 111,941 2006 Series A Warrants and 223,882 2006
      Series B Warrants.

     

    “Maximum
      Amount”
means
      the sale of up to 241,935 shares of Preferred Stock for total gross proceeds
      of
      $3 million, together with 223,882 2006 Series A Warrants and 447,764 2006 Series
      B Warrants.

     

    “Nasdaq”
means
      The NASDAQ Capital Market.

     

    “Person”
means
      an individual, corporation, partnership, limited liability company, trust,
      business trust, association, joint stock company, joint venture, sole
      proprietorship, unincorporated organization, governmental authority or any
      other
      form of entity not specifically listed herein.

     

    “Purchase
      Price”
means,
      as to each Investor, the aggregate amount to be paid for Shares and Warrants
      purchased hereunder as specified below such Investor’s name on the signature
      page of this Agreement.

     

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

     

    “SEC”
means
      the Securities and Exchange Commission. 

     

    
      
        
        

      

      
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    “Securities”
means
      the Shares, the Warrants, the Conversion Shares and the Warrant
      Shares.

     

    “Series
      B Preferred Stock”
means
      the Company’s Series B Convertible Redeemable Preferred Stock, par value $0.01
      per share.

     

    “Shares”
means
      the shares of Preferred Stock being purchased by the Investors
      hereunder.

     

    “Short
      Sales”
shall
      include all “short sales” as defined in Rule 200 of Regulation SHO under the
      1934 Act (but shall not be deemed to include the location and/or reservation
      of
      borrowable shares of Common Stock).

     

    “Subsidiary”
of
      any
      Person 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.

     

    “Trading
      Day”
means
      a
      day on which the Common Stock is traded or quoted on the OTC Bulletin Board,
      or
      any other Trading Market.

     

    “Trading
      Market”
means
      the following exchanges or markets on which the Common Stock is listed or quoted
      for trading on the date in question: The American Stock Exchange; The Nasdaq
      Capital Market; The Nasdaq National Market; The New York Stock Exchange; or
      the
      OTC Bulletin Board.

     

    “Transaction
      Documents”
means
      this Agreement, the Certificate of Designations, the Warrants, the Registration
      Rights Agreement and the Escrow Agreement.

     

    “Warrant
      Shares”
means
      the shares of Common Stock issuable upon the exercise of the
      Warrants.

     

    “1933
      Act”
means
      the Securities Act of 1933, as amended, or any successor statute, and the rules
      and regulations promulgated thereunder.

     

    “1934
      Act”
means
      the Securities Exchange Act of 1934, as amended, or any successor statute,
      and
      the rules and regulations promulgated thereunder.

     

    2.    Purchase
      and Sale of the Shares and Warrants.
      Subject
      to the terms and conditions of this Agreement, on the Closing Date, each of
      the
      Investors shall severally, and not jointly, purchase, and the Company shall
      sell
      and issue to the Investors, the Shares and Warrants in the respective amounts
      set forth opposite the Investors’ names on the signature pages attached hereto
      in exchange for the Purchase Price as specified in Section 3 below.

     

    3.    Closing.
      Upon
      confirmation that the other conditions to closing specified herein have been
      satisfied or duly waived by the Investors, the Company shall file the
      Certificate of Designations with the Secretary of State of Delaware. Each
      Investor shall deliver to the Escrow

     

    
      
        
        

      

      
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    Agent
      via
      wire transfer or a certified check immediately available funds equal to its
      Purchase Price to be held pursuant to the terms of the Escrow Agreement. On
      the
      date (the “Closing
      Date”),
      which
      shall be not more than one (1) Business Day after the Certificate of
      Designations has been filed, the Company shall receive the aggregate Purchase
      Price and the certificates evidencing the Shares and Warrants shall be delivered
      to the Investors (the “Closing”).
      The
      initial Closing of the purchase and sale of the Shares and Warrants shall take
      place at the offices of Thelen Reid & Priest LLP, 875 Third Avenue, New
      York, New York 10022, or at such other location and on such other date as the
      Company and the Investors shall mutually agree (the
      date
      of the Initial Closing is hereinafter referred to as the “Initial
      Closing Date”).
      The
      subsequent closing(s) of the purchase and sale of up to the Maximum Amount
      under
      this Agreement (the “Subsequent Closings”)
      shall
      take place at a time agreed upon by the Company and the Investors participating
      therein (the
      date(s) of the Subsequent Closing(s) is hereinafter referred to as the
“Subsequent
      Closing Date(s)”),
      all
      of which shall occur in any event no later than February 28, 2006. The Investors
      agree that any additional persons or entities that acquire Shares and and
      Warrants at any “Subsequent
      Closing”
shall
      become “Investors”
under
      this Agreement with all the rights and obligations attendant thereto, upon
      their
      execution of this Agreement without further action by any other Investor.
For
      purposes of this Agreement, the terms “Closing”
and
      “Closing
      Date”,
      unless
      otherwise indicated, refer to the applicable closing and closing date of the
      Initial Closing or the Subsequent Closing(s), as the case may be.

     

    4.    Representations
      and Warranties of the Company.
      The
      Company hereby represents and warrants to the Investors as of the date hereof
      and as of the Closing Date that, except as set forth in the schedules delivered
      herewith (collectively, the “Disclosure
      Schedules”):

     

    4.1    Organization,
      Good Standing and Qualification.
      Each of
      the Company and its Subsidiaries is a corporation duly organized, validly
      existing and in good standing under the laws of the jurisdiction of its
      incorporation and has all requisite corporate power and authority to carry
      on
      its business as now conducted and to own its properties. Each of the Company
      and
      its Subsidiaries is duly qualified to do business as a foreign corporation
      and
      is in good standing in each jurisdiction in which the conduct of its business
      or
      its ownership or leasing of property makes such qualification or leasing
      necessary unless the failure to so qualify has not and could not reasonably
      be
      expected to have a Material Adverse Effect. The Company’s Subsidiaries are
      listed on Schedule
      4.1
      hereto.
      Neither the Company nor any Subsidiary is in violation of any of the provisions
      of its respective certificate or articles of incorporation, by-laws or other
      organizational or charter documents. 

     

    4.2    Authorization.
      The
      Company has full power and authority and has taken all requisite action on
      the
      part of the Company, its officers, directors and stockholders necessary for
      (i)
      the authorization, execution and delivery of the Transaction Documents, (ii)
      the
      authorization of the performance of all obligations of the Company hereunder
      or
      thereunder, and (iii) the authorization, issuance (or reservation for issuance)
      and delivery of the Securities. The Transaction Documents constitute the legal,
      valid and binding obligations of the Company, enforceable against the Company
      in
      accordance with their terms, subject to bankruptcy, insolvency, fraudulent
      transfer, reorganization, moratorium and similar laws of general applicability,
      relating to or affecting creditors’ rights generally.

     

    
      
        
        

      

      
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    4.3    Capitalization.
      Schedule
      4.3
      sets
      forth (a) the authorized capital stock of the Company on the date hereof; (b)
      the number of shares of capital stock issued and outstanding; (c) the number
      of
      shares of capital stock issuable pursuant to the Company’s outstanding stock
      awards; (d) the number of shares of capital stock issuable pursuant to future
      grants of awards eligible to be made under the Company’s stock plans; (e) the
      number of shares of Common Stock issuable upon conversion of the outstanding
      Series B Preferred Stock; and (f) the number of shares of capital stock issuable
      and reserved for issuance pursuant to securities (other than the Series B
      Preferred Stock, the Shares and the Warrants) exercisable for, or convertible
      into or exchangeable for any shares of capital stock of the Company. All of
      the
      issued and outstanding shares of the Company’s capital stock have been duly
      authorized and validly issued and are fully paid, nonassessable and free of
      pre-emptive rights and were issued in full compliance with applicable state
      and
      federal securities law and any rights of third parties. Except as described
      on
Schedule
      4.3,
      all of
      the issued and outstanding shares of capital stock of each Subsidiary have
      been
      duly authorized and validly issued and are fully paid, nonassessable and free
      of
      pre-emptive rights, were issued in full compliance with applicable state and
      federal securities law and any rights of third parties and are owned by the
      Company, beneficially and of record, subject to no lien, encumbrance or other
      adverse claim. Except as described on Schedule
      4.3,
      no
      Person is entitled to pre-emptive or similar statutory or contractual rights
      with respect to any securities of the Company. Except as described on
Schedule
      4.3,
      there
      are no outstanding warrants, options, convertible securities or other rights,
      agreements or arrangements of any character under which the Company or any
      of
      its Subsidiaries is or may be obligated to issue any equity securities of any
      kind and except as contemplated by this Agreement, neither the Company nor
      any
      of its Subsidiaries is currently in negotiations for the issuance of any equity
      securities of any kind. Except as described on Schedule
      4.3
      and
      except for the Registration Rights Agreement, there are no voting agreements,
      buy-sell agreements, option or right of first purchase agreements or other
      agreements of any kind among the Company and any of the securityholders of
      the
      Company relating to the securities of the Company held by them. Except as
      described on Schedule
      4.3
      and
      except as provided in the Registration Rights Agreement, no Person has the
      right
      to require the Company to register any securities of the Company under the
      1933
      Act, whether on a demand basis or in connection with the registration of
      securities of the Company for its own account or for the account of any other
      Person.

     

    Except
      as
      described on Schedule
      4.3,
      the
      issuance and sale of the Securities hereunder will not obligate the Company
      to
      issue shares of Common Stock or other securities to any other Person (other
      than
      the Investors) and will not result in the adjustment of the exercise,
      conversion, exchange or reset price of any outstanding security.

     

    The
      Company does not have outstanding stockholder purchase rights or “poison pill”
or any similar arrangement in effect giving any Person the right to purchase
      any
      equity interest in the Company upon the occurrence of certain
      events.

     

    4.4    Valid
      Issuance.
      The
      Shares have been duly and validly authorized and, when issued and paid for
      pursuant to this Agreement, will be validly issued, fully paid and
      nonassessable, and shall be free and clear of all encumbrances and restrictions
      (other than those created by the Investors), except for restrictions on transfer
      set forth in the Transaction Documents or imposed by applicable securities
      laws
      and will be entitled to the relative rights, powers and preferences set forth
      in
      the Certificate of Designations. The Warrants have been

     

    
      
        
        

      

      
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    duly
      and
      validly authorized. Upon the due conversion of the Shares in accordance with
      the
      Certificate of Designations, the Conversion Shares will be validly issued,
      fully
      paid and nonassessable, and shall be free and clear of all encumbrances and
      restrictions (other than those created by the Investors), except for
      restrictions on transfer set forth in the Transaction Documents or imposed
      by
      applicable securities laws. Upon the due exercise of the Warrants, the Warrant
      Shares will be validly issued, fully paid and non-assessable free and clear
      of
      all encumbrances and restrictions, except for restrictions on transfer set
      forth
      in the Transaction Documents or imposed by applicable securities laws and except
      for those created by the Investors. 

     

    4.5    Consents.
      The
      execution, delivery and performance by the Company of the Transaction Documents
      and the offer, issuance and sale of the Securities require no consent of, action
      by or in respect of, or filing with, any Person, governmental body, agency,
      or
      official other than filings that have been made pursuant to applicable state
      securities laws and post-sale filings pursuant to applicable state and federal
      securities laws which the Company undertakes to file within the applicable
      time
      periods. Subject to the accuracy of the representations and warranties of each
      Investor set forth in Section 5 hereof, the Company has taken all action
      necessary to exempt (i) the issuance and sale of the Securities, (ii) the
      issuance of the Conversion Shares upon the due exercise of the Shares, (iii)
      the
      issuance of the Warrant Shares upon due exercise of the Warrants, and (iv)
      the
      other transactions contemplated by the Transaction Documents from the provisions
      of any anti-takeover, business combination or control share law or statute
      binding on the Company or to which the Company or any of its assets and
      properties may be subject and any provision of the Company’s Certificate of
      Incorporation or By-laws that is or could reasonably be expected to become
      applicable to the Investors as a result of the transactions contemplated hereby,
      including without limitation, the issuance of the Securities and the ownership,
      disposition or voting of the Securities by the Investors or the exercise of
      any
      right granted to the Investors pursuant to this Agreement or the other
      Transaction Documents.

     

    4.6    Delivery
      of SEC Filings; Business.
      The
      Company has made available to the Investors through the EDGAR system, true
      and
      complete copies of the Company’s most recent Annual Report on Form 10-KSB for
      the fiscal year ended September 30, 2005 (the “2005
      10-KSB”),
      and
      all other reports filed by the Company pursuant to the 1934 Act since the filing
      of the 2005 10-KSB and prior to the date hereof (collectively, the “SEC
      Filings”).
      The
      SEC Filings are the only filings required of the Company pursuant to the 1934
      Act for such period and have been made on a timely basis or the Company has
      received a valid extension of such time of filing and has filed any such SEC
      Filings prior to the expiration of such extension. The Company and its
      Subsidiaries are engaged in all material respects only in the business described
      in the SEC Filings, and the SEC Filings contain a complete and accurate
      description in all material respects of the business of the Company and its
      Subsidiaries, taken as a whole.

     

    4.7    No
      Material Adverse Change.
      Since
      September 30, 2005, except as described on Schedule
      4.9,
      there
      has not been:

     

    (i)    any
      change in the consolidated assets, liabilities, financial condition or operating
      results of the Company from that reflected in the financial statements included
      in the 2005 10-KSB, except for changes in the ordinary course of business which
      have

     

    
      
        
        

      

      
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    not
      had
      and could not reasonably be expected to have a Material Adverse Effect,
      individually or in the aggregate;

     

    (ii)    any
      declaration or payment of any dividend, or any authorization or payment of
      any
      distribution, on any of the capital stock of the Company, or any redemption
      or
      repurchase of any securities of the Company;

     

    (iii)    any
      material damage, destruction or loss, whether or not covered by insurance to
      any
      assets or properties of the Company or its Subsidiaries;

     

    (iv)    any
      waiver, not in the ordinary course of business, by the Company or any Subsidiary
      of a material right or of a material debt owed to it;

     

    (v)    any
      satisfaction or discharge of any lien, claim or encumbrance or payment of any
      obligation by the Company or a Subsidiary, except in the ordinary course of
      business and which is not material to the assets, properties, financial
      condition, operating results or business of the Company and its Subsidiaries
      taken as a whole (as such business is presently conducted and as it is proposed
      to be conducted);

     

    (vi)    any
      change or amendment to the Company’s Certificate of Incorporation or by-laws, or
      material change to any material contract or arrangement by which the Company
      or
      any Subsidiary is bound or to which any of their respective assets or properties
      is subject;

     

    (vii)    any
      material labor difficulties or labor union organizing activities with respect
      to
      employees of the Company or any Subsidiary;

     

    (viii)    any
      material transaction entered into by the Company or a Subsidiary other than
      in
      the ordinary course of business;

     

    (ix)    the
      loss
      of the services of any key employee, or material change in the composition
      or
      duties of the senior management of the Company or any Subsidiary;

     

    (x)    the
      loss
      or threatened loss of any customer which has had or could reasonably be expected
      to have a Material Adverse Effect; or

     

    (xi)    any
      other
      event or condition of any character that has had or could reasonably be expected
      to have a Material Adverse Effect.

     

    4.8    Solvency.
      Based
      on the financial condition of the Company as of the Closing Date after giving
      effect to the receipt by the Company of the proceeds from the sale of the
      Securities hereunder, (i) the fair saleable value of the Company’s assets
      exceeds the amount that will be required to be paid on or in respect of the
      Company’s existing debts and other liabilities (including known contingent
      liabilities) as they mature; and (ii) the Company has sufficient assets to
      carry
      on its business as now conducted and as proposed to be conducted including
      its
      capital needs taking into account the particular capital requirements of the
      business conducted by the Company, and projected capital requirements and
      capital availability thereof. The Company does not intend to incur debts beyond
      its ability to pay such debts as they mature

     

    
      
        
        

      

      
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    (taking
      into account the timing and amounts of cash to be payable on or in respect
      of
      its debt). The Company has no knowledge of any facts or circumstances which
      lead
      it to believe that it will file for reorganization or liquidation under the
      bankruptcy or reorganization laws of any jurisdiction within one year of the
      Closing Date. The SEC Reports set forth as of the dates thereof all outstanding
      secured and unsecured Indebtedness of the Company or any Subsidiary, or for
      which the Company or any Subsidiary has commitments. For the purposes of this
      Agreement, “Indebtedness”
shall
      mean (a) any liabilities for borrowed money or amounts owed in excess of $50,000
      (other than trade accounts payable incurred in the ordinary course of business),
      (b) all guaranties, endorsements and other contingent obligations in respect
      of
      Indebtedness of others, whether or not the same are or should be reflected
      in
      the Company’s balance sheet (or the notes thereto), except guaranties by
      endorsement of negotiable instruments for deposit or collection or similar
      transactions in the ordinary course of business; and (c) the present value
      of
      any lease payments
      in excess of $50,000 due under leases required to be capitalized in accordance
      with GAAP (excluding leases for office premises). Neither
      the Company nor any Subsidiary is in default with respect to any
      Indebtedness.

     

    4.9    SEC
      Filings.

     

    (a)    At
      the
      time of filing thereof, the SEC Filings complied as to form in all material
      respects with the requirements of the 1934 Act and did not contain any untrue
      statement of a material fact or omit to state any material fact necessary in
      order to make the statements made therein, in the light of the circumstances
      under which they were made, not misleading.

     

    (b)    Each
      registration statement and any amendment thereto filed by the Company since
      October 1, 2002 pursuant to the 1933 Act and the rules and regulations
      thereunder, as of the date such statement or amendment became effective,
      complied as to form in all material respects with the 1933 Act and did not
      contain any untrue statement of a material fact or omit to state any material
      fact required to be stated therein or necessary in order to make the statements
      made therein not misleading; and each prospectus filed pursuant to Rule 424(b)
      under the 1933 Act, as of its issue date and as of the closing of any sale
      of
      securities pursuant thereto did not contain any untrue statement of a material
      fact or omit to state any material fact required to be stated therein or
      necessary in order to make the statements made therein, in the light of the
      circumstances under which they were made, not misleading.

     

    4.10    No
      Conflict, Breach, Violation or Default.
      The
      execution, delivery and performance of the Transaction Documents by the Company
      and the issuance and sale of the Securities will not conflict with or result
      in
      a breach or violation of any of the terms and provisions of, or constitute
      a
      default under (i) the Company’s Certificate of Incorporation or the Company’s
      Bylaws, both as in effect on the date hereof (true and complete copies of which
      have been made available to the Investors through the EDGAR system), or (ii)(a)
      any statute, rule, regulation or order of any governmental agency or body or
      any
      court, domestic or foreign, having jurisdiction over the Company, any Subsidiary
      or any of their respective assets or properties, or (b) any agreement or
      instrument to which the Company or any Subsidiary is a party or by which the
      Company or a Subsidiary is bound or to which any of their respective assets
      or
      properties is subject.

     

    
      
        
        

      

      
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    4.11    Tax
      Matters.
      The
      Company and each Subsidiary has prepared and filed all tax returns required
      to
      have been filed by the Company or such Subsidiary with all appropriate
      governmental agencies and timely paid all taxes shown thereon or otherwise
      owed
      by it, except for the tax returns for the year ended September 30, 2005 for
      which extensions have been sought. The charges, accruals and reserves on the
      books of the Company in respect of taxes for all fiscal periods are adequate
      in
      all material respects, and there are no material unpaid assessments against
      the
      Company or any Subsidiary nor, to the Company’s Knowledge, any basis for the
      assessment of any additional taxes, penalties or interest for any fiscal period
      or audits by any federal, state or local taxing authority except for any
      assessment which is not material to the Company and its Subsidiaries, taken
      as a
      whole. All taxes and other assessments and levies that the Company or any
      Subsidiary is required to withhold or to collect for payment have been duly
      withheld and collected and paid to the proper governmental entity or third
      party
      when due. There are no tax liens or claims pending or, to the Company’s
      Knowledge, threatened against the Company or any Subsidiary or any of their
      respective assets or property. Except as described on Schedule
      4.11,
      there
      are no outstanding tax payment or tax sharing agreements or other such
      arrangements between the Company and any Subsidiary or other corporation or
      entity.

     

    4.12    Title
      to Properties.
      Except
      as disclosed in the SEC Filings or as described on Schedule
      4.12,
      the
      Company and each Subsidiary has good and marketable title to all real properties
      and all other properties and assets owned by it, in each case free from liens,
      encumbrances and defects that would materially affect the value thereof or
      materially interfere with the use made or currently planned to be made thereof
      by them; and except as disclosed in the SEC Filings, the Company and each
      Subsidiary holds any leased real or personal property under valid and
      enforceable leases with no exceptions that would materially interfere with
      the
      use made or currently planned to be made thereof by them.

     

    4.13   Certificates,
      Authorities and Permits.
      Except
      as disclosed in the 2005 10-KSB or as described on Schedule
      4.13,
      the
      Company and each Subsidiary possess adequate certificates, authorities or
      permits issued by appropriate governmental agencies or bodies necessary to
      conduct the business now operated by it, and neither the Company nor any
      Subsidiary has received any notice of proceedings relating to the revocation
      or
      modification of any such certificate, authority or permit that, if determined
      adversely to the Company or such Subsidiary, could reasonably be expected to
      have a Material Adverse Effect, individually or in the aggregate.

     

    4.14   Labor
      Matters.

     

    (a)    Except
      as
      set forth on Schedule
      4.14,
      the
      Company is not a party to or bound by any collective bargaining agreements
      or
      other agreements with labor organizations. The Company has not violated in
      any
      material respect any laws, regulations, orders or contract terms, affecting
      the
      collective bargaining rights of employees, labor organizations or any laws,
      regulations or orders affecting employment discrimination, equal opportunity
      employment, or employees’ health, safety, welfare, wages and hours.

     

    (b)    (i)
      There
      are no labor disputes existing, or to the Company’s Knowledge, threatened,
      involving strikes, slow-downs, work stoppages, job actions, disputes, lockouts
      or any other disruptions of or by the Company’s employees, (ii) there are no
      unfair

     

    
      
        
        

      

      
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    labor
      practices or petitions for election pending or, to the Company’s Knowledge,
      threatened before the National Labor Relations Board or any other federal,
      state
      or local labor commission relating to the Company’s employees, (iii) no demand
      for recognition or certification heretofore made by any labor organization
      or
      group of employees is pending with respect to the Company and (iv) to the
      Company’s Knowledge, the Company enjoys good labor and employee relations with
      its employees and labor organizations.

     

    (c)    The
      Company is, and at all times has been, in compliance in all material respects
      with all applicable laws respecting employment (including laws relating to
      classification of employees and independent contractors) and employment
      practices, terms and conditions of employment, wages and hours, and immigration
      and naturalization. There no claims are pending against the Company before
      the
      Equal Employment Opportunity Commission or any other administrative body or
      in
      any court asserting any violation of Title VII of the Civil Rights Act of 1964,
      the Age Discrimination Act of 1967, 42 U.S.C. §§ 1981 or 1983 or any other
      federal, state or local Law, statute or ordinance barring discrimination in
      employment.

     

    (d)    The
      Company is not a party to, or bound by, any employment or other contract or
      agreement that contains any severance, termination pay or change of control
      liability or obligation, including, without limitation, any “excess parachute
      payment,” as defined in Section 2806(b) of the Internal Revenue
      Code.

     

    (e)    Except
      as
      specified in Schedule
      4.14,
      each of
      the Company’s employees is a Person who is either a United States citizen or a
      permanent resident entitled to work in the United States. To the Company’s
      Knowledge, the Company has no liability for the improper classification by
      the
      Company of such employees as independent contractors or leased employees prior
      to the Closing.

     

    4.15    Intellectual
      Property.

     

    (a)    All
      Intellectual Property of the Company and its Subsidiaries is currently in
      compliance with all legal requirements (including timely filings, proofs and
      payments of fees) and, to the Company’s Knowledge, is valid and enforceable. No
      Intellectual Property of the Company or its Subsidiaries which is necessary
      for
      the conduct of Company’s and each of its Subsidiaries’ respective businesses as
      currently conducted or as currently proposed to be conducted has been or is
      now
      involved in any cancellation, dispute or litigation, and, to the Company’s
      Knowledge, no such action is threatened. No patent of the Company or its
      Subsidiaries has been or is now involved in any interference, reissue,
      re-examination or opposition proceeding.

     

    (b)    All
      of
      the licenses and sublicenses and consent, royalty or other agreements concerning
      Intellectual Property which are necessary for the conduct of the Company’s and
      each of its Subsidiaries’ respective businesses as currently conducted or as
      currently proposed to be conducted to which the Company or any Subsidiary is
      a
      party or by which any of their assets are bound (other than  generally
      commercially available, non-custom, off-the-shelf software application programs
      having a retail acquisition price of less than $10,000 per license)
      (collectively, “License
      Agreements”)
      are
      valid and binding obligations of the Company or its Subsidiaries that are
      parties thereto and, to the Company’s Knowledge, the other

     

    
      
        
        

      

      
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    parties
      thereto, enforceable in accordance with their terms, except to the extent that
      enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
      moratorium, fraudulent conveyance or other similar laws affecting the
      enforcement of creditors’ rights generally, and there exists no event or
      condition which will result in a material violation or breach of or constitute
      (with or without due notice or lapse of time or both) a default by the Company
      or any of its Subsidiaries under any such License Agreement.

     

    (c)    The
      Company and its Subsidiaries own or have the valid right to use all of the
      Intellectual Property that is necessary for the conduct of the Company’s and
      each of its Subsidiaries’ respective businesses as currently conducted or as
      currently proposed to be conducted and for the ownership, maintenance and
      operation of the Company’s and its Subsidiaries’ properties and assets, free and
      clear of all liens, encumbrances, adverse claims or obligations to license
      all
      such owned Intellectual Property and Confidential Information, other than
      licenses entered into in the ordinary course of the Company’s and its
      Subsidiaries’ businesses. The Company and its Subsidiaries have a valid and
      enforceable right to use all third party Intellectual Property and Confidential
      Information used or held for use in the respective businesses of the Company
      and
      its Subsidiaries.

     

    (d)    To
      the
      Company’s Knowledge, the conduct of the Company’s and its Subsidiaries’
businesses as currently conducted does not infringe or otherwise impair or
      conflict with (collectively, “Infringe”)
      any
      Intellectual Property rights of any third party or any confidentiality
      obligation owed to a third party, and, to the Company’s Knowledge, the
      Intellectual Property and Confidential Information of the Company and its
      Subsidiaries which are necessary for the conduct of Company’s and each of its
      Subsidiaries’ respective businesses as currently conducted or as currently
      proposed to be conducted are not being Infringed by any third party. There
      is no
      litigation or order pending or outstanding or, to the Company’s Knowledge,
      threatened or imminent, that seeks to limit or challenge or that concerns the
      ownership, use, validity or enforceability of any Intellectual Property or
      Confidential Information of the Company and its Subsidiaries and the Company’s
      and its Subsidiaries’ use of any Intellectual Property or Confidential
      Information owned by a third party, and, to the Company’s Knowledge, there is no
      valid basis for the same.

     

    (e)    The
      consummation of the transactions contemplated hereby and by the other
      Transaction Documents will not result in the alteration, loss, impairment of
      or
      restriction on the Company’s or any of its Subsidiaries’ ownership or right to
      use any of the Intellectual Property or Confidential Information which is
      necessary for the conduct of Company’s and each of its Subsidiaries’ respective
      businesses as currently conducted or as currently proposed to be
      conducted.

     

    (f)    The
      Company and its Subsidiaries have taken reasonable steps to protect the
      Company’s and its Subsidiaries’ rights in their Intellectual Property and
      Confidential Information. Each employee, consultant and contractor who has
      had
      access to Confidential Information which is necessary for the conduct of
      Company’s and each of its Subsidiaries’ respective businesses as currently
      conducted or as currently proposed to be conducted has executed an agreement
      to
      maintain the confidentiality of such Confidential Information and has executed
      appropriate agreements that are substantially consistent with the Company’s
      standard

     

    
      
        
        

      

      
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    forms
      thereof. Except under confidentiality obligations, there has been no material
      disclosure of any of the Company’s or its Subsidiaries’ Confidential Information
      to any third party.

     

    4.16    Environmental
      Matters.
      Neither
      the Company nor any Subsidiary is in violation of any statute, rule, regulation,
      decision or order of any governmental agency or body or any court, domestic
      or
      foreign, relating to the use, disposal or release of hazardous or toxic
      substances or relating to the protection or restoration of the environment
      or
      human exposure to hazardous or toxic substances (collectively, “Environmental
      Laws”),
      owns
      or operates any real property contaminated with any substance that is subject
      to
      any Environmental Laws, is liable for any off-site disposal or contamination
      pursuant to any Environmental Laws, and is subject to any claim relating to
      any
      Environmental Laws, which violation, contamination, liability or claim has
      had
      or could reasonably be expected to have a Material Adverse Effect, individually
      or in the aggregate; and there is no pending or, to the Company’s Knowledge,
      threatened investigation that might lead to such a claim.

     

    4.17    Litigation.
      Except
      as described on Schedule
      4.17,
      there
      are no pending actions, suits or proceedings against or affecting the Company,
      its Subsidiaries or any of its or their properties; and to the Company’s
      Knowledge, no such actions, suits or proceedings are threatened or contemplated.
      Neither the Company nor any Subsidiary, nor any director or officer thereof,
      is
      or since October 1, 2000 has been the subject of any action involving a claim
      of
      violation of or liability under federal or state securities laws or a claim
      of
      breach of fiduciary duty. There has not been, and to the Company’s Knowledge,
      there is not pending or contemplated, any investigation by the SEC involving
      the
      Company or any current or former director or officer of the Company. The SEC
      has
      not issued any stop order or other order suspending the effectiveness of any
      registration statement filed by the Company or any Subsidiary under the 1933
      Act
      or the 1934 Act.

     

    4.18    Financial
      Statements.
      The
      financial statements included in each SEC Filing present fairly, in all material
      respects, the consolidated financial position of the Company as of the dates
      shown and its consolidated results of operations and cash flows for the periods
      shown, and such financial statements have been prepared in conformity with
      United States generally accepted accounting principles applied on a consistent
      basis (“GAAP”)
      (except as may be disclosed therein or in the notes thereto, and, in the case
      of
      quarterly financial statements, as permitted by Form 10-QSB under the 1934
      Act).
      Except as set forth in the financial statements of the Company included in
      the
      2005 10-KSB or as described on Schedule
      4.18,
      neither
      the Company nor any of its Subsidiaries has incurred any liabilities, contingent
      or otherwise, except those incurred in the ordinary course of business,
      consistent (as to amount and nature) with past practices since the date of
      such
      financial statements, none of which, individually or in the aggregate, have
      had
      or could reasonably be expected to have a Material Adverse Effect.

     

    4.19    Insurance
      Coverage.
      The
      Company and the Subsidiaries are insured by insurers of recognized financial
      responsibility against such losses and risks and in such amounts as are prudent
      and customary in the businesses in which the Company and the Subsidiaries are
      engaged, including, but not limited to, directors and officers insurance
      coverage at least equal to the aggregate Purchase Price. To the Company’s
      Knowledge, its current insurance carriers have not notified the Company that
      any
      of them will not be able or willing to renew its existing insurance coverage
      as
      and when such coverage expires.

     

    
      
        
        

      

      
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    4.20    Brokers
      and Finders.
      No
      Person will have, as a result of the transactions contemplated by the
      Transaction Documents, any valid right, interest or claim against or upon the
      Company, any Subsidiary or an Investor for any commission, fee or other
      compensation pursuant to any agreement, arrangement or understanding entered
      into by or on behalf of the Company, other than as described in Schedule
      4.20.

     

    4.21    No
      Directed Selling Efforts or General Solicitation.
      Neither
      the Company nor any Person acting on its behalf has conducted any general
      solicitation or general advertising (as those terms are used in Regulation
      D) in
      connection with the offer or sale of any of the Securities.

     

    4.22    No
      Integrated Offering.
      Neither
      the Company nor any of its Affiliates, nor any Person acting on its or their
      behalf has, directly or indirectly, made any offers or sales of any Company
      security or solicited any offers to buy any security, under circumstances that
      would adversely affect reliance by the Company on Section 4(2) for the exemption
      from registration for the transactions contemplated hereby or would require
      registration of the Securities under the 1933 Act.

     

    4.23    Private
      Placement.
      Subject
      to the accuracy of the Investors’ representations in Section 5 of this
      Agreement, the offer and sale of the Securities to the Investors as contemplated
      hereby is exempt from the registration requirements of the 1933
      Act.

     

    4.24    Questionable
      Payments. Neither
      the Company nor any of its Subsidiaries nor, to the Company’s Knowledge, any of
      their respective current or former stockholders, directors, officers, employees,
      agents or other Persons acting on behalf of the Company or any Subsidiary,
      has
      on behalf of the Company or any Subsidiary or in connection with their
      respective businesses: (a) used any corporate funds for unlawful contributions,
      gifts, entertainment or other unlawful expenses relating to political activity;
      (b) made any direct or indirect unlawful payments to any governmental officials
      or employees from corporate funds; (c) established or maintained any unlawful
      or
      unrecorded fund of corporate monies or other assets; (d) made any false or
      fictitious entries on the books and records of the Company or any Subsidiary;
      or
      (e) made any unlawful bribe, rebate, payoff, influence payment, kickback or
      other unlawful payment of any nature.

     

    4.25    Transactions
      with Affiliates.
      Except
      as disclosed on Schedule
      4.25,
      none of
      the officers or directors of the Company and, to the Company’s Knowledge, none
      of the employees of the Company is presently a party to any transaction with
      the
      Company or any Subsidiary (other than as holders of stock options and/or
      warrants, and for services as employees, officers and directors), including
      any
      contract, agreement or other arrangement providing for the furnishing of
      services to or by, providing for rental of real or personal property to or
      from,
      or otherwise requiring payments to or from any officer, director or such
      employee or, to the Company’s Knowledge, any entity in which any officer,
      director, or any such employee has a substantial interest or is an officer,
      director, trustee or partner.

     

    4.26    Internal
      Controls.
      The
      Company is in material compliance with the provisions of the Sarbanes-Oxley
      Act
      of 2002 currently applicable to the Company. The Company and the Subsidiaries
      maintain a system of internal accounting controls sufficient to 

     

    
      
        
        

      

      
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    provide
      reasonable assurance that (i) transactions are executed in accordance with
      management’s general or specific authorizations, (ii) transactions are recorded
      as necessary to permit preparation of financial statements in conformity with
      GAAP and to maintain asset accountability, (iii) access to assets is permitted
      only in accordance with management’s general or specific authorization, and (iv)
      the recorded accountability for assets is compared with the existing assets
      at
      reasonable intervals and appropriate action is taken with respect to any
      differences. The Company has established disclosure controls and procedures
      (as
      defined in 1934 Act Rules 13a-14 and 15d-14) for the Company and designed such
      disclosure controls and procedures to ensure that material information relating
      to the Company, including the Subsidiaries, is made known to the certifying
      officers by others within those entities, particularly during the period in
      which the Company’s most recently filed period report under the 1934 Act, as the
      case may be, is being prepared. The Company’s certifying officers have evaluated
      the effectiveness of the Company’s controls and procedures as of the end of the
      period covered by the most recently filed periodic report under the 1934 Act
      (such date, the “Evaluation
      Date”).
      The
      Company presented in the 2005 10-KSB the conclusions of the certifying officers
      about the effectiveness of the disclosure controls and procedures based on
      their
      evaluations as of the Evaluation Date. Since the Evaluation Date, there have
      been no significant changes in the Company’s internal controls (as such term is
      defined in Item 307(b) of Regulation S-K) or, to the Company’s Knowledge, in
      other factors that could significantly affect the Company’s internal controls.
      The Company maintains and will continue to maintain a standard system of
      accounting established and administered in accordance with GAAP and the
      applicable requirements of the 1934 Act.

     

    4.27    Listing
      and Maintenance Requirements.
      The
      Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the
      1934 Act, and the Company has taken no action designed to, or which to its
      knowledge is likely to have the effect of, terminating the registration of
      the
      Common Stock under the 1934 Act nor has the Company received any notification
      that the SEC is contemplating terminating such registration. The Company has
      not, in the 12 months preceding the date hereof, received notice from any
      Trading Market on which the Common Stock is or has been listed or quoted to
      the
      effect that the Company is not in compliance with the listing or maintenance
      requirements of such Trading Market. The Company is, and has no reason to
      believe that it will not in the foreseeable future continue to be, in compliance
      with all such listing and maintenance requirements.

     

    4.28    Compliance.
      Neither
      the Company nor any Subsidiary (i) is in default under or in violation of (and
      no event has occurred that has not been waived that, with notice or lapse of
      time or both, would result in a default by the Company or any Subsidiary under),
      nor has the Company or any Subsidiary received notice of a claim that it is
      in
      default under or that it is in violation of, any indenture, loan or credit
      agreement or any other agreement or instrument to which it is a party or by
      which it or any of its properties is bound (whether or not such default or
      violation has been waived), (ii) is in violation of any order of any court,
      arbitrator or governmental body, or (iii) is or has been in violation of any
      statute, rule or regulation of any governmental authority, including without
      limitation all foreign, federal, state and local laws relating to taxes,
      environmental protection, occupational health and safety, product quality and
      safety and employment and labor matters, except in each case as does not,
      individually or in the aggregate, have or reasonably be expected to result
      in a
      Material Adverse Effect.

     

    
      
        
        

      

      
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    4.29    Accountants.
      The
      Company’s accountants are set forth on Schedule
      4.29
      of the
      Disclosure Schedule. To the Knowledge of the Company, such accountants, who
      the
      Company expects will express their opinion with respect to the financial
      statements to be included in the Company’s Annual Report on Form 10-KSB for the
      year ending September 30, 2006 are a registered public accounting firm as
      required by the 1933 Act.

     

    4.30    Seniority.
      As of
      the Closing Date, no Indebtedness or other equity of the Company is senior
      to
      the Preferred Stock in right of payment, whether with respect to interest or
      upon liquidation or dissolution, or otherwise, other than indebtedness secured
      by purchase money security interests (which is senior only as to underlying
      assets covered thereby) and capital lease obligations (which is senior only
      as
      to the property covered thereby), other than Series B Preferred
      Stock.

     

    4.31    No
      Disagreements with Accountants and Lawyers.
      There
      are no disagreements of any kind presently existing, or reasonably anticipated
      by the Company to arise, between the Company and the accountants and lawyers
      formerly or presently employed by the Company and the Company is current with
      respect to any fees billed within the past ninety (90) days from its accountants
      and lawyers.

     

    4.32    Acknowledgment
      Regarding Investors’ Purchase of Securities.
      The
      Company acknowledges and agrees that each of the Investors is acting solely
      in
      the capacity of an arm’s length purchaser with respect to the Transaction
      Documents and the transactions contemplated thereby. The Company further
      acknowledges that no Investor is acting as a financial advisor or fiduciary
      of
      the Company (or in any similar capacity) with respect to the Transaction
      Documents and the transactions contemplated thereby and any advice given by
      any
      Investor or any of their respective representatives or agents in connection
      with
      the Transaction Documents and the transactions contemplated thereby is merely
      incidental to the Investors’ purchase of the Securities.

     

    4.33    Acknowledgement
      Regarding Investors’ Trading Activity.
      Anything in this Agreement or elsewhere herein to the contrary notwithstanding
      (except for Section 5.11 and 7.15), it is understood and acknowledged by the
      Company (i) that none of the Investors have been asked to agree, nor has any
      Investor agreed, to desist from purchasing or selling, long and/or short,
      securities of the Company, or “derivative” securities based on securities issued
      by the Company or to hold the Securities for any specified term; (ii) that
      past
      or future open market or other transactions by any Investor, including Short
      Sales, and specifically including, without limitation, Short Sales or
“derivative” transactions, before or after the closing of this or future private
      placement transactions, may negatively impact the market price of the Company’s
      publicly-traded securities; (iii) that any Investor, and counter-parties in
      “derivative” transactions to which any such Investor is a party, directly or
      indirectly, presently may have a “short” position in the Common Stock, and (iv)
      that each Investor shall not be deemed to have any affiliation with or control
      over any arm’s length counter-party in any “derivative” transaction. The Company
      further understands and acknowledges that (a) one or more Investors may engage
      in hedging activities at various times during the period that the Securities
      are
      outstanding, including, without limitation, during the periods that the value
      of
      the Conversion Shares deliverable with respect to the Preferred Stock are being
      determined and (b) such hedging activities (if any) could reduce the value
      of
      the existing stockholders' equity interests in the 

     

    
      
        
        

      

      
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    Company
      at and after the time that the hedging activities are being conducted. The
      Company acknowledges that such aforementioned hedging activities do not
      constitute a breach of any of the Transaction Documents.

     

    4.34    Manipulation
      of Price.
      The
      Company has not, and to its knowledge no one acting on its behalf has, (i)
      taken, directly or indirectly, any action designed to cause or to result in
      the
      stabilization or manipulation of the price of any security of the Company to
      facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
      purchased, or paid any compensation for soliciting purchases of, any of the
      Securities, or (iii) paid or agreed to pay to any person any compensation for
      soliciting another to purchase any other securities of the Company, other than,
      in the case of each of clauses (ii) and (iii), compensation paid to the
      Company’s placement agent in connection with the placement of the
      Securities.

     

    4.35    Disclosures.
      The
      Company confirms that neither it nor any other Person acting on its behalf
      has
      provided any of the Investors or their agents or counsel with any information
      that constitutes or might constitute material, nonpublic information. The
      Company understands and confirms that each of the Investors will rely on the
      foregoing representations in effecting transactions in securities of the
      Company. All disclosure materials provided to the Investors regarding the
      Company, its business and the transactions contemplated hereby, including the
      Schedules to this Agreement, furnished by or on behalf of the Company are true
      and correct in all material respects and do not contain any untrue statement
      of
      a material fact or omit to state any material fact necessary in order to make
      the statements made therein, in the light of the circumstances under which
      they
      were made, not misleading; it being understood that the Company has not provided
      the Investors, and the Investors are not relying on, any information
      constituting a forecast or projection. No event or circumstance has occurred
      or
      information exists with respect to the Company or any of its Subsidiaries or
      its
      or their business, properties, prospects, operations or financial conditions,
      which, under applicable law, rule or regulation, requires public disclosure
      or
      announcement by the Company but which has not been so publicly announced or
      disclosed. 

     

    5.    Representations
      and Warranties of the Investors.
      Each of
      the Investors hereby severally, and not jointly, represents and warrants to
      the
      Company as of the date hereof and as of the Closing Date, that:

     

    5.1    Organization
      and Existence.
      In the
      event such Investor is a corporation, limited partnership or limited liability
      company, it is validly existing and in good standing under the laws of the
      jurisdiction of its organization and has all requisite corporate, partnership
      or
      limited liability company power and authority to invest in the Securities
      pursuant to this Agreement, and was not formed solely for the purpose of
      investing in the Securities.

     

    5.2    Authorization.
      The
      execution, delivery and performance by such Investor of the Transaction
      Documents to which such Investor is a party have been duly authorized and will
      each constitute the valid and legally binding obligation of such Investor,
      enforceable against such Investor in accordance with their respective terms,
      subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
      moratorium and similar laws of general applicability, relating to or affecting
      creditors’ rights generally.

     

    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    

     

    5.3    Purchase
      Entirely for Own Account.
      The
      Securities to be received by such Investor hereunder will be acquired for such
      Investor’s own account, not as nominee or agent, and not with a view to the
      resale or distribution of any part thereof in violation of the 1933 Act, and
      such Investor has no present intention of selling, granting any participation
      in, or otherwise distributing the same in violation of the 1933 Act without
      prejudice, however, to such Investor’s right at all times to sell or otherwise
      dispose of all or any part of such Securities in compliance with applicable
      federal and state securities laws. Nothing contained herein shall be deemed
      a
      representation or warranty by such Investor to hold the Securities for any
      period of time. Neither such Investor nor any Affiliate of such Investor is
      a
      broker-dealer registered with the SEC under the 1934 Act or an entity engaged
      in
      a business that would require it to be so registered.

     

    5.4    Investment
      Experience.
      Such
      Investor acknowledges that it can bear the economic risk and complete loss
      of
      its investment in the Securities and has such knowledge and experience in
      financial or business matters that it is capable of evaluating the merits and
      risks of the investment contemplated hereby.

     

    5.5    Disclosure
      of Information.
      Such
      Investor has had an opportunity to receive all information related to the
      Company requested by it and to ask questions of and receive answers from the
      Company regarding the Company, its business, the terms and conditions of the
      offering of the Securities, and the risk factors included in the Company’s SEC
      Filings. Such Investor acknowledges receipt of and has reviewed copies of the
      SEC Filings. Neither such inquiries nor any other due diligence investigation
      conducted by such Investor shall modify, amend or affect such Investor’s right
      to rely on the Company’s representations and warranties contained in this
      Agreement.

     

    5.6    Restricted
      Securities.
      Such
      Investor understands that the Securities are characterized as “restricted
      securities” under the U.S. federal securities laws inasmuch as they are being
      acquired from the Company in a transaction not involving a public offering
      and
      that under such laws and applicable regulations such securities may be resold
      or
      otherwise transferred without registration under the 1933 Act only in certain
      limited circumstances.

     

    5.7    Legends.
      It is
      understood that, except as provided below, certificates evidencing the
      Securities may bear the following or any similar legend:

     

    (a)    “The
      securities represented hereby may not be transferred unless (i) such securities
      have been registered for sale pursuant to the Securities Act of 1933, as
      amended, (ii) such securities may be sold pursuant to Rule 144(k), or (iii)
      the
      Company has received an opinion of counsel reasonably satisfactory to it that
      such transfer may lawfully be made without registration under the Securities
      Act
      of 1933 or qualification under applicable state securities laws.”

     

    (b)    If
      required by the authorities of any state in connection with the issuance of
      sale
      of the Securities, the legend required by such state authority.

     

    5.8    Accredited
      Investor.
      Such
      Investor is an accredited investor as defined in Rule 501(a) of Regulation
      D, as
      amended, under the 1933 Act.

     

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

     

    5.9    No
      General Solicitation.
      Such
      Investor did not learn of the investment in the Securities as a result of any
      public advertising or general solicitation.

     

    5.10    Brokers
      and Finders.
      No
      Person will have, as a result of the transactions contemplated by the
      Transaction Documents, any valid right, interest or claim against or upon the
      Company, any Subsidiary or an Investor for any commission, fee or other
      compensation pursuant to any agreement, arrangement or understanding entered
      into by or on behalf of such Investor with respect to the transactions
      contemplated by this Agreement, other than as described on Schedule
      5.10.

     

    5.11    Short
      Sales and Confidentiality Prior To The Date Hereof.
      Other
      than the transaction contemplated hereunder, such Investor has not directly
      or
      indirectly, nor has any Person acting on behalf of or pursuant to any
      understanding with such Investor, executed any disposition, including Short
      Sales, in the securities of the Company during the period commencing from the
      time that such Investor first received a term sheet (written or oral) from
      the
      Company or any other Person setting forth the material terms of the transactions
      contemplated hereunder until the date hereof (“Discussion
      Time”).
      Notwithstanding the foregoing, in the case of a Investor that is a multi-managed
      investment vehicle whereby separate portfolio managers manage separate portions
      of such Investor's assets and the portfolio managers have no direct knowledge
      of
      the investment decisions made by the portfolio managers managing other portions
      of such Investor's assets, the representation set forth above shall only apply
      with respect to the portion of assets managed by the portfolio manager that
      made
      the investment decision to purchase the Securities covered by this Agreement.
      Other than to other Persons party to this Agreement, such Investor has
      maintained the confidentiality of all disclosures made to it in connection
      with
      this transaction (including the existence and terms of this
      transaction).

     

    5.12    No
      Implied Representations and Warranties.
      Each
      Investor makes only the representations and warranties contained in this
      Agreement and no additional representations or warranties are implied by, or
      applicable to, the Investors.

     

    6.    Conditions
      to Closing.

     

    6.1    Conditions
      to the Investors’ Obligations.
      The
      obligation of each Investor to purchase the Shares and the Warrants at the
      Closing is subject to the fulfillment to such Investor’s satisfaction, on or
      prior to the Closing Date, of the following conditions, any of which may be
      waived by such Investor (as to itself only):

     

    (a)    The
      representations and warranties made by the Company in Section 4 hereof qualified
      as to materiality shall be true and correct at all times prior to and on the
      Closing Date, except to the extent any such representation or warranty expressly
      speaks as of an earlier date, in which case such representation or warranty
      shall be true and correct as of such earlier date, and, the representations
      and
      warranties made by the Company in Section 4 hereof not qualified as to
      materiality shall be true and correct in all

     

    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    

     

    material
      respects at all times prior to and on the Closing Date, except to the extent
      any
      such representation or warranty expressly speaks as of an earlier date, in
      which
      case such representation or warranty shall be true and correct in all material
      respects as of such earlier date. The Company shall have performed in all
      material respects all obligations and conditions herein required to be performed
      or observed by it on or prior to the Closing Date.

     

    (b)    The
      Company shall have obtained any and all consents, permits, approvals,
      registrations and waivers necessary or appropriate for consummation of the
      purchase and sale of the Securities and the consummation of the other
      transactions contemplated by the Transaction Documents, all of which shall
      be in
      full force and effect.

     

    (c)    The
      Company shall have delivered a certificate evidencing a number of shares of
      Preferred Stock equal to such Investor’s Purchase Price divided by $12.40,
      registered in the name of such Investor.

     

    (d)    The
      Company shall have delivered a 2006 Series A Warrant registered in the name
      of
      such Investor to purchase shares of Common Stock in an amount equal to the
      product of (I) 223,882 multiplied by (II) a fraction, the numerator of which
      shall be the dollar amount invested by such Investor and the denominator of
      which shall be $3,000,000.

     

    (e)    The
      Company shall have delivered a 2006 Series B Warrant registered in the name
      of
      such Investor to purchase shares of Common Stock in an amount equal to the
      product of (I) 447,764 multiplied by (II) a fraction, the numerator of which
      shall be the dollar amount invested by such Investor and the denominator of
      which shall be $3,000,000.

     

    (f)    The
      Company shall have executed and delivered this Agreement.

     

    (g)   The
      Company shall have executed and delivered the Registration Rights
      Agreement.

     

    (h)    No
      judgment, writ, order, injunction, award or decree of or by any court, or judge,
      justice or magistrate, including any bankruptcy court or judge, or any order
      of
      or by any governmental authority, shall have been issued, and no action or
      proceeding shall have been instituted by any governmental authority, enjoining
      or preventing the consummation of the transactions contemplated hereby or in
      the
      other Transaction Documents.

     

    (i)    The
      Company shall have delivered a Certificate, executed on behalf of the Company
      by
      its Chief Executive Officer or its Chief Financial Officer, dated as of the
      Closing Date, certifying to the fulfillment of the conditions specified in
      subsections (a), (b), (g) and (h) of this Section 6.1.

     

    (j)    The
      Company shall have delivered a Certificate, executed on behalf of the Company
      by
      its Secretary, dated as of the Closing Date, certifying the resolutions adopted
      by the Board of Directors of the Company approving the transactions contemplated
      by this Agreement and the other Transaction Documents and the issuance of the
      Securities, certifying the current versions of the Certificate of Incorporation
      and By-laws of the Company and certifying as to the signatures and authority
      of
      persons signing the Transaction Documents and related documents on behalf of
      the
      Company.

     

    (k)   The
      Investors shall have received an opinion from Thelen
      Reid & Priest LLP,
      the
      Company’s counsel, dated as of the Closing Date, in form and
      substance

     

    
      
        
        

      

      
        -20-

        
          

        

      

      
        
        

      

    

     

    reasonably
      acceptable to the Investors and addressing such legal matters as the Investors
      may reasonably request.

     

    (l)    From
      the
      date hereof to the Closing Date, there shall have been no Material Adverse
      Effect with respect to the Company.

     

    (m)    No
      stop
      order or suspension of trading shall have been imposed by Nasdaq, the SEC or
      any
      other governmental or regulatory body with respect to public trading in the
      Common Stock.

     

    6.2    Conditions
      to Obligations of the Company.
      The
      Company’s obligation to sell and issue the Shares and the Warrants at the
      Closing is subject to the fulfillment to the satisfaction of the Company on
      or
      prior to the Closing Date of the following conditions, any of which may be
      waived by the Company:

     

    (a)    The
      representations and warranties made by the Investors in Section 5 hereof, other
      than the representations and warranties contained in Sections 5.3, 5.4, 5.5,
      5.6, 5.7, 5.8 and 5.9 (the “Investment
      Representations”),
      shall
      be true and correct in all material respects when made, and shall be true and
      correct in all material respects on the Closing Date with the same force and
      effect as if they had been made on and as of said date. The Investment
      Representations shall be true and correct in all respects when made, and shall
      be true and correct in all respects on the Closing Date with the same force
      and
      effect as if they had been made on and as of said date. The Investors shall
      have
      performed in all material respects all obligations and conditions herein
      required to be performed or observed by them on or prior to the Closing
      Date.

     

    (b)    The
      Investors shall have executed and delivered the Registration Rights
      Agreement.

     

    (c)    The
      Investors shall have delivered or caused to be delivered Purchase Prices to
      the
      Escrow Agent in an aggregate amount of not less than the Minimum
      Amount.

     

    6.3    Termination
      of Obligations to Effect Closing; Effects.

     

    (a)    The
      obligations of the Company, on the one hand, and the Investors, on the other
      hand, to effect the Closing shall terminate as follows:

     

    (i)    
Upon
      the
      mutual written consent of the Company and the Investors;

     

    (ii)    By
      the
      Company if any of the conditions set forth in Section 6.2 shall have become
      incapable of fulfillment, and shall not have been waived by the
      Company;

     

    (iii)   By
      an
      Investor (with respect to itself only) if any of the conditions set forth in
      Section 6.1 shall have become incapable of fulfillment, and shall not have
      been
      waived by the Investor; or

     

    
      
        
        

      

      
        -21-

        
          

        

      

      
        
        

      

    

     

    (iv)   By
      either
      the Company or any Investor (with respect to itself only) if the Closing has
      not
      occurred on or prior to February 28, 2006;

     

    provided,
      however, that, except in the case of clause (i) above, the party seeking to
      terminate its obligation to effect the Closing shall not then be in breach
      of
      any of its representations, warranties, covenants or agreements contained in
      this Agreement or the other Transaction Documents if such breach has resulted
      in
      the circumstances giving rise to such party’s seeking to terminate its
      obligation to effect the Closing.

     

    (b)    In
      the
      event of termination by the Company or any Investor of its obligations to effect
      the Closing pursuant to this Section 6.3, written notice thereof shall forthwith
      be given to the other Investors and the other Investors shall have the right
      to
      terminate their obligations to effect the Closing upon written notice to the
      Company and the other Investors. Nothing in this Section 6.3 shall be deemed
      to
      release any party from any liability for any breach by such party of the terms
      and provisions of this Agreement or the other Transaction Documents or to impair
      the right of any party to compel specific performance by any other party of
      its
      obligations under this Agreement or the other Transaction
      Documents.

     

    7.    Covenants
      and Agreements of the Company.

     

    7.1    Reports.
      As long
      as any Investor owns Securities, the Company covenants to timely file (or obtain
      extensions in respect thereof and file within the applicable grace period)
      all
      reports required to be filed by the Company after the date hereof pursuant
      to
      the 1934 Act. As long as any Investor owns Securities, if the Company is not
      required to file reports pursuant to the 1934 Act, it will prepare and furnish
      to the Investors and make publicly available in accordance with Rule 144(c)
      such
      information as is required for the Investors to sell the Securities under Rule
      144. The Company further covenants that it will take such further action as
      any
      holder of Securities may reasonably request, to the extent required from time
      to
      time to enable such Person to sell such Securities without registration under
      the 1933 Act within the requirements of the exemption provided by Rule
      144.

     

    7.2    Non-Public
      Information.
      Except
      with respect to the material terms and conditions of the transactions
      contemplated by the Transaction Documents, the Company covenants and agrees
      that
      neither it nor any other Person acting on its behalf will provide any Investor
      or its agents or counsel with any information that the Company believes
      constitutes material non-public information, unless prior thereto such Investor
      shall have executed a written agreement regarding the confidentiality and use
      of
      such information. The Company understands and confirms that each Investor shall
      be relying on the foregoing representations in effecting transactions in
      securities of the Company.

     

    7.3    No
      Conflicting Agreements.
      The
      Company will not take any action, enter into any agreement or make any
      commitment that would conflict or interfere in any material respect with the
      Company’s obligations to the Investors under the Transaction
      Documents.

     

    7.4    Insurance.
      The
      Company shall not materially reduce the insurance coverages described in Section
      4.19.

     

    
      
        
        

      

      
        -22-

        
          

        

      

      
        
        

      

    

     

    7.5    Acknowledgment
      of Dilution.
      The
      Company acknowledges that the issuance of the Securities may result in dilution
      of the outstanding shares of Common Stock, which dilution may be substantial
      under certain market conditions. The Company further acknowledges that its
      obligations under the Transaction Documents, including without limitation its
      obligation to issue the Conversion Shares and Warrant Shares pursuant to the
      Transaction Documents, are unconditional and absolute and not subject to any
      right of set off, counterclaim, delay or reduction, regardless of the effect
      of
      any such dilution or any claim the Company may have against any Investor and
      regardless of the dilutive effect that such issuance may have on the ownership
      of the other stockholders of the Company.

     

    7.6    Integration.
      The
      Company shall not sell, offer for sale or solicit offers to buy or otherwise
      negotiate in respect of any security (as defined in Section 2 of the 1933 Act)
      that would be integrated with the offer or sale of the Securities in a manner
      that would require the registration under the 1933 Act of the sale of the
      Securities to the Investors or that would be integrated with the offer or sale
      of the Securities for purposes of the rules and regulations of the Trading
      Market.

     

    7.7    Compliance
      with Laws.
      The
      Company will comply in all material respects with all applicable laws, rules,
      regulations, orders and decrees of all governmental authorities.

     

    7.8    Reservation
      and Listing of Underlying Shares and Related Matters.

     

    (a)    The
      Company shall maintain a reserve from its duly authorized shares of Common
      Stock
      for issuance pursuant to the Transaction Documents in such amount as may be
      required to fulfill its obligations in full under the Transaction Documents.
      If,
      on any date, the number of authorized but unissued (and otherwise unreserved)
      shares of Common Stock is less than 90% of the amount that may be required
      to be
      issued to fulfill the Company’s obligations under the Transaction Documents,
      minus the number of shares of Common Stock previously issued pursuant to the
      Transaction Documents, then the Board of Directors of the Company shall use
      commercially reasonable efforts to amend as soon as possible, but in any event
      no later than 75 days from such date, the Company’s certificate or articles of
      incorporation to increase the number of authorized but unissued shares of Common
      Stock to at least the amount that may be required to be issued pursuant to
      the
      Transaction Documents.

     

    (b)    As
      promptly as practicable following the Closing, upon meeting the applicable
      eligibility requirements, the Company shall use its best efforts to cause its
      Common Stock, including the Conversion Shares and the Warrant Shares, to be
      listed on the Nasdaq Capital Market. Further, if the Company applies to have
      its
      Common Stock or other securities traded on any other principal stock exchange
      or
      market, it shall include in such application the Conversion Shares and the
      Warrant Shares and will take such other action as is necessary to cause such
      Common Stock to be so listed. The Company will best efforts to effect and
      continue the listing and trading of its Common Stock on the Nasdaq Capital
      Market or another principal stock exchange or market, and, in accordance,
      therewith, will use best efforts to comply in all respects with the Company’s
      reporting, filing and other obligations under the bylaws or rules of such market
      or exchange, as applicable.

     

    
      
        
        

      

      
        -23-

        
          

        

      

      
        
        

      

    

     

    7.9    Termination
      of Covenants.
      The
      provisions of Sections 7.1 through 7.8 shall terminate and be of no further
      force and effect on the date on which the Company’s obligations under the
      Registration Rights Agreement to register or maintain the effectiveness of
      any
      registration covering the Registrable Securities (as such term is defined in
      the
      Registration Rights Agreement) shall terminate, subject to earlier termination
      in accordance with the terms of the respective Sections.

     

    7.10    Use
      of
      Proceeds.
      The net
      proceeds of the sale of the Securities hereunder shall be used by the Company
      as
      set forth on Schedule 7.10 for working capital and general corporate purposes,
      and not for the satisfaction of any portion of the Company’s debt (other than
      payment of trade payables in the ordinary course of the Company’s business and
      prior practices), to redeem Common Stock or Common Stock Equivalents or to
      settle any outstanding litigation.

     

    7.11    Removal
      of Legends.
      Upon
      the earlier of (i) registration for resale pursuant to the Registration Rights
      Agreement and receipt by the Company of the Investor’s written confirmation that
      such Securities will not be disposed of except in compliance with the prospectus
      delivery requirements of the 1933 Act or (ii) Rule 144(k) becoming available
      the
      Company shall, upon an Investor’s written request, promptly cause certificates
      evidencing the Investor’s Securities to be replaced with certificates which do
      not bear such restrictive legends, and Warrant Shares subsequently issued upon
      due exercise of the Warrants shall not bear such restrictive legends provided
      the provisions of either clause (i) or clause (ii) above, as applicable, are
      satisfied with respect to such Warrant Shares. When the Company is required
      to
      cause unlegended certificates to replace previously issued legended
      certificates, if unlegended certificates are not delivered to an Investor within
      three (3) Business Days of proper submission by that Investor of legended
      certificate(s) to the Company’s transfer agent (together with a representation
      letter and other documentation in customary form in connection with transfers
      other than as part of a sale pursuant to a prospectus under the Registration
      Rights Agreement), the Company shall be liable to the Investor for liquidated
      damages in an amount equal to 1.0% of the aggregate purchase price of the
      Securities evidenced by such certificate(s) for each Business Day beyond such
      three (3) Business Days that the unlegended certificates have not been so
      delivered.

     

    7.12    Participation
      in Future Financing.

     

    (a)    From
      the
      date hereof until the date that is the one year anniversary of the Effective
      Date, upon any issuance by the Company or any of its Subsidiaries of Common
      Stock or Common Stock Equivalents (a “Subsequent
      Financing”),
      each
      Investor shall have the right to participate in a Subsequent Financing up to
      an
      amount of the Subsequent Financing equal to 100% of the Subsequent Financing
      (the “Participation
      Maximum”),
      on
      the same terms, conditions and price provided for in the Subsequent Financing.
      For purposes of this Section 7.12, the Investors shall be Special Situations
      Fund III, QP, L.P., Special Situations Fund III, L.P. and Special Situations
      Private Equity Fund, L.P. (collectively, “SSF”),
      and
      Bonanza Master Fund LTD (“Bonanza”).

     

    (b)    At
      least
      five (5) Trading Days prior to the closing of the Subsequent Financing, the
      Company shall deliver to each Investor a written notice of its intention to
      effect a Subsequent Financing (“Pre-Notice”),
      which
      Pre-Notice shall ask such

     

    
      
        
        

      

      
        -24-

        
          

        

      

      
        
        

      

    

     

    Investor
      if it wants to review the details of such financing (such additional notice,
      a
“Subsequent
      Financing Notice”).
      Upon
      the request of a Investor, and only upon a request by such Investor, for a
      Subsequent Financing Notice, the Company shall promptly, but no later than
      one
      (1) Trading Day after such request, deliver a Subsequent Financing Notice to
      such Investor. The Subsequent Financing Notice shall describe in reasonable
      detail the proposed terms of such Subsequent Financing, the amount of proceeds
      intended to be raised thereunder, the Person or Persons through or with whom
      such Subsequent Financing is proposed to be effected, and attached to which
      shall be a term sheet or similar document relating thereto.

     

    (c)    Any
      Investor desiring to participate in such Subsequent Financing must provide
      written notice to the Company by not later than 5:30 p.m. (New York City time)
      on the fifth (5th)
      Trading
      Day after all of the Investors have received the Pre-Notice that the Investor
      is
      willing to participate in the Subsequent Financing, the amount of the Investor’s
      participation, and that the Investor has such funds ready, willing, and
      available for investment on the terms set forth in the Subsequent Financing
      Notice. If the Company receives no notice from an Investor as of such fifth
      (5th)
      Trading
      Day, such Investor shall be deemed to have notified the Company that it does
      not
      elect to participate. 

     

    (d)    If
      by
      5:30 p.m. (New York City time) on the fifth (5th)
      Trading
      Day after all of the Investors have received the Pre-Notice, notifications
      by
      the Investors of their willingness to participate in the Subsequent Financing
      (or to cause their designees to participate) is, in the aggregate, less than
      the
      total amount of the Subsequent Financing, then the Company may effect the
      remaining portion of such Subsequent Financing on the terms and with the Persons
      set forth in the Subsequent Financing Notice. 

     

    (e)    If
      by
      5:30 p.m. (New York City time) on the fifth (5th)
      Trading
      Day after all of the Investors have received the Pre-Notice, the Company
      receives responses to a Subsequent Financing Notice from Investors seeking
      to
      purchase more than the aggregate amount of the Participation Maximum of the
      Investors, each such Investor shall have the right to purchase the greater
      of
      (i) its Pro Rata Percentage (as set forth below) of such Participation Maximum
      and (ii) the difference between the Participation Maximum and the aggregate
      amount of participation by the other Investor. For purposes of this provision,
      the Pro Rata Percentage for SSF and its respective affiliates is 66 2/3 %,
      and
      the Pro Rata Percentage for Bonanza and its affiliates is 33 1/3 %.

     

    (f)    The
      Company must provide the Investors with a second Subsequent Financing Notice,
      and the Investors will again have the right of participation set forth above
      in
      this Section 7.12, if the Subsequent Financing subject to the initial Subsequent
      Financing Notice is not consummated for any reason on the terms set forth in
      such Subsequent Financing Notice within sixty (60) Trading Days after the date
      of the initial Subsequent Financing Notice. The Company, in its sole discretion,
      may terminate a Subsequent Financing at any time prior to the execution of
      binding agreements without any liability from Investors who gave notice to
      participate therein.

     

    (g)    Notwithstanding
      the foregoing, this Section shall not apply in respect of an Excluded
      Stock.

     

    
      
        
        

      

      
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    7.13    Subsequent
      Equity Sales.

     

    (a)    From
      the
      date hereof until ninety (90) days after the Effective Date, without the consent
      of the Required Investors, neither the Company nor any Subsidiary shall issue
      shares of Common Stock or Common Stock Equivalents; provided,
      however,
      the
      ninety (90) day period set forth in this Section shall be extended for the
      number of Trading Days during such period in which (i) trading in the Common
      Stock is suspended by the Trading Market, or (ii) following the Effective Date,
      the Registration Statement is not effective or the prospectus included in the
      Registration Statement may not be used by the Investors for the resale of the
      Conversion Shares or Warrant Shares. 

     

    (b)    From
      the
      date hereof until such time as no Investor holds any of the Securities, the
      Company shall be prohibited from effecting or entering into an agreement to
      effect any Subsequent Financing involving a “Variable Rate Transaction”. The
      term “Variable
      Rate Transaction”
shall
      mean a transaction in which the Company issues or sells (i) any debt or equity
      securities that are convertible into, exchangeable or exercisable for, or
      include the right to receive additional shares of Common Stock either (A) at
      a
      conversion, exercise or exchange rate or other price that is based upon and/or
      varies with the trading prices of or quotations for the shares of Common Stock
      at any time after the initial issuance of such debt or equity securities, or
      (B)
      with a conversion, exercise or exchange price that is subject to being reset
      at
      some future date after the initial issuance of such debt or equity security
      or
      upon the occurrence of specified or contingent events directly or indirectly
      related to the business of the Company or the market for the Common Stock or
      (ii) enters into any agreement, including, but not limited to, an equity line
      of
      credit, whereby the Company may sell securities at a future determined price.
      

     

    (c)    Notwithstanding
      the foregoing, this Section shall not apply in respect of an Excluded Stock,
      except that no Variable Rate Transaction shall be an Excluded
      Stock.

     

    7.14    Equal
      Treatment of Investors.
      No
      consideration shall be offered or paid to any Person to amend or consent to
      a
      waiver or modification of any provision of any of the Transaction Documents
      unless the same consideration is also offered to all of the parties to the
      Transaction Documents. For clarification purposes, this provision constitutes
      a
      separate right granted to each Investor by the Company and negotiated separately
      by each Investor, and is intended for the Company to treat the Investors as
      a
      class and shall not in any way be construed as the Investors acting in concert
      or as a group with respect to the purchase, disposition or voting of Securities
      or otherwise.

     

    7.15    Short
      Sales and Confidentiality After The Date Hereof.
      Each
      Investor severally and not jointly with the other Investors covenants that
      neither it nor any Affiliate acting on its behalf or pursuant to any
      understanding with it will execute any Short Sales during the period commencing
      at the Discussion Time and ending at the time that the transactions contemplated
      by this Agreement are first publicly announced as described in Section 9.7.
      Each
      Investor, severally and not jointly with the other Investors, covenants that
      until such time as the transactions contemplated by this Agreement are publicly
      disclosed by the Company as described in Section 9.7, such Investor will
      maintain the confidentiality of all disclosures made to it in connection with
      this transaction (including the existence and terms of this
      transaction).

     

    
      
        
        

      

      
        -26-

        
          

        

      

      
        
        

      

    

     

    Each
      Investor understands and acknowledges, severally and not jointly with any other
      Investor, that the Commission currently takes the position that coverage of
      short sales of shares of the Common Stock “against the box” prior to the
      Effective Date of the Registration Statement with the Conversion Shares and
      Warrant Shares is a violation of Section 5 of the 1933 Act, as set forth in
      Item
      65, Section A, of the Manual of Publicly Available Telephone Interpretations,
      dated July 1997, compiled by the Office of Chief Counsel, Division of
      Corporation Finance. Notwithstanding the foregoing, no Investor makes any
      representation, warranty or covenant hereby that it will not engage in Short
      Sales in the securities of the Company after the time that the transactions
      contemplated by this Agreement are first publicly announced as described in
      Section 9.7. Notwithstanding the foregoing, in the case of a Investor that
      is a
      multi-managed investment vehicle whereby separate portfolio managers manage
      separate portions of such Investor's assets and the portfolio managers have
      no
      direct knowledge of the investment decisions made by the portfolio managers
      managing other portions of such Investor's assets, the covenant set forth above
      shall only apply with respect to the portion of assets managed by the portfolio
      manager that made the investment decision to purchase the Securities covered
      by
      this Agreement.

     

    7.16    Capital
      Change.
      Until
      the one year anniversary of the Effective Date, the Company shall not undertake
      a reverse or forward stock split or reclassification of the Common Stock without
      the prior written consent of the Investors holding a majority in interest of
      the
      then outstanding shares of Preferred Stock.

     

    8.    Survival
      and Indemnification.

     

    8.1    Survival.
      The
      representations, warranties, covenants and agreements contained in this
      Agreement shall survive the Closing of the transactions contemplated by this
      Agreement; provided, however, that the representations and warranties contained
      in this Agreement shall expire eighteen (18) months after the
      Closing.

     

    8.2    Indemnification.
      Subject
      to the provisions of Section 8.1, the Company agrees to indemnify and hold
      harmless each Investor and its Affiliates and their respective directors,
      officers, employees and agents from and against any and all losses, claims,
      damages, liabilities and expenses (including without limitation reasonable
      attorney fees and disbursements and other expenses incurred in connection with
      investigating, preparing or defending any action, claim or proceeding, pending
      or threatened and the costs of enforcement thereof) (collectively, “Losses”)
      to
      which such Person may become subject as a result of any breach of
      representation, warranty, covenant or agreement made by or to be performed
      on
      the part of the Company under the Transaction Documents, and will reimburse
      any
      such Person for all such amounts as they are incurred by such
      Person.

     

    8.3    Conduct
      of Indemnification Proceedings.
      Promptly
      after receipt by any Person (the “Indemnified
      Person”)
      of
      notice of any demand, claim or circumstances which would or might give rise
      to a
      claim or the commencement of any action, proceeding or investigation in respect
      of which indemnity may be sought pursuant to Section 8.2, such Indemnified
      Person shall promptly notify the Company in writing and the Company shall assume
      the defense thereof, including the employment of counsel reasonably satisfactory
      to such Indemnified Person, and shall assume the payment of all fees and
      expenses; provided,
      however,

     

    
      
        
        

      

      
        -27-

        
          

        

      

      
        
        

      

    

     

    that
      the
      failure of any Indemnified Person so to notify the Company shall not relieve
      the
      Company of its obligations hereunder except to the extent that the Company
      is
      materially prejudiced by such failure to notify. In any such proceeding, any
      Indemnified Person shall have the right to retain its own counsel, but the
      fees
      and expenses of such counsel shall be at the expense of such Indemnified Person
      unless: (i) the Company and the Indemnified Person shall have mutually agreed
      to
      the retention of such counsel; or (ii) in the reasonable judgment of counsel
      to
      such Indemnified Person representation of both parties by the same counsel
      would
      be inappropriate due to actual or potential differing interests between them.
      The Company shall not be liable for any settlement of any proceeding effected
      without its written consent, which consent shall not be unreasonably withheld,
      but if settled with such consent, or if there be a final judgment for the
      plaintiff, the Company shall indemnify and hold harmless such Indemnified Person
      from and against any loss or liability (to the extent stated above) by reason
      of
      such settlement or judgment. Without the prior written consent of the
      Indemnified Person, which consent shall not be unreasonably withheld, the
      Company shall not effect any settlement of any pending or threatened proceeding
      in respect of which any Indemnified Person is or could have been a party and
      indemnity could have been sought hereunder by such Indemnified Party, unless
      such settlement includes an unconditional release of such Indemnified Person
      from all liability arising out of such proceeding.

     

    9.    Miscellaneous.

     

    9.1    Successors
      and Assigns.
      This
      Agreement may not be assigned by a party hereto without the prior written
      consent of the Company or the Investors, as applicable, provided, however,
      that
      an Investor may assign its rights and delegate its duties hereunder in whole
      or
      in part to an Affiliate or to a third party acquiring some or all of its
      Securities in a private transaction without the prior written consent of the
      Company or the other Investors, after notice duly given by such Investor to
      the
      Company provided, that no such assignment or obligation shall affect the
      obligations of such Investor hereunder. The provisions of this Agreement shall
      inure to the benefit of and be binding upon the respective permitted successors
      and assigns of the parties. Nothing in this Agreement, express or implied,
      is
      intended to confer upon any party other than the parties hereto or their
      respective successors and assigns any rights, remedies, obligations, or
      liabilities under or by reason of this Agreement, except as expressly provided
      in this Agreement.

     

    9.2    Counterparts;
      Faxes.
      This
      Agreement may be executed in two or more counterparts, each of which shall
      be
      deemed an original, but all of which together shall constitute one and the
      same
      instrument. This Agreement may also be executed via facsimile, which shall
      be
      deemed an original.

     

    9.3    Titles
      and Subtitles.
      The
      titles and subtitles used in this Agreement are used for convenience only and
      are not to be considered in construing or interpreting this
      Agreement.

     

    9.4    Notices.
      Unless
      otherwise provided, any notice required or permitted under this Agreement shall
      be given in writing and shall be deemed effectively given as hereinafter
      described (i) if given by personal delivery, then such notice shall be deemed
      given 

     

    
      
        
        

      

      
        -28-

        
          

        

      

      
        
        

      

    

     

    upon
      such
      delivery, (ii) if given by telex or telecopier, then such notice shall be deemed
      given upon receipt of confirmation of complete transmittal, (iii) if given
      by
      mail, then such notice shall be deemed given upon the earlier of (A) receipt
      of
      such notice by the recipient or (B) three days after such notice is deposited
      in
      first class mail, postage prepaid, and (iv) if given by an internationally
      recognized overnight air courier, then such notice shall be deemed given one
      Business Day after delivery to such carrier. All notices shall be addressed
      to
      the party to be notified at the address as follows, or at such other address
      as
      such party may designate by ten days’ advance written notice to the other
      party:

     

    If
      to the
      Company:

     

    Caprius,
      Inc.

    One
      University Plaza

    Hackensack,
      NJ 07601

    Attention:
      George Aaron, President

    Fax:
      (201) 342-0991

     

    With
      a
      copy to:

     

    Thelen
      Reid & Priest LLP

    875
      Third
      Avenue

    New
      York,
      NY 10022

    Attention:
      Bruce A. Rich, Esq.

    Fax:
      (212) 603-2001

     

    If
      to the
      Investors:

     

    to
      the
      addresses set forth on the signature pages hereto.

     

    9.5    Expenses.
      The
      parties hereto shall pay their own costs and expenses in connection herewith,
      except the Company shall pay the reasonable fees and expenses of Carter
      Securities, LLC equal to two (2%) percent of the aggregate Purchase Price,
      but
      not to exceed $35,000. The Company shall reimburse the Investors for all
      reasonable out-of-pocket expenses incurred by the Investors, including without
      limitation reimbursement of attorneys’ fees and disbursements, in connection
      with the preparation of the Transaction Documents, but not to exceed $5,000,
      to
      be paid by Carter Securities, LLC, any amendment, modification or waiver of
      this
      Agreement or the other Transaction Documents upon demand accompanied by
      documentation of such expenses. In the event that legal proceedings are
      commenced by any party to this Agreement against another party to this Agreement
      in connection with this Agreement or the other Transaction Documents, the party
      or parties which do not prevail in such proceedings shall severally, but not
      jointly, pay their pro rata share of the reasonable attorneys’ fees and other
      reasonable out-of-pocket costs and expenses incurred by the prevailing party
      in
      such proceedings. 

     

    9.6    Amendments
      and Waivers.
      Any
      term of this Agreement may be amended and the observance of any term of this
      Agreement may be waived (either generally or in a particular instance and either
      retroactively or prospectively), only with the written consent of the Company
      and the Investors who purchased at least 66% of the Securities. Any amendment
      or
      waiver effected in accordance with this section shall be binding upon each
      holder of any

     

    
      
        
        

      

      
        -29-

        
          

        

      

      
        
        

      

    

     

    Securities
      purchased under this Agreement at the time outstanding, each future holder
      of
      all such Securities, and the Company.

     

    9.7    Publicity.
      The
      Company shall, by 8:30 a.m. New York City time on the Trading Day immediately
      following the date hereof, issue a Current Report on Form 8-K, disclosing the
      material terms of the transactions contemplated hereby, and shall attach the
      Transaction Documents thereto. The Company and each Investor who purchased
      at
      least $1,000,000 of Securities hereunder (a “Principal
      Investor”)
      shall
      consult with each other in issuing any other press releases with respect to
      the
      transactions contemplated hereby, and neither the Company nor any Principal
      Investor shall issue any such press release or otherwise make any such public
      statement without the prior consent of the Company, with respect to any press
      release of any Investor, or without the prior consent of each Principal
      Investor, with respect to any press release of the Company, which consent shall
      not unreasonably be withheld or delayed, except if such disclosure is required
      by law, in which case the disclosing party shall promptly provide the other
      party with prior notice of such public statement or communication.
      Notwithstanding the foregoing, the Company shall not publicly disclose the
      name
      of any Investor, or include the name of any Investor in any filing with the
      SEC
      or any regulatory agency or the Trading Market, without the prior written
      consent of such Investor, except (i) as required by federal securities law
      in
      connection with (A) any Registration Statement contemplated by the Registration
      Rights Agreement and (B) the filing of final Transaction Documents (including
      signature pages thereto) with the SEC and (ii) to the extent such disclosure
      is
      required by law or regulations of the Trading Market, in which case the Company
      shall provide the Investors with prior notice of such disclosure permitted
      under
      this subclause (ii).

     

    9.8    Severability.
      Any
      provision of this Agreement that is prohibited or unenforceable in any
      jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
      such prohibition or unenforceability without invalidating the remaining
      provisions hereof but shall be interpreted as if it were written so as to be
      enforceable to the maximum extent permitted by applicable law, and any such
      prohibition or unenforceability in any jurisdiction shall not invalidate or
      render unenforceable such provision in any other jurisdiction. To the extent
      permitted by applicable law, the parties hereby waive any provision of law
      which
      renders any provision hereof prohibited or unenforceable in any
      respect.

     

    9.9    Entire
      Agreement.
      This
      Agreement, including the Exhibits and the Disclosure Schedules, and the other
      Transaction Documents constitute the entire agreement among the parties hereof
      with respect to the subject matter hereof and thereof and supersede all prior
      agreements and understandings, both oral and written, between the parties with
      respect to the subject matter hereof and thereof, other than any written
      confidentiality agreement between the Company and an Investor, which shall
      continue in full force and effect.

     

    9.10    Further
      Assurances.
      The
      parties shall execute and deliver all such further instruments and documents
      and
      take all such other actions as may reasonably be required to carry out the
      transactions contemplated hereby and to evidence the fulfillment of the
      agreements herein contained.

     

    9.11    Governing
      Law; Consent to Jurisdiction; Waiver of Jury Trial.
      This
      Agreement shall be governed by, and construed in accordance with, the internal
      laws of the State

     

    
      
        
        

      

      
        -30-

        
          

        

      

      
        
        

      

    

     

    of
      New
      York without regard to the choice of law principles thereof. Each of the parties
      hereto irrevocably submits to the exclusive jurisdiction of the courts of the
      State of New York located in New York County and the United States District
      Court for the Southern District of New York for the purpose of any suit, action,
      proceeding or judgment relating to or arising out of this Agreement and the
      transactions contemplated hereby. Service of process in connection with any
      such
      suit, action or proceeding may be served on each party hereto anywhere in the
      world by the same methods as are specified for the giving of notices under
      this
      Agreement. Each of the parties hereto irrevocably consents to the jurisdiction
      of any such court in any such suit, action or proceeding and to the laying
      of
      venue in such court. Each party hereto irrevocably waives any objection to
      the
      laying of venue of any such suit, action or proceeding brought in such courts
      and irrevocably waives any claim that any such suit, action or proceeding
      brought in any such court has been brought in an inconvenient forum.
      EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
      LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN
      CONSULTED SPECIFICALLY AS TO THIS WAIVER.

     

    9.12    Independent
      Nature of Investors’ Obligations and Rights.
      The
      obligations of each Investor under any Transaction Document are several and
      not
      joint with the obligations of any other Investor, and no Investor shall be
      responsible in any way for the performance of the obligations of any other
      Investor under any Transaction Document. The decision of each Investor to
      purchase Securities pursuant to the Transaction Documents has been made by
      such
      Investor independently of any other Investor. Nothing contained herein or in
      any
      Transaction Document, and no action taken by any Investor pursuant thereto,
      shall be deemed to constitute the Investors as a partnership, an association,
      a
      joint venture or any other kind of entity, or create a presumption that the
      Investors are in any way acting in concert or as a group with respect to such
      obligations or the transactions contemplated by the Transaction Documents.
      Each
      Investor acknowledges that no other Investor has acted as agent for such
      Investor in connection with making its investment hereunder and that no Investor
      will be acting as agent of such Investor in connection with monitoring its
      investment in the Securities or enforcing its rights under the Transaction
      Documents. Each Investor shall be entitled to independently protect and enforce
      its rights, including, without limitation, the rights arising out of this
      Agreement or out of the other Transaction Documents, and it shall not be
      necessary for any other Investor to be joined as an additional party in any
      proceeding for such purpose. The Company acknowledges that each of the Investors
      has been provided with the same Transaction Documents for the purpose of closing
      a transaction with multiple Investors and not because it was required or
      requested to do so by any Investor.

     

    [signature
      page follows]

     

    
      
        
        

      

      
        -31-

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties have executed this Agreement or caused their duly
      authorized officers to execute this Agreement as of the date first above
      written.

     

    
      
        
          	
                  The
                    Company:

                   

                	
                  CAPRIUS,
                    INC.

                   

                
	 	
                  By:

                	 /s/
                  George Aaron
	 	
                  Name:
                    George Aaron

                
	 	
                  Title:  
                    President and Chief Executive
                    Officer

                

        

      

    

     

    
      
        
        

      

      
        -32-

        
          

        

      

      
        
        

      

    

    INVESTOR
      SIGNATURE PAGE TO

    CAPRIUS,
      INC. PURCHASE AGREEMENT

     

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

    

      Name
        of
        Investor: ____________________________________________________
         

        Signature
          of Authorized Signatory of Investor:
          ______________________________

         

        Name
          of
          Authorized Signatory: __________________________________________

         

        Title
          of
          Authorized Signatory: ___________________________________________

         

        Email
          Address of Investor: _____________________________________________

         

      

    

    

       

    

    Address
      for Notice of Investor:

    

     

    Address
      for Delivery of Securities for Investor (if not same as above):

     

    

    Subscription
      Amount: $________________

     

    Shares:
      ____________________________

     

    Series
      A
      Warrants: ___________________

     

    Series
      B
      Warrants: ___________________

     

     

    SS
      or EIN
      Number: [PROVIDE
      THIS UNDER SEPARATE COVER]

     

    
      
        
        

      

      
        -33-Unassociated Document

    EXHIBIT
      10.2

     

    REGISTRATION
      RIGHTS AGREEMENT

     

    This
      Registration Rights Agreement (the “Agreement”)
      is
      made and entered into as of this ___ day of February, 2006 by and among Caprius,
      Inc., a Delaware corporation (the “Company”), Carter Securities, LLC, a New York
      limited liability company (the “Placement
      Agent”)
      and
      the “Investors”
named
      in that certain Purchase Agreement by and among the Company and the Investors
      (the “Purchase
      Agreement”).

     

    The
      parties hereby agree as follows:

     

    1.  Certain
      Definitions.

     

    As
      used
      in this Agreement, the following terms shall have the following
      meanings:

     

    “Affiliate”
means,
      with respect to any person, any other person which directly or indirectly
      controls, is controlled by, or is under common control with, such
      person.

     

    “Business
      Day”
means
      a
      day, other than a Saturday or Sunday, on which banks in New York City are open
      for the general transaction of business.

     

    “Common
      Stock”
shall
      mean the Company’s common stock, par value $0.01 per share, and any securities
      into which such shares may hereinafter be reclassified.

     

    “Conversion
      Shares”
means
      the shares of Common Stock issuable upon conversion of the Shares.

     

    “Investors”
shall
      mean the Investors identified in the Purchase Agreement and any Affiliate or
      permitted transferee of any Investor who is a subsequent holder of any Warrants
      or Registrable Securities.

     

    “Placement
      Agent Warrants”
shall
      mean the Warrants issued to the Placement Agent and its permitted
      transferees.

     

    “Placement
      Agent Warrant Shares”
shall
      mean the shares of Common Stock issuable upon exercise of the Warrants issued
      to
      the Placement Agent and its permitted transferees.

     

    “Prospectus”
shall
      mean the prospectus included in any Registration Statement, as amended or
      supplemented by any prospectus supplement, with respect to the terms of the
      offering of any portion of the Registrable Securities covered by such
      Registration Statement and by all other amendments and supplements to the
      prospectus, including post-effective amendments and all material incorporated
      by
      reference in such prospectus.

     

    “Register,”
      “registered”
and
      “registration”
refer
      to a registration made by preparing and filing a Registration Statement or
      similar document in compliance with the 1933 Act (as defined below), and the
      declaration or ordering of effectiveness of such Registration Statement or
      document.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    “Registrable
      Securities”
shall
      mean (i) the Conversion Shares, (ii) the Warrant Shares, (iii) the Placement
      Agent Warrant Shares and (iv) any other securities issued or issuable with
      respect to or in exchange for Registrable Securities; provided, that, a security
      shall cease to be a Registrable Security upon (A) sale pursuant to a
      Registration Statement or Rule 144 under the 1933 Act, or (B) such security
      becoming eligible for sale by the Investors pursuant to Rule
      144(k).

     

    “Registration
      Statement”
shall
      mean any registration statement of the Company filed under the 1933 Act that
      covers the resale of any of the Registrable Securities pursuant to the
      provisions of this Agreement, amendments and supplements to such Registration
      Statement, including post-effective amendments, all exhibits and all material
      incorporated by reference in such Registration Statement.

     

    “Required
      Investors”
means
      the Investors holding at least sixty-six percent (66%) of the Registrable
      Securities at the time of the action taken by the Required
      Investors.

     

    “SEC”
means
      the U.S. Securities and Exchange Commission.

     

    “Shares”
means
      the shares of Preferred Stock issued pursuant to the Purchase
      Agreement.

     

    “1933
      Act”
means
      the Securities Act of 1933, as amended, and the rules and regulations
      promulgated thereunder.

     

    “1934
      Act”
means
      the Securities Exchange Act of 1934, as amended, and the rules and regulations
      promulgated thereunder.

     

    “Warrants”
means
      the 2006 Series A Warrants and 2006 Series B Warrants to purchase shares of
      Common Stock issued to the Investors pursuant to the Purchase Agreement, the
      form of which are attached to the Purchase Agreement as Exhibits B and C,
      respectively, and the Placement Agent Warrants, the form of which are attached
      to the Placement Agent Agreement between the Company and the Placement Agent
      dated as of the date hereof.

     

    “Warrant
      Shares”
means
      the shares of Common Stock issuable upon the exercise of the
      Warrants.

     

    2.  Registration.

     

    (a)  Registration
      Statements.

     

    (i)  Promptly
      following the closing of the purchase and sale of the securities contemplated
      by
      the Purchase Agreement (the “Closing
      Date”)
      but no
      later than forty-five (45) days after the Closing Date (the “Filing
      Deadline”),
      the
      Company shall prepare and file with the SEC one Registration Statement on Form
      SB-2 (or, if Form SB-2 is not then available to the Company, on such form of
      registration statement as is then available to effect a registration for resale
      of the Registrable Securities), covering the resale of one hundred and ten
      (110%) percent of the resale of the Registrable Securities. Such Registration
      Statement shall include the plan of distribution attached hereto as Exhibit
      A.
      Such
      Registration Statement also shall cover, to the extent allowable under the
      1933
      Act and the rules promulgated thereunder (including Rule 

     

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

     

    416),
      such indeterminate number of additional shares of Common Stock resulting from
      stock splits, stock dividends or similar transactions with respect to the
      Registrable Securities. The Company shall use its reasonable best efforts to
      obtain from each person who now has piggyback registration rights a waiver
      of
      those rights with respect to the Registration Statement except such persons
      who
      currently own shares of Common Stock covered by an effective registration
      statement under the 1933 Act. The Registration Statement (and each amendment
      or
      supplement thereto, and each request for acceleration of effectiveness thereof)
      shall be provided in accordance with Section 3(c) to the Investors and their
      counsel prior to its filing or other submission. If a Registration Statement
      covering the Registrable Securities is not filed with the SEC on or prior to
      the
      Filing Deadline, the Company will make payments to each Investor, as liquidated
      damages and not as a penalty, in an amount equal to 1.5% of the aggregate amount
      invested by such Investor for each 30-day period or pro rata for any portion
      thereof following the Filing Deadline for which no Registration Statement is
      filed with respect to the Registrable Securities. Such payments shall be in
      partial compensation to the Investors, and shall not constitute the Investors’
exclusive remedy for such events. Such payments shall be made to each Investor
      in cash and shall be paid monthly within three (3) Business Days after the
      last
      day of each month following the Filing Deadline. 

     

    (ii)  Additional
      Registrable Securities.
      If at
      any time during the effectiveness of the Registration Statement, the number
      of
      Registrable Securities exceeds 90% of the number of shares of Common Stock
      then
      registered in the Registration Statement, the Company shall prepare and file
      with the SEC one or more Registration Statements on Form SB-2 (or, if Form
      SB-2
      is not then available to the Company, on such form of registration statement
      as
      is then available or, if permissible, amend the Registration Statement filed
      pursuant to clause (i) above to effect a registration for resale of such
      additional shares of Common Stock (the “Additional
      Shares”),
      subject to the Required Investors’ consent) covering the resale of one hundred
      and ten (110%) percent of the Additional Shares, but only to the extent the
      Additional Shares are not at the time covered by an effective Registration
      Statement. Such Registration Statement also shall cover, to the extent allowable
      under the 1933 Act and the rules promulgated thereunder (including Rule 416),
      such indeterminate number of additional shares of Common Stock resulting from
      stock splits, stock dividends or similar transactions with respect to the
      Additional Shares. The Company shall use its reasonable best efforts to obtain
      from each person who now has piggyback registration rights a waiver of those
      rights with respect to such Registration Statement. The Registration Statement
      (and each amendment or supplement thereto, and each request for acceleration
      of
      effectiveness thereof) shall be provided in accordance with Section 3(c) to
      the
      Investors and their counsel prior to its filing or other submission. If a
      Registration Statement covering the Additional Shares is required to be filed
      under this Section 2(a)(ii) and is not filed with the SEC within forty-five
      (45)
      Business Days of the request of any Investor or upon the occurrence of any
      of
      the events specified in this Section 2(a)(ii) (the “Additional
      Shares Filing Deadline”),
      the
      Company will make pro rata payments to each Investor, as liquidated damages
      and
      not as a penalty, in an amount equal to 1.5% of the aggregate amount invested
      by
      such Investor with respect to the Additional Shares for each 30-day period
      or
      pro rata for any portion thereof following the date by which such Registration
      Statement should have been filed for which no Registration Statement is filed
      with respect to the Additional Shares. Such payments shall be in partial
      compensation to the Investors, and shall not constitute the Investors’ exclusive
      remedy for such events. Such payments shall be made to

     

    
      
         

      

      
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     each
      Investor in cash and shall be paid monthly within three (3) Business Days after
      the last day of each month following the Additional Shares Filing
      Deadline.

     

    (iii)  S-3
      Qualification.
      If the
      Company is not eligible to use a registration statement on Form S-3 as provided
      in Sections 2(a)(i) and 2(a)(ii) above, then, promptly following the date (the
      “Qualification
      Date”)
      upon
      which the Company becomes eligible to use a registration statement on Form
      S-3
      to register the Registrable Securities or Additional Shares, as applicable,
      for
      resale, but in no event more than ten (10) Business Days after the Qualification
      Date, the Company shall use its best efforts to file a registration statement
      on
      Form S-3 covering the Registrable Securities or Additional Shares, as applicable
      (or a post-effective amendment on Form S-3 to the registration statement on
      Form
      S-1) (a “Shelf
      Registration Statement”)
      and
      shall use commercially reasonable efforts to cause such Shelf Registration
      Statement to be declared effective as promptly as practicable thereafter.

     

    (b)  Expenses.
      The
      Company will pay all expenses associated with each registration, including
      filing and printing fees, the Company’s counsel and accounting fees and
      expenses, costs associated with clearing the Registrable Securities for sale
      under applicable state securities laws, listing fees, fees and expenses of
      one
      counsel to the Investors and the Investors’ reasonable expenses in connection
      with the registration, but excluding discounts, commissions, fees of
      underwriters, selling brokers, dealer managers or similar securities industry
      professionals with respect to the Registrable Securities being
      sold.

     

    (c)  Effectiveness.

     

    (i)  The
      Company shall use commercially reasonable efforts to have the Registration
      Statement declared effective as soon as practicable. The Company shall notify
      the Investors by facsimile or e-mail as promptly as practicable, and in any
      event, within twenty-four (24) hours, after any Registration Statement is
      declared effective and shall simultaneously provide the Investors with copies
      of
      any related Prospectus to be used in connection with the sale or other
      disposition of the securities covered thereby. If (A)(x) a Registration
      Statement covering the Registrable Securities is not declared effective by
      the
      SEC prior to the earlier of (i) the 90th day after the Closing Date if the
      SEC
      shall have informed the Company that no review of the Registration Statement
      will be made or (ii) the 120th
      day
      after the Closing Date in the event the SEC has reviewed the Registration
      Statement, (y) a Registration Statement covering Additional Shares is not
      declared effective by the SEC within 90 days following the time such
      Registration Statement was required to be filed pursuant to Section 2(a)(ii),
      or
      (B)
      after a Registration Statement has been declared effective by the SEC, sales
      cannot be made pursuant to such Registration Statement for any reason (including
      without limitation by reason of a stop order, or the Company’s failure to update
      the Registration Statement), but excluding the inability of any Investor to
      sell
      the Registrable Securities covered thereby due to market conditions and except
      as excused pursuant to subparagraph (ii) below, then
      the
      Company will make pro rata payments to each Investor, as liquidated damages
      and
      not as a penalty, in an amount equal to 1.5% of the aggregate amount invested
      by
      such Investor for each 30- day period or pro rata for any portion thereof
      following the date by which such Registration Statement should have been
      effective (the “Blackout
      Period”).
      Such
      payments shall be in partial compensation to the Investors, and shall not
      constitute the Investors’ exclusive remedy for such events. The amounts payable
      as liquidated damages pursuant to this paragraph shall be paid monthly within
      three (3)

     

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

     

     Business
      Days of the last day of each month following the commencement of the Blackout
      Period until the termination of the Blackout Period. Such payments shall be
      made
      to each Investor in cash.

     

    (ii)  For
      not
      more than fifteen (15) consecutive Business Days or for a total of not more
      than
      twenty-five (25) Business Days in any twelve (12) month period, the Company
      may
      delay the disclosure of material non-public information concerning the Company,
      by suspending the use of any Prospectus included in any registration
      contemplated by this Section containing such information, the disclosure of
      which at the time is not, in the good faith opinion of the Company, in the
      best
      interests of the Company (an “Allowed
      Delay”);
      provided, that the Company shall promptly (a) notify the Investors in writing
      of
      the existence of (but in no event, without the prior written consent of an
      Investor, shall the Company disclose to such Investor any of the facts or
      circumstances regarding) material non-public information giving rise to an
      Allowed Delay, (b) advise the Investors in writing to cease all sales under
      the
      Registration Statement until the end of the Allowed Delay and (c) use
      commercially reasonable efforts to terminate an Allowed Delay as promptly as
      practicable. If the Allowed Delay exceeds fifteen (15) consecutive Business
      Days
      or a total of twenty-five (25) Business Days in any twelve month period, the
      Company will make pro-rata payments to each Investor, as liquidated damages
      and
      not as a penalty, in an amount equal to 1.5% of the aggregate amount invested
      by
      such Investor in the Registrable Securities then owned by such Investor for
      each
      30-day period or pro-rata portion thereof following the date on which such
      permitted Allowed Delay is exceeded.

     

    3.  Company
      Obligations.
      The
      Company will use commercially reasonable efforts to effect the registration
      of
      the Registrable Securities in accordance with the terms hereof, and pursuant
      thereto the Company will, as expeditiously as possible:

     

    (a)  use
      commercially reasonable efforts to cause such Registration Statement to become
      effective and to remain continuously effective for a period that will terminate
      upon the earlier of (i) the date on which all Registrable Securities covered
      by
      such Registration Statement as amended from time to time, have been sold, and
      (ii) the date on which all Registrable Securities covered by such Registration
      Statement may be sold pursuant to Rule 144(k) (the “Effectiveness
      Period”)
      and
      advise the Investors in writing when the Effectiveness Period has
      expired;

     

    (b)  prepare
      and file with the SEC such amendments and post-effective amendments to the
      Registration Statement and the Prospectus as may be necessary to keep the
      Registration Statement effective for the period specified in Section 3(a) and
      to
      comply with the provisions of the 1933 Act and the 1934 Act with respect to
      the
      distribution of all of the Registrable Securities covered thereby;

     

    (c)  provide
      copies to and permit counsel designated by the Investors to review each
      Registration Statement and all amendments and supplements thereto no fewer
      than
      three (3) Business Days prior to their filing with the SEC and not file any
      document to which such counsel reasonably objects;

     

    (d)  furnish
      to the Investors and their legal counsel (i) promptly after the same is prepared
      and publicly distributed, filed with the SEC, or received by the Company (but
      not 

     

    
      
         

      

      
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    later
      than two (2) Business Days after the filing date, receipt date or sending date,
      as the case may be) one (1) copy of any Registration Statement and any amendment
      thereto, each preliminary prospectus and Prospectus and each amendment or
      supplement thereto, and each letter written by or on behalf of the Company
      to
      the SEC or the staff of the SEC, and each item of correspondence from the SEC
      or
      the staff of the SEC, in each case relating to such Registration Statement
      (other than any portion of any thereof which contains information for which
      the
      Company has sought confidential treatment), and (ii) such number of copies
      of a
      Prospectus, including a preliminary prospectus, and all amendments and
      supplements thereto and such other documents as each Investor may reasonably
      request in order to facilitate the disposition of the Registrable Securities
      owned by such Investor that are covered by the related Registration
      Statement;

     

    (e)  use
      commercially reasonable efforts to (i) prevent the issuance of any stop order
      or
      other suspension of effectiveness and, (ii) if such order is issued, obtain
      the
      withdrawal of any such order at the earliest possible moment;

     

    (f)  prior
      to
      any public offering of Registrable Securities, use commercially reasonable
      efforts to register or qualify or cooperate with the Investors and their counsel
      in connection with the registration or qualification of such Registrable
      Securities for offer and sale under the securities or blue sky laws of such
      jurisdictions requested by the Investors and do any and all other commercially
      reasonable acts or things necessary or advisable to enable the distribution
      in
      such jurisdictions of the Registrable Securities covered by the Registration
      Statement;
      provided, however, that the Company shall not be required in connection
      therewith or as a condition thereto to (i) qualify to do business in any
      jurisdiction where it would not otherwise be required to qualify but for this
      Section 3(f), (ii) subject itself to general taxation in any jurisdiction where
      it would not otherwise be so subject but for this Section 3(f), or (iii) file
      a
      general consent to service of process in any such jurisdiction;

     

    (g)  use
      commercially reasonable efforts to cause all Registrable Securities covered
      by a
      Registration Statement to be listed on each securities exchange, interdealer
      quotation system or other market on which similar securities issued by the
      Company are then listed;

     

    (h)  immediately
      notify the Investors, at any time when a Prospectus relating to Registrable
      Securities is required to be delivered under the 1933 Act, upon discovery that,
      or upon the happening of any event as a result of which, the Prospectus included
      in a Registration Statement, as then in effect, includes an untrue statement
      of
      a material fact or omits to state any material fact required to be stated
      therein or necessary to make the statements therein not misleading in light
      of
      the circumstances then existing, and at the request of any such holder,
      promptly, and in any event within two (2) Business Days following such
      notification, prepare and furnish to such holder a reasonable number of copies
      of a supplement to or an amendment of such Prospectus as may be necessary so
      that, as thereafter delivered to the purchasers of such Registrable Securities,
      such Prospectus shall not include an untrue statement of a material fact or
      omit
      to state a material fact required to be stated therein or necessary to make
      the
      statements therein not misleading in light of the circumstances then existing;
      and

     

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

     

    (i)  otherwise
      use commercially reasonable efforts to comply with all applicable rules and
      regulations of the SEC under the 1933 Act and the 1934 Act, take such other
      actions as may be reasonably necessary to facilitate the registration of the
      Registrable Securities hereunder; and make available to its security holders,
      as
      soon as reasonably practicable, but not later than the Availability Date (as
      defined below), an earnings statement covering a period of at least twelve
      (12)
      months, beginning after the effective date of each Registration Statement,
      which
      earnings statement shall satisfy the provisions of Section 11(a) of the 1933
      Act, including Rule 158 promulgated thereunder (for the purpose of this
      subsection 3(i), “Availability
      Date”
means
      the 45th day following the end of the fourth fiscal quarter that includes the
      effective date of such Registration Statement, except that, if such fourth
      fiscal quarter is the last quarter of the Company’s fiscal year, “Availability
      Date” means the 90th day after the end of such fourth fiscal
      quarter).

     

    (j)  With
      a
      view to making available to the Investors the benefits of Rule 144 (or its
      successor rule) and any other rule or regulation of the SEC that may at any
      time
      permit the Investors to sell shares of Common Stock to the public without
      registration, the Company covenants and agrees to: (i) make and keep public
      information available, as those terms are understood and defined in Rule 144,
      until the earlier of (A) three months after such date as all of the Registrable
      Securities may be resold pursuant to Rule 144(k) or any other rule of similar
      effect or (B) such date as all of the Registrable Securities shall have been
      resold; (ii) file with the SEC in a timely manner all reports and other
      documents required of the Company under the 1934 Act; and (iii) furnish to
      each
      Investor upon request, as long as such Investor owns any Registrable Securities,
      (A) a written statement by the Company that it has complied with the reporting
      requirements of the 1934 Act, (B) a copy of the Company’s most recent Annual
      Report on Form 10-KSB or Quarterly Report on Form 10-QSB, and (C) such other
      information as may be reasonably requested in order to avail such Investor
      of
      any rule or regulation of the SEC that permits the selling of any such
      Registrable Securities without registration.

     

    4.  Due
      Diligence Review; Information.
      

     

    (a)  Availability.
      The
      Company shall make available, during normal business hours, for
      inspection
      and
      review by the Investors, advisors to and representatives of the Investors (who
      may or may not be affiliated with the Investors and who are reasonably
      acceptable to the Company), all financial and other records, all SEC Filings
      (as
      defined in the Purchase Agreement) and other filings with the SEC, and all
      other
      corporate documents and properties of the Company as may be reasonably necessary
      for the purpose of such review, and cause the Company’s officers, directors and
      employees, within a reasonable time period, to supply all such information
      reasonably requested by the Investors or any such representative, advisor or
      underwriter in connection with such Registration Statement (including, without
      limitation, in response to all questions and other inquiries reasonably made
      or
      submitted by any of them), prior to and from time to time after the filing
      and
      effectiveness of the Registration Statement for the sole purpose of enabling
      the
      Investors and such representatives, advisors and underwriters and their
      respective accountants and attorneys to conduct initial and ongoing due
      diligence with respect to the Company and the accuracy of such Registration
      Statement.

     

    (b)  Nonpublic
      Information.
      The
      Company shall not disclose material nonpublic information to the Investors,
      or
      to advisors to or representatives of the Investors,

     

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

     

     unless
      prior to disclosure of such information the Company identifies such information
      as being material nonpublic information and provides the Investors, such
      advisors and representatives with the opportunity to accept or refuse to accept
      such material nonpublic information for review and any Investor wishing to
      obtain such information enters into an appropriate confidentiality agreement
      with the Company with respect thereto.

     

    5.  Obligations
      of the Investors.

     

    (a)  Investor
      Information.
      Each
      Investor shall furnish in writing to the Company such information regarding
      itself, the Registrable Securities held by it, the intended method of
      disposition of the Registrable Securities held by it and its beneficial
      ownership of the Company’s securities, including who has the right to vote or
      dispose of such securities on behalf of such Investor, as shall be reasonably
      required to effect the registration of such Registrable Securities and shall
      execute and deliver such documents in connection with such registration as
      the
      Company may reasonably request, including furnishing a Selling Stockholder
      Questionnaire not less than seven (7) Business Days prior to first anticipated
      filing date of any Registration Statement. At least five (5) Business Days
      prior
      to the first anticipated filing date of any Registration Statement, the Company
      shall notify each Investor of the information the Company requires from such
      Investor if such Investor elects to have any of the Registrable Securities
      included in the Registration Statement. An Investor shall provide such
      information to the Company at least two (2) Business Days prior to the first
      anticipated filing date of such Registration Statement if such Investor elects
      to have any of the Registrable Securities included in the Registration
      Statement.

     

    (b)  Cooperation.
      Each
      Investor, by its acceptance of the Registrable Securities agrees to cooperate
      with the Company as reasonably requested by the Company in connection with
      the
      preparation and filing of a Registration Statement hereunder, unless such
      Investor has notified the Company in writing of its election to exclude all
      of
      its Registrable Securities from such Registration Statement.

     

    (c)  Discontinue
      Sales.
      Each
      Investor agrees that, upon receipt of any notice from the Company of either
      (i)
      the commencement of an Allowed Delay pursuant to Section 2(c)(ii) or (ii) the
      happening of an event pursuant to Section 3(h) hereof, such Investor will
      immediately discontinue disposition of Registrable Securities pursuant to the
      Registration Statement covering such Registrable Securities, until the
      Investor’s receipt of the copies of the supplemented or amended prospectus filed
      with the SEC and until any related post-effective amendment is declared
      effective and, if so directed by the Company, the Investor shall deliver to
      the
      Company (at the expense of the Company) or destroy (and deliver to the Company
      a
      certificate of destruction) all copies in the Investor’s possession of the
      Prospectus covering the Registrable Securities current at the time of receipt
      of
      such notice.

     

    6.  Indemnification.

     

    (a)  Indemnification
      by the Company.
      The
      Company will indemnify and hold harmless each Investor and its officers,
      directors, members, employees and agents, successors and assigns, and each
      other
      person, if any, who controls such Investor within the meaning of the 1933 Act,
      against any losses, claims, damages or liabilities, joint or several, to which
      they may

     

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

     

     become
      subject under the 1933 Act or otherwise, insofar as such losses, claims, damages
      or liabilities (or actions in respect thereof) arise out of or are based upon:
      (i) any untrue statement or alleged untrue statement of any material fact
      contained in any Registration Statement, any preliminary prospectus or final
      prospectus contained therein, or any amendment or supplement thereof; (ii)
      any
      blue sky application or other document executed by the Company specifically
      for
      that purpose or based upon written information furnished by the Company filed
      in
      any state or other jurisdiction in order to qualify any or all of the
      Registrable Securities under the securities laws thereof (any such application,
      document or information herein called a “Blue
      Sky Application”);
      (iii)
      the omission or alleged omission to state therein a material fact required
      to be
      stated therein or necessary to make the statements therein not misleading;
      (iv)
      any violation by the Company or its agents of any rule or regulation promulgated
      under the 1933 Act applicable to the Company or its agents and relating to
      action or inaction required of the Company in connection with such registration;
      or (v) any failure to register or qualify the Registrable Securities included
      in
      any such Registration in any state where the Company or its agents has
      affirmatively undertaken or agreed in writing that the Company will undertake
      such registration or qualification on an Investor’s behalf and will reimburse
      such Investor, and each such officer, director or member and each such
      controlling person for any legal or other expenses reasonably incurred by them
      in connection with investigating or defending any such loss, claim, damage,
      liability or action; provided,
      however,
      that
      the Company will not be liable in any such case if and to the extent that any
      such loss, claim, damage or liability arises out of or is based upon an untrue
      statement or alleged untrue statement or omission or alleged omission so made
      in
      conformity with information furnished by such Investor or any such controlling
      person in writing specifically for use in such Registration Statement or
      Prospectus.

     

    (b)  Indemnification
      by the Investors.
      Each
      Investor agrees, severally but not jointly, to indemnify and hold harmless,
      to
      the fullest extent permitted by law, the Company, its directors, officers,
      employees, stockholders and each person who controls the Company (within the
      meaning of the 1933 Act) against any losses, claims, damages, liabilities and
      expense (including reasonable attorney fees) resulting from any untrue statement
      of a material fact or any omission of a material fact required to be stated
      in
      the Registration Statement or Prospectus or preliminary prospectus or amendment
      or supplement thereto or necessary to make the statements therein not
      misleading, to the extent, but only to the extent that such untrue statement
      or
      omission is contained in any information furnished in writing by such Investor
      to the Company specifically for inclusion in such Registration Statement or
      Prospectus or amendment or supplement thereto. In no event shall the liability
      of an Investor be greater in amount than the dollar amount of the proceeds
      (net
      of all expense paid by such Investor in connection with any claim relating
      to
      this Section 6 and the amount of any damages such Investor has otherwise been
      required to pay by reason of such untrue statement or omission) received by
      such
      Investor upon the sale of the Registrable Securities included in the
      Registration Statement giving rise to such indemnification
      obligation.

     

    (c)  Conduct
      of Indemnification Proceedings.
      Any
      person entitled to indemnification hereunder shall (i) give prompt notice to
      the
      indemnifying party of any claim with respect to which it seeks indemnification
      and (ii) permit such indemnifying party to assume the defense of such claim
      with
      counsel reasonably satisfactory to the indemnified party; provided
      that any
      person entitled to indemnification hereunder shall have the right to employ
      separate counsel

     

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

     

     and
      to participate in the defense of such claim, but the fees and expenses of such
      counsel shall be at the expense of such person unless (a) the indemnifying
      party
      has agreed to pay such fees or expenses, or (b) the indemnifying party shall
      have failed to assume the defense of such claim and employ counsel reasonably
      satisfactory to such person or (c) in the reasonable judgment of any such
      person, based upon written advice of its counsel, a conflict of interest exists
      between such person and the indemnifying party with respect to such claims
      (in
      which case, if the person notifies the indemnifying party in writing that such
      person elects to employ separate counsel at the expense of the indemnifying
      party, the indemnifying party shall not have the right to assume the defense
      of
      such claim on behalf of such person); and provided,
      further,
      that
      the failure of any indemnified party to give notice as provided herein shall
      not
      relieve the indemnifying party of its obligations hereunder, except to the
      extent that such failure to give notice shall materially adversely affect the
      indemnifying party in the defense of any such claim or litigation. It is
      understood that the indemnifying party shall not, in connection with any
      proceeding in the same jurisdiction, be liable for fees or expenses of more
      than
      one separate firm of attorneys at any time for all such indemnified parties.
      No
      indemnifying party will, except with the consent of the indemnified party,
      consent to entry of any judgment or enter into any settlement that does not
      include as an unconditional term thereof the giving by the claimant or plaintiff
      to such indemnified party of a release from all liability in respect of such
      claim or litigation.

     

    (d)  Contribution.
      If for
      any reason the indemnification provided for in the preceding paragraphs (a)
      and
      (b) is unavailable to an indemnified party or insufficient to hold it harmless,
      other than as expressly specified therein, then the indemnifying party shall
      contribute to the amount paid or payable by the indemnified party as a result
      of
      such loss, claim, damage or liability in such proportion as is appropriate
      to
      reflect the relative fault of the indemnified party and the indemnifying party,
      as well as any other relevant equitable considerations. No person guilty of
      fraudulent misrepresentation within the meaning of Section 11(f) of the 1933
      Act
      shall be entitled to contribution from any person not guilty of such fraudulent
      misrepresentation. In no event shall the contribution obligation of a holder
      of
      Registrable Securities be greater in amount than the dollar amount of the
      proceeds (net of all expenses paid by such holder in connection with any claim
      relating to this Section 6 and the amount of any damages such holder has
      otherwise been required to pay by reason of such untrue or alleged untrue
      statement or omission or alleged omission) received by it upon the sale of
      the
      Registrable Securities giving rise to such contribution obligation.

     

    7.  Miscellaneous.

     

    (a)  Amendments
      and Waivers.
      This
      Agreement may be amended only by a writing signed by the Company and the
      Required Investors, which shall be binding on all of the Investors. The Company
      may take any action herein prohibited, or omit to perform any act herein
      required to be performed by it, only if the Company shall have obtained the
      written consent to such amendment, action or omission to act, of the Required
      Investors.

     

    (b)  Notices.
      All
      notices and other communications provided for or permitted hereunder shall
      be
      made as set forth in Section 9.4 of the Purchase Agreement.

     

    (c)  Assignments
      and Transfers by Investors.
      The
      provisions of this Agreement shall be binding upon and inure to the benefit
      of
      the Investors and their respective

     

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

     

     successors
      and assigns. An Investor may transfer or assign, in whole or from time to time
      in part, to one or more persons its rights hereunder in connection with the
      transfer of Registrable Securities by such Investor to such person, provided
      that such Investor complies with all laws applicable thereto and provides
      written notice of assignment to the Company promptly after such assignment
      is
      effected.

     

    (d)  Assignments
      and Transfers by the Company.
      This
      Agreement may not be assigned by the Company (whether by operation of law or
      otherwise) without the prior written consent of the Required Investors,
      provided, however, that the Company may assign its rights and delegate its
      duties hereunder to any surviving or successor corporation in connection with
      a
      merger or consolidation of the Company with another corporation, or a sale,
      transfer or other disposition of all or substantially all of the Company’s
      assets to another corporation, without the prior written consent of the Required
      Investors, after notice duly given by the Company to each Investor.

     

    (e)  Benefits
      of the Agreement.
      The
      terms and conditions of this Agreement shall inure to the benefit of and be
      binding upon the respective permitted successors and assigns of the parties.
      Nothing in this Agreement, express or implied, is intended to confer upon any
      party other than the parties hereto or their respective successors and assigns
      any rights, remedies, obligations, or liabilities under or by reason of this
      Agreement, except as expressly provided in this Agreement.

     

    (f)  Counterparts;
      Faxes.
      This
      Agreement may be executed in two or more counterparts, each of which shall
      be
      deemed an original, but all of which together shall constitute one and the
      same
      instrument. This Agreement may also be executed via facsimile, which shall
      be
      deemed an original.

     

    (g)  Titles
      and Subtitles.
      The
      titles and subtitles used in this Agreement are used for convenience only and
      are not to be considered in construing or interpreting this
      Agreement.

     

    (h)  Severability.
      Any
      provision of this Agreement that is prohibited or unenforceable in any
      jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
      such prohibition or unenforceability without invalidating the remaining
      provisions hereof but shall be interpreted as if it were written so as to be
      enforceable to the maximum extent permitted by applicable law, and any such
      prohibition or unenforceability in any jurisdiction shall not invalidate or
      render unenforceable such provision in any other jurisdiction. To the extent
      permitted by applicable law, the parties hereby waive any provision of law
      which
      renders any provisions hereof prohibited or unenforceable in any
      respect.

     

    (i)  Further
      Assurances.
      The
      parties shall execute and deliver all such further instruments and documents
      and
      take all such other actions as may reasonably be required to carry out the
      transactions contemplated hereby and to evidence the fulfillment of the
      agreements herein contained.

     

    (j)  Entire
      Agreement.
      This
      Agreement is intended by the parties as a final expression of their agreement
      and intended to be a complete and exclusive statement of the

     

    
      
         

      

      
        -11-

        
          

        

      

      
         

      

    

     

    agreement
      and understanding of the parties hereto in respect of the subject matter
      contained herein. This Agreement supersedes all prior agreements and
      understandings between the parties with respect to such subject
      matter.

     

    (k)  Governing
      Law; Consent to Jurisdiction; Waiver of Jury Trial.
      This
      Agreement shall be governed by, and construed in accordance with, the internal
      laws of the State of New York without regard to the choice of law principles
      thereof. Each of the parties hereto irrevocably submits to the exclusive
      jurisdiction of the courts of the State of New York located in New York County
      and the United States District Court for the Southern District of New York
      for
      the purpose of any suit, action, proceeding or judgment relating to or arising
      out of this Agreement and the transactions contemplated hereby. Service of
      process in connection with any such suit, action or proceeding may be served
      on
      each party hereto anywhere in the world by the same methods as are specified
      for
      the giving of notices under this Agreement. Each of the parties hereto
      irrevocably consents to the jurisdiction of any such court in any such suit,
      action or proceeding and to the laying of venue in such court. Each party hereto
      irrevocably waives any objection to the laying of venue of any such suit, action
      or proceeding brought in such courts and irrevocably waives any claim that
      any
      such suit, action or proceeding brought in any such court has been brought
      in an
      inconvenient forum. EACH
      OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
      LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN
      CONSULTED SPECIFICALLY AS TO THIS WAIVER.

     

    
      
         

      

      
        -12-

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the parties have executed this Agreement or caused their duly
      authorized officers to execute this Agreement as of the date first above
      written.

     

    
      	
              The
                Company:

            	
            	
              CAPRIUS,
                INC.

            	 
	 	
            	
              By:
                /s/

            	George
              Aaron
	 	
            	 	George
              Aaron
	 	
            	 	President
              and Chief Executve Officer
	 	
            	 
	 	
            	 
	 	
            	
              CARTER
                SECURITIES, LLC

            	 
	 	
            	
              By:

            	
            
	 	
            	
              Name:

            	
            
	 	
            	
              Title:

            	
            

    

     

    
      
         

      

      
        -13-

        
          

        

      

      
         

      

    

    SIGNATURE
      PAGE OF INVESTORS TO CAPRIUS, INC.

    REGISTRATION
      RIGHTS AGREEMENT

    

    

    Name
      of
      Investor: _________________________________________________

     

    Signature
      of Authorized Signatory of Investor:
      __________________________

     

    Name
      of
      Authorized Signatory: _______________________________

     

    Title
      of
      Authorized Signatory: _________________________________

     

    

    

    

    [SIGNATURE
      PAGES CONTINUE]

     

    
      
         

      

      
        -14-

        
          

        

      

      
         

      

    

    Exhibit
      A

    

    Plan
      of Distribution

    

    The
      selling stockholders, which as used herein includes donees, pledgees,
      transferees or other successors-in-interest selling shares of common stock
      or
      interests in shares of common stock received after the date of this prospectus
      from a selling stockholder as a gift, pledge, partnership distribution or other
      transfer, may, from time to time, sell, transfer or otherwise dispose of any
      or
      all of their shares of common stock or interests in shares of common stock
      on
      any stock exchange, market or trading facility on which the shares are traded
      or
      in private transactions. These dispositions may be at fixed prices, at
      prevailing market prices at the time of sale, at prices related to the
      prevailing market price, at varying prices determined at the time of sale,
      or at
      negotiated prices.

    

    The
      selling stockholders may use any one or more of the following methods when
      disposing of shares or interests therein:

    

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

    

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

    

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

    

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

    

    -
      privately negotiated transactions;

    

    -
      settlement of short sales effected after the date the registration statement
      of
      which this Prospectus is a part is declared effective by the SEC;

    

    -
      through
      the writing or settlement of options or other hedging transactions, whether
      through an options exchange or otherwise;

    

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

    

    -
      a
      combination of any such methods of sale; and

    

    -
      any
      other method permitted pursuant to applicable law.

    

    The
      selling stockholders may, from time to time, pledge or grant a security interest
      in some or all of the shares of common stock owned by them and, if they default
      in the performance of their secured obligations, the pledgees or secured parties
      may offer and sell the shares of common stock, from time to time, under this
      prospectus, or under an amendment to

     

    
      
         

      

      
        -15-

        
          

        

      

      
         

      

    

     

    this
      prospectus under Rule 424(b)(3) or other applicable provision of the Securities
      Act amending the list of selling stockholders to include the pledgee, transferee
      or other successors in interest as selling stockholders under this prospectus.
      The selling stockholders also may transfer the shares of common stock in other
      circumstances, in which case the transferees, pledgees or other successors
      in
      interest will be the selling beneficial owners for purposes of this
      prospectus.

    

    Broker-dealers
      engaged by the selling stockholders may arrange for other brokers-dealers to
      participate in sales. Broker-dealers may receive commissions or discounts from
      the selling stockholders (or, if any broker-dealer acts as agent for the
      purchaser of shares, from the purchaser) in amounts to be negotiated. The
      selling stockholders do not expect these commissions and discounts to exceed
      what is customary in the types of transactions involved. 

    

    In
      connection with the sale of our common stock or interests therein, the selling
      stockholders may enter into hedging transactions with broker-dealers or other
      financial institutions, which may in turn engage in short sales of the common
      stock in the course of hedging the positions they assume. The selling
      stockholders may also sell shares of our common stock short and deliver these
      securities to close out their short positions, or loan or pledge the common
      stock to broker-dealers that in turn may sell these securities. The selling
      stockholders may also enter into option or other transactions with
      broker-dealers or other financial institutions or the creation of one or more
      derivative securities which require the delivery to such broker-dealer or other
      financial institution of shares offered by this prospectus, which shares such
      broker-dealer or other financial institution may resell pursuant to this
      prospectus (as supplemented or amended to reflect such
      transaction).

    

    The
      aggregate proceeds to the selling stockholders from the sale of the common
      stock
      offered by them will be the purchase price of the common stock less discounts
      or
      commissions, if any. Each of the selling stockholders reserves the right to
      accept and, together with their agents from time to time, to reject, in whole
      or
      in part, any proposed purchase of common stock to be made directly or through
      agents. We will not receive any of the proceeds from this offering. Upon any
      exercise of the warrants by payment of cash, however, we will receive the
      exercise price of the warrants.

    

    The
      selling stockholders also may resell all or a portion of the shares in open
      market transactions in reliance upon Rule 144 under the Securities Act of 1933,
      provided that they meet the criteria and conform to the requirements of that
      rule.

    

    The
      selling stockholders and any underwriters, broker-dealers or agents that
      participate in the sale of the common stock or interests therein may be
      "underwriters" within the meaning of Section 2(11) of the Securities Act. Any
      discounts, commissions, concessions or profit they earn on any resale of the
      shares may be underwriting discounts and commissions under the Securities Act.
      Selling stockholders who are "underwriters" within the meaning of Section 2(11)
      of the Securities Act will be subject to the prospectus delivery requirements
      of
      the Securities Act. Each selling stockholder has informed the Company that
      it
      does not have any written or oral agreement or understanding, directly or
      indirectly, with any person to distribute the Common Stock.

     

    
      
         

      

      
        -16-

        
          

        

      

      
         

      

    

    

    To
      the
      extent required, the shares of our common stock to be sold, the names of the
      selling stockholders, the respective purchase prices and public offering prices,
      the names of any agents, dealer or underwriter, any applicable commissions
      or
      discounts with respect to a particular offer will be set forth in an
      accompanying prospectus supplement or, if appropriate, a post-effective
      amendment to the registration statement that includes this prospectus. Each
      selling stockholder has informed the Company that it does not have any written
      or oral agreement or understanding, directly or indirectly, with any person
      to
      distribute the Common Stock.

    

    In
      order
      to comply with the securities laws of some states, if applicable, the common
      stock may be sold in these jurisdictions only through registered or licensed
      brokers or dealers. In addition, in some states the common stock may not be
      sold
      unless it has been registered or qualified for sale or an exemption from
      registration or qualification requirements is available and is complied
      with.

    

    We
      have
      advised the selling stockholders that the anti-manipulation rules of Regulation
      M under the Exchange Act may apply to sales of shares in the market and to
      the
      activities of the selling stockholders and their affiliates. In addition, we
      will make copies of this prospectus (as it may be supplemented or amended from
      time to time) available to the selling stockholders for the purpose of
      satisfying the prospectus delivery requirements of the Securities Act. The
      selling stockholders may indemnify any broker-dealer that participates in
      transactions involving the sale of the shares against certain liabilities,
      including liabilities arising under the Securities Act.

    

    We
      have
      agreed to indemnify the selling stockholders against liabilities, including
      liabilities under the Securities Act and state securities laws, relating to
      the
      registration of the shares offered by this prospectus.

    

    We
      have
      agreed with the selling stockholders to keep the registration statement of
      which
      this prospectus constitutes a part effective until the earlier of (1) such
      time
      as all of the shares covered by this prospectus have been disposed of pursuant
      to and in accordance with the registration statement or (2) the date on which
      the shares may be sold pursuant to Rule 144(k) of the Securities
      Act.

    

    Notwithstanding
      anything contained herein to the contrary, the Placement Agent Warrant Shares
      held by the Placement Agent or “associated persons” of the Placement Agent are
      subject to a 180 day lock-up agreement in accordance with the requirements
      of
      NASD Rule 2710(g)(1).

     

    
      
         

      

      
        -17-

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