Document:

Unassociated Document

     

    
      
        Exhibit
10.1

        Execution
Version

      

    

    

      SECURITIES
PURCHASE AND SALE AGREEMENT

       

      

       

      by
and among

       

      

       

      CAPRIUS,
INC.,

       

      M.C.M.
ENVIRONMENTAL TECHNOLOGIES, INC.,

       

      and

       

      M.C.M.
ENVIRONMENTAL TECHNOLOGIES LTD.

       

      and

       

      VINTAGE
CAPITAL GROUP, LLC

       

      

       

      
        	 
      	
                 

                 

                Senior
      Secured Promissory Note Due 2010

                 

                 

              	 
      

      

      

      Dated
as of September 16, 2009

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      TABLE OF
CONTENTS

       

      
        
          	
                  1.   

                	
                  DEFINITIONS;
      COLLATERAL DEFINITIONS; ACCOUNTING TERMS

                	 	
                  1

                
	 	 	 	 
	 
      	
                  1.1

                	
                  Definitions

                	 	
                  1

                
	 
      	
                  1.2

                	
                  Accounting
      Terms and Computations

                	 	
                  15

                
	 
      	
                  1.3

                	
                  Covenants

                	 	
                  15

                
	 
      	
                  1.4

                	
                  Captions;
      Construction and Interpretation

                	 	
                  15

                
	 
      	
                  1.5

                	
                  Determinations

                	 	
                  15

                
	 	 	 	 	 
	
                  2.

                	
                  PURCHASE
      AND SALE OF THE NOTE

                	 	
                  15

                
	 	 	 	 
	 
      	
                  2.1

                	
                  Authorization

                	 	
                  15

                
	 
      	
                  2.2

                	
                  Closing

                	 	
                  15

                
	 
      	
                  2.3

                	
                  Closing
      Actions

                	 	
                  16

                
	 
      	
                  2.4

                	
                  Fees
      and Expenses

                	 	
                  16

                
	 
      	
                  2.5

                	
                  Funding,
      Use of Proceeds

                	 	
                  17

                
	 
      	
                  2.6

                	
                  Joint
      and Several Liability of the Borrowers

                	 	
                  17

                
	 
      	
                  2.7

                	
                  Administrative
      Borrower

                	 	
                  19

                
	 	 	 	 	 
	
                  3.

                	
                  REPRESENTATIONS
      AND WARRANTIES OF THE BORROWERS

                	 	
                  20

                
	 	 	 	 
	 
      	
                  3.1

                	
                  Organization
      and Qualification

                	 	
                  20

                
	 
      	
                  3.2

                	
                  Corporate
      or Other Power

                	 	
                  21

                
	 
      	
                  3.3

                	
                  Authorization;
      Binding Obligations

                	 	
                  21

                
	 
      	
                  3.4

                	
                  Subsidiaries

                	 	
                  21

                
	 
      	
                  3.5

                	
                  Conflict
      with Other Instruments; Existing Defaults

                	 	
                  21

                
	 
      	
                  3.6

                	
                  Governmental
      and Other Third Party Consents

                	 	
                  22

                
	 
      	
                  3.7

                	
                  Capitalization

                	 	
                  22

                
	 
      	
                  3.8

                	
                  Names;
      Business Locations

                	 	
                  23

                
	 
      	
                  3.9

                	
                  Financial
      Statements

                	 	
                  23

                
	 
      	
                  3.10

                	
                  Absence
      of Certain Changes

                	 	
                  24

                
	 
      	
                  3.11

                	
                  Material
      Contracts

                	 	
                  26

                
	 
      	
                  3.12

                	
                  Existing
      Indebtedness; Existing Liens; Investments

                	 	
                  27

                
	 
      	
                  3.13

                	
                  Litigation

                	 	
                  28

                
	 
      	
                  3.14

                	
                  Transactions
      With Affiliates

                	 	
                  28

                
	 
      	
                  3.15

                	
                  Compliance
      With Laws; Operating Licenses

                	 	
                  29

                
	 
      	
                  3.16

                	
                  Real
      Property

                	 	
                  29

                
	 
      	
                  3.17

                	
                  Employee
      Benefit Plans; ERISA

                	 	
                  29

                
	 
      	
                  3.18

                	
                  Taxes

                	 	
                  30

                
	 
      	
                  3.19

                	
                  Title
      to Property; Liens

                	 	
                  31

                
	 
      	
                  3.20

                	
                  Environmental
      Matters

                	 	
                  31

                
	 
      	
                  3.21

                	
                  Intellectual
      Property

                	 	
                  32

                
	 
      	
                  3.22

                	
                  Labor
      Relations

                	 	
                  34

                
	 
      	
                  3.23

                	
                  Employment
      Agreements

                	 	
                  34

                
	 
      	
                  3.24

                	
                  Employees
      and Contractors

                	 	
                  35

                
	 
      	
                  3.25

                	
                  Employment
      Matters

                	 	
                  35

                

        

         

        
          
            
            

          

          
            i

            
              

            

          

          
            
            

          

        

         

        
          	 
      	
                  3.26

                	
                  Insurance

                	 	
                  35

                
	 
      	
                  3.27

                	
                  Business
      Relationships

                	 	
                  36

                
	 
      	
                  3.28

                	
                  Solvency

                	 	
                  36

                
	 
      	
                  3.29

                	
                  Depository
      and Other Accounts

                	 	
                  36

                
	 
      	
                  3.30

                	
                  Brokers;
      Certain Expenses

                	 	
                  36

                
	 
      	
                  3.31

                	
                  No
      Event of Default

                	 	
                  37

                
	 
      	
                  3.32

                	
                  Financial
      Sophistication

                	 	
                  37

                
	 
      	
                  3.33

                	
                  Equipment
      and Other Personal Property

                	 	
                  37

                
	 
      	
                  3.34

                	
                  Inventory

                	 	
                  37

                
	 
      	
                  3.35

                	
                  Accounts

                	 	
                  37

                
	 
      	
                  3.36

                	
                  Disclosure

                	 	
                  38

                
	 
      	
                  3.37

                	
                  Projections

                	 	
                  38

                
	 	 	 	 	 
	
                  4.   

                	
                  REPRESENTATIONS
      AND WARRANTIES OF THE PURCHASER

                	 	
                  38

                
	 	 	 	 
	 
      	
                  4.1

                	
                  Organization
      and Qualification

                	 	
                  38

                
	 
      	
                  4.2

                	
                  Corporate
      or Other Power

                	 	
                  38

                
	 
      	
                  4.3

                	
                  Authorization;
      Binding Obligations

                	 	
                  39

                
	 
      	
                  4.4

                	
                  Financial
      Sophistication

                	 	
                  39

                
	 	 	 	 	 
	
                  5.

                	
                  CONDITIONS
      TO THE OBLIGATIONS OF THE PURCHASER

                	 	
                  39

                
	 	 	 	 
	 
      	
                  5.1

                	
                  Representations
      and Warranties; No Default

                	 	
                  39

                
	 
      	
                  5.2

                	
                  Purchase
      Permitted By Applicable Laws; No Conflicts

                	 	
                  39

                
	 
      	
                  5.3

                	
                  No
      Injunction, Order or Suit

                	 	
                  40

                
	 
      	
                  5.4

                	
                  Delivery
      of Certain Closing Documents

                	 	
                  40

                
	 
      	
                  5.5

                	
                  Delivery
      of Corporate Documents

                	 	
                  41

                
	 
      	
                  5.6

                	
                  Insurance

                	 	
                  42

                
	 
      	
                  5.7

                	
                  Third-Party
      Consents

                	 	
                  42

                
	 
      	
                  5.8

                	
                  Financial
      Statements

                	 	
                  42

                
	 
      	
                  5.9

                	
                  Due
      Diligence; Environmental Investigations

                	 	
                  42

                
	 
      	
                  5.10

                	
                  No
      Material Adverse Change

                	 	
                  42

                
	 
      	
                  5.11

                	
                  No
      Change in the Markets

                	 	
                  42

                
	 
      	
                  5.12

                	
                  Disclosure

                	 	
                  42

                
	 
      	
                  5.13

                	
                  Proceedings
      Satisfactory

                	 	
                  42

                
	 	 	 	 	 
	
                  6.

                	
                  POST-CLOSING
      OBLIGATIONS OF THE BORROWERS

                	 	
                  43

                
	 	 	 	 
	 
      	
                  6.1

                	
                  Patents

                	 	
                  43

                
	 
      	
                  6.2

                	
                  Other
      Collateral Documents

                	 	
                  43

                
	 
      	
                  6.3

                	
                  Warrant

                	 	
                  43

                
	 
      	
                  6.4

                	
                  Sassoon
      Settlement Amount

                	 	
                  44

                
	 
      	
                  6.5

                	
                  Payroll
      Taxes

                	 	
                  44

                
	 
      	
                  6.6

                	
                  Consent
      of the Office of the Chief Scientist

                	 	
                  44

                
	 
      	
                  6.7

                	
                  Morgan
      Employment Agreement

                	 	
                  44

                
	 
      	
                  6.8

                	
                  A.G.M.
      Tefen Liens

                	 	
                  44

                
	 
      	
                  6.9

                	
                  Deposit
      Account Control Agreements

                	 	
                  44

                

        

         

        
          
            
            

          

          
            ii

            
              

            

          

          
            
            

          

        

         

        
          	
                  7.    

                	
                  ACTIONS
      AND DOCUMENTS RELATING TO THE COLLATERAL

                	 	
                  44

                
	 	 	 	 
	
                  8.

                	
                  INDEMNIFICATION;
      FEES AND EXPENSES

                	 	
                  45

                
	 	 	 	 
	 
      	
                  8.1

                	
                  Transfer
      Taxes

                	 	
                  45

                
	 
      	
                  8.2

                	
                  Losses

                	 	
                  45

                
	 
      	
                  8.3

                	
                  Indemnification
      Procedures

                	 	
                  46

                
	 
      	
                  8.4

                	
                  Contribution

                	 	
                  46

                
	 	 	 	 	 
	
                  9.

                	
                  AFFIRMATIVE
      COVENANTS

                	 	
                  47

                
	 	 	 	 
	 
      	
                  9.1

                	
                  Payment
      of Note and Other Obligations

                	 	
                  47

                
	 
      	
                  9.2

                	
                  Performance
      of Investment Documents

                	 	
                  47

                
	 
      	
                  9.3

                	
                  Notices

                	 	
                  47

                
	 
      	
                  9.4

                	
                  Books
      and Records; Financial Statements

                	 	
                  48

                
	 
      	
                  9.5

                	
                  Guarantor
      Financial Statements

                	 	
                  49

                
	 
      	
                  9.6

                	
                  Landlord,
      Distributor and Storage Agreements

                	 	
                  50

                
	 
      	
                  9.7

                	
                  Subsidiaries

                	 	
                  50

                
	 
      	
                  9.8

                	
                  Compliance
      with Laws; Consents

                	 	
                  50

                
	 
      	
                  9.9

                	
                  Legal
      Existence

                	 	
                  50

                
	 
      	
                  9.10

                	
                  Maintenance
      of Properties

                	 	
                  50

                
	 
      	
                  9.11

                	
                  Insurance

                	 	
                  51

                
	 
      	
                  9.12

                	
                  Payment
      of Obligations

                	 	
                  51

                
	 
      	
                  9.13

                	
                  Compliance
      with Material Contracts

                	 	
                  51

                
	 
      	
                  9.14

                	
                  Environmental
      Matters

                	 	
                  52

                
	 
      	
                  9.15

                	
                  Future
      Information

                	 	
                  52

                
	 
      	
                  9.16

                	
                  Further
      Assurances

                	 	
                  52

                
	 
      	
                  9.17

                	
                  Management
      by Key Management Personnel

                	 	
                  52

                
	 
      	
                  9.18

                	
                  Legal
      and Capital Structure

                	 	
                  53

                
	 
      	
                  9.19

                	
                  Purchaser
      Costs, Fees and Expenses

                	 	
                  53

                
	 
      	
                  9.20

                	
                  Manufacturing
      Source

                	 	
                  53

                
	 
      	
                  9.21

                	
                  Unit
      Sales

                	 	
                  53

                
	 	 	 	 	 
	
                  10.

                	
                  NEGATIVE
      COVENANTS

                	 	
                  54

                
	 	 	 	 
	 
      	
                  10.1

                	
                  Mergers;
      Consolidations; Acquisitions; Structural Changes

                	 	
                  54

                
	 
      	
                  10.2

                	
                  Loans

                	 	
                  54

                
	 
      	
                  10.3

                	
                  Indebtedness

                	 	
                  54

                
	 
      	
                  10.4

                	
                  Affiliate
      Transactions

                	 	
                  54

                
	 
      	
                  10.5

                	
                  Limitation
      on Liens

                	 	
                  54

                
	 
      	
                  10.6

                	
                  Payments
      and Amendments of Subordinated Debt

                	 	
                  55

                
	 
      	
                  10.7

                	
                  Distributions

                	 	
                  56

                
	 
      	
                  10.8

                	
                  Disposition
      of Assets

                	 	
                  56

                
	 
      	
                  10.9

                	
                  Additional
      Securities

                	 	
                  56

                
	 
      	
                  10.10

                	
                  [Reserved]

                	 	
                  56

                
	 
      	
                  10.11

                	
                  Restricted
      Investment

                	 	
                  56

                
	 
      	
                  10.12

                	
                  Subsidiaries
      and Joint Ventures

                	 	
                  56

                

        

         

        
          
            
            

          

          
            iii

            
              

            

          

          
            
            

          

        

         

        
          	 
      	
                  10.13

                	
                  Tax
      Consolidation

                	 	
                  56

                
	 
      	
                  10.14

                	
                  Organizational
      Documents

                	 	
                  56

                
	 
      	
                  10.15

                	
                  Fiscal
      Year End

                	 	
                  56

                
	 
      	
                  10.16

                	
                  Limitations
      on Payment Restrictions Affecting Subsidiaries

                	 	
                  57

                
	 
      	
                  10.17

                	
                  Change
      in Business

                	 	
                  57

                
	 
      	
                  10.18

                	
                  Subordination

                	 	
                  57

                
	 
      	
                  10.19

                	
                  Accounting
      Changes

                	 	
                  57

                
	 
      	
                  10.20

                	
                  [Reserved]

                	 	
                  57

                
	 
      	
                  10.21

                	
                  Hazardous
      Substances

                	 	
                  57

                
	 
      	
                  10.22

                	
                  No
      Solicitation or Negotiation

                	 	
                  57

                
	 
      	
                  10.23

                	
                  Employment
      Agreements

                	 	
                  59

                
	 
      	
                  10.24

                	
                  No
      Securities or Options Granted

                	 	
                  59

                
	 
      	
                  10.25

                	
                  Advances

                	 	
                  59

                
	 
      	
                  10.26

                	
                  M.C.M.
      UK

                	 	
                  59

                
	 
      	
                  10.27

                	
                  Sales
      of Inventory

                	 	
                  59

                
	 	 	 	 	 
	
                  11.   

                	
                  DEFAULTS
      AND REMEDIES

                	 	
                  59

                
	 	 	 	 
	 
      	
                  11.1

                	
                  Events
      of Default

                	 	
                  59

                
	 
      	
                  11.2

                	
                  Acceleration

                	 	
                  62

                
	 
      	
                  11.3

                	
                  Set
      Off and Sharing of Payments

                	 	
                  62

                
	 
      	
                  11.4

                	
                  Other
      Remedies

                	 	
                  62

                
	 
      	
                  11.5

                	
                  Appointment
      of Receiver

                	 	
                  63

                
	 
      	
                  11.6

                	
                  Waiver
      of Past Defaults

                	 	
                  63

                
	 	 	 	 	 
	
                  12.

                	
                  WAIVER

                	 	
                  63

                
	 	 	 	 
	
                  13.

                	
                  POWER
      OF ATTORNEY

                	 	
                  63

                
	 	 	 	 
	
                  14.

                	
                  MISCELLANEOUS

                	 	
                  64

                
	 	 	 	 
	 
      	
                  14.1

                	
                  Survival
      of Representations and Warranties; Purchaser Investigation

                	 	
                  64

                
	 
      	
                  14.2

                	
                  Consent
      to Amendments

                	 	
                  64

                
	 
      	
                  14.3

                	
                  Entire
      Agreement

                	 	
                  64

                
	 
      	
                  14.4

                	
                  Severability

                	 	
                  65

                
	 
      	
                  14.5

                	
                  Successors
      and Assigns; Assignments

                	 	
                  65

                
	 
      	
                  14.6

                	
                  Certain
      Agreements of the Borrowers

                	 	
                  65

                
	 
      	
                  14.7

                	
                  Notices

                	 	
                  65

                
	 
      	
                  14.8

                	
                  Counterparts

                	 	
                  66

                
	 
      	
                  14.9

                	
                  Governing
      Law

                	 	
                  67

                
	 
      	
                  14.10

                	
                  Limitation
      of Liability

                	 	
                  67

                
	 
      	
                  14.11

                	
                  Publicity

                	 	
                  67

                
	 
      	
                  14.12

                	
                  Waiver
      of Trial by Jury

                	 	
                  67

                
	 
      	
                  14.13

                	
                  Cumulative
      Effect; Conflict of Terms

                	 	
                  67

                
	 
      	
                  14.14

                	
                  Time
      of Essence

                	 	
                  68

                
	 
      	
                  14.15

                	
                  Interpretation

                	 	
                  68

                

        

         

        
          
            
            

          

          
            iv

            
              

            

          

          
            
            

          

        

         

        
          	 	
                  14.16

                	
                  Consent
      to Forum

                	 	
                  68

                
	 	
                  14.17

                	
                  Judicial
      Reference

                	 	
                  68

                

        

         

         

      

      EXHIBITS

       

      
        	
                Exhibit A   

              	
                  —  

              	
                Form
      of Note

              
	
                Exhibit
      B

              	
                —

              	
                ‘654
      Patent Assignment

              
	
                Exhibit
      C

              	
                —

              	
                Form
      of Patent Security Agreement

              
	
                Exhibit
      D

              	
                —

              	
                Form
      of Pledge Agreement

              
	
                Exhibit
      E

              	
                —

              	
                Form
      of Investment Monitoring Agreement

              
	
                Exhibit
      F

              	
                —

              	
                Form
      of Security Agreement

              
	
                Exhibit
      G

              	
                —

              	
                Form
      of Disbursement Request

              

      

       

      
        
          
            
            

          

          
            v

            
              

            

          

          
            
            

          

           

        

      

      SECURITIES
PURCHASE AND SALE AGREEMENT

       

      THIS
SECURITIES PURCHASE AND SALE AGREEMENT is entered into as of September 16,
2009 (this “Agreement”), by and
among CAPRIUS, INC., a Delaware corporation (“Caprius”), M.C.M.
ENVIRONMENTAL TECHNOLOGIES, INC., a Delaware corporation (“M.C.M.”), and M.C.M.
ENVIRONMENTAL TECHNOLOGIES LTD., an Israeli corporation (“M.C.M. Israel”)
(Caprius, M.C.M. and M.C.M. Israel may be individually referred to as a “Borrower” and
collectively referred to as the “Borrowers”), and
VINTAGE CAPITAL GROUP, LLC, a Delaware limited liability company (together with
its successors and assigns, the “Purchaser”).

       

      R
E C I T A L S

       

      A.           The
Borrowers are engaged in the business of designing, manufacturing and
distributing chemical-based onsite medical waste treatment technologies (the
“Business”);

       

      B.           The
Borrowers are obtaining financing from the Purchaser hereunder (the “Financing”) for
general corporate purposes;

       

      C.           In
connection with the Financing, the Borrowers jointly and severally desire to
sell to the Purchaser a Note in substantially the form attached hereto as Exhibit A (as
amended, restated, supplemented, replaced or otherwise modified from time to
time, the “Note”), and the
Purchaser desires to purchase such Note, on the terms and subject to the
conditions set forth herein;

       

      D.           To
induce the Purchaser to provide the Financing, and in consideration therefor,
each Borrower has entered or will enter into other Investment Documents, under
which, among other things, the Borrowers have granted or will grant to the
Purchaser certain investment monitoring and other rights with respect to the
Borrowers in connection with the transactions contemplated by this Agreement;
and

       

      E.           To
further induce the Purchaser to provide the Financing, and in consideration
therefor, each Borrower has granted to the Purchaser a security interest in all
of such Borrower’s right, title and interest in all of its respective assets
pursuant to certain Collateral Documents to be entered into in connection with
the transactions contemplated by this Agreement.

       

      A
G R E E M E N T

       

      NOW,
THEREFORE, in consideration of the mutual covenants and agreements set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:

       

      1.           DEFINITIONS; COLLATERAL
DEFINITIONS; ACCOUNTING TERMS

       

      1.1           Definitions.  For
purposes of this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to the singular and the plural
forms thereof):

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      “‘391 Patent” means
United States Patent 6,494,391.

       

      “‘654 Patent” means
United States Patent 5,620,654.

       

      “Accounts” shall mean
all accounts, contract rights, chattel paper, instruments and documents, whether
now owned or hereafter created or acquired by any of the Borrowers, or in which
any of the Borrowers now has or hereafter acquires any interest.

       

      “Administrative
Borrower” shall have the meaning specified in Section 2.7.

       

      “Advance” shall mean
an advance of funds made by the Purchaser to or on behalf of the Borrowers
pursuant to Section 2.5, the
amount of which shall be added to the aggregate principal balance outstanding
under the Note.

       

      “Affiliate,” when used
with respect to a specified Person, shall mean a Person (other than a
Subsidiary):  (i) which directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, the specified Person; (ii) which beneficially owns or holds 5% or
more of any class of the Voting Stock of the specified Person; or (iii) 5%
or more of the Voting Stock (or in the case of a Person which is not a
corporation, 5% or more of the equity interest) of which is beneficially owned
or held by the specified Person or a Subsidiary of the specified
Person.  “Affiliate” when used with respect to any of the Borrowers
shall also include a member of the Immediate Family of any Existing Stockholder
or any trustee of any Existing Stockholder.

       

      “Agreement” shall mean
this Agreement, together with the exhibits and the Disclosure Schedules hereto,
in each case as amended, restated, supplemented or otherwise modified from time
to time.

       

      “Annual Financial
Projections” shall have the meaning specified in Section 9.4.

       

      “Applicable Laws”
shall mean all applicable provisions of all (i) constitutions, treaties,
statutes, laws, rules, regulations and ordinances of any Governmental Authority
and all common law duties, (ii) Consents of any Governmental Authority and (iii)
orders, decisions, rulings, judgments, directives or decrees of any Governmental
Authority.

       

      “Assignee” shall have
the meaning specified in Section 14.5.

       

      “Assignment” shall
mean an assignment or other transfer of the Note pursuant to the terms of the
Note.

       

      “Audit Report” shall
have the meaning specified in Section 9.4.

       

      “Bankruptcy Laws”
shall mean Title 11 of the United States Code (11 U.S.C. Section 101,
et seq.), as amended from time to time, and any other federal or state law
relating to bankruptcy, insolvency or reorganization or for the relief of
debtors.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      “Benefit Plan” shall
mean any of the following:  (i) each termination or severance
agreement involving any Borrower, on the one hand, and any of its respective
employees, on the other hand, (ii) all employee benefit plans, as defined
in ERISA Section 3(3), and (iii) all other profit-sharing, bonus,
stock option, stock purchase, stock bonus, restricted stock, stock appreciation
right, phantom stock, vacation pay, holiday pay, tuition reimbursement,
scholarship, severance, dependent care assistance, excess benefit, incentive
compensation, salary continuation, supplemental retirement, employee loan or
loan guarantee program, split dollar, cafeteria plan, and other compensation
arrangements; in each case maintained or contributed to by any Borrower for the
benefit of their respective employees (or former employees) and/or their
beneficiaries.  An arrangement will not fail to be a Benefit Plan
simply because it only covers one individual, or because any Borrower’s
obligations under such arrangement arise by reason of its being a “successor
employer” under Applicable Laws.  Furthermore, a Voluntary Employees’
Beneficiary Association under Section 501(c)(9) of the Code will be
considered a Benefit Plan for this purpose.

       

      “Board of Directors”
shall mean, with respect to any Person, the board of directors (or similar
governing body) of such Person.

       

      “Borrower” and “Borrowers” shall have
the meaning specified in the preamble.

       

      “Borrowers’
Representatives” shall have the meaning specified in Section 10.22(a).

       

      “Business” shall have
the meaning specified in Recital A.

       

      “Business Day” shall
mean any day that is not a Saturday, a Sunday or a day on which banking
institutions in the city of Los Angeles, California are authorized or required
by law to close.

       

      “Capital Expenditures”
shall mean, for any period, all expenditures of the Borrowers (whether paid in
cash, accrued or financed by the incurrence of Indebtedness) during such period,
including all Capital Lease Obligations, for any property, plant, equipment or
other fixed assets, or for improvements thereto, or for replacements,
substitutions or additions thereto, that have a useful life of more than
one (1) year or are required to be capitalized on the consolidated balance
sheet of the Borrowers in accordance with GAAP.

       

      “Capital Lease” shall
mean any lease or agreement of any Borrower for the right to use property
(whether real, personal or mixed) which has been or is required to be
capitalized on the consolidated balance sheet of such Borrower in accordance
with GAAP.

       

      “Capitalized Lease
Obligations” shall mean any Indebtedness represented by obligations under
a Capital Lease.

       

      “Caprius” shall have
the meaning specified in the preamble.

       

      “Change in Control”
shall mean, after the date hereof, the occurrence of one or more of the
following events:

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      (a)           any
“person” or “group” (as such terms are used in Sections 13(d)(3) and
14(d)(2) of the Exchange Act or any successor provisions to either of the
foregoing), including any group acting for the purpose of acquiring, holding,
voting or disposing of securities within the meaning of Rule 13d-5(b)(1) of the
Exchange Act, becomes the “beneficial owner” (as such term is defined in Rule
13d-3 of the Exchange Act (provided, that a
Person will be deemed to have “beneficial ownership” of all shares that any such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time)), directly or indirectly of 5% or more of
Caprius;

       

      (b)           the
sale, transfer, assignment, lease, conveyance or other disposition, directly or
indirectly, of all or substantially all of the assets of any Borrower shall have
occurred or shall have been approved by the Board of Directors of any Borrower
or its stockholders;

       

      (c)           any
Borrower merges, consolidates or amalgamates with or into any other Person, or
any other such Person merges, consolidates or amalgamates with or into any
Borrower;

       

      (d)           the
Board of Directors or the stockholders of any Borrower shall have approved any
plan or proposal for the liquidation or dissolution of such
Borrower;

       

      (e)           Prior
to the payment of the Sassoon Settlement Amount, Caprius ceases to own and
control, directly or indirectly, 96.66% of the issued and outstanding shares of
capital stock (or other equity interests) of M.C.M. or 100% of the issued and
outstanding shares of capital stock (or other equity interests) of any other
Subsidiary;

       

      (f)           Following
payment of the Sassoon Settlement Amount, Caprius ceases to own and control,
directly or indirectly, 100% of the issued and outstanding shares of capital
stock (or other equity interests) of any Subsidiary (other than as a result of a
merger of any Subsidiary of Caprius into Caprius or another domestic Subsidiary
of Caprius permitted pursuant to Section 10.1);

       

      (g)           M.C.M.
ceases to own and control directly or indirectly, 100% of the issued and
outstanding shares of capital stock (or other equity interests) of M.C.M. Israel
or M.C.M. UK (other than as a result of a merger of either such entity into
Caprius or M.C.M.); or

       

      (h)           Dwight
Morgan shall cease to be an executive officer of the Borrowers; provided, however, if such
officer ceases to be an executive officer, the Borrowers may propose to
Purchaser a replacement within ninety (90) days of such event, and if such
replacement is acceptable to Purchaser (with such acceptance not to be
unreasonably withheld or delayed) no Change in Control shall be deemed to have
occurred.

       

      “Charter Documents”
shall mean with respect to any Person, its certificate of incorporation,
articles of incorporation, bylaws, certificate of formation, partnership
agreement, regulations, operating agreement and al other comparable
organizational documents.

       

      “Closing” shall have
the meaning specified in Section 2.3.

       

      “Closing Date” shall
have the meaning specified in Section 2.3.

       

      “Closing Fee” shall
have the meaning specified in Section 2.4.

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      “Code” shall mean the
Internal Revenue Code of 1986, as amended, or any successor statute, and the
treasury regulations promulgated thereunder, as in effect from time to
time.

       

      “Collateral” shall
mean the collateral under the Collateral Documents, however defined, and
wherever located.

       

      “Collateral Documents”
shall mean, collectively, the Security Agreement, the Pledge Agreement, the UCC
financing statements, any Guaranty, any Patent Security Agreement and any
landlord waivers and consents, notices of security interest in deposit accounts,
deposit account control agreements, fixture filings, patent, trademark and
copyright filings, assignments, or acknowledgments and other agreements,
instruments and documents delivered from time to time in connection therewith or
otherwise to secure the Obligations or any other obligations of the Borrowers or
any other Person under this Agreement, the Note or any other Investment
Document, including, but not limited to, any guarantees or pledge agreements
subsequently executed by any Borrower pursuant to Section 9.8, in
each case as amended, restated, supplemented or otherwise modified from time to
time.

       

      “Common Stock” shall
mean shares of common stock of Caprius.

       

      “Consent” shall mean
any consent, approval, authorization, waiver, permit, grant, franchise, license,
exemption or order of, or any registration, certificate, qualification,
declaration or filing with, or any notice to, any Person, including, without
limitation, any Governmental Authority.

       

      “Consent of the Office of the
Chief Scientist” shall mean that certain consent issued to the Borrowers
by the Office of the Chief Scientist of the State of Israel, in form and
substance satisfactory to the Purchaser in its sole and absolute
discretion.

       

      “Consolidated” means
the consolidation in accordance with GAAP of the accounts or other items as to
which such term applies.

       

      “Contingent
Obligations” shall mean, with respect to any Person, any obligation, or
arrangement, direct or indirect, contingent or otherwise, of such Person
(i) with respect to any Indebtedness, lease, dividend, letter of credit or
other obligation (collectively, the “Primary Obligations”)
of another Person, including, without limitation, any direct or indirect
guarantee of such Indebtedness (other than any endorsement for collection or
deposit in the ordinary course of business) or any other direct or indirect
obligation, by agreement or otherwise, to purchase or repurchase any such
Primary Obligation or any property constituting direct or indirect security
therefor, or to provide funds for the payment or discharge of any such Primary
Obligation (whether in the form of loans, advances, or purchases of property,
securities or services, capital contributions, dividends or otherwise), letters
of credit and reimbursement obligations for letters of credit, (ii) to
provide funds to maintain the financial condition of any other Person,
(iii) otherwise to indemnify or hold harmless the holders of Primary
Obligations of another Person against loss in respect thereof or (iv) in
connection with any synthetic lease or other off-balance sheet lease
transaction.  The amount of any Contingent Obligation under
clauses (i) and (ii) above shall be the maximum amount guaranteed or
otherwise supported by the Contingent Obligation.

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      “Convertible
Securities” shall mean, with respect to any Person, any rights, options,
warrants, securities or other obligations issued or issuable by such Person or
any other Person that are exercisable or exchangeable for, or convertible into,
any Securities of such Person.

       

      “Default” shall mean
any Event of Default or any event or condition which, with the giving of notice
or the lapse of time or both, becomes an Event of Default.

       

      “Disbursement Request”
shall mean a disbursement request in substantially the form attached hereto as
Exhibit G.

       

      “Disclosure Schedules”
shall have the meaning specified in the introductory paragraph of Section 3.

       

      “Distribution” shall
mean and include, in respect of any Person, (i) the payment of any
dividends or other distributions on Securities (except distributions payable in
common stock or equivalent equity securities of non-corporate issuers, if
applicable), (ii) the redemption or acquisition of Securities of such
Person, as the case may be, and (iii) any payment or prepayment of
principal of, premium (if any) or interest, fees or other charges on or with
respect to or any redemption, purchase or other acquisition for value,
retirement, defeasance or sinking fund or similar payment with respect to any
Indebtedness that is subordinated to the Note, the PIK Notes, or any payment in
violation of the subordination provisions of any Indebtedness that is
subordinated to the Note or the PIK Notes, except regularly scheduled or
required principal payments (other than any required change of control or asset
proceeds payments) or interest payments on such Indebtedness as permitted by
such subordination provisions.

       

      “Employment
Agreements” shall mean any Employment Agreements, in form and substance
satisfactory to the Purchaser in its sole and absolute discretion, by and
between a Borrower and its executive officers.

       

      “Environmental
Conditions” shall mean any Release of any Hazardous Materials (whether or
not such Release constituted at the time thereof a violation of any
Environmental Laws) or any violation of any Environmental Law as a result of
which any Environmental Person has or may become liable to any Person or by
reason of which the business, condition or operations of such Environmental
Person or any of its assets or properties may suffer or be subjected to any Lien
or liability.

       

      “Environmental Laws”
shall mean all Applicable Laws relating to Hazardous Materials or the protection
of human health or the environment, including all requirements pertaining to
reporting, permitting, investigating or remediating Releases or threatened
Releases of Hazardous Materials into the environment, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials.  Without limiting the
generality of the foregoing, the term “Environmental Laws” shall include the
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
§ 9601, et seq.) (“CERCLA”), the
Hazardous Materials Transportation Act (49 U.S.C. § 1801, et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. § 6901, et seq.), the Federal Clean
Water Act (33 U.S.C. § 1251, et seq.), the Clean Air Act (42 U.S.C. § 7401, et
seq.), the Toxic Substances Control Act (15 U.S.C. § 2601, et seq.) and the
Occupational Safety and Health Act (29 U.S.C. § 651, et seq.), as such laws may
be amended from time to time, and any other present or future federal, state,
local or foreign statute, ordinance, rule, regulation, order, judgment, decree,
permit, license or request or binding determination of, or agreement with, any
Governmental Authority relating to or imposing liability or establishing
standards of conduct for the protection of human health or safety or the
environment.

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      “Environmental
Persons” shall mean, collectively (i) all Borrowers and any of their
Affiliates, (ii) any other Person in which any of the Persons listed in
clause (i) above was at any time, or is, a partner, joint venturer, member
or other participant, and (iii) any predecessor or former partnership,
joint venture, trust, association, corporation, limited liability company or
other Person, whether in existence as of the date hereof or at any time prior to
the date hereof, the assets, properties, liabilities or obligations of which
have been acquired or assumed by any of the Persons listed in clause (i)
above or to which any of the Persons listed in clause (i) above has
succeeded.  Environmental Persons shall not include any
individuals.

       

      “Equipment” shall have
the meaning ascribed to such term under the UCC.

       

      “ERISA” shall mean the
Employee Retirement Income Security Act of 1974, as amended, and any successor
statute, including the rules and regulations promulgated thereunder, in each
case as amended from time to time.

       

      “Event of Default”
shall have the meaning specified in Section 11.1.

       

      “Exchange Act” shall
mean the Securities Exchange Act of 1934, as amended from time to time, and the
rules and regulations promulgated thereunder.

       

      “Existing
Stockholders” shall mean the record owners of Caprius’ capital stock as
of the Closing Date.

       

      “Facility Fee” shall
have the meaning specified in Section 2.4.

       

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

       

      “Financing” shall have
the meaning specified in Recital B.

       

      “Fiscal Quarter” shall
mean any of the four quarters of a Fiscal Year.

       

      “Fiscal Year” shall
mean the fiscal year ending September 30.

       

      “Fully Diluted Basis”
shall mean, at any time, a basis that includes all Securities of a Person issued
and outstanding at such time and all additional Securities of that Person which
would be issued upon the conversion, purchase, exchange or exercise of all
Securities of the Person (a) outstanding at such time or
(b) authorized to be issued under any stock option or similar plan, and
where the number issued is measured on a Fully Diluted Basis including in the
denominator the new Securities to be issued.

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      “GAAP” shall mean
generally accepted accounting principles and practices set forth in the opinions
and pronouncements of the Accounting Principles Board and the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as may be approved by a significant segment of the accounting profession,
all as in effect from time to time, applied on a basis consistent with prior
periods.

       

      “Governmental
Authority” shall mean any nation or government, and any state or
political subdivision thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any court, tribunal or public or private arbitrator(s) of competent
jurisdiction, and any self-regulatory organization.

       

      “Guaranty” means a
guarantee of the Obligations in form and substance satisfactory to the Purchaser
in its sole and absolute discretion.

       

      “Hazardous Materials”
or “Hazardous
Substances” shall mean any substance (i) the presence of which
requires investigation or remediation under any Applicable Laws, (ii) that
is defined or becomes defined as a “hazardous waste” or “hazardous substance”
under any Applicable Laws (including, without limitation, all Environmental
Laws), (iii) that is toxic, explosive, corrosive, inflammable, infectious,
radioactive, carcinogenic, mutagenic, biohazardous or otherwise hazardous and is
or becomes regulated by any Governmental Authority, (iv) the presence of
which on any real property causes or threatens to cause a nuisance upon or
decrease in value of the real property or to adjacent properties or poses or
threatens to pose a hazard to any real property or to the health or safety of
Persons on or about any real property, or (v) that contains gasoline or
other petroleum hydrocarbons, polychlorinated biphenyls or
asbestos.

       

      “Holder” shall mean
any Person (including, without limitation, the Purchaser) in whose
name:  (i) the Note, (ii) any new note issued in connection
with any partial Assignment of the Note, or (iii) any PIK Notes issued or
deemed issued under the Note, is registered in the register required to be
maintained by the Borrowers pursuant to Section 8 of the Note.

       

      “Immediate Family” of
a Person includes such Person’s spouse, and any of such Person’s parents,
children and grandchildren, siblings and in-laws.

       

      “Indebtedness” shall
mean, without duplications, (i) indebtedness arising from the lending of
money by any Person to any Borrower, (ii) indebtedness, whether or not in
any such case arising from the lending by any Person of money to any Borrower,
(A) which is represented by notes payable or drafts accepted that evidence
extensions of credit, (B) which constitute obligations evidenced by bonds,
debentures, notes or similar instruments, or (C) upon which interest
charges are customarily paid, or that was issued or assumed as full or partial
payment for Property (other than accounts payable incurred in the ordinary
course of business and not past due by more than one hundred eighty (180)
days), businesses or assets, (iii) any Capitalized Lease Obligation,
(iv) reimbursement obligations with respect to letters of credit or
guaranties of letters of credit and (v) indebtedness of any Borrower under
any guaranty of obligations that would constitute indebtedness under clauses (i)
through (iii) hereof, if owed directly by such Borrower.

       

      “Indemnified Parties”
shall have the meaning specified in Section 8.2.

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      “Initial Approved
Budget” shall have the meaning specified in Section 2.5.

       

      “Initial Term” shall
mean the period from the Closing Date through the earliest of (a) the
issuance of the Warrant in accordance with the terms hereof, (b) the
ninetieth (90th) day following the Closing Date and (c) the occurrence of
an Event of Default that has not been waived by the Purchaser in its sole and
absolute discretion.

       

      “Initial Term Maximum
Availability” shall mean $1,000,000.

       

      “Intellectual
Property” shall mean all intellectual property, including, without
limitation, (i) inventions, whether or not patentable, whether or not
reduced to practice, and whether or not yet made the subject of a pending patent
application or applications, (ii) ideas, discoveries and conceptions of
potentially patentable subject matter, including, without limitation, any patent
disclosures, whether or not reduced to practice and whether or not yet made the
subject of a pending patent application or applications, (iii) national
(including the United States) and multinational statutory invention
registrations, patents, patent registrations and patent applications (including
all reissues, divisions, continuations, continuations-in-part, extensions and
reexaminations) and all rights therein provided by international treaties or
conventions and all improvements to the inventions disclosed in each such
registration, patent or application, (iv) trademarks, service marks, domain
names, trade dress, logos, trade names and corporate names, whether or not
registered, including all common law rights, and registrations and applications
for registration thereof, including, without limitation, all marks registered in
the United States Patent and Trademark Office, the trademark offices of the
states and other territories of the United States of America, and the trademark
offices of other nations throughout the world, and all rights therein provided
by international treaties or conventions, (v) copyrights (registered or
otherwise) and registrations and applications for registration thereof,
(vi) computer software, databases, works of authorship, mask works, source
codes, object codes, methodologies, (vii) trade secrets and confidential,
technical and business information (including ideas, formulas, compositions,
inventions, and conceptions of inventions whether patentable or unpatentable and
whether or not reduced to practice), (viii) whether or not confidential,
technology (including know-how and show-how), manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, models, plans, proposals, technical data, copyrightable
works, financial, marketing and business data, pricing and cost information,
business and marketing plans and customer and supplier lists and information,
(ix) copies and tangible embodiments of all the foregoing, in whatever form
or medium, (x) all rights to obtain and rights to apply for patents, and to
register trademarks and copyrights, and (xi) all rights to sue or recover
and retain damages and costs and attorneys’ fees for present and past
infringement of any of the foregoing.

       

      “Inventory” shall have
the meaning specified in Section 3.34.

       

      “Investment Documents”
shall mean, collectively, this Agreement, the Note, the PIK Notes, the
Collateral Documents, the Investment Monitoring Agreement and all other
agreements, instruments, certificates, closing and other letters and other
documents executed and/or delivered in connection herewith or therewith, in each
case as amended, restated, supplemented or otherwise modified from time to
time.

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      “Investment Monitoring
Agreement” shall mean that certain Investment Monitoring Agreement, of
even date herewith, by and among the Borrowers and the Purchaser, as amended,
restated, supplemented or otherwise modified from time to time, in substantially
the form attached hereto as Exhibit E.

       

      “Investments” shall
mean, as applied to any Person, (i) any direct or indirect acquisition by
such Person of Securities, other securities or other interests of, or
investments in, any other Person, or all or any substantial part of the business
or assets of any other Person, and (ii) any direct or indirect loan,
guarantee, gift, advance or capital contribution by such Person to any other
Person.

       

      “Judgment” shall mean
any money judgments, writs of attachment or similar processes, which are issued
or rendered against any Borrower, or any of their respective Property
(i) in the case of money judgments, in an amount of $10,000 or more for any
single judgment, attachment or process or $50,000 or more for all such
judgments, attachments or processes in the aggregate, in each case in excess of
any applicable insurance with respect to which the insurer has admitted
liability, and (ii) in the case of non-monetary judgments, such judgment or
judgments (in the aggregate) which would reasonably be expected to have a
Material Adverse Effect, in each case which judgment is not stayed, released,
insured, bonded or discharged within forty-five (45) days of
filing.

       

      “Key Management
Personnel” shall have the meaning specified in Section 9.18.

       

      “Knowledge” means the
knowledge of the officers of any Borrower after reasonable inquiry into the
subject matter.

       

      “Lien” shall mean any
lien (statutory or other), pledge, mortgage, deed of trust, assignment, deposit
arrangement, priority, security interest, option charge or encumbrance or other
preferential arrangement of any kind or nature whatsoever (including, without
limitation, the interest of a lessor under a Capital Lease having substantially
the same economic effect), any agreement to give or refrain from giving any
lien, pledge, mortgage, security interest, option charge or other encumbrance of
any kind, any conditional sale or other title retention agreement, any lease in
the nature thereof and the filing or existence of any financing statement or
other similar form of notice under the laws of any jurisdiction or any security
agreement authorizing any Person to file such a financing statement, whether
arising by contract, operation of law, or otherwise.

       

      “Losses” shall have
the meaning specified in Section 8.2.

       

      “Material Adverse
Effect” or “Material Adverse
Change” shall mean any material adverse effect on or material adverse
change in, as the case may be, (A) the business, assets, liabilities,
condition (financial or otherwise), properties (whether real, personal, or
otherwise), results of operations, value or performance of the Borrowers, taken
as a whole, (B) the ability of any Borrower to perform or observe its
obligations under this Agreement or any other Investment Document to which it is
a party or (C) the legality, binding effect, validity or enforceability of
this Agreement or any other Investment Document or the perfection or priority of
any Lien granted under any Collateral Document.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      “Material Contracts”
shall have the meaning specified in Section 3.11.

       

      “M.C.M.” shall have
the meaning specified in the preamble.

       

      “M.C.M. Israel” shall
have the meaning specified in the preamble.

       

      “M.C.M. UK” means
M.C.M. Environmental Technologies (U.K.), Ltd., a United Kingdom
corporation.

       

      “Monthly Reporting
Package” shall have the meaning specified in Section 9.4.

       

      “Multiemployer Plan”
shall have the meaning ascribed to such term by ERISA.

       

      “Note” shall have the
meaning specified in Recital C.

       

      “Obligations” shall
mean any and all present and future loans, Advances, Indebtedness, claims,
guarantees, liabilities or obligations of the Borrowers, or of any other Person
for or on behalf of the Borrowers, owing to the Purchaser, or any of their
Affiliates or any Indemnified Party, of whatever nature, character or
description, arising under or in connection with this Agreement, the Note, any
PIK Notes, the Collateral Documents and any other Investment Document or
otherwise, any and all agreements, instruments or other documents heretofore or
hereafter executed or delivered in connection with any of the foregoing, in each
case whether due or not due, direct or indirect, joint and/or several, absolute
or contingent, voluntary or involuntary, liquidated or unliquidated, determined
or undetermined, now or hereafter existing, amended, renewed, extended,
replaced, exchanged, restated, refinanced, refunded or restructured, whether or
not from time to time decreased or extinguished and later increased, created or
incurred, whether for principal, interest, premiums, fees, costs, expenses
(including, without limitation, attorneys’ fees, costs and expenses) or other
amounts incurred for administration, collection, enforcement or otherwise,
whether or not arising after the commencement of any proceeding under the
Bankruptcy Laws (including, without limitation, post-petition interest) and
whether or not allowed or allowable as a claim in any such proceeding, and
whether or not recovery of any such obligation or liability may be barred by any
statute of limitations or such Indebtedness, claim, liability or obligation may
otherwise be unenforceable.

       

      “Operating Licenses”
shall mean, collectively, all licenses, franchises, permits, consents,
approvals, registrations, certificates and authorizations of all Governmental
Authorities necessary or advisable to the conduct of the Business.

       

      “Other Debt Document”
shall mean any agreement, instrument or other document evidencing or governing
any Indebtedness of any Borrower, other than the Note, the PIK Notes and any
other Investment Document.

       

      “Patent Security
Agreement” shall mean a patent security agreement, as amended, restated,
supplemented or otherwise modified from time to time, in substantially the form
attached hereto as Exhibit C.

       

      “Permitted Liens”,
with respect to any Borrower, shall have the meaning set forth in Section 10.5.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      “Permitted Third Party
Refinancing” shall have the meaning specified in Section 10.22(c).

       

      “Person” shall mean
any individual, trustee, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, limited liability
company, or other entity or any Governmental Authority.

       

      “PIK Notes” shall mean
those subordinated secured promissory notes of equal tenor to the Note issued or
deemed issued pursuant to the terms of the Note.

       

      “Pledge Agreement”
shall mean that certain Pledge Agreement of even date herewith by and among the
Borrowers and the Purchaser, as amended, restated, supplemented or otherwise
modified from time to time, in substantially the form attached hereto as Exhibit D.

       

      “Premises” shall mean
any and all Real Property, including all buildings and improvements now or
hereafter located thereon and all appurtenances thereto, now or hereafter owned,
leased, occupied or used by the Borrowers.

       

      “Prohibited
Acquisition” shall have the meaning specified in Section 10.22(a).

       

      “Prohibited Financing”
shall have the meaning specified in Section 10.22(b).

       

      “Projections” means
the forecasted Consolidated (i) balance sheets, (ii) profit and loss
statements, (iii) cash flow statements, (iv) capitalization statements
of the Borrowers, all prepared on a consistent basis with the historical
financial statements of the Borrowers, together with appropriate supporting
details and a statement of underlying assumptions.

       

      “Property” means any
interest in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible.

       

      “Purchaser” shall have
the meaning specified in the preamble.

       

      “Purchaser Closing
Period” shall have the meaning specified in Section 10.22(c).

       

      “Real Property” shall
mean any and all real property now or hereafter owned, leased or operated by any
Borrower.

       

      “Refinancing Fee”
shall have the meaning specified in Section 2.4.

       

      “Release” shall mean
any release (whether threatened or actual), migration, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping, seeping,
leaching, dumping or disposing into the environment or the workplace of any
Hazardous Materials, and otherwise as defined in any Environmental
Laws.

       

      “Reportable Event”
shall mean any of the events set forth in Section 4043 of
ERISA.

       

      “Requisite Holders”
shall have the meaning specified in Section 14.2.

       

      
        
          
          

        

        
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      “Restricted
Investment” shall mean any Investments in any Person that are made
without the prior written approval of the Purchaser, other than
(i) Investments by any Borrower in another Borrower and
(ii) Investments which represent Capital Expenditures permitted
hereunder.

       

      “Right of First
Refusal” shall have the meaning specified in Section 10.22(c).

       

      “Sale and Leaseback
Transaction” shall mean any transaction in which any Borrower becomes
liable, directly or indirectly, with respect to any lease, whether an operating
lease or a Capital Lease, of any property (whether real, personal or mixed),
whether now owned or hereafter acquired, (i) which any Borrower has sold or
transferred or is to sell or transfer to any other Person or (ii) which any
Borrower intends to use for substantially the same purposes as any other
property which has been or is to be sold or transferred by any Borrower to any
other Person in connection with such lease.

       

      “Sassoon Settlement
Amount” shall mean that certain payment in the amount of $90,000 to be
made by the Borrowers pursuant to the terms of the Sassoon Settlement
Agreement.

       

      “Sassoon Settlement
Agreement” shall mean that certain Release and Settlement Agreement,
dated as of June 22, 2009, by and among Andre Sassoon and Andre Sassoon
International, Inc., on the one hand, and M.C.M., Caprius and George Aaron, on
the other hand, as amended.

       

      “Securities Act” shall
mean the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder, all as the same shall be in effect from time to
time.

       

      “Security” shall mean
all shares of stock, partnership interests, membership interests or units or
other ownership interests in any other Person and all warrants, options or other
rights to subscribe for or purchase, or obligations to issue, the same, any
Convertible Securities of such Person, including, without limitation, any
options or similar rights issued or issuable under any employee stock option
plan, pension plan or other employee benefit plan of such Person, or any plan
for, or other rights to, phantom stock or other arrangement intended to result
in payments by such Person which track or reflect the value (or change in value)
of the same.

       

      “Security Agreement”
shall mean that certain Security Agreement, dated as of the date hereof, by and
among the Borrowers and the Purchaser, as amended, restated, supplemented or
otherwise modified from time to time, in substantially the form attached hereto
as Exhibit F.

       

      “Site” shall mean any
real property previously, currently or hereafter owned, leased or operated by
any Environmental Person in connection with the operation of the
Business.

       

      “Solvent” shall mean,
with respect to any Person, on the date of determination, that (i) the
present fair saleable value of the assets of such Person in an arm’s-length
transaction will exceed the amount that will be required to be paid on or with
respect to the probable liability on the existing debts (whether matured or
unmatured, liquidated or unliquidated, absolute, fixed or contingent) of such
Person as they become absolute and matured, (ii) the sum of the debts
(whether matured or unmatured, liquidated or unliquidated, absolute, fixed or
contingent) of such Person will not exceed all of the property of such Person at
a fair valuation, and (iii) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person’s ability to
pay such debts and liabilities as they mature.  For purposes of the
preceding sentence, the amount of Contingent Obligations at any time shall be
computed as the amount that, in the light of all the facts and circumstances
existing at such time, represents the amount that are reasonably expected to
become an actual or matured liability.

       

      
        
          
          

        

        
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      “Stockholder Consent”
shall mean a written consent, duly executed and delivered by the holders of at
least sixty-six percent (66%) of each class of preferred stock of Caprius that
is outstanding immediately prior to the Closing, pursuant to which such
preferred stockholders acknowledge and consent to the consummation of the
transactions contemplated by this Agreement and the other Investment
Documents.

       

      “Subordinated Debt”
shall mean any Indebtedness of any Borrower that is subordinated to the
Obligations in a manner reasonably satisfactory to the Purchaser and contains
terms, including, without limitation, payment terms, reasonably satisfactory to
the Purchaser.

       

      “Subsequent Approved
Budget” shall have the meaning set forth in Section 2.5.

       

      “Subsequent Term”
shall mean the period from the termination of the Initial Term, other than as a
result of the occurrence of an Event of Default that has not been waived by the
Purchaser in its sole and absolute discretion, through the earlier of
(a) the Maturity Date (as such term is defined in the Note) and
(b) the occurrence of an Event of Default that has not been waived by the
Purchaser in its sole and absolute discretion; provided, however, that the
Subsequent Term shall not commence to the extent that an Event of Default has
occurred and is continuing as of the date such period otherwise would have
commenced.

       

      “Subsequent Term Maximum
Availability” shall mean $2,000,000.

       

      “Subsidiary” and
“Subsidiaries”
shall mean, with respect to any specified Person, any other Person of which more
than fifty percent (50%) of the total voting power of Securities entitled
to vote (without regard to the occurrence of any contingency) in the election of
directors (or other Persons performing similar functions) are at the time
directly or indirectly owned by such specified Person or such specified Person
otherwise controls such other Person.  Unless otherwise indicated, the
term “Subsidiary” refers to any direct or indirect Subsidiary of Caprius that
may be formed or acquired in the future.

       

      “Tax” or “Taxes” shall mean any
present and future income, excise, sales, use, stamp or franchise taxes and any
other taxes, fees, duties, levies, or other charges of any nature whatsoever
imposed by any taxing Governmental Authority, whether federal, state, local or
foreign, together with any interest and penalties thereon.

       

      “Third Party Intellectual
Property Rights” shall have the meaning set forth in Section 3.21.

       

      “UCC” shall mean the
Uniform Commercial Code as in effect in the State of New York from time to
time.

       

      
        
          
          

        

        
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      “Voting Stock” of a
Person shall mean all classes of Securities of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees (or persons performing
similar functions) thereof.

       

      “Warrant” shall have
the meaning specified in Section 6.3.

       

      1.2           Accounting Terms and
Computations.  For purposes of this Agreement, (i) all
accounting terms used in this Agreement that are not expressly defined herein
have the meanings given to them under GAAP, (ii) all computations made
pursuant to this Agreement or any other Investment Document shall be made in
accordance with GAAP, (iii) all financial statements and other financial
information to be delivered by the Borrowers hereunder or under any other
Investment Document shall be prepared in accordance with GAAP, except that any
interim financial statements or other financial information which are unaudited
may be subject to year-end audit adjustments and may omit footnotes and
(iv) all computations, financial statements and other financial information
of the Borrowers hereunder shall be determined on a consolidated basis in
accordance with GAAP.

       

      1.3           Covenants.  All
covenants and agreements under this Agreement shall each be given independent
effect so that if a particular action or condition is not permitted by any such
covenant, the fact that it would be permitted by another covenant, by an
exception thereto, or be otherwise within the limitations thereof, shall not
avoid the occurrence of a Default or an Event of Default if such action is taken
or condition exists.

       

      1.4           Captions; Construction and
Interpretation.  The captions in this Agreement are for
convenience of reference only, do not constitute a part of this Agreement and
are not to be considered in construing or interpreting this
Agreement.  All section, preamble, recital, exhibit, schedule,
disclosure schedule, annex, clause and party references are to this Agreement
unless otherwise stated.  No party, nor its counsel, shall be deemed
the drafter of this Agreement for purposes of construing the provisions of this
Agreement, and all provisions of this Agreement shall be construed in accordance
with their fair meaning, and not strictly for or against any party.

       

      1.5           Determinations.  Any
determination or calculation contemplated by this Agreement or any other
Investment Document that is made by the Purchaser shall be final and conclusive
and binding upon the Borrowers in the absence of manifest error.

       

      2.           PURCHASE AND SALE OF THE
NOTE

       

      2.1           Authorization.  The
Borrowers have authorized the issuance and sale to the Purchaser of the Note, in
substantially the form of Exhibit A, on
the terms and subject to the conditions set forth herein.  The
Borrowers have each also authorized the grant to the Purchaser of a
first-priority security interest in all of their respective Properties in
accordance with the Collateral Documents, subject only to Permitted
Liens.

       

      2.2           Closing.  Subject
to the satisfaction or valid waiver of the conditions set forth in Section 5
hereof, the closing of the purchase and sale of the Note described in Section 2.1
above (the “Closing”) shall take
place at the offices of Klee, Tuchin, Bogdanoff & Stern LLP, 1999 Avenue of
the Stars, 39th Floor, Los Angeles, California, on the Business Day after which
all conditions to Closing set forth herein are satisfied or waived, or at such
other time, date and place as the Borrowers and the Purchaser otherwise may
agree (the “Closing
Date”).

       

      
        
          
          

        

        
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      2.3           Closing
Actions.  At the Closing, the Borrowers shall deliver the
executed Note to the Purchaser and the Purchaser shall make the Advances
described in Section 2.4 and
as requested pursuant to Section 2.5.

       

      2.4           Fees and
Expenses.

       

      2.4.1 The
Borrowers shall jointly and severally pay to the Purchaser a fee equal to
$250,000 (the “Closing
Fee”) in connection with the issuance and sale of the Note under this
Agreement.  The Closing Fee shall be fully earned as of the date
hereof and shall be due and payable in full on the Closing Date.  The
Borrowers acknowledge and agree that they shall be deemed to have requested an
Advance on the Closing Date in an amount equal to the Closing
Fee.  Such Closing Fee shall be in addition to any other amounts the
Borrowers may owe to the Purchaser or its Affiliates from time to time under any
Investment Document or any other agreement or arrangement, and shall not reduce
the Initial Term Maximum Availability or the Subsequent Term Maximum
Availability.  Notwithstanding the foregoing, upon the issuance of the
Warrant to the Purchaser and so long as no Event of Default has occurred and is
continuing or would result therefrom, the Purchaser shall waive its right to
payment of $125,000 of the Closing Fee and such amount shall be deemed to be
refunded to the Borrowers.

       

      2.4.2 The
Borrowers shall jointly and severally pay to the Purchaser a fee equal to
$60,000 (the “Facility
Fee”) in connection with the issuance and sale of the Note under this
Agreement.  The Facility Fee shall be fully earned as of the date
hereof and shall be due and payable in full on the date that is ninety (90)
days after the Closing Date.  The Borrowers acknowledge and agree that
they shall be deemed to have requested an Advance on the ninetieth (90th)
day after the Closing Date in an amount equal to the Facility
Fee.  Such Facility Fee shall be in addition to any other amounts the
Borrowers may owe to the Purchaser or its Affiliates from time to time under any
Investment Document or any other agreement or arrangement.

       

      2.4.3 On
the Closing Date, the Borrowers shall jointly and severally pay or cause to be
paid all of the Purchaser’s reasonable fees, costs and expenses, including all
fees, costs and expenses of the Purchaser’s legal counsel, incurred in
connection with the evaluation, negotiation and documentation of the
transactions contemplated by the Investment Documents.  The Borrowers
acknowledge and agree that they shall be deemed to have requested an Advance on
the Closing Date in an amount equal to such fees, costs and
expenses.  Such fees, costs and expenses shall be in addition to any
other amounts the Borrowers may owe to the Purchaser or its Affiliates from time
to time under any Investment Document or any other agreement or
arrangement.

       

      2.4.4 If
the Note is paid in full at any time on or after the Maturity Date, other than
in connection with a refinancing with the Purchaser or its Affiliates, the
Borrowers shall jointly and severally pay to the Purchaser a fee equal to
$125,000 (the “Refinancing Fee”) in
connection with such payment in full, the Refinancing Fee shall be fully earned
as of the date hereof and shall be due and payable in full on the date of any
such payment in full.  Such Refinancing Fee shall be in addition to
any other amounts the Borrowers may owe to the Purchaser or its Affiliates from
time to time under any Investment Document or any other agreement or
arrangement.

       

      
        
          
          

        

        
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      2.5           Funding, Use of
Proceeds.

       

      2.5.1
Attached hereto as Schedule 2.5(a)
is a budget for the Borrowers prepared by the Borrowers for the Initial Term,
which has been approved by the Purchaser (the “Initial Approved
Budget”).  From time to time during the Initial Term, the
Administrative Borrower may request that the Purchaser fund Advances under the
Note to or on behalf of the Borrowers, which request shall be in the form of a
Disbursement Request and specify the principal amount of the proposed Advance
and the item(s) in the Initial Approved Budget to which the request
relates.  The Purchaser shall fund Disbursement Requests not later
than three (3) Business Days following receipt thereof; provided, that any
Disbursement Request received by the Purchaser after 11:00 a.m.
(Los Angeles time) on any Business Day (or received at any time on a day
that is not a Business Day) shall be deemed to have been received on the next
succeeding Business Day.  The Purchaser shall not be obligated to fund
any Advance requested while an Event of Default has occurred and is continuing
unless it elects to do so in its sole and absolute discretion.  In no
event during the Initial Term shall (a) the Administrative Borrower request
an Advance for any item(s) other than in accordance with the Initial Approved
Budget, (b) the Administrative Borrower request any Advances more
frequently than on the Closing Date and each two week anniversary of the Closing
Date and (c) the aggregate amount of Advances under the Note (exclusive of
Advances deemed to be requested pursuant to Section 2.4)
made during the Initial Term exceed the Initial Term Maximum
Availability.

       

      2.5.2
Attached hereto as Schedule 2.5(b)
is a budget for the Borrowers prepared by the Borrowers for the Subsequent Term
which has been approved by the Purchaser (the “Subsequent Approved
Budget”).  From time to time during the Subsequent Term, if
any, the Administrative Borrower may request that the Purchaser fund Advances
under the Note to or on behalf of the Borrowers, which request shall be in the
form of a Disbursement Request and specify the principal amount of the proposed
Advance and the item(s) in the Subsequent Approved Budget to which the request
relates.  The Purchaser shall fund Disbursement Requests not later
than three (3) Business Days following receipt thereof; provided, that any
Disbursement Request received by the Purchaser after 11:00 a.m.
(Los Angeles time) on any Business Day (or received at any time on a day
that is not a Business Day) shall be deemed to have been received on the next
succeeding Business Day.  The Purchaser shall not be obligated to fund
any Advance requested while an Event of Default has occurred and is continuing
unless it elects to do so in its sole and absolute discretion.  In no
event during the Subsequent Term, if any, shall (a) the Administrative
Borrower request an Advance for any item(s) other than in accordance with the
Subsequent Approved Budget, (b) the Administrative Borrower request any
Advances more frequently than on the first day of the Subsequent Term and each
two week anniversary thereof and (c) the aggregate amount of Advances under
the Note made during the Subsequent Term exceed the Subsequent Term Maximum
Availability.

       

      
        
          
          

        

        
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      2.6           Joint and Several Liability
of the Borrowers.

       

      2.6.1
Notwithstanding anything in this Agreement or any other Investment Document to
the contrary, each of the Borrowers hereby accepts joint and several liability
hereunder and under the other Investment Documents in consideration of the
financial accommodations to be provided by the Purchaser under this Agreement
and the other Investment Documents, for the mutual benefit, directly and
indirectly, of each of the Borrowers and in consideration of the undertakings of
the other Borrowers to accept joint and several liability for the
Obligations.  Each of the Borrowers, jointly and severally, hereby
irrevocably and unconditionally accepts, not merely as a surety but also as a
co-debtor, joint and several liability with the other Borrowers, with respect to
the payment and performance of all of the Obligations (including, without
limitation, any Obligations arising under this Section 2.6), it
being the intention of the parties hereto that all of the Obligations shall be
the joint and several obligations of each of the Borrowers without preferences
or distinction among them.  If and to the extent that any of the
Borrowers shall fail to make any payment with respect to any of the Obligations
as and when due or to perform any of the Obligations in accordance with the
terms thereof, then in each such event the other Borrowers will make such
payment with respect to, or perform, such Obligation.  Subject to the
terms and conditions hereof, the Obligations of each of the Borrowers under the
provisions of this Section 2.6
constitute the absolute and unconditional, full recourse Obligations of each of
the Borrowers, enforceable against each such Borrower to the full extent of its
properties and assets, irrespective of the validity, regularity or
enforceability of this Agreement, the other Investment Documents or any other
circumstances whatsoever.

       

      2.6.2 The
provisions of this Section 2.6 are
made for the benefit of the Purchaser and its successors and assigns, and may be
enforced by them from time to time against any or all of the Borrowers as often
as occasion therefor may arise and without requirement on the part of the
Purchaser or such successors or assigns first to marshal any of its or their
claims or to exercise any of its or their rights against any of the other
Borrowers or to exhaust any remedies available to it or them against any of the
other Borrowers or to resort to any other source or means of obtaining payment
of any of the Obligations hereunder or to elect any other remedy.  The
provisions of this Section 2.6
shall remain in effect until all of the Obligations shall have been paid in full
or otherwise fully satisfied.

       

      2.6.3
Each of the Borrowers hereby agrees that it will not enforce any of its rights
of contribution or subrogation against the other Borrowers with respect to any
liability incurred by it hereunder or under any of the other Investment
Documents, any payments made by it to the Purchaser with respect to any of the
Obligations or any Collateral, until such time as all of the Obligations have
been paid in full in cash.  Any claim which any Borrower may have
against any other Borrower with respect to any payments to the Purchaser
hereunder or under any other Investment Documents are hereby expressly made
subordinate and junior in right of payment, without limitation as to any
increases in the Obligations arising hereunder or thereunder, to the prior
payment in full in cash of the Obligations.

       

      2.6.4 The
liability of each Borrower hereunder shall be irrevocable, absolute and
unconditional irrespective of, and each Borrower hereby irrevocably waives any
defenses it may now or hereafter have in any way relating to, any or all of the
following:

       

      (a)           any
lack of validity or enforceability of any Investment Document or any agreement
or instrument relating thereto;

       

      
        
          
          

        

        
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      (b)           any
change in the time, manner or place of payment of, or in any other term of, all
or any of the Obligations, or any other amendment or waiver of or any consent to
departure from any Investment Document, including, without limitation, any
increase in the Obligations resulting from the extension of additional credit to
any Borrower or otherwise;

       

      (c)           any
taking, exchange, release or non-perfection of any Collateral, or any taking,
release or amendment or waiver of or consent to departure from any other
guaranty, for all or any of the Obligations;

       

      (d)           the
existence of any claim, set-off, defense or other right that any Borrower may
have at any time against any Person, including, without limitation, the
Purchaser;

       

      (e)           any
change, restructuring or termination of the corporate, limited liability company
or partnership structure or existence of any Borrower; or

       

      (f)           any
other circumstance (including, without limitation, any statute of limitations)
or any existence of or reliance on any representation by the Purchaser that
might otherwise constitute a defense available to, or a discharge of, any
Borrower or any other guarantor or surety.

       

      2.6.5
Each Borrower hereby waives (a) promptness and diligence, (b) notice
of acceptance and any other notice with respect to any of the Obligations and
this Section 2.6 and
any requirement that the Purchaser exhaust any right or take any action against
any Borrower or any other Person or any Collateral, (c) any right to compel
or direct the Purchaser to seek payment or recovery of any amounts owed under
this Section 2.6 from
any one particular fund or source or to exhaust any right or take any action
against any other Borrower, any other Person or any Collateral, (d) any
requirement that the Purchaser protect, secure, perfect or insure any security
interest or Lien on any property subject thereto or exhaust any right to take
any action against any Borrower, any other Person or any Collateral, and
(e) any other defense available to any Borrower.  Each Borrower
agrees that the Purchaser shall have no obligation to marshal any assets in
favor of any Guarantor or against, or in payment of, any or all of the
Obligations.  Each Guarantor acknowledges that it will receive direct
and indirect benefits from the financing arrangements contemplated herein and
that the waiver set forth in this Section 2.6 is
knowingly made in contemplation of such benefits.  Each Borrower
hereby waives any right to revoke this Section 2.6, and
acknowledges that this Section 2.6 is
continuing in nature and applies to all Obligations, whether existing now or in
the future.

       

      This
Section 2.6
shall continue to be effective or be reinstated, as the case may be, if at any
time any payment of any of the Obligations is rescinded or must otherwise be
returned by the Purchaser, or any other Person upon the insolvency, bankruptcy
or reorganization of any Borrower or otherwise, all as though such payment had
not been made.

       

      
        
          
          

        

        
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      2.7           Administrative
Borrower.  Each Borrower hereby irrevocably appoints Caprius as
the borrowing agent for all the Borrowers (the “Administrative
Borrower”), which appointment shall remain in full force and effect
unless and until the Purchaser shall have received prior written notice signed
by each Borrower that such appointment has been revoked and that another
Borrower has been appointed Administrative Borrower.  Each Borrower
hereby irrevocably appoints and authorizes the Administrative Borrower
(a) to provide the Purchaser with all Disbursement Requests and other
notices with respect to Advances obtained for the benefit of any Borrower and
(b) to take such action as the Administrative Borrower deems appropriate on
its behalf to obtain Advances.  It is understood that the handling of
the loan account of the Borrowers in a combined fashion, as more fully set forth
herein, is done solely as an accommodation to the Borrowers in order to utilize
the collective borrowing powers of the Borrowers in the most efficient and
economical manner and at their request, and that the Purchaser shall not incur
liability to any Borrower as a result hereof.  Each Borrower expects
to derive benefit, directly or indirectly, from the handling of its loan account
in a combined fashion since the successful operation of each Borrower is
dependent upon the continued successful performance of the integrated
group.  To induce the Purchaser to do so, and in consideration
thereof, each Borrower hereby jointly and severally agrees to indemnify the
Purchaser and to hold the Purchaser harmless against any and all liability,
cost, expense, loss or claim of damage or injury, made against the Purchaser by
any Borrower or by any third party whosoever, arising from or incurred by reason
of (a) the handling of the Borrowers’ loan account as herein provided or
(b) the Purchaser’s relying on any instructions of the Administrative
Borrower, except that the Borrowers will have no liability to the Purchaser
under this Section 2.7 with
respect to any liability to the extent that such liability has been caused by
the Purchaser’s willful misconduct or gross negligence.

       

      3.           REPRESENTATIONS AND
WARRANTIES OF THE BORROWERS

       

      In
connection with the following representations and warranties, the Borrowers have
delivered to the Purchaser disclosure schedules as attached hereto (the “Disclosure
Schedules”), arranged in numbered parts corresponding to the numbering in
this Agreement of the following representations and warranties.  The
information disclosed in any numbered part shall be deemed to relate to and to
qualify the particular representation or warranty set forth in the corresponding
numbered section in this Agreement.  Information disclosed that is
applicable to more than one numbered section shall be clearly cross-referenced,
provided that the information may be deemed to relate to another numbered
section, notwithstanding the absence of a cross-reference, if it is clear from
the nature of the information disclosed that another representation or warranty
should be modified by such disclosure.  To induce the Purchaser to
purchase the Note under this Agreement and to consummate the transactions
contemplated hereby and by the other Investment Documents, the Borrowers,
jointly and severally, represent and warrant to the Purchaser that, except as
expressly set forth in the respective Disclosure Schedules:

       

      3.1           Organization and
Qualification.  Each Borrower is duly organized, validly
existing and in good standing under the laws of the state of its
organization.  Each Borrower has all requisite power and authority,
and all Operating Licenses, necessary to own or lease and operate its properties
and assets and to carry on its business as now conducted and as proposed to be
conducted, is duly qualified or licensed to do business in each jurisdiction in
which the character of the properties or assets owned, leased or operated by
them or the nature of the activities conducted makes such qualification or
licensing necessary, except where the failure to be so qualified or licensed
could not reasonably be expected to result in a Material Adverse
Effect.  Schedule 3.1
shows the jurisdiction of organization of each Borrower and the jurisdictions in
which it is qualified to do business.

       

      
        
          
          

        

        
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      3.2           Corporate or Other
Power.  Each Borrower has the requisite power and authority to
execute, deliver and perform their respective obligations under this Agreement
and all other Investment Documents to which it is a party, including, without
limitation, the power and authority to issue, sell, and deliver the Note to be
issued and sold by such Borrower to the Purchaser hereunder and grant the
security interests as set forth herein and in the applicable Collateral
Documents.

       

      3.3           Authorization; Binding
Obligations.  The execution, delivery and performance of this
Agreement and each of the other Investment Documents to which any Borrower is a
party, the issuance, sale, and delivery of the Note by the Borrowers as
contemplated hereunder, and the consummation of the other transactions
contemplated hereby and thereby have been duly authorized by all requisite
action on the part of the Borrowers, as applicable, and by the stockholders and
Boards of Directors of the Borrowers, as applicable.  This Agreement
has been duly executed and delivered by the Borrowers and, at the Closing, each
of the other Investment Documents will be duly executed and delivered by the
Borrowers to the extent that any of them is a party thereto.  This
Agreement is, and each other Investment Document will at the Closing be, a
legal, valid and binding obligation of the Borrowers to the extent that any of
them is a party thereto, enforceable against the Borrowers in accordance with
its terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors’
rights generally or by equitable principles relating to
enforceability.

       

      3.4           Subsidiaries.  Except
as described in Schedule 3.4,
the Borrowers have no Subsidiaries and own or hold no securities of any other
Person.  The Borrowers do not have any joint venture relationships or
hold any partnership interests.

       

      3.5           Conflict with Other
Instruments; Existing Defaults.

       

      3.5.1 The
execution, delivery and performance of this Agreement and of each other
Investment Document to which any Borrower is a party, the issuance, sale, and
delivery by the Borrowers of the Note, and the consummation of the other
transactions contemplated hereby and thereby do not and will not
(i) violate or conflict with (A) the Charter Documents of any
Borrower, in each case as in effect on the date hereof, (B) any term of any
lease, credit agreement, indenture, note, mortgage, instrument or other
agreement to which any Borrower is a party or by which any of its or their
properties or assets are bound (including, without limitation, any Material
Contract or Other Debt Document), or any agreement with respect to Intellectual
Property, which violation or conflict, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect, or (C) any
Applicable Laws, or (ii) result in, or require, the creation or imposition
of any Lien upon or with respect to any of the assets or properties now owned or
hereafter acquired by any Borrower.

       

      3.5.2
After giving effect to the consummation of the transactions contemplated hereby,
no Borrower is in default, breach or violation of (i) its Charter
Documents, as in effect as of the date hereof, (ii) any lease, credit
agreement, indenture, note, mortgage, instrument or other agreement to which it
is a party or by which any of its properties or assets are bound (including,
without limitation, any Material Contract or Other Debt Document or any
agreement with respect to Intellectual Property) or (iii) any Applicable
Laws, the violation of which could reasonably be expected to have a Material
Adverse Effect and the Borrowers will not be in breach of violation thereof both
before and after giving effect to the issuance of the Note and the consummation
of the transactions contemplated hereby and by the other Investment
Documents.  Without limiting the generality of the foregoing, after
giving effect to the consummation of the transactions contemplated hereby, there
does not exist any “default” or “event of default” (in each case as defined in
any Other Debt Document) or any default under any other credit or financing
agreement to which any Borrower is a party or by which any of their respective
properties or assets are bound.

       

      
        
          
          

        

        
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      3.5.3 No
Indebtedness of any Borrower ranks senior to or pari passu with the Indebtedness
evidenced by the Note.

       

      3.6           Governmental and Other Third
Party Consents.  Except for the Consents listed in Schedule 3.6, no
Borrower is required to obtain any Consent from, or is required to make any
declaration or filing with, any Governmental Authority or any other Person
(including shareholders or partners) in connection with the execution, delivery
and performance of this Agreement or any other Investment Document, including,
without limitation, the issuance, sale, and delivery of the Note, or for the
purpose of maintaining in full force and effect any Operating
Licenses.  Each of the Consents which have been obtained or made in
connection with the execution, delivery and performance of this Agreement or any
other Investment Document is in full force and effect.  The time
within which any administrative or judicial appeal, reconsideration, rehearing
or other review of any such Consent from any Governmental Authority may be taken
or instituted has lapsed, and no such appeal, reconsideration or rehearing or
other review has been taken or instituted.

       

      3.7           Capitalization.

       

      3.7.1
Schedule 3.7(a)
sets forth a true, correct and complete description of the authorized Securities
and Convertible Securities of each Borrower and the number of shares or
securities of each class of Securities that is issued and outstanding prior to
the consummation of the transactions set forth in this Agreement and shows the
record and beneficial owners of shares issued by each Borrower.  Schedule 3.7(a)
also sets forth the number of shares of common stock of the Borrowers as of such
time on a Fully Diluted Basis assuming the exercise or conversion in full of all
Convertible Securities.

       

      3.7.2
Schedule 3.7(b)
sets forth a true, correct and complete description of the authorized Securities
and Convertible Securities of each Borrower and the number of shares or
securities of each class of Securities that will be issued and outstanding after
the Closing Date, giving effect to the transactions set forth in this Agreement,
including the anticipated record and beneficial owners of such
Securities.  Schedule 3.7(b)
also sets forth the number of shares of common stock of the Borrowers as of such
time on a Fully Diluted Basis assuming the exercise or conversion in full of all
Convertible Securities.

       

      
        
          
          

        

        
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      3.7.3
Except as set forth on Schedule 3.7(c),
(i) all of the issued and outstanding ownership interests or shares of
capital stock, as applicable, of each Borrower have been duly authorized and are
validly issued, fully paid and non-assessable, and are free and clear of any
Liens and other restrictions including any restrictions on the right to vote,
sell or otherwise dispose of such interests or capital stock other than
restrictions under applicable securities laws and the holders thereof do not
have any preemptive or other similar rights to subscribe for or to purchase any
such interests or capital stock, (ii) except for the Investment Documents,
there are (A) no voting trusts or other agreements or undertakings with
respect to the voting of the Securities of any Borrower and (B) no
agreements to which the Borrowers or any of their respective stockholders,
directors or officers, is a party granting any other Person any rights of first
offer or first refusal, registration rights or “drag-along,” “tag-along” or
similar rights with respect to any transfer of any Securities of the Borrowers
to which any Borrower is a party or of which any Borrower has Knowledge,
(iii) no obligations (whether fixed or contingent) on the part of any
Borrower, any of their respective directors or officers, or any other Person
exist with respect to the purchase, repurchase or redemption of any outstanding
Securities of any Borrower, (iv) no additional ownership interests or
shares of capital stock of the Borrowers will become issuable to any Person
pursuant to any “anti-dilution” provisions of any such issued and outstanding
Security of a Borrower on account of the issuance of the Note, and (v) no
Borrower has issued any Convertible Securities or authorized the issuance of any
Convertible Securities.  All Securities of each Borrower that have
been issued have been issued and offered in compliance in all material respects
with all applicable federal and state securities laws.

       

      3.8           Names; Business
Locations.

       

      3.8.1 No
Borrower has been known as or has used any legal, fictitious or trade names,
except those listed on Schedule 3.8
hereto.  Except as set forth on Schedule 3.8, no
Borrower has been the surviving entity of a merger or consolidation or has
acquired all or substantially all of the assets of any Person.

       

      3.8.2
Each Borrower’s chief executive office and other places of business as of the
date hereof are as listed on Schedule 3.8
hereto.  During the preceding one-year period, none of the Borrowers
has had an office or place of business other than as listed on Schedule 3.8.  The
Borrowers do not maintain Collateral at any client site or other location other
than those listed on Schedule 3.8.  Except
as shown on Schedule 3.8, as
of the date hereof, no Inventory is stored with a bailee, distributor,
warehouseman or similar party, nor is any Inventory consigned to any
Person.

       

      3.9           Financial
Statements.  The Borrowers have delivered to the Purchaser, and
attached as Schedule 3.9(a)
are, true and complete copies of (a) the unaudited consolidated balance
sheets of the Borrowers as of September 30, 2008, and the related
statements of operations and cash flows for the fiscal years then ended,
(b) the unaudited consolidated balance sheet of the Borrowers as of
June 30, 2009, and the related statements of operations and cash flows for
the five-month period then ended (collectively, the “Financial
Statements”).  The Financial Statements (i) present fully
and fairly the financial position and results of operations of the respective
Borrowers, as applicable, as of the dates of such statements and for the periods
covered thereby and (ii) except as set forth on Schedule 3.9(b),
were prepared in accordance with GAAP, applied on a consistent basis with past
practice throughout the periods covered thereby.  Except as set forth
on Schedule 3.9,
there is no Contingent Obligation or other liability material to any Borrower
that is not reflected on the face of the balance sheets of the Borrowers
referenced above, other than liabilities incurred in the ordinary course of
business since that date consistent with past practice.

       

      
        
          
          

        

        
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      3.10           Absence of Certain
Changes.  Except as set forth on Schedule 3.10 or
with respect to the transactions set forth in this Agreement, since
September 30, 2008, through the date of this Agreement and, if later, the
Closing, there has not been:

       

      3.10.1
Any transaction involving any Borrower not in the ordinary course of business,
including, without limitation, any sale of any assets or properties (other than
the sale of inventory in the ordinary course of business);

       

      3.10.2
Any declaration, setting aside or payment of any dividend or other distribution
or payment (whether in cash, stock or property) with respect to the Securities
of any Borrower, or any redemption, purchase or other acquisition of Securities
of any Borrower, or (other than salary payments in the ordinary course of
business) any payment to any stockholder of any Borrower not in his, her or its
capacity as a stockholder;

       

      3.10.3
Any damage, destruction or loss whether or not covered by insurance, to any
material assets or properties of any Borrower;

       

      3.10.4
Any Material Adverse Change with respect to any Borrower;

       

      3.10.5
Any loan or advance made by any Borrower to any Person, except normal travel
advances or other reasonable business expense advances made in the ordinary
course of business to its own employees;

       

      3.10.6
Any Indebtedness incurred by any Borrower or any commitment to incur
Indebtedness entered into by any Borrower;

       

      3.10.7
Any commitments to make Capital Expenditures by a Borrower with amounts to be
paid post-Closing in excess of $10,000 individually or $50,000 in the
aggregate;

       

      3.10.8
Any indemnity or other claims made by any Borrower (or the resolution of any
pending claims) with respect to or in connection with any acquisition or sale or
other disposition, whether direct or indirect, of the Securities, business or
assets of any other Person;

       

      3.10.9
Any amendment or other modification to the Charter Document of any
Borrower;

       

      3.10.10
The formation or creation of any direct or indirect Subsidiary of any Borrower,
or the disposition of the Securities or assets of any Borrower;

       

      3.10.11
Any waiver by any Borrower of a valuable right or of Indebtedness owed to
it;

       

      3.10.12
Any payment, satisfaction, discharge or cancellation of any material debt or
claim of any Borrower other than in the ordinary course of business consistent
with past practices;

       

      3.10.13
Any amendment, modification or termination of any Material Contract or any
material agreement to which any Borrower is a party or by which any Borrower or
any of their assets or properties may be bound or subject or of any employment
or consulting agreement;

       

      
        
          
          

        

        
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      3.10.14
Any material change in the Contingent Obligations of any Borrower, by way of
guaranty or otherwise;

       

      3.10.15
Any mortgage, pledge or Lien encumbering any of the assets or properties of any
Borrower, or any assumption of, or taking any assets or properties subject to,
any liability, except for Permitted Liens;

       

      3.10.16
Any resignation by, or termination of the employment of, any director or officer
of any Borrower;

       

      3.10.17
Any Investment by any Borrower in the Securities of any Person;

       

      3.10.18
Any payment of management, consulting or similar fees by any Borrower to any of
their respective Affiliates;

       

      3.10.19
Any offer, issuance or sale of any Securities of any Borrower;

       

      3.10.20
Any alteration or change in any Borrower’s credit guidelines and policies,
charge-off policies or accounting methods, quality control procedures, hiring
procedures, or policies or manner of preparing its financial statements or
maintaining its books of account;

       

      3.10.21
Any increase in, or commitment to increase, the salaries, wages, bonuses or
other compensation or benefits (including commissions) payable or to become
payable to any officer or non-officer other employee of any Borrower, other than
increases in salaries and wages for employees in the ordinary course of business
consistent with past practices;

       

      3.10.22
Any adoption by any Borrower of any new Benefit Plan or amendment to any Benefit
Plan to provide any new or additional plans, programs, contracts, benefits or
arrangements involving direct or indirect compensation to any officer, director,
employee, former employee, or their dependents or beneficiaries, of any
Borrower;

       

      3.10.23
Any settlement of any litigation, entry of a consent decree or entry of any
judgment against any Borrower with an aggregate value of $50,000 or
more;

       

      3.10.24
Any revaluation by any Borrower of any of their respective assets, including
without limitation, any write-offs, increases in any reserves except in the
ordinary course of business consistent with past practice or any write-up or
write-down of the value of, inventory, property, plant, equipment, or any other
asset (including as a result of the impairment of goodwill);

       

      3.10.25
Any proceeding or other steps for the dissolution, winding up, reorganization or
bankruptcy by any Borrower;

       

      3.10.26
Any revaluation or repricing of any Securities of any Borrower; or

       

      
        
          
          

        

        
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      3.10.27
Any agreement to do any of the foregoing.

       

      3.11           Material
Contracts.

       

      3.11.1
Schedule 3.11
sets forth a true, correct and complete list, as of the date hereof, of all
contracts, commitments, licenses, agreements, obligations or arrangements,
whether oral or written, formal or informal, to which a Borrower is a party (or
intends to become a party) or to which any of their respective assets or
properties is bound:

       

      (a)           under
which a Borrower leases personal property from or to third parties under Capital
Leases or under operating leases which involve payments in excess of $25,000 per
annum;

       

      (b)           for
the purchase or sale of products or other personal property or for the
furnishing or receipt of services (A) which calls for performance over a
period of more than one (1) year, (B) which involves payments of more
than $50,000 in the aggregate or (C) in which a Borrower has agreed to
purchase a minimum quantity of goods or services or has agreed to purchase goods
or services exclusively from any Person which involves payments in excess of
$50,000, but excluding purchase orders or sales contracts which are revocable by
the applicable Borrower;

       

      (c)           (A) granting
representation, marketing or distribution rights or (B) relating to
Intellectual Property (including, without limitation, license, franchise or
similar agreements);

       

      (d)           establishing
or maintaining any partnership, joint venture or strategic alliance or pursuant
to which any Borrower has purchased the assets, business or Securities of any
other Person during the last three (3) years;

       

      (e)           under
which there is or may be imposed a security interest or other Lien on any of its
assets, whether tangible or intangible (other than the security interests or
Liens granted in favor of the Purchaser);

       

      (f)           concerning
any non-competition or non-solicitation obligations entered into outside the
ordinary course of business;

       

      (g)           under
which a Borrower is or would be restricted from carrying on its Business or any
part thereof, or from competing in any line of business or with any
Person;

       

      (h)           with
officers, directors, employees or consultants of any Borrower;

       

      (i)           resulting
in or providing for the creation of any Lien (including any lease notifications)
other than any Permitted Lien;

       

      (j)           involving
any Affiliates of any Borrower;

       

      (k)           under
which the consequences of a default or termination could reasonably be likely to
have a Material Adverse Effect or result in an Event of Default;
and

       

      
        
          
          

        

        
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      (l)           not
entered into in the ordinary course of business and not otherwise disclosed on
Schedule 3.11 in
response to any of the foregoing clauses.

       

      All of
the contracts, commitments, licenses, agreements, obligations or arrangements
described in clauses (a) through (l) above, together with the real property
leases, subleases, licenses and other interests described in Section 3.16,
whether entered into prior to, on or after the Closing Date, are collectively
referred to herein as the “Material
Contracts.”

       

      3.11.2
Each Material Contract existing as of the date hereof is a legal, valid and
binding obligation of each applicable Borrower that is a party thereto, on the
one hand, and to the Knowledge of the Borrowers, the other parties thereto, on
the other hand, enforceable against each of them in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or conveyance or similar laws relating to or
limiting creditors’ rights generally or by equitable principles relating to
enforceability and is in full force and effect.  The parties to each
Material Contract are in substantial compliance with the terms thereof, and no
default or event of default by any Borrower or, to the Knowledge of the
Borrowers, any other party thereto exists thereunder.

       

      3.11.3 No
Borrower is a party to any contract, commitment, license, agreement, obligation
or arrangement that restricts it from carrying on its Business or any part
thereof, or from competing in any line of business or with any other
Person.

       

      3.12           Existing Indebtedness;
Existing Liens; Investments.

       

      3.12.1
Schedule 3.12(a)
sets forth a true, correct and complete list, and describes, as of the date or
dates indicated therein, as applicable:

       

      (a)           all
Indebtedness of the Borrowers showing, as to each Indebtedness, the payee
thereof and the total amount outstanding (by principal, interest and other
amounts, if applicable);

       

      (b)           all
Liens (except Permitted Liens) in respect of any property or assets of the
Borrowers showing, as to each Lien, the name of the grantor and secured party,
the Indebtedness secured thereby, the name of the debtor (if different from the
grantor) and the assets or other property covered by such Lien;

       

      (c)           all
Investments of the Borrowers, if any;

       

      (d)           all
UCC financing statements naming any Borrower as a debtor, showing, as to each
financing statement, the basis for the filing; and

       

      (e)           a
trade payables aging schedule for the Borrowers as of August 31,
2009.

       

      3.12.2
Except as set forth on Schedule 3.12(b),
(i) no Borrower has on the date hereof any material Contingent Obligations,
liabilities for Taxes, liabilities for product defects or under warranties,
unusual forward or long-term commitments or unrealized or anticipated losses
from any unfavorable commitments; (ii) no Borrower is obligated as surety
or indemnitor under any surety or similar bond or other contract issued or
entered into to assure payment, performance or completion of performance of any
undertaking or obligation of any Person; and (iii) no Borrower is a party
or subject to any contract or agreement which restricts its right or ability to
incur Indebtedness.

       

      
        
          
          

        

        
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      3.12.3
Immediately following the Closing, no Borrower will have any Indebtedness,
whether accrued, absolute, contingent or otherwise, except as set forth on Schedule 3.12(c).

       

      3.13           Litigation.  Except
as set forth on Schedule 3.13,
there are no actions, suits, arbitration proceedings, investigations, inquiries
or other proceedings, whether brought by or against any Borrower, whether
governmental or non-governmental, before any Governmental Authority pending or,
to the Knowledge of any Borrower, threatened against, relating to or affecting
any Borrower, or any officer, director or employee thereof in his or her
capacity as such, or any of its or their respective assets, properties or
businesses or this Agreement, any Investment Document or the transactions
contemplated thereby.  There is not in effect any order, judgment,
decree, injunction or ruling of any Governmental Authority against, relating to
or affecting any Borrower or any officer, director or employee thereof in his or
her capacity as such.  None of the Borrowers is in default under any
order, judgment, decree, injunction or ruling of any Governmental Authority, or
subject to or a party to any order, judgment, decree or ruling arising out of
any action, suit or proceeding under any Applicable Laws.

       

      3.14           Transactions With
Affiliates.

       

      3.14.1
Except as set forth on Schedule 3.14(a)
or as contemplated by this Agreement:

       

      (a)           no
Borrower is indebted, directly or indirectly, to any of its own officers or
directors, the officers or directors of its Affiliates, any Affiliate, or to any
members of the Immediate Families of such officers or directors, except for, in
the case of employees and officers, compensation payable in the ordinary course
of business and reasonable expenses accrued in the ordinary course of business
consistent with past practices;

       

      (b)           no
Affiliate, employee, officer or director of any Borrower, and no member or
members of their Immediate Families, is (A) indebted to a Borrower in any amount
whatsoever or (B) has any direct or indirect ownership interests in any Person
which competes, directly or indirectly, with a Borrower; and

       

      (c)           there
are no stockholder, voting or similar agreements between or among the
stockholders of the Borrowers.

       

      3.14.2
Except for interests in employee benefit plans and as set forth on Schedule 3.14(b),
no officer, director, employee or Affiliate of any Borrower, and no member of
the Immediate Families of any of the foregoing, has any direct or indirect
interest in any contract, commitment, license, agreement, obligation or
arrangement to which any Borrower is a party or by which it or its assets are
bound.

       

      
        
          
          

        

        
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      3.15           Compliance With Laws;
Operating Licenses.  Except as set forth on Schedule 3.15,
each Borrower and its respective properties, operations and assets, is in
material compliance with all Applicable Laws (including, without limitation,
securities laws).  There are no outstanding citations, notices or
orders of noncompliance issued to any Borrower under any Applicable
Law.  Each of the Borrowers has established and maintains an adequate
monitoring system to ensure that it remains in compliance in all material
respects with all federal, state and local rules, laws and regulations
applicable to it, including all laws and regulations relating to employment and
employment discrimination.  No Inventory has been produced in
violation of the Fair Labor Standards Act (29 U.S.C. § 201, et. seq.),
as amended.  To the Knowledge of the Borrowers, no officer, agent,
employee or other Person acting on behalf of any Borrower has, directly or
indirectly, violated any Applicable Laws in so acting.  None of the
Borrowers is an “investment company” or a company “controlled” by an “investment
company,” within the meaning of the Investment Company Act of 1940, as
amended.  Each Borrower has all material Operating Licenses required
under Applicable Laws to own its assets or conduct its businesses as now
conducted and as proposed to be conducted.  All such Operating
Licenses of the Borrowers are validly issued and in full force and effect, and
each Borrower has fulfilled and performed in all material respects its
obligations with respect thereto and has full power and authority to operate
thereunder.

       

      3.16           Real
Property.

       

      3.16.1
The Borrowers do not own any Real Property.

       

      3.16.2
Schedule 3.16
sets forth a complete and correct description of all leases, subleases or
licenses of any real property to which any Borrower will be a party immediately
after the Closing.  The Borrowers have delivered to the Purchaser
true, correct and complete copies of the leases listed on Schedule 3.16.  No
Borrower leases or otherwise holds or uses any other real
property.  With respect to each such lease:

       

      (a)           there
are no disputes, oral agreements or forbearance programs in effect as to any
such lease, sublease or license and, to the Knowledge of the Borrowers, neither
the Borrower nor the landlord party to such lease, license or sublease is in
material breach or default thereunder; and

       

      (b)           no
Borrower has assigned, transferred, conveyed, mortgaged, deeded in trust or
encumbered any interest in the leases, subleases or licenses listed on Schedule 3.16.

       

      3.16.3 No
Consent of any party to such lease is required in connection with the
consummation of the transactions contemplated by this Agreement, the Note or the
other Investment Documents, including, without limitation, the issuance, sale,
and delivery of the Note, and no such event shall be prohibited by, or shall
constitute a default under, such lease.

       

      3.17           Employee Benefit Plans;
ERISA.

       

      3.17.1
Schedule 3.17
sets forth a true, correct and complete list of all Benefit Plans of the
Borrowers as of the date hereof;

       

      
        
          
          

        

        
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      3.17.2
The Borrowers are in compliance in all material respects with the requirements
of ERISA and the regulations promulgated thereunder with respect to each Benefit
Plan.  No fact or situation that would reasonably be expected to
result in a Material Adverse Change in the financial condition of any Borrower
exists in connection with any Benefit Plan.

       

      3.17.3
All costs of administering and contributions required to be made to each Benefit
Plan under the terms of that Benefit Plan, ERISA, the Code, or any other
Applicable Law have been timely made by the Borrowers and are fully deductible
in the year for which they were paid.  All other amounts that should
be accrued to date as liabilities of the Borrowers under or with respect to each
Benefit Plan (including administrative expenses and incurred but not reported
claims) for the current plan year of each such plan have been recorded on the
books of the Borrowers.  There is and will be no material liability of
any Borrower (i) with respect to any Benefit Plan that has previously been
terminated by any Borrower or any predecessor Person under any Multiemployer
Plan or (ii) under any insurance policy or similar arrangement procured in
connection with any Benefit Plan in the nature of a retroactive rate adjustment,
loss sharing arrangement, or other liability.

       

      3.17.4 No
circumstance exists and no event (including any action or any failure to take
any action) has occurred with respect to any Benefit Plan currently or formerly
maintained by the Borrowers, or any predecessor Persons, or to which the
Borrowers or any predecessor Persons is or has been required to contribute, that
could subject the Borrowers to any liability (including any penalty for failure
to timely file any required report with any governmental agency) or Lien under
ERISA or the Code which would reasonably be expected to have a Material Adverse
Effect, nor will the transactions contemplated by this Agreement give rise to
any such liability or Lien.

       

      3.18           Taxes.

       

      3.18.1
The Borrowers have each filed within the required time periods (after giving
effect to any permitted extensions) all federal, state and other Tax returns
required to have been filed by it or them, and have each paid all Taxes which
were due and payable by it or them, other than Taxes that are being contested in
good faith and for which reserves have been properly established.  The
federal tax identification number of each Borrower is set forth on Schedule 3.18(a).  The
provision for taxes on the books of each Borrower is adequate for all years not
closed by applicable statutes, and for the current fiscal year.

       

      3.18.2
Other than as set forth on Schedule 3.18(b),
the Borrowers have withheld and paid all Taxes required to be withheld and paid
by them in connection with amounts paid or owing to any employee, creditor,
stockholder, or other third party.

       

      3.18.3
(i) No Borrower has been advised that any Tax returns have been or are
being audited by any Governmental Authority, (ii) there are no agreements,
waivers or other arrangements providing for an extension of time with respect to
the assessment of any Taxes or deficiency against the Borrowers,
(iii) there are no actions, suits, proceedings or claims now pending by or
against any Borrower in respect of any Taxes or assessments, and (iv) there
is no pending or, to the Knowledge of any Borrower, threatened audit or
investigation of any Borrower by any Governmental Authority relating to any
Taxes or assessments, or any claims for additional Taxes or assessments asserted
by any Governmental Authority.

       

      
        
          
          

        

        
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      3.18.4 No
Borrower is a party to or bound by any tax sharing, tax indemnity or tax
allocation agreement or other similar arrangement.

       

      3.18.5 No
Borrower has ever been taxed as an “S” Corporation.

       

      3.19           Title to Property;
Liens.  Except as set forth on Schedule 3.19,
each of the Borrowers has valid and subsisting leasehold interests in all of
their respective Real Property, and has good title to or right to use all of the
Collateral and all of their respective other Property, tangible and intangible,
in each case, free and clear of all Liens except Permitted
Liens.  Each Borrower has paid or discharged all lawful claims (other
than those being contested in good faith by appropriate proceedings) which, if
unpaid, might become a Lien against any of their respective Properties that is
not a Permitted Lien.  The Liens granted to the Purchaser under the
Collateral Documents are first priority Liens, subject only to Permitted
Liens.  Each Borrower enjoys quiet possession under all leases to
which it is a party as lessee, and all of such leases are valid, subsisting and
in full force and effect.  None of such leases contain any provision
restricting the incurrence of indebtedness by the lessee or any unusual or
burdensome provision adversely affecting the current and proposed operations of
any Borrower.  Each Borrower owns or has a valid right to use all
assets, properties, rights and Operating Licenses necessary to conduct the
Business that is being conducted and as proposed to be conducted by the
Borrowers.

       

      3.20           Environmental
Matters.

       

      3.20.1
Except as set forth in Schedule 3.20:

       

      (a)           Each
Environmental Person and each Site is in compliance with all, and no
Environmental Person has any liability under, any Environmental Laws, and no
Hazardous Materials are being used by any Borrower on any Real Property in
violation of any Environmental Law;

       

      (b)           No
Release has occurred at any Site, and there are no present or past Environmental
Conditions in any way relating to any Environmental Person, any Site or the
business or operations of any Environmental Person;

       

      (c)           No
Environmental Person is a “potentially responsible party” within the meaning of
CERCLA with respect to any federal, state, local or foreign environmental
clean-up site or with respect to investigations or corrective actions under any
Environmental Laws for such a clean-up site;

       

      (d)           No
Environmental Person has received notice of any alleged, actual or potential
responsibility, inquiry, investigation or administrative or judicial proceeding
regarding (A) any Release by any Environmental Person at any Site or other
location or (B) any violation of or non-compliance by any Environmental
Person with the conditions of any license or permit required under any
Environmental Laws or the provisions of any Environmental Laws.  No
Environmental Person has received notice of any other claim, demand or action by
any Person alleging any actual or threatened injury or damage to any Person,
property, natural resources or the environment arising from or relating to any
Release, transportation or disposal of any Hazardous Materials; and

       

      
        
          
          

        

        
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      (e)           Each
Environmental Person has furnished all notices and warnings, made all reports
and has kept and maintained all records required by, and in material compliance
with, all Environmental Laws, including, without limitation, any notices and
Consents required under any Environmental Laws in connection with the
consummation of the transactions contemplated by the Investment
Documents.

       

      3.20.2
Schedule 3.20
sets forth a true, correct and complete list of all environmental site
assessments, audits, studies or reports available to the Borrowers relating to
any Environmental Condition or relating to the business, condition or operations
of all Environmental Persons.  The Borrowers have delivered to the
Purchaser true, correct and complete copies of all such environmental site
assessments, audits, studies or reports.

       

      3.20.3
None of the items set forth on Schedule 3.20
could reasonably be expected to, individually or in the aggregate have a
Material Adverse Effect on any Borrower to which such item relates.

       

      3.21           Intellectual
Property.

       

      3.21.1
The Borrowers own, license or otherwise possess legally enforceable rights to
use all Intellectual Property currently used in the Business or as the Business
is proposed to be conducted.  Schedule 3.21
contains a true, correct and complete list of (i) all patents, trademarks,
trade names, service marks, copyrights and licenses that are owned, used or
licensed by the Borrowers, (ii) the registration number, date of
registration and jurisdiction of registration thereof, (iii) the name of
the registered owner and, if different, the user or users thereof and
(iv) any applications for any of the foregoing.

       

      3.21.2
The Borrowers have provided to the Purchaser (i) all material documents, if
any, relative to patents and patent applications and all registered and
unregistered trademarks, trade names and service marks, registered and
unregistered copyrights, and maskworks owned by the Borrowers and included in
the Intellectual Property, including the jurisdictions in which each such
Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) all
licenses, sublicenses and other agreements as to which any Borrower is a party
and pursuant to which any person is authorized to use any Intellectual Property,
and (iii) all licenses, sublicenses and other agreements as to which any
Borrower is a party and pursuant to which any of the Borrowers is authorized to
use any third party patents, trademarks or copyrights, including software, or
any other third party Intellectual Property (“Third Party Intellectual
Property Rights”) which are or are presently expected to be incorporated
in, or are or expected to form a part of any existing or proposed product of any
Borrower, or which are or are presently expected to be utilized in the
development, modification or support of any existing or proposed product of the
Borrower.

       

      
        
          
          

        

        
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      3.21.3 To
the Knowledge of the Borrowers, there is no unauthorized use, disclosure,
infringement or misappropriation of any Intellectual Property, any trade secret
material to any Borrower or any Third Party Intellectual Property Right to the
extent licensed by or through any Borrower, by any third party.  None
of the Borrowers or, to the Knowledge of the Borrowers, any of their respective
employees has entered into any agreement to indemnify any other person against
any charge of infringement of any Intellectual Property, other than
indemnification provisions arising in the ordinary course of business, such as
those in purchase orders, invoices or similar sales-related
documents.

       

      3.21.4 No
Borrower is, or will be as a result of the execution and delivery of this
Agreement or the performance of its obligations under this Agreement, in
material breach of any license, sublicense or other agreement currently used in,
or material to, the Intellectual Property or Third Party Intellectual Property
Rights.

       

      3.21.5
All patents, registered trademarks, service marks and copyrights held by the
Borrowers are validly issued and presently subsisting.  Since June 1,
2004, no Borrower (i) has been subjected to any suit, action or proceeding which
involves a claim of infringement of any patents, trademarks, service marks,
copyrights or violation of any trade secret or other proprietary or Intellectual
Property right of any third party and (ii) has brought any action, suit or
proceeding for infringement of Intellectual Property or breach of any license or
agreement involving Intellectual Property against any third
party.  The manufacture, marketing, licensing or sale of the products
and services of the Borrowers as currently conducted and proposed to be
conducted does not, to the Knowledge of the Borrowers, infringe any patent,
trademark, service mark, copyright, trade secret or other proprietary right of
any third party.

       

      3.21.6
The Borrowers have taken steps which they believe to be sufficient to protect
and preserve the confidentiality of all material Intellectual Property not
otherwise protected by patents, or patent applications or
copyright.  All use, disclosure or appropriation by any Borrower of
such Intellectual Property owned by any Borrower by or to a third party has been
pursuant to written agreements between the Borrowers, respectively, and such
third party except where the failure to do so could not reasonably be expected
to result in a Material Adverse Effect.  All use, disclosure or
appropriation of such Intellectual Property not owned by the Borrowers has been
pursuant to binding agreements between the Borrowers, respectively, and the
owner of such Intellectual Property, or is otherwise lawful.

       

      3.21.7
Except as set forth on Schedule 3.21,
each Borrower’s (i) patents, trademarks and service marks are registered
with the U.S. Patent and Trademark Office and (ii) license agreements and
similar arrangements relating to its Inventory (A) permit, and do not
restrict, the assignment by that Borrower to the Purchaser, or any other Person
designated by the Purchaser, of all of that Borrower’s rights, title and
interest pertaining to such license agreement or such similar arrangement and
(B) would permit the continued use by that Borrower, or the Purchaser or
any assignee thereof, of such license agreement or such similar arrangement and
the right to sell Inventory subject to such license agreement for a period of no
less than twelve (12) months after a default or breach of such agreement or
arrangement.  The consummation and performance of the transactions and
actions contemplated by this Agreement and the other Investment Documents,
including without limitation, the exercise by the Purchaser of any of their
rights or remedies under Section 11, will
not result in the termination or impairment of any Borrower’s ownership or
rights relating to its Intellectual Property, except for such Intellectual
Property rights the loss or impairment of which would not reasonably be expected
to have a Material Adverse Effect.  Except as would not reasonably be
expected to have a Material Adverse Effect, (a) no Borrower is in breach
of, or default under, any term of any license or sublicense with respect to any
of its Intellectual Property and (b) to the Knowledge of each Borrower, no
other party to such license or sublicense is in breach thereof or default
thereunder, and such license is valid and enforceable.

       

      
        
          
          

        

        
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      3.21.8
All Intellectual Property is currently in compliance with all applicable legal
requirements and no Intellectual Property has been or is now involved in any
interference, reissue, reexamination or opposing proceeding in the U.S. Patent
and Trademark Office or in the U.S. Copyright Office, as
applicable.

       

      3.21.9
None of Beni Mosenson (a/k/a Benjamin Mosenson and Benjamin Mesenson), Yuri
Litinsky, Ilan Mark or Moledet, Kfar Bnei Brith, Moshav Shitufi Paklai Ltd. has
transferred any of his or its respective rights in and to the ‘654 Patent to any
other Person, and no other Person is entitled to claim any right in and to the
‘654 Patent.

       

      3.22           Labor
Relations.

       

      3.22.1
Except as would not reasonably be expected to have a Material Adverse Effect or
as set forth on Schedule 3.22,
each of the Borrowers is in full compliance with the Fair Labor Standards Act
(29 U.S.C. § 201, et seq.), all state wage and hour laws and all
workers’ compensation laws and other Applicable Laws relating to employment and
is not engaged in any unfair labor practice.

       

      3.22.2
There are no labor strikes, lockouts, slowdowns, work stoppage or charges of
unfair labor practices, and there are no material labor disputes, grievances,
complaints or arbitration proceedings, pending or materially affecting any
Borrower nor, to the Knowledge of any Borrower, is there any basis therefor or
threat thereof.

       

      3.22.3
Except as set forth in Schedule 3.22,
none of the Borrowers is bound by or subject to any written or oral, express or
implied, contract, commitment or arrangement with any labor union or other
employee organization, and no labor union or other employee organization has
requested or sought to represent any of the employees, representatives or agents
of any Borrower.

       

      3.22.4 No
Borrower is aware of any labor union or other employee organization activity
involving employees of any Borrower.

       

      3.22.5
There are no petitions pending before the National Labor Relations Board in
connection with any pending claim for union representation.

       

      3.22.6
There is no fact or circumstance which could, with the passage of time or
otherwise, cause this representation and warranty to be no longer true and
correct.

       

      
        
          
          

        

        
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      3.23           Employment
Agreements.  Schedule 3.23
sets forth a true, correct and complete list of all employment contracts or
agreements, agency, independent contractor and sales representative agreements,
golden parachute agreements, change of control agreements and employee-related
non-competition and non-solicitation agreements, in each case to which any
Borrower is a party.  Each Borrower has previously delivered to the
Purchaser true, correct and complete copies of all such agreements, including
all amendments thereto.  Each such agreement is in writing, is a valid
and binding agreement enforceable against the respective parties thereto in
accordance with its terms, and no Borrower nor any other Person that is a party
to any such agreement is in breach of, or in default with respect to, any of its
obligations thereunder, nor is any Borrower aware of any facts or circumstances
which might give rise to any breach or default thereunder which could reasonably
be expected to have a Material Adverse Effect.

       

      3.24           Employees and
Contractors.  Attached hereto as Schedule 3.24 is
a list of the names, current annual rates of salary, accrued vacation times,
date of hire and location of all the present employees and contractors of each
Borrower who provide services in connection with Business of the
Borrowers.  Except as set forth on Schedule 3.24,
none of such persons has received an increase in salary or other compensation
from any Borrower since September 30, 2008, other than a standard annual
increase consistent with past practice.  Except as set forth on Schedule 3.24,
there are no employment or consulting contracts or arrangements, including
pensions, bonus or profit sharing plans, or other severance or termination
contracts or arrangements which constitute contractual obligations of any
Borrower not terminable on thirty (30) days’ notice.  To the
Knowledge of the Borrowers, no employee or contractor is in violation of any of
its obligations to, or any employment agreement with, a prior
employer.  No key employee or contractor of any Borrower has left such
Borrower since September 30, 2008, and no current key employee or
contractor has notified any Borrower of any present or future intention to
terminate his or her employment with such Borrower.  The Borrowers
have made available to the Purchaser true and correct copies of all performance
reviews conducted of its executive officers.

       

      3.25           Employment
Matters.  The Borrowers are in compliance in all material
respects with all provisions of Applicable Laws pertaining to the employment and
termination of employees, the hiring and termination of contractors, and the
immigration of foreign nationals, and no Borrower is a party to any action,
lawsuit, complaint or proceeding involving a violation or alleged violation of
any Applicable Laws.  Except as set forth on Schedule 3.25
hereto, no employee, contractor or Governmental Authority has brought or
threatened an action, claim, lawsuit or proceeding against any Borrower with
respect to any matter arising out of, relating to or in connection with such
employee’s or contractor’s employment by any Borrower.

       

      3.26           Insurance.  Schedule 3.26
sets forth a true and complete list of all liability and other insurance
coverage (including, without limitation, product liability and product recall
insurance) insuring each Borrower against losses arising out of or related to
their respective businesses, which list accurately describes the coverage
carried and the expiration dates of such policies.  Each Borrower is
covered by insurance in scope and amount customary and reasonable for the
business in which they are engaged and will be so covered after consummation of
the transactions contemplated hereby and under the Agreement.  The
insurance policies listed on Schedule 3.26
constitute insurance protection against liability, claims and risks occurring in
the ordinary course of business customarily included within comprehensive
liability coverage and at amounts and levels customarily maintained for a
business of this type.  All such policies are in full force and
effect.

       

      
        
          
          

        

        
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      3.27           Business
Relationships.

       

      3.27.1
Except as set forth on Schedule 3.27,
after giving effect to the consummation of the transactions contemplated hereby,
there exists no actual or, to the Knowledge of any Borrower, threatened
termination, cancellation or limitation of, or any adverse modification or
change in, the business relationship proposed to be conducted by any Borrower
with any material customers of any Borrower, and to the Knowledge of the
Borrowers there exists no present condition or state of facts or circumstances
which could materially and adversely affect the Borrowers or prevent the
Borrowers from conducting business with their respective material suppliers and
customers after the consummation of the transactions contemplated by this
Agreement in substantially the same manner in which it has been heretofore
conducted.

       

      3.27.2 To
the Knowledge of the Borrowers, no Borrower and no officer, agent, employee or
other Person acting on behalf of any Borrower has, directly or indirectly,
(i) used any corporate fund for unlawful contributions, unlawful gifts or
other unlawful expenses relating to political activity, (ii) made any
unlawful payment to foreign or domestic government officials or employees or to
foreign or domestic political parties or campaigns from corporate funds,
(iii) established or maintained any unlawful or unrecorded records, or
(iv) made any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment, or other payment of a similar or comparable nature, to any
Person, public or private, regardless of form, whether in money, property or
services, to obtain favorable treatment in securing business or to obtain
special concessions, or to pay for favorable treatment for business secured or
for special concessions already obtained.  No Borrower has
participated in any illegal boycott or other similar illegal practices affecting
any of its actual or potential clients or customers.

       

      3.28           Solvency.  After
giving effect to the consummation of the transactions contemplated hereby, the
Borrowers will be Solvent on a consolidated basis.  No transfer of
property is being made and no obligation is being incurred in connection with
the transactions contemplated by this Agreement and the other Investment
Documents with the intent to hinder, delay or defraud either present or future
creditors of each Borrower.

       

      3.29           Depository and Other
Accounts.  Schedule 3.29
sets forth a true and complete list of all banks and other financial
institutions and depositories at which the Borrowers maintain, or will maintain,
deposit accounts, spread accounts, yield supplement reserve accounts, operating
accounts, trust accounts, trust receivable accounts or other accounts of any
kind or nature into which funds of the Borrowers are deposited from time to
time.  Schedule 3.29
correctly identifies the name and address of each such bank, financial
institution and depository, the name in which each account is held, and the
account number for each such account.  The Borrowers will notify the
Purchaser and supplement Schedule 3.29 as
new accounts are established within five (5) Business Days
thereof.

       

      3.30           Brokers; Certain
Expenses.  Except as set forth in Schedule 3.30 or
with respect to the Purchaser, no Borrower nor any Affiliate of any Borrower has
paid or is obligated to pay any fee or commission to any broker, finder,
investment banker or other intermediary, in connection with this Agreement, any
other Investment Document or any of the transactions contemplated hereby or
thereby.  Immediately upon the Closing of the transactions
contemplated hereby, no Borrower nor any Affiliate of any Borrower is bound by
any agreement or commitment for the provision of commercial or investment
banking or financial advisory services with respect to any mergers,
acquisitions, advisory service, recapitalization, issuance of debt or equity
securities or other capital or financing transactions involving any
Borrower.

       

      
        
          
          

        

        
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      3.31           No Event of
Default.  No event has occurred and no condition exists that
would upon or after execution of this Agreement and the other Investment
Documents constitute a “Default” or an “Event of Default”
under this Agreement, the Note, the Warrant, the other Investment Documents or
any Other Debt Document.  Except as set forth on Schedule 3.31,
after giving effect to the transactions contemplated by this Agreement, no
Borrower is in default in (and no event has occurred and no condition exists
which constitutes, or which with the passage of time or the giving of notice or
both would constitute, a default in) the payment of any Indebtedness to any
Person.

       

      3.32           Financial
Sophistication.  Each of the Borrowers, by reason of its own
business and financial experience or that of its professional advisors, has such
knowledge, sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of issuing the Note, as
applicable, and has the capacity to protect its own interests in connection with
the transactions contemplated by this Agreement.

       

      3.33           Equipment and Other Personal
Property.  The Equipment and other personal property of the
Borrowers is in good operating condition and repair, and all necessary
replacements of and repairs thereto shall be made so that the operating
efficiency thereof shall be maintained and preserved, reasonable wear and tear
excepted, except where the failure to so maintain the same could not reasonably
be expected to have a Material Adverse Effect.  No Borrower will
permit any Equipment or other personal property to become affixed to any Real
Property leased to any Borrower so that an interest arises therein under the
real estate laws of the applicable jurisdiction unless the landlord of such Real
Property has executed a landlord waiver or leasehold mortgage in favor of and in
form reasonably acceptable to the Purchaser, and no Borrower will permit any of
the Equipment or other personal property to become an accession to any personal
Property other than Equipment or other personal property that is subject to
first priority Liens (except for Permitted Liens) in favor of the
Purchaser.

       

      3.34           Inventory.  After
considering reserves, all inventories of raw material, purchased parts
materials, work in process, finished products, goods, spare parts, replacement
and component parts, and office and other supplies used or to be distributed,
licensed or sold in connection with the business of the Borrowers consistent
with past practice (“Inventory”)
(a) was acquired in the ordinary course of business, (b) is of good
and merchantable quality, and (c) consists substantially of a quality,
quantity and condition useable, leasable or saleable in the ordinary course of
business.  No Borrower is under any liability or obligation with
respect to the return of inventory in the possession of distributors,
wholesalers, retailers or other customers in excess of established
reserves.  Except as set forth on Schedule 3.34,
no Borrower holds any Inventory on consignment, or holds title to or ownership
of any Inventory in the possession of others.

       

      
        
          
          

        

        
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      3.35           Accounts.  All
Accounts of the Borrowers represent amounts due for services performed or sales
actually made in the ordinary course of business and properly reflect the
amounts due.  No counterclaims or offsetting claims with respect to
presently outstanding Accounts are pending or threatened and such Accounts are
fully collectible in their stated amount, net of applicable reserves for bad
debt.  No part of the Accounts is contingent upon performance by the
Borrowers or any other party of any obligation, and no agreements for deductions
or discounts have been made with respect to any part of the
Accounts.  No portion of the Accounts represents amounts due for goods
consigned by any Borrower and no agreements have been made allowing for the
return of goods represented by the Accounts, or any portion
thereof.

       

      3.36           Disclosure.

       

      3.36.1 No
representation, warranty or other statement of any Borrower contained in this
Agreement and the Disclosure Schedules, taken as a whole, is, or will be, untrue
with respect to any material fact or omits, or will omit, to state a material
fact necessary in order to make the statement made herein or therein, in light
of the circumstances in which such statement was made, not
misleading.

       

      3.36.2
There are no facts or circumstances existing which could reasonably be expected
to have a Material Adverse Effect, either individually or in the
aggregate.

       

      3.37           Projections.  The
latest assumptions underlying all Projections, furnished by or on behalf of any
Borrower, to the Purchaser prior to the date hereof (i) were made in good
faith and (ii) are reasonable under the circumstances.  No
Borrower is aware of any facts or information that would lead it to believe that
such projections are materially incorrect or misleading (affirmatively or by
omission) in any respect.

       

      All
representations and warranties of the Borrowers contained in this Agreement or
any of the other Investment Documents (other than Section 3.37)
shall survive the execution, delivery and acceptance thereof by the Purchaser
and the Closing through the indefeasible payment in full of the Note and the PIK
Notes.  The representation and warranty set forth in Section 3.37
shall expire and be of no further force and effect at Closing.  The
Borrowers’ representations and warranties herein (including as made or qualified
in the Schedules hereto) are made by the respective Borrowers in a corporate
capacity, without personal liability to the Borrowers’ directors or officers, or
the Borrowers’ signatories, other than with respect to fraudulent or criminal
activity with respect to the transactions contemplated hereby.

       

      4.           REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER

       

      The
Purchaser hereby represents and warrants to the Borrowers as
follows:

       

      4.1           Organization and
Qualification.  The Purchaser is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Delaware.

       

      4.2           Corporate or Other
Power.  The Purchaser has the requisite power and authority to
execute, deliver and perform its obligations under this Agreement and each other
Investment Documents to which it is a party.

       

      
        
          
          

        

        
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      4.3           Authorization; Binding
Obligations.  The execution, delivery and performance of this
Agreement and each of the other Investment Documents to which the Purchaser is a
party, and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by all requisite action on the part of the
Purchaser.  This Agreement has been duly executed and delivered by the
Purchaser and, at the Closing, each of the other Investment Documents will be
duly executed and delivered by the Purchaser to the extent that it is a party
thereto.  This Agreement is, and each other Investment Document will
at the Closing be, a legal, valid and binding obligation of the Purchaser to the
extent that it is a party thereto, enforceable against the Purchaser in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or limiting
creditors’ rights generally or by equitable principles relating to
enforceability.

       

      4.4           Financial
Sophistication.  The Purchaser, by reason of its own business
and financial experience or that of its professional advisors, has such
knowledge, sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of investing in the Note and
has the capacity to protect its own interests in connection with the
transactions contemplated by this Agreement.

       

      5.           CONDITIONS TO THE
OBLIGATIONS OF THE PURCHASER

       

      The
obligations of the Purchaser to consummate the transactions contemplated hereby,
including, without limitation, to purchase the Note as provided herein, are
subject to the satisfaction, prior to or at the Closing, of the conditions set
forth in this Section 5; provided, however, that any or
all of such conditions may be waived, in whole or in part, by the Purchaser in
its sole and absolute discretion:

       

      5.1           Representations and
Warranties; No Default.  Each representation and warranty made
by the Borrowers in this Agreement shall be true and correct in all material
respects (without giving effect to any materiality qualifiers) as of the date
made and as of the Closing Date, with the same effect as if made on and as of
the Closing Date.  Each of the covenants, agreements and obligations
of the Borrowers under this Agreement to be performed or satisfied by it or them
on or prior to the Closing Date shall have been performed or satisfied by it or
them on or before the date hereof.  No Default or Event of Default
shall exist as of the Closing or result from the execution and delivery of this
Agreement or any other Investment Document or the issuance, sale, and delivery
of the Note or the consummation of the other transactions contemplated by this
Agreement.  The Borrowers shall each have delivered to the Purchaser
an officers’ certificate, signed by the Chief Executive Officer or the Chief
Financial Officer of each Borrower, respectively, dated as of the Closing Date,
on behalf of each Borrower, to such effect and to the effect that each of the
conditions set forth in this Section 5 have
been satisfied and fulfilled.

       

      5.2           Purchase Permitted By
Applicable Laws; No Conflicts.  The consummation of the
transactions contemplated by this Agreement or the other Investment Documents
shall not be prohibited by or violate, result in a breach, default or adverse
change of the rights of the parties under any Applicable Laws or Material
Contract and shall not subject any party to any Tax, penalty or liability, under
or pursuant to any Applicable Laws, and shall not be enjoined (temporarily or
permanently) under, or prohibited by or contrary to, any injunction, order,
decree or ruling.  Without limiting the generality of the foregoing,
the consummation of the transactions contemplated hereby shall otherwise comply
with all applicable requirements of federal securities and state securities or
“blue sky” laws.

       

      
        
          
          

        

        
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      5.3           No Injunction, Order or
Suit.  There shall not have been issued any injunction, order,
decree or ruling that prohibits or limits any of the transactions contemplated
by this Agreement or the other Investment Documents, and there shall not be any
action, suit, proceeding or investigation pending or, to the Knowledge of the
Borrowers, threatened that (a) draws into question the validity, legality
or enforceability of this Agreement or the other Investment Documents or the
consummation of the transactions contemplated hereby or thereby or
(b) might result, in the judgment of the Purchaser, (i) in the
imposition of a penalty if any Investment Document was delivered as contemplated
hereunder or (ii) in any Material Adverse Change.

       

      5.4           Delivery of Certain Closing
Documents.  The Borrowers shall have delivered to the Purchaser
the following closing documents, each dated as of the Closing Date and in form
and substance satisfactory to the Purchaser in its sole and absolute
discretion:

       

      5.4.1
This Agreement, duly executed by the Borrowers together with the exhibits and
Disclosure Schedules;

       

      5.4.2 The
Note duly executed by the Borrowers;

       

      5.4.3 The
Collateral Documents described in Section 7, duly
executed by the Borrowers;

       

      5.4.4 The
Investment Monitoring Agreement, duly executed by the Borrowers;

       

      5.4.5 A
compliance certificate signed by the Chief Executive Officer or the Chief
Financial Officer of the Borrowers, certifying on behalf of the Borrowers that
he or she has reviewed this Agreement and the other Investment Documents and
that, since September 30, 2008 or as set forth on the Schedules to this
Agreement (i) no event or condition has occurred or is existing that could
have a Material Adverse Effect on the Borrowers or any of its Subsidiaries,
(ii) to the best of such officer’s Knowledge, there has been no material
adverse change in the industry in which Borrowers or any of its Subsidiaries
operates, (iii) no litigation or other action before any Governmental
Authority has been commenced that, if successful, reasonably could have a
Material Adverse Effect on Borrowers or any of its Subsidiaries, as the case may
be, or reasonably could challenge or materially delay the consummation of any of
the transactions contemplated by this Agreement or any other Investment
Document, and (iv) there has been no material increase in liabilities,
liquidated or contingent, and no material decrease in the assets of Borrowers or
any of its Subsidiaries that is not set forth or fairly disclosed in the
Financial Statements;

       

      5.4.6 A
Stockholder Consent duly executed by the holders of at least sixty-six percent
(66%) of each class of preferred stock of Caprius outstanding immediately prior
to the Closing;

       

      
        
          
          

        

        
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      5.4.7 A
payoff letter duly executed by Special Situations Private Equity Fund,
L.P.;

       

      5.4.8
Evidence, in form and substance satisfactory to the Purchaser, that the Liens
described on Schedule 5.4(h)
have been released and terminated as of record;

       

      5.4.9
Evidence, satisfactory to the Purchaser in its sole and absolute discretion,
that all right, title and interest in and to the ‘391 Patent shall have been
transferred and assigned to M.C.M.;

       

      5.4.10 An
opinion of counsel to the Borrowers, in form and substance satisfactory to the
Purchaser in its sole and absolute discretion, which shall include, without
limitation, an opinion that the Borrower has a first priority perfected security
interest in the Collateral;

       

      5.4.11
Releases of the security agreements currently of record at the United States
Patent and Trademark Office (other than any such documents in favor of the
Purchaser);

       

      5.4.12
Evidence, in form and substance satisfactory to the Purchaser, that the
assignments of the ‘654 Patent by each of Beni Mosenson (a/k/a Benjamin Mosenson
and Benjamin Mesenson) and Moledet, Kfar Bnei Brith, Moshav Shitufi Paklai Ltd.
to M.C.M. Israel have been duly recorded in the United States Patent and
Trademark Office;

       

      5.4.13
Documents, satisfactory to the Purchaser in its sole and absolute discretion,
whereby each of Yuri Litinsky and Ilan Mark (a) disclaim any inventorship
in any invention described or claimed in the ‘654 Patent and (b) disclaim
any ownership interest in or to the ‘654 Patent; and

       

      5.4.14
Such other documents as the Purchaser may reasonably request.

       

      5.5           Delivery of Corporate
Documents.  The Borrowers shall have delivered to the Purchaser
the following for each Borrower:

       

      5.5.1
Copies of its Charter Documents as amended through the Closing Date, certified
by its Secretary as being in full force and effect as of the Closing
Date;

       

      5.5.2 A
good standing certificate (or foreign qualification certificate), issued by the
jurisdiction of its incorporation or organization, dated as of the most recent
practicable date prior to the Closing Date;

       

      5.5.3
Good standing certificates (or foreign qualification certificates) from each
jurisdiction in which it is required to be qualified to transact business as a
foreign corporation or other entity, in each case dated as of the most recent
practicable date prior to the Closing Date;

       

      5.5.4
Resolutions or consents of (i) its Board of Directors, (ii) the
holders of more than 66% of the outstanding shares of each series of preferred
stock of Caprius, and (iii) the stockholder of M.C.M. Israel, and copies of
any actions taken by written consent by any such board of directors or
stockholders without a meeting), approving and authorizing the execution,
delivery and performance of this Agreement and the other Investment Documents to
which it is a party, and, to the extent applicable, approving and authorizing
the issuance, sale, and delivery of the Note, certified by its Secretary as
being in full force and effect as of the Closing Date;

       

      
        
          
          

        

        
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      5.5.5
Incumbency certificates of its officers who are authorized to execute, deliver
and perform this Agreement, the other Investment Documents and any other
agreements, instruments, certificate or other documents required to be executed
by it in connection herewith; and

       

      5.5.6
Such other documents as the Purchaser may reasonably request.

       

      5.6           Insurance.  The
Borrowers shall have delivered to the Purchaser certificates of liability
insurance, including coverage for property damage and general liability, with
respect to the insurance policies maintained by the Borrowers as of the Closing
Date, together with additional insured and loss payee endorsements in favor of
the Purchaser on behalf of the Purchaser, all in form and substance satisfactory
to the Purchaser in its sole and absolute discretion.

       

      5.7           Third-Party
Consents.  The Borrowers shall have obtained any Consents
required to be obtained from all Governmental Authorities and other Persons in
connection with the transactions contemplated by this Agreement (including,
without limitation, the Consents listed on Schedule 3.6),
and the Purchaser shall have approved the terms and conditions thereof, and all
applicable waiting periods shall have expired.

       

      5.8           Financial
Statements.  The Purchaser shall have received and been
satisfied with its review of the Financial Statements.

       

      5.9           Due Diligence; Environmental
Investigations.  The Purchaser shall have completed its due
diligence investigation of the Borrowers and their Affiliates to the sole
satisfaction of the Purchaser.

       

      5.10           No Material Adverse
Change.  No Material Adverse Change that, taken as a whole,
calls into question either the Projections provided to the Purchaser or the
long-term prospects of the Borrowers shall have occurred in the sole judgment of
the Purchaser since September 30, 2008.

       

      5.11           No Change in the
Markets.  No change or disruption in the financial and capital
markets that could affect the purchase of the Note shall have
occurred.

       

      5.12           Disclosure.  The
Purchaser shall not have become aware of any facts or circumstances which are
materially and adversely inconsistent with any projections, information or
matters disclosed to the Purchaser in connection with the purchase of the
Note.

       

      5.13           Proceedings
Satisfactory.  All proceedings taken prior to or at the Closing
in connection with the issuance, sale, and delivery of the Note and the
consummation of the other transactions contemplated hereby, and all papers and
other documents relating thereto, shall be in form and substance reasonably
satisfactory to the Purchaser and its counsel, and the Purchaser shall have
received copies of such documents and papers, all in form and substance
reasonably satisfactory to the Purchaser and its counsel, all such documents,
where appropriate, to be counterpart originals and/or certified by proper
authorities, corporate officials and other Persons.  Without limiting
the generality of the foregoing, the Borrowers shall have made such arrangements
as may be requested by the Purchaser to ensure that Advances are applied only in
the manner set forth in the Initial Approved Budget or the Subsequent Approved
Budget, as applicable.

       

      
        
          
          

        

        
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      6.           POST-CLOSING OBLIGATIONS OF
THE BORROWERS

       

      6.1           Patents.

       

      6.1.1 So
long as the right to obtain patent protection has not been lost as of
thirty (30) days after the Closing Date, the Borrowers shall timely prepare
and file applications for patents on three improvements on the M.C.M. technology
identified as (i) e-Link, (ii) active recipe management, and,
(iii) mobile medical waste treatment system for use at sea.  For
the purposes hereof the term “timely” means prior to the one (1) year
anniversary of the first sale, offer for sale or public use of each of the three
improvements, respectively.

       

      6.1.2
Within forty-five (45) days after the Closing Date, the Borrowers shall
deliver to the Purchaser:

       

      (a)           Upon
the fulfillment of the obligation set forth in Section 6.6, an
executed assignment of all right, title and interest in and to the ‘654 Patent
owned by M.C.M Israel to M.C.M. in substantially the form attached hereto as
Exhibit B;
and

       

      (b)           An
executed Patent Security Agreement covering the ‘654 Patent.

       

      6.2           Other Collateral
Documents.  The Borrowers shall cooperate with the Purchaser to
promptly execute and deliver such other Collateral Documents and documents
relating to the Collateral (including deposit account control agreements,
Intellectual Property security agreements and landlord waivers) as the Purchaser
may request in form and substance acceptable to the Purchaser in its sole and
absolute discretion.

       

      6.3           Warrant.  Within
ninety (90) days after the Closing Date, Caprius shall (a) issue to
the Purchaser a warrant (the “Warrant”) to purchase
40% of the outstanding capital stock of Caprius on a Fully Diluted Basis and
(b) amend Caprius’ Charter Documents to provide sufficient authorized but
unissued shares of Common Stock to be reserved for issuance upon the exercise of
the Warrant, such Common Stock to be registered under the Securities Act
promptly, but in no event later than two hundred ten (210) days after the
Warrant is issued.  Caprius shall take all such actions as are
necessary or requested by the Purchaser in connection with the foregoing, all in
form and substance satisfactory to the Purchaser in its sole and absolute
discretion, including executing and delivering, and causing the stockholders of
Caprius to execute and deliver, a registration rights agreement and an investor
rights agreement in form and substance satisfactory to the Purchaser in its sole
and absolute discretion.

       

      
        
          
          

        

        
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      6.4           Sassoon Settlement
Amount.

       

      6.4.1 On
or prior to the payment date set forth therein, but in no event later than
October 23, 2009, the Borrowers shall pay the Sassoon Settlement Amount
pursuant to the terms of the amended Sassoon Settlement Agreement.

       

      6.4.2
Immediately upon payment of the Sassoon Settlement Amount pursuant to the terms
of the Sassoon Settlement Agreement, the Borrowers shall cause all shares of
common stock of any of the Borrowers or M.C.M. UK in the possession of the
Sassoon Parties or any of their respective agents (as defined, and as further
described, in the Sassoon Settlement Agreement), and all ownership and other
interests therein, to be transferred and assigned to the Borrowers.

       

      6.5           Payroll
Taxes.  Within three (3) Business Days after the Closing
Date, the Borrowers shall pay all taxes set forth on Schedule 3.18(b)
to its payroll agent.

       

      6.6           Consent of the Office of the
Chief Scientist.  Within forty-five (45) days after the
Closing Date, the Borrowers shall have delivered to the Purchaser the Consent of
the Office of the Chief Scientist.

       

      6.7           Morgan Employment
Agreement.  Within thirty (30) days after the Closing Date, the
Borrowers shall have delivered to the Purchaser an Employment Agreement, duly
executed by Caprius and Dwight Morgan.

       

      6.8           A.G.M. Tefen
Liens.  Within forty-five (45) days after the Closing
Date, the Borrowers shall have caused the Liens of A.G.M. Tefen Ltd. against
M.C.M. Israel to have been released and terminated as of record.

       

      6.9           Deposit Account Control
Agreements.  Within forty-five (45) days after the Closing
Date, the Borrowers shall have delivered to the Purchaser deposit account
control agreements, in form and substance satisfactory to the Purchaser in its
sole and absolute discretion, with respect to the deposit accounts listed on
Schedule 3.29
duly executed by the Borrowers and the applicable depositary
bank(s).

       

      7.           ACTIONS AND DOCUMENTS
RELATING TO THE COLLATERAL

       

      On or
prior to the Closing Date, the Purchaser shall have received the following in
form and substance reasonably satisfactory to them:

       

      7.1.1 The
Security Agreement and the Pledge Agreement, each duly executed by the
Borrowers, together with the exhibits and schedules thereto;

       

      7.1.2 A
Patent Security Agreement, duly executed by M.C.M., covering the ‘391
Patent;

       

      7.1.3
UCC-1 Financing Statements or any amendments thereof, naming the Borrowers as
debtors, duly authorized by the Borrowers, as requested by the
Purchaser;

       

      
        
          
          

        

        
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      7.1.4
Evidence that all filings, registrations and recordings have been made in the
appropriate governmental offices, and all other action has been taken, which
shall be necessary to create, in favor of the Purchaser, a perfected first
priority Lien on the Collateral (subject only to Permitted Liens), and filing of
completed UCC financing statements, in each case, in the appropriate
governmental offices;

       

      7.1.5
Evidence that no Liens on the Collateral exist other than the Permitted Liens
and the Liens created by the execution of the Investment Documents, such
evidence including, without limitation, the results of searches conducted in the
UCC filing records in each of the governmental offices in which UCC financing
statements have been, or shall be, filed;

       

      7.1.6
Evidence reasonably satisfactory to the Purchaser that each of the conditions
precedent in the Collateral Documents shall have been satisfied.

       

      8.           INDEMNIFICATION; FEES AND
EXPENSES

       

      8.1           Transfer
Taxes.  The Borrowers shall pay all present or future stamp,
documentary, excise, property, transfer and other similar Taxes (together in
each case with interest and penalties, if any) payable or determined to be
payable in connection with the execution and delivery of this Agreement, any
payment made hereunder, or the issuance, sale, and delivery of the Note and
shall hold harmless the Purchaser from and against any and all liabilities with
respect to or resulting from any delay in paying, or omission to pay, such
Taxes.

       

      8.2           Losses.

       

      8.2.1
Whether or not the transactions contemplated by this Agreement are consummated,
the Borrowers shall jointly and severally indemnify, defend and save and hold
harmless the Purchaser and its respective Affiliates, and their respective
employees, partners, members, managers, principals, officers, directors,
representatives, agents, attorneys, successors and assigns (the “Indemnified
Parties”), from and against, and shall pay on demand, any and all losses,
claims, damages, liabilities, judgments, expenses and costs, including, without
limitation, attorneys’ fees, costs and expenses and other fees, costs and
expenses incurred in, and the costs of preparing for, investigating or defending
any matter (collectively, “Losses”), incurred by
or asserted or awarded against such Indemnified Party in connection with, by
reason of, or arising from:

       

      (a)           The
breach by any Borrower of any representation or warranty set forth in this
Agreement or any other Investment Document (or any other document or instrument
executed herewith or pursuant hereto);

       

      (b)           The
failure of any Borrower to fulfill any of its covenants, agreements or
undertakings under this Agreement or any other Investment Document (or any other
document or instrument executed herewith or pursuant hereto); or

       

      (c)           Any
third party actions, suits, proceedings or claims brought against any
Indemnified Party in connection with, arising out of or with respect to
(A) any other matters arising out of or in connection with the transactions
contemplated by this Agreement, the Note or any other Investment Document or the
Collateral or (B) the business, operations or affairs of the Borrowers
(including, without limitation, any litigation in which any Borrower is
involved); provided, however, that no
Borrower shall have any liability to any Indemnified Party for any Loss to the
extent that such Loss has been caused by such Indemnified Party’s willful
misconduct or gross negligence.

       

      
        
          
          

        

        
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      8.2.2 The
Borrowers shall either pay directly all Losses which they are required to pay
hereunder or reimburse any Indemnified Party within ten (10) days after any
written request for such payment.  The obligations of the Borrowers to
the Indemnified Parties under this Section 8 shall
be separate obligations to each Indemnified Party, and the liability of the
Borrowers to such Indemnified Parties hereunder shall not be extinguished solely
because any Indemnified Party is not entitled to indemnity
hereunder.

       

      8.2.3 The
obligations of the Borrowers to the Indemnified Parties under this Section 8 shall
survive (i) the repayment of the Note and any PIK Notes issued or deemed
issued thereunder (whether at maturity, by prepayment or acceleration or
otherwise), (ii) any transfer of the Note (or PIK Notes) or any interest
therein and (iii) the termination of this Agreement or any other Investment
Document.

       

      8.3           Indemnification
Procedures.  Any Person entitled to indemnification under this
Section 8
shall (i) give prompt written notice to the Borrowers of any claim with respect
to which it is entitled to seek indemnification (provided that the failure to so
notify any Borrower shall not relieve any Borrower from any liability which it
may have under this Section 8 except
to the extent that the Borrower is materially prejudiced by such failure) and
(ii) permit the Borrowers (or any of them) to assume the defense of such
claim with counsel selected by the Borrowers and reasonably acceptable to the
applicable Indemnified Party; provided, however, that any
Indemnified Party shall have the right to employ separate counsel and to
participate in the defense of such claim and the fees, costs and expenses of
such counsel shall be at the expense of such Indemnified Party unless
(a) any Borrower has agreed to pay such fees, costs or expenses,
(b) the Borrowers have failed to notify the applicable Indemnified Party in
writing within ten (10) days of its receipt of such written notice claiming
a right to be indemnified that it will assume the defense of such claim and
employ counsel reasonably acceptable to the applicable Indemnified Party, or
(c) a conflict of interest exists between the applicable Indemnified Party,
on the one hand, and the Borrowers, on the other hand, with respect to such
claims (in which case, if the applicable Indemnified Party notifies the
Borrowers in writing that such Indemnified Party elects to employ separate
counsel at the expense of the Borrowers, the Borrowers shall not have the right
to assume the defense of such claim on behalf of such Indemnified
Party).  The Borrowers will not be subject to any liability for any
settlement made without their respective consent (but such consent may not be
unreasonably conditioned, delayed or withheld).  No Indemnified Party
may, without the consent of the applicable Borrowers (which consent will not be
unreasonably conditioned, delayed or withheld), consent to the entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to the Borrowers of a
release from all liability in respect of such claim or litigation.

       

      
        
          
          

        

        
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      8.4           Contribution.  If
the indemnification provided for in this Section 8 is
unavailable to the Purchaser or any other Indemnified Party in respect of any
Losses, then the Borrowers, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by the Indemnified Party as a
result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Borrowers on the one hand, and the applicable Indemnified
Party, on the other hand, in connection with the actions, statements or
omissions which resulted in such Losses, as well as any other relevant equitable
considerations.  The relative fault of the Borrowers, on the one hand,
and such Indemnified Party, on the other hand, shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been taken by, or relates to information supplied by,
any of the Borrowers or such Indemnified Party, and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
any such action, statement or omission.  The parties agree that it
would not be just and equitable if contribution pursuant to this Section 8.4 were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to
above.

       

      9.           AFFIRMATIVE
COVENANTS

       

      As long
as the Note or any PIK Note remains outstanding, each Borrower covenants and
agrees as follows:

       

      9.1           Payment of Note and Other
Obligations.  The Borrowers shall fully and timely pay all
Obligations owing pursuant to the terms of this Agreement, the Note or any PIK
Note (including, without limitation, all principal thereof, premium, if any, and
interest thereon) and the other Investment Documents to which they are parties,
in each case on the dates and in the manner provided for herein and
therein.

       

      9.2           Performance of Investment
Documents.  The Borrowers shall perform, comply with and
observe all of their obligations under this Agreement, the Note, any PIK Note
and each other Investment Document.

       

      9.3           Notices.  The
Borrowers shall promptly notify the Purchaser in writing of the occurrence of
any event or the existence of any fact which renders any representation or
warranty in this Agreement or any of the other Investment Documents inaccurate,
incomplete or misleading in any material respect as of the date made or
remade.  In addition, the Borrowers agree to provide the Purchaser
with (i) ten (10) Business Days’ prior written notice of (A) any
change in the legal name or jurisdiction of organization or incorporation of any
Borrower, (B) the adoption by any Borrower of any new fictitious name or
tradename and (C) any change in the chief executive office of any Borrower,
(ii) prompt written notice of any material change in the information
disclosed in any schedule or exhibit hereto and (iii) as soon as possible
(and in any event within two (2) Business Days) after any Borrower obtains
Knowledge thereof, written notice of (A) the occurrence of any event, act,
development or condition which constitutes a Default or Event of Default or any
“default” or “event of default” under the terms of any Other Debt Documents;
(B) the commencement of any litigation against any Borrower involving an
amount in excess of $50,000 or any investigation or other proceeding of any
Governmental Authority against any Borrower; (C) any other event or
development that has resulted in or which could reasonably be expected to have a
Material Adverse Effect; or (D) any Judgment, Tax Lien or regulatory action
incurred by or entered against any Borrower.  Each such notice shall
specify in reasonable detail the nature of the event, act, condition, Default,
Event of Default, default, event of default, litigation or investigation or
other proceeding and what action the Borrower or any other Person is taking or
proposes to take to cure the same.

       

      
        
          
          

        

        
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      9.4           Books and Records; Financial
Statements.  The Borrowers shall keep adequate records and
books of account with respect to their respective business activities in which
proper entries are made in accordance with customary accounting practices
reflecting all their respective financial transactions; and cause to be prepared
and furnished to the Purchaser, the following, all to be prepared in accordance
with GAAP applied on a consistent basis, unless the Borrowers’ certified public
accountants concur in any change therein and such change is disclosed to the
Purchaser and is consistent with GAAP:

       

      9.4.1 As
soon as available, and in no event later than one hundred twenty (120) days
after the end of each Fiscal Year, an audited consolidated balance sheet of the
Borrowers as of the end of such Fiscal Year, and related audited consolidated
statements of operations, stockholders’ equity and cash flows of the Borrowers
for such Fiscal Year, setting forth in comparative form the corresponding
figures for the immediately preceding Fiscal Year, all in reasonable detail and
prepared in accordance with GAAP, and accompanied by a report and an opinion
(the “Audit
Report”), prepared in accordance with generally accepted auditing
standards, by Marcum LLP (or such other firm of independent certified public
accountants selected by the Borrowers and reasonably acceptable to the
Purchaser) (which opinion shall provide that such consolidated financial
statements present fairly, in all material respects, the financial position for
the periods indicated in conformity with GAAP, and which opinion shall not be
qualified or limited because of a restricted or limited examination by such
accountant of any material portion of the records of the Borrowers or otherwise
qualified in any respect);

       

      9.4.2
Promptly (and in any event not later than five (5) Business Days) after the
issuance of any Audit Report, or series of Audit Reports, a copy (or copies) of
such Audit Report(s) (or written summaries of any substantially similar oral
reports(s));

       

      9.4.3
Prior to the beginning of each Fiscal Year, a copy of the internal financial
projections of the Borrowers for such Fiscal Year (the “Annual Financial
Projections”), prepared on a monthly basis and in reasonable detail,
which shall include the following:  (i) a balance sheet, income
statement and cash flow statement for each month of such Fiscal Year;
(ii) a capital expenditures budget; (iii) an explanation in reasonable
detail of all material changes proposed for the business and its personnel and
facilities; (iv) an explanation in reasonable detail of all material
assumptions underlying such financial projections, which assumptions shall be
believed by the Borrowers to be reasonable; (v) a description of the
opportunities to be pursued during such Fiscal Year; and (vi) a description
of any incentive compensation expected to be paid to senior
management;

       

      9.4.4
Within five (5) Business Days after it is prepared, and in no event later
than thirty (30) days after the last day of each calendar month, a monthly
financial package for such month (the “Monthly Reporting
Package”), all in reasonable detail and prepared in accordance with GAAP,
consisting of at least the following:

       

      
        
          
          

        

        
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      (a)           an
income statement for such month on a consolidated and consolidating basis and by
division, with comparative information for the applicable Annual Financial
Projections and the same month during the immediately preceding Fiscal
Year;

       

      (b)           a
year-to-date income statement for such month on a consolidated and consolidating
basis and by division, with comparative information for the applicable Annual
Financial Projections and the same year-to-date month during the immediately
preceding Fiscal Year;

       

      (c)           a
cash flow statement for such month, with comparative information for the
applicable Annual Financial Projections and the same month during the
immediately preceding Fiscal Year;

       

      (d)           a
year-to-date cash flow statement for such month, with comparative information
for the applicable Annual Financial Projections and the same year-to-date period
during the immediately preceding Fiscal Year;

       

      (e)           a
balance sheet as at the end of such month on a consolidated and consolidating
basis, with comparative information for the applicable Annual Financial
Projections and as at the end of the same month during the immediately preceding
Fiscal Year; and

       

      (f)           other
information, as may be reasonably requested by the Purchaser, to monitor
mutually agreeable critical success factors of the Borrowers that need to be
achieved in order for the Borrowers to meet the financial
projections;

       

      9.4.5
[Reserved];

       

      9.4.6
Promptly upon request (and in any event not later than five (5) Business
Days thereafter), such other notices and other information (whether or not in
the possession of third parties) concerning the business, operations, financial
condition, or affairs of the Borrowers or their Affiliates as the Purchaser may
from time to time reasonably request.

       

      Concurrently
with the delivery of the financial statements described in Section 9.4.1,
the Borrowers shall forward to the Purchaser a copy of any accountants’ letter
to the management of the Borrowers that is prepared in connection with such
financial statements and also shall cause to be prepared and shall furnish to
the Purchaser a certificate of the aforesaid certified public accountants
certifying to the Purchaser that, based upon their examination of the financial
statements of the Borrowers performed in connection with their examination of
said financial statements, they are not aware of any Default or Event of
Default, or, if they are aware of such Default or Event of Default, specifying
the nature thereof, and acknowledging, in a manner satisfactory to the
Purchaser, that they are aware that the Purchaser is relying on such financial
statements in making decisions with respect to the Note.

       

      9.5           Guarantor Financial
Statements.  The Borrowers shall deliver or cause to be
delivered to the Purchaser financial statements for each Person that, following
the Closing Date, guarantees any Obligations of the Borrowers (to the extent not
delivered pursuant to Section 9.4
hereof) in form and substance satisfactory to the Purchaser at such intervals
and covering such time periods as the Purchaser may request.

       

      
        
          
          

        

        
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      9.6           Landlord, Distributor and
Storage Agreements.  The Borrowers shall provide the Purchaser
with copies of all agreements between any Borrower and any landlord, distributor
or warehouseman which owns any premises at which any Inventory may, from time to
time, be kept.

       

      9.7           Subsidiaries.  Subject
to Section 10.12,
promptly upon the creation or acquisition of each new Subsidiary, the Borrowers
shall cause such Subsidiary to execute and deliver to the Purchaser a Guaranty
and a security agreement (or agreements) pursuant to which such Subsidiary
jointly and severally guaranties the payment of all Obligations and grants to
the Purchaser a first priority Lien (subject only to Permitted Liens) on all of
its Properties.  Additionally, any Borrower that directly owns equity
interests in such Subsidiary shall execute and deliver to the Purchaser a pledge
agreement pursuant to which such Borrower shall grant to the Purchaser a
first-priority Lien (subject only to Permitted Liens) with respect to all of the
issued and outstanding securities of each such Subsidiary.  Within
five (5) days after the date such Subsidiary becomes a Subsidiary, the
Borrowers shall cause such Subsidiary to have executed (if necessary) and filed
any UCC-1 financing statements furnished by the Purchaser in each jurisdiction
in which such filing is necessary to perfect the security interest of the
Purchaser in the Collateral of such Subsidiary and in which the Purchaser
requests that such filing be made.  Additionally, the Borrowers and
such Subsidiary shall have executed and delivered to the Purchaser such other
items as reasonably requested by the Purchaser in connection with the foregoing,
including resolutions, incumbency and officers’ certificates, opinions of
counsel, search reports and other certificates and documents.

       

      9.8           Compliance with Laws;
Consents.  The Borrowers shall comply in all respects with the
requirements of all Applicable Laws, rules, regulations and orders of any
Governmental Authority (including all Environmental Laws), the reasonable
corporate conduct and business ethics policies of its significant customers, and
the terms of any indenture, contract or other instrument to which it may be a
party or under which it or its properties may be bound in each case, to the
extent that the failure to so comply would reasonably be expected to have a
Material Adverse Effect as to the Borrowers.  Each Borrower shall
obtain and maintain all material licenses, authorizations, consents, filings,
exemptions, registrations and other governmental approvals necessary in
connection with the execution, delivery and performance of the Investment
Documents, the consummation of the transactions therein contemplated or the
operation and conduct of its business and ownership of its
properties.

       

      9.9           Legal
Existence.  Each Borrower shall, subject to Section 10.1,
maintain and preserve its legal existence, its material Operating Licenses and
its other material rights to transact business in each jurisdiction where
transacting business or its properties are located and all other material
rights, franchises and privileges necessary or desirable in the normal course of
its business and operations and the ownership of its properties.

       

      9.10           Maintenance of
Properties.  Each Borrower shall maintain and preserve all of
its Properties necessary or useful in the proper conduct of its business in good
working order and condition in accordance with the general practice of other
corporations of similar character and size, ordinary wear and tear
excepted.

       

      
        
          
          

        

        
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      9.11           Insurance.  The
Borrowers shall carry and maintain in full force and effect, at their own
expense and with financially sound and reputable insurance companies, insurance
in such amounts, with such deductibles and covering such risks as is customarily
carried by companies engaged in the same or similar businesses and owning
similar properties in the localities where any Borrower operates, including
product liability, comprehensive general liability, fire, extended coverage,
business interruption, public liability, property damage, workers’ compensation
and directors and officers liability insurance.  Insurance on the
Collateral shall name the Purchaser as additional insured and as additional loss
payee.  In the event that a Borrower receives proceeds of insurance
with respect to any loss or destruction of Equipment, Inventory or Real Property
or business interruption, then (i) the Borrowers shall first use such
proceeds to replace or repair the damaged Collateral and (ii) the balance
of such proceeds shall be applied to repay the Note.  Upon the request
of the Purchaser, each Borrower shall furnish the Purchaser from time to time
with full information as to the insurance carried by it and, if so requested,
copies of all such insurance policies.  Each Borrower shall also
furnish to the Purchaser from time to time upon the request of the Purchaser a
certificate of its insurance broker or other insurance specialist stating that
all premiums then due on the policies relating to insurance on the Collateral
have been paid, that such policies are in full force and effect and that such
insurance coverage and such policies comply with all the requirements of this
Section.  All insurance policies required under this Section shall
provide that they shall not be terminated or canceled nor shall any such policy
be materially changed without at least thirty (30) days’ prior written
notice to the Borrowers and the Purchaser.  Receipt of notice of
termination or cancellation of any such insurance policies or reduction of
coverages or amounts thereunder shall entitle the Purchaser to renew any such
policies, cause the coverages and amounts thereof to be maintained at levels
required pursuant to the first sentence of this Section 9.11 or
otherwise to obtain similar insurance in place of such policies, in each case at
the expense of the Borrowers.

       

      9.12           Payment of
Obligations.  Each of the Borrowers shall pay and discharge
(i) all Taxes, fees, assessments and governmental charges or levies imposed
upon it or upon its properties or assets prior to the date on which penalties
attach thereto, and all lawful claims for labor, materials and supplies which,
if unpaid, might become a Lien upon any properties or assets of any Borrower,
except to the extent such Taxes, fees, assessments or governmental charges or
levies, or such claims, are being contested in good faith by appropriate
proceedings and are adequately reserved against in accordance with GAAP,
(ii) all lawful claims (other than those being contested in good faith by
appropriate proceedings) which, if unpaid, would by law become a Lien upon its
property not constituting a Permitted Lien, and (iii) subject to the terms
of this Agreement and the terms of any applicable subordination or intercreditor
agreement, all Indebtedness, as and when due and payable.

       

      9.13           Compliance with Material
Contracts.  Each Borrower shall perform, comply with and
observe all material terms and provisions of each of its Material Contracts to
be performed, complied with or observed by it, maintain each of its Material
Contracts in full force and effect and enforce each of its Material Contracts in
accordance with its terms.

       

      
        
          
          

        

        
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      9.14           Environmental
Matters.  The Borrowers shall, upon becoming aware of the
presence of any Hazardous Substance in violation of any Environmental Laws or
the existence of any environmental liability under applicable Environmental Laws
with respect to the Premises, take all actions, at their cost and expense, as
shall be necessary or advisable to investigate and clean up the condition of the
Premises, including all removal, containment and remedial actions, and restore
the Premises to a condition in compliance with applicable Environmental
Laws.

       

      9.15           Future
Information.  All data, certificates, reports, statements,
documents and other information furnished to the Purchaser by or on behalf of
the Borrowers, any of their respective representatives or agents in connection
with this Agreement, the other Investment Documents or the transactions
contemplated hereby and thereby, at the time the information is so furnished,
taken as a whole, shall not contain any untrue statement of a material fact,
shall be complete and correct in all material respects to the extent necessary
to give the Purchaser sufficient and accurate knowledge of the subject matter
thereof, and shall not omit to state a material fact necessary in order to make
the statements contained therein not misleading in light of the circumstances
under which such information is furnished.

       

      9.16           Further
Assurances.  Promptly after request by the Purchaser, from time
to time after the date hereof, each of the Borrowers shall execute and deliver,
and shall use reasonable efforts to cause any other Persons who are required to
give their Consent to execute and deliver, such instruments, certificates and
documents, and will take all such reasonable actions, for the purposes of
implementing or effectuating the provisions of this Agreement, the Note, the
Warrant and the other Investment Documents.  Upon exercise by the
Purchaser of any power, right, privilege or remedy pursuant to this Agreement or
any other Investment Document which requires any Consent, each of the Borrowers
will execute and deliver, and shall use reasonable efforts to cause any other
Persons to execute and deliver, all applications, certifications, instruments
and other documents and papers that may be reasonably required to be obtained
for such Consent.  Promptly upon reasonable request by the Purchaser,
each of the Borrowers shall correct any material defect or error that may exist
or be discovered in this Agreement, the Note, the Warrant or any other
Investment Document or in the execution, acknowledgment, filing or recordation
thereof.  Promptly upon reasonable request by the Purchaser, each of
the Borrowers shall do, execute, acknowledge, deliver, record, re-record, file,
re-file, register and re-register any and all such further acts, deeds,
conveyances, pledge agreements, mortgages, deeds of trust, trust deeds, notices
of assignment, transfers, certificates, assurances and other instruments as the
Purchaser may require from time to time in order to (i) carry out more
effectively the purposes of the Investment Documents, (ii) to the fullest
extent permitted by applicable law, subject each Borrowers’ Properties to the
Liens now or hereafter intended to be covered by any of the Collateral
Documents, (iii) perfect and maintain the validity, effectiveness and
priority of any of the Collateral Documents and any of the Liens intended to be
created thereunder and (iv) assure, convey, grant, assign, transfer,
preserve, protect and confirm more effectively unto the rights granted or now or
hereafter intended to be granted to the Purchaser under any Investment Document
or under any other instrument executed in connection with any Investment
Document to which any Borrower is to be a party.

       

      
        
          
          

        

        
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      9.17           Management by Key Management
Personnel.  The Borrowers shall use commercially reasonable
efforts to retain Dwight Morgan as the Chief Executive Officer of the Borrowers
(or in such other position with the Borrowers as shall be approved by the
Purchaser) (the “Key
Management Personnel”) on a full time basis (or consistent with current
levels).  The Borrowers shall not hire, terminate or otherwise replace
any Key Management Personnel without the prior approval of the Purchaser, which
approval shall not be unreasonably withheld, other than termination for “Cause”
under the terms of the applicable Employment Agreement.

       

      9.18           Legal and Capital
Structure.  The Borrowers shall promptly take all such actions
necessary to cause an increase in the authorized number of shares of Common
Stock of Caprius to an amount satisfactory to the Purchaser in its sole and
absolute discretion.

       

      9.19           Purchaser Costs, Fees and
Expenses.  The Borrowers will pay on demand, all costs and
expenses incurred by or on behalf of the Purchaser regardless of whether the
transactions contemplated hereby are consummated, including, without limitation,
reasonable fees, costs, client charges and expenses of counsel for the
Purchaser, accounting, due diligence, periodic field audits, physical counts,
valuations, investigations, searches and filings, monitoring of assets,
appraisals of Collateral, title searches and reviewing environmental
assessments, miscellaneous disbursements, examination, travel, lodging and
meals, arising from or relating to:  (a) the negotiation,
preparation, execution, delivery, performance and administration of this
Agreement and the other Investment Documents, (b) any requested amendments,
waivers or consents to this Agreement or the other Investment Documents whether
or not such documents become effective or are given, (c) the preservation
and protection of the Purchaser rights under this Agreement or the other
Investment Documents, (d) the filing of any petition, complaint, answer,
motion or other pleading by the Purchaser, or the taking of any action in
respect of the Collateral or other security, in connection with this Agreement
or any other Investment Document, (e) the protection, collection, lease,
sale, taking possession of or liquidation of, any Collateral or other security
in connection with this Agreement or any other Investment Document, (f) any
attempt to enforce any Lien or security interest in any Collateral or other
security in connection with this Agreement or any other Investment Document,
(g) any attempt to collect from any Borrower, (h) all liabilities and
costs arising from or in connection with the past, present or future operations
of any Borrower involving any damage to real or personal property or natural
resources or harm or injury alleged to have resulted from any Environmental
Conditions, (i) any liabilities, costs, fees, fines, penalties or other
obligations incurred in connection with the investigation, removal, cleanup
and/or remediation of any Hazardous Materials present or arising out of the
operations of any facility of any Borrower, or (j) the receipt by the
Purchaser of any advice from professionals with respect to any of the
foregoing.

       

      9.20           Manufacturing
Source.  The Borrowers shall establish a manufacturing source
based in the United States (or such other location as is mutually agreed to by
the Purchaser and the Borrowers), which source shall, within one hundred
eighty (180) days following the Closing Date, deliver both a working senior
unit and a working junior unit (in each instance, a prototype or a first article
unit) to the Borrowers.  The Borrowers shall, within two hundred
seventy (270) days following the Closing Date, terminate all contracts,
agreements and other arrangements with the Israeli manufacturing
source.

       

      
        
          
          

        

        
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      9.21           Unit
Sales.  The Borrowers shall, (a) within one hundred
eighty (180) days following the Closing Date, recognize revenue with
respect to the sale of thirty seven (37) units to independent third party
customers on market terms pursuant to arms’ length transactions, (b) within
two hundred seventy (270) days following the Closing Date, recognize
revenue with respect to the sale of sixty four (64) units to independent
third party customers on market terms pursuant to arms’ length transactions, and
(c) within three hundred sixty (360) days following the Closing Date,
recognize revenue with respect to the sale of one hundred (100) units to
independent third party customers on market terms pursuant to arms’ length
transactions.  For the purposes hereof, the Borrowers shall be deemed
to have “recognized revenue,” (x) with respect to sales to customers inside
the United States, when a unit is accepted by the customer in writing, and
(y) with respect to sales to customers located outside of the United
States, when either (i) a unit departs the factory and said departure is
verified by an export manifest or (ii) the customer executes a bill and
hold letter agreement.

       

      10.           NEGATIVE
COVENANTS

       

      As long
as the Note or any PIK Note remains outstanding, each Borrower covenants and
agrees as follows:

       

      10.1           Mergers; Consolidations;
Acquisitions; Structural Changes.  No Borrower shall
(a) be acquired, merge, consolidate or amalgamate, or permit any Subsidiary
to be acquired, merge, consolidate or amalgamate, with or into any Person or
permit any Person to acquire control of any Borrower, (b) acquire, or
permit any of their respective Subsidiaries to acquire, all or any substantial
part of the Properties of any Person, (c) change, or permit any Subsidiary
to change, its state of incorporation or organization or type of Organization,
or (d) change, or permit any Subsidiary to change, its legal name, except
for mergers of any Subsidiary of Caprius into Caprius or another domestic
Subsidiary of Caprius (other than into M.C.M. prior to the payment of the
Sassoon Settlement Amount).

       

      10.2           Loans.  No
Borrower shall make, or permit any Subsidiary to make, any loans or other
advances of money, other than for salary, travel advances, advances against
commissions and other similar advances in the ordinary course of business to any
Person.

       

      10.3           Indebtedness.  No
Borrower shall, without the prior written consent of the Purchaser, create,
incur, assume, or suffer to exist, or permit any Subsidiary to create, incur or
suffer to exist, any Indebtedness, except:

       

      10.3.1
Obligations under the Note or any PIK Note; and

       

      10.3.2
Indebtedness existing on the date of this Agreement as set forth on Schedule 10.3.

       

      10.4           Affiliate
Transactions.  No Borrower shall, without the prior written
consent of the Purchaser, enter into, or be a party to, or permit any Subsidiary
to enter into or be a party to, any transaction with any Affiliate of any
Borrower, except (a) usual and customary employment agreements and
indemnification arrangements contained in a Borrower’s or a Subsidiary’s Charter
Documents in effect on the date hereof and (b) those transactions in
existence on the date hereof and disclosed on Schedule 3.14.

       

      10.5           Limitation on
Liens.  The Borrowers shall not, without prior written consent
of the Purchaser, create or suffer to exist, or permit any Subsidiary to create
or suffer to exist, any Lien upon any of its Properties, income or profits,
whether now owned or hereafter acquired, except the following (each a “Permitted
Lien”):

       

      
        
          
          

        

        
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      10.5.1
Liens at any time granted in favor of the Purchaser;

       

      10.5.2
Liens for Taxes (excluding any Lien imposed pursuant to any of the provisions of
ERISA) not yet due, or being contested in the manner described in Section 3.18,
but only if in the Purchaser’s reasonable judgment such Lien does not adversely
affect the Purchaser’s rights or the priority of the Purchaser’s Liens in the
Collateral;

       

      10.5.3
Liens arising in the ordinary course of the business of a Borrower by operation
of law or regulation, but only if payment in respect of any such Lien is not at
the time required and such Liens do not, in the aggregate, materially detract
from the value of the Property of the Borrowers or materially impair the use
thereof in the operation of the business of the Borrowers;

       

      10.5.4
Such other Liens existing on the date of this Agreement and listed on Schedule 10.5
hereto;

       

      10.5.5 So
long as no Event of Default has occurred and is continuing, attachment, judgment
and other similar non-tax Liens arising in connection with court proceedings,
but only if and for so long as the execution or other enforcement of such Liens
is and continues to be effectively stayed and bonded on appeal, the validity and
amount of the claims secured thereby are being actively contested in good faith
and by appropriate lawful proceedings and such Liens do not, in the aggregate,
materially detract from the value of the Property of the Borrowers or materially
impair the use thereof in the operation of the Borrowers’
businesses;

       

      10.5.6
Reservations, exceptions, easements, rights of way and other similar
encumbrances affecting Real Property; provided that, in the Purchaser’s sole
judgment, such exceptions do not in the aggregate materially detract from the
value of such Property or materially interfere with the use of such Property in
the ordinary course of the Borrowers’ business, and if such Property constitutes
Collateral, the Purchaser has consented thereto; and

       

      10.5.7
Such other Liens as the Purchaser may hereafter approve in writing.

       

      10.6           Payments and Amendments of
Subordinated Debt.  The Borrowers shall not:

       

      10.6.1
Make or permit any Subsidiary to make any payment of any part or all of any
Subordinated Debt or take any other action or omit to take any other action in
respect of any Subordinated Debt; or

       

      10.6.2
Agree to (i) any amendment or other modification of the subordination
provisions of any documentation evidencing or relating to any Subordinated Debt
or (ii) any other amendment or other modification to any documentation
evidencing any Subordinated Debt that would increase the interest rate
applicable thereto, accelerate the maturity date of any payment owing in respect
thereof (including any redemption, prepayment or defeasance provision or the
Borrower’s obligation to pay cash interest) or otherwise modify any of the
provisions of such Subordinated Debt.

       

      
        
          
          

        

        
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      10.7           Distributions.  The
Borrowers shall not, without prior written consent of the Purchaser, declare or
make, or permit any Subsidiary to declare or make, any Distributions (other than
Distributions made to any Borrower by a Subsidiary, other than M.C.M. UK, when
no Default or Event of Default exists).

       

      10.8           Disposition of
Assets.  The Borrowers shall not, without prior written consent
of the Purchaser, sell, lease or otherwise dispose of any of, or permit any
Subsidiary to sell, lease or otherwise dispose of any of, its Properties,
including any disposition of Property as part of a Sale and Leaseback
Transaction or securitization transaction or the sale of any stock of a
Subsidiary, to or in favor of any Person, except for:

       

      10.8.1 so
long as no Event of Default has occurred and is continuing, sales of Inventory
in the ordinary course of business;

       

      10.8.2 so
long as no Event of Default has occurred and is continuing, sales of equipment
or other fixed assets used by any Borrower in the conduct of its business to the
extent that the proceeds from such sale are used to purchase newer, functionally
equivalent equipment or fixed assets, as the case may be, which are used by such
Borrower in the conduct of its business;

       

      10.8.3
transfers of Property to any Borrower by a Subsidiary of such Borrower;
and

       

      10.8.4
dispositions expressly authorized by this Agreement.

       

      10.9           Additional
Securities.  Other than the Warrant, no Borrower shall issue or
create any Security, including, without limitation, any Security that provides
for redemption, a right to repurchase exercisable at the holder’s option,
creation of a sinking fund or a cash dividend payable prior to the maturity of
the Note and the payment in full of the Obligations.

       

      10.10           [Reserved].

       

      10.11           Restricted
Investment.  The Borrowers shall not make or have, or permit
any Subsidiary to make or have, any Restricted Investment.

       

      10.12           Subsidiaries and Joint
Ventures.  Following the Closing Date, the Borrowers shall not
create, acquire or otherwise suffer to exist any Subsidiary or joint venture
arrangement.

       

      10.13           Tax
Consolidation.  The Borrowers shall not file or consent to the
filing of any consolidated income tax return with any Person not a Borrower,
other than M.C.M. UK.

       

      10.14           Organizational
Documents.  The Borrowers shall not agree to, or suffer to
occur, any amendment, supplement or addition to its or any of their respective
Subsidiaries’ Charter Documents.  The Borrowers shall not enter into
any new or amend any existing stockholder agreement.

       

      10.15           Fiscal Year
End.  The Borrowers shall not change, or permit any Subsidiary
to change, its Fiscal Year.

       

      
        
          
          

        

        
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      10.16           Limitations on Payment
Restrictions Affecting Subsidiaries.  The Borrowers shall not
permit any Subsidiary to grant or otherwise agree to or suffer to exist any
consensual restrictions on the ability of such Subsidiary to pay dividends and
make other distributions to the Borrowers, or to pay any Indebtedness owed to
the Borrowers or transfer properties and assets to the Borrowers except as set
forth in this Agreement.

       

      10.17           Change in
Business.  The Borrowers shall not engage in any material line
of business substantially different from the Business carried on by them at the
date hereof.

       

      10.18           Subordination.  The
Borrowers shall not, directly or indirectly, contingently or otherwise, create,
incur, assume, guaranty, suffer to exist or become or remain liable with respect
to any Indebtedness that is pari passu with or senior in right of payment to the
Indebtedness evidenced by the Note.

       

      10.19           Accounting
Changes.  The Borrowers shall not (i) make any significant
change in accounting treatment or reporting practices, except as required by
GAAP, in which event the Borrowers shall deliver to the Purchaser a certificate
signed by its Chief Financial Officer describing the change, or
(ii) restate any of their financial statements for prior periods, other
than in connection with the adoption of a change in accounting
principle.

       

      10.20           [Reserved].

       

      10.21           Hazardous
Substances.  The Borrowers shall not use, generate,
manufacture, install, treat, Release, store or dispose of any Hazardous
Substances, except in material compliance with all applicable Environmental
Laws.

       

      10.22           No Solicitation or
Negotiation.

       

      10.22.1
From and after the Closing Date, the Borrowers shall not, nor will they
authorize or permit any of their respective directors, officers or other
employees, contractors, Affiliates or any investment banker, attorney or other
advisor, representative or agent retained by it (collectively, the “Borrowers’
Representatives”), to directly or indirectly, (i) solicit, initiate,
encourage or induce the making, submission or announcement of an offer, proposal
or transaction (whether in the form of a merger, consolidation, asset sale or
other form of transaction) for the acquisition of all or any part of the
Business (whether by stock sale, asset sale, merger or otherwise) (any of the
foregoing, a “Prohibited
Acquisition”), (ii) participate or engage in any discussions or
negotiations with any such Person regarding a Prohibited Acquisition,
(iii) furnish to any such Person any information relating to the Borrowers
or the Business, or afford access to the business, properties, assets, books or
records of any Borrower to any such Person that has made or could reasonably be
expected to make a Prohibited Acquisition, or (iv) take any other action
intended to assist or facilitate any inquiries or the making of any proposal
that constitutes, or could reasonably be expected to lead to, a Prohibited
Acquisition, (v) approve, endorse or recommend a Prohibited Acquisition, or
(vi) enter into any letter of intent or similar agreement contemplating or
otherwise relating to a Prohibited Acquisition.  The Borrowers shall
immediately cease and cause to be terminated any existing or previously
conducted activities, discussions or negotiations with any parties with respect
to any Prohibited Acquisition.  The Borrowers shall notify the
Purchaser with reasonable promptness (but in no event later than two (2)
Business Days thereafter) if any such inquiries or proposals are received by,
any such information or access is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, any of
them.

       

      
        
          
          

        

        
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      10.22.2
From and after the Closing Date through the one year anniversary of the Closing
Date, the Borrowers shall not, nor will they authorize or permit any Borrowers’
Representative to, directly or indirectly, (i) solicit, initiate, encourage
or induce the making, submission or announcement of  the incurrence or
refinancing of any Indebtedness by any Person other than Purchaser (any of the
foregoing, a “Prohibited
Financing”), (ii) participate or engage in any discussions or
negotiations with any such Person regarding a Prohibited Financing, (iii)furnish
to any such Person any information relating to the Borrowers or the Business, or
afford access to the business, properties, assets, books or records of any
Borrower to any such Person that has made or could reasonably be expected to
make a Prohibited Financing, or (iv) take any other action intended to
assist or facilitate any inquiries or the making of any proposal that
constitutes, or could reasonably be expected to lead to, a Prohibited Financing,
(v) approve, endorse or recommend a Prohibited Financing, or
(vi) enter into any letter of intent or similar agreement contemplating or
otherwise relating to a Prohibited Financing.  The Borrowers shall
immediately cease and cause to be terminated any existing or previously
conducted activities, discussions or negotiations with any parties with respect
to any Prohibited Financing.  The Borrowers shall notify the Purchaser
with reasonable promptness (but in no event later than two (2) Business Days
thereafter) if any such inquiries or proposals are received by, any such
information or access is requested from, or any such negotiations or discussions
are sought to be initiated or continued with, any of them.

       

      10.22.3
Provided that no Event of Default has occurred and is continuing, from and after
the one year anniversary of the Closing Date through the Maturity Date, the
Borrowers and the Borrowers’ Representatives may (i) solicit, initiate,
encourage or induce the making, submission or announcement of a Prohibited
Financing, (ii) participate or engage in any discussions or negotiations
with any Person regarding a Prohibited Financing, (iii) furnish to any such
Person any information relating to the Borrowers or the Business, or afford
access to the business, properties, assets, books or records of any Borrower to
any such Person that has made or could reasonably be expected to make a
Prohibited Financing, or (iv) take any other action intended to assist or
facilitate any inquiries or the making of any proposal that constitutes, or
could reasonably be expected to lead to, a Prohibited Financing,
(v) approve, endorse or recommend a Prohibited Financing, or
(vi) enter into any letter of intent or similar agreement contemplating or
otherwise relating to a Prohibited Financing (any such otherwise Prohibited
Financing, a “Permitted Third Party
Refinancing”) .  The Borrowers shall notify the Purchaser with
reasonable promptness (but in no event later than two (2) Business Days
thereafter) if any such inquiries or proposals are received by, any such
information or access is requested from, or any such negotiations or discussions
are sought to be initiated or continued with, any of
them.  Notwithstanding the foregoing, in the event that the Borrowers
seek to enter into a Permitted Third Party Refinancing pursuant to this Section 10.22.3,
the Borrowers shall first offer to the Purchaser, in writing, a right of first
refusal to provide such Permitted Third Party Refinancing on the same terms and
conditions as are offered to the Borrowers by a third Person (the “Right of First
Refusal”).  Any Permitted Third Party Refinancing shall be made
subject to the rights and obligations set forth in this Agreement.  In
the event that the Borrowers offer the Right of First Refusal to the Purchaser,
the Purchaser shall promptly, and in writing, accept or reject such
offer.  If the Purchaser shall fail to accept such offer within
five (5) Business Days after the Purchaser’s receipt of such written offer,
the Borrowers shall be free to complete such Permitted Third Party Refinancing
with such Third Person to the extent otherwise permitted under this Agreement;
provided, that
such Permitted Third Party Refinancing shall close on the Maturity Date; provided, further, that the
proceeds of such Permitted Third Party Refinancing shall be used to pay all
amounts then outstanding under the Note, the PIK Notes and the other Investment
Documents in full in cash.  If the Purchaser accepts such offer, the
Permitted Refinancing shall close no later than the earlier of
(A) fifteen (15) Business Days after the Purchaser’s acceptance and
(B) the Maturity Date (the “Purchaser Closing
Period”).  If such Permitted Third Party Refinancing with the
Purchaser does not close within the Purchaser Closing Period, the Purchaser
shall no longer have a Right of First Refusal with respect to such proposed
Permitted Third Party Refinancing.

       

      
        
          
          

        

        
          58

          
            

          

        

        
          
          

        

      

       

      10.23           Employment
Agreements.  The Borrowers shall not, and shall not permit any
Borrower to (i) amend the terms of the Employment Agreements or
(ii) increase the salary (excluding performance bonus) of any executive
officer by an amount greater than the annual change in the consumer price index
without the prior written consent of the Purchaser.

       

      10.24           No Securities or Options
Granted.  Without the prior written consent of Purchaser, which
may be conditioned on the grant to the Purchaser of the Warrant, no Borrower
shall issue or grant securities, options or Convertible Securities to any
Person.

       

      10.25           Advances.  The
Borrowers shall not use the proceeds of any Advance for any purpose other than
as set forth in the Disbursement Request related to such Advance.

       

      10.26           M.C.M.
UK.  Other than transfers not to exceed ten thousand
dollars ($10,000) in the aggregate each Fiscal Year solely for the purpose
of paying license and similar fees, the Borrowers shall not transfer any asset
(including, without limitation, any cash or cash equivalent), contract,
obligation or otherwise to M.C.M. UK.  M.C.M. UK shall not enter into
any contract, agreement, or other arrangement whatsoever, own any assets (other
than licenses necessary to sell Inventory in the United Kingdom), or conduct or
engage in business of any kind or nature whatsoever, whether consistent with
past practice or otherwise.

       

      10.27           Sales of
Inventory.  The Borrowers shall cause M.C.M. to be the
seller-of-record of all Inventory of the Borrowers and all accounts receivable
of the Business shall be due and payable solely to M.C.M.

       

      11.           DEFAULTS AND
REMEDIES

       

      11.1           Events of
Default.  The occurrence of any one or more of the following
events, acts or occurrences shall constitute an event of default (each an “Event of
Default”):

       

      11.1.1
(i) Any Borrower shall fail to pay as and when due (whether at stated
maturity, upon acceleration or demand or required prepayment or otherwise) any
principal, interest and annual renewal fee payable under the Note (and any PIK
Notes issued or deemed issued thereunder) or (ii) any Borrower shall fail
to make any other payment of any other amounts (including, without limitation,
fees, costs or expenses) payable under this Agreement, the Note (or any PIK
Notes) or any other Investment Document (whether at stated maturity, upon
acceleration or demand or required prepayment or otherwise) and with respect to
such other amounts in clause (ii) shall fail to make payments within
ten (10) day’s written notice thereof;

       

      
        
          
          

        

        
          59

          
            

          

        

        
          
          

        

      

       

      11.1.2
Any Borrower shall breach or fail to perform, comply with or observe any
agreement, covenant or obligation required to be performed by it under this
Agreement, the Note, any Collateral Document or any other Investment Document
(other than the agreements, covenants or obligations expressly covered by Section 11.1.1);

       

      11.1.3
[Reserved];

       

      11.1.4
Any representation, warranty or other statement made or furnished to the
Purchaser by or on behalf of any Borrower under this Agreement or any other
Investment Document or any instrument, certificate or financial statement
furnished in compliance with or in reference thereto shall be false or
misleading or incorrect in any material respect when made (or deemed
made);

       

      11.1.5
Except as to those obligations disputed in good faith, provided written notice
of such dispute has been provided to the Purchaser, (i) any Borrower shall
default in the payment (whether at stated maturity, upon acceleration or demand
or required prepayment or otherwise), beyond any period of grace provided
therefor, of any principal of or interest on any other Indebtedness with a
principal amount in excess of $10,000 individually or in the aggregate, or
(ii) any other breach or default (or other event or condition) shall occur
under any agreement, indenture or instrument evidencing or governing any such
other Indebtedness or any Other Debt Document, if (A) the payment or
maturity of such Indebtedness is accelerated in consequence of such Event of
Default, (B) demand for payment of such Indebtedness is made, or
(C) any collection action in respect thereof is commenced.

       

      11.1.6
Any Investment Document, or any material provision thereof, shall cease to be in
full force and effect (other than as a result of the Purchaser’s actions), valid
and enforceable, for any reason other than in accordance with its terms, or any
Borrower shall contest or purport to repudiate or disavow any of its obligations
under or the validity or enforceability of any Investment Document or any
material provision thereof, including by operation of law, or any Collateral
Document or financing statement shall for any reason (other than pursuant to the
terms thereof) cease to create a valid and perfected first priority lien on
(subject only to Permitted Liens), or security interest in, the Collateral
purported to be covered thereby;

       

      11.1.7
Any Borrower shall cease to be Solvent or there shall be commenced against any
Borrower an involuntary case seeking the liquidation or reorganization of such
Person under the Bankruptcy Laws or any similar proceeding under any other
Applicable Laws or an involuntary case or proceeding seeking the appointment of
a receiver, custodian, trustee or similar official for it, or to take possession
of all or a substantial portion of its property or to operate all or a
substantial portion of its business, and any of the following events
occur:  (i) any such Person consents to such involuntary case or
proceeding or fails to diligently contest it in good faith, (ii) the
petition commencing the involuntary case or proceeding is not timely
controverted, (iii) the petition commencing the involuntary case or
proceeding remains undismissed and unstayed for a period of sixty (60)
days, or (iv) an order for relief shall have been issued or entered therein
or a receiver, custodian, trustee or similar official appointed;

       

      
        
          
          

        

        
          60

          
            

          

        

        
          
          

        

      

       

      11.1.8
Any Borrower (i) shall make any offer of settlement, extension or
composition to its unsecured creditors generally, or institute a voluntary case
seeking liquidation or reorganization under the Bankruptcy Laws or any similar
proceeding under any other Applicable Laws, or shall consent thereto,
(ii) shall consent to the conversion of an involuntary case to a voluntary
case, (iii) shall file a petition, answer a complaint or otherwise
institute any proceeding seeking, or shall consent or acquiesce to the
appointment of, a receiver, custodian, trustee or similar official for it, or to
take possession of all or a substantial portion of its property or to operate
all or a substantial portion of its business, (iv) shall make a general
assignment for the benefit of creditors, (v) shall generally not pay its
debts as they become due or shall admit in writing its inability to pay its
debts generally, or (vi) the Board of Directors of any such Person (or any
committee thereof) adopts any resolution or otherwise authorizes action to
approve any of the foregoing;

       

      11.1.9
Any Borrower shall suffer any Judgment that is not satisfied within thirty (30)
days after becoming final and not subject to appeal or review;

       

      11.1.10
There shall occur any material loss, theft, damage or destruction of any of the
Collateral such that the aggregate value of such Collateral minus the amount of
such Collateral covered by the proceeds from the Borrower’s insurance policies
exceeds $15,000;

       

      11.1.11
There shall occur a cessation of a substantial part of the business of any
Borrower for a period which significantly and adversely affects such Borrower’s
capacity to continue its business on a profitable basis; or any Borrower shall
suffer the loss or revocation of any license or permit now held or hereafter
acquired by such Borrower which is necessary to the continued or lawful
operation of its business; or any Borrower shall be enjoined, restrained or in
any way prevented by court, governmental or administrative order from conducting
all or any material part of its business affairs; or any material lease or
agreement pursuant to which any Borrower leases, uses or occupies any Property
shall be canceled or terminated prior to the expiration of its stated term; or
any material part of the Collateral shall be taken through condemnation or the
value of such Property shall be impaired through condemnation;

       

      11.1.12 A
Reportable Event shall occur which, in the Purchaser’s determination,
constitutes grounds for the termination by the Pension Benefit Guaranty
Corporation of any Benefit Plan or for the appointment by the appropriate United
States district court of a trustee for any Benefit Plan, or if any Benefit Plan
shall be terminated or any such trustee shall be requested or appointed, or if
any Borrower is in “default” (as defined in Section 4219(c)(5) of ERISA)
with respect to payments to a Multiemployer Plan resulting from such Borrower’s
complete or partial withdrawal from such Benefit Plan and any such event would
reasonably be expected to have a Material Adverse Effect;

       

      11.1.13
Any Borrower shall be criminally indicted or convicted under any law that could
lead to a forfeiture of any Property of any Borrower which would be reasonably
expected to have a Material Adverse Effect or a material and adverse impact on
the reputation or goodwill of any Borrower;

       

      11.1.14
There shall occur any Change in Control or any Material Adverse
Change;

       

      
        
          
          

        

        
          61

          
            

          

        

        
          
          

        

      

       

      11.1.15
Any order, decree, fine, citation or penalty shall be entered against or imposed
upon any of the Borrowers or any of the Real Properties with respect to an
Environmental Condition where the cost of compliance or the amount of such fine
or penalty is reasonably expected, individually or in the aggregate, to exceed
$10,000, and such amount is not paid in full within forty-five (45) days of
entry or imposition; or

       

      11.1.16
Any Tax assessment Lien equal to or in excess of $50,000 shall be entered
against any Borrower, or any Tax assessment Lien in an amount less than $50,000
shall not have been removed within thirty (30) days of entry.

       

      Any
adjustments in the interest rate under the Note (or any PIK Notes) or other
remedies available to the Purchaser hereunder or thereunder shall begin to apply
immediately upon the occurrence of an Event of Default or, in the case of Sections 11.1.7
and 11.1.8
above, immediately prior to an Event of Default, in each case unless and until
such Event of Default has been waived by the Purchaser in its sole and absolute
discretion.

       

      11.2           Acceleration.  If
any Event of Default (other than an Event of Default specified in Sections 11.1.7
or 11.1.8)
occurs and is continuing, the Purchaser may, upon one (1) Business Day’s
prior written notice to the Borrowers, declare all outstanding principal of,
premium, if any, accrued and unpaid interest on, and all other amounts under the
Note, and all other Obligations, to be due and payable.  Upon any such
declaration of acceleration, such principal, premium, if any, interest and other
amounts shall become immediately due and payable.  If an Event of
Default specified in Sections 11.1.7
or 11.1.8
occurs, all outstanding principal of, premium, if any, accrued and unpaid
interest on, and all other amounts under the Note, and all other Obligations,
shall become immediately due and payable without any declaration or other act on
the part of the Purchaser.  The Borrowers hereby waive all presentment
for payment, demand and notice of demand, protest, notice of protest and notice
of dishonor, notice of nonpayment, diligence and all other notices of any kind
to which it may be entitled under Applicable Laws or otherwise.

       

      11.3           Set Off and Sharing of
Payments.  In addition to any rights now or hereafter granted
under any Applicable Law and not by way of limitation of any such rights, during
the continuance of any Event of Default, upon one (1) Business Day’s prior
written notice to the Borrowers, the Purchaser is hereby authorized by the
Borrowers at any time or from time to time, with reasonably prompt subsequent
notice to the Borrowers (any prior or contemporaneous notice to the Borrowers
being hereby expressly waived) to set off and to appropriate and to apply any
and all (a) balances held by the Purchaser at its offices for the account of any
Borrower (regardless of whether such balances are then due to such Borrower),
and (b) other property at any time held or owing by the Purchaser or any
Affiliate thereof to or for the credit or for the account of any Borrower,
against and on account of any of the Obligations.

       

      11.4           Other
Remedies.  If any Default or Event of Default shall occur and
be continuing, the Purchaser may proceed to protect and enforce the Purchaser’s
rights and remedies under this Agreement and any other Investment Document by
exercising all rights and remedies available under this Agreement, any other
Investment Document or Applicable Laws (including, without limitation, the UCC),
either by suit in equity or by action at law, or both, whether for the
collection of principal of or interest on the Note (and any PIK Notes), to
enforce the specific performance of any covenant or other term contained in this
Agreement or any other Investment Document.  No remedy conferred in
this Agreement upon the Purchaser is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy conferred herein or now or hereafter existing at
law or in equity or by statute or otherwise.

       

      
        
          
          

        

        
          62

          
            

          

        

        
          
          

        

      

       

      11.5           Appointment of
Receiver.  In addition to all other rights, powers and remedies
that the Purchaser has under this Agreement, any other Investment Document or
Applicable Laws, the Purchaser shall, upon the occurrence of an Event of
Default, be entitled (to the extent permitted by Applicable Laws), and the
Borrowers hereby consent in advance, to the appointment of a receiver by any
court of competent jurisdiction to take control of the Borrowers for the purpose
of operating and thereafter selling any Borrower to satisfy obligations to
creditors, including the Purchaser.

       

      11.6           Waiver of Past
Defaults.  The Purchaser may, by written notice to the
Borrowers, waive any specified Default or Event of Default and its consequences
with respect to this Agreement, the Note or any other Investment Document; provided, however, that no such
waiver will extend to any subsequent or other Default or Event of Default or
impair any rights of the Purchaser which may arise as a result of such other
Default or Event of Default.

       

      12.           WAIVER

       

      The
Purchaser may (a) extend the time for the performance of any of the
obligations or other acts of the Borrowers, (b) waive any inaccuracies in
the representations or warranties of the Borrowers or (c) waive compliance
with any of the conditions, covenants or agreements of the Borrowers contained
herein.  Any such extension or waiver shall be valid only if set forth
in an instrument signed by the Purchaser.  Any waiver of the breach of
any term or condition shall not be construed as a waiver of any other breach or
as a subsequent waiver of the same term or condition, or as a waiver of any
other term or condition of this Agreement, the Note, any PIK Note or any other
Investment Document.  The failure by the Purchaser to assert, or any
delay by the Purchaser in asserting any of its rights under this Agreement, the
Note, any PIK Note, or any other Investment Document shall not constitute a
waiver of any such rights and no single or partial exercise of any such right
shall preclude any other or further exercise thereof or the exercise of any
other right.

       

      13.           POWER OF
ATTORNEY

       

      The
Borrowers hereby irrevocably designate, make, constitute and appoint the
Purchaser (and all Persons designated by the Purchaser), effective upon the
occurrence of an Event of Default until such time as such Event of Default has
been waived by the Purchaser in its sole and absolute discretion, as the true
and lawful attorney (and attorney-in-fact) of each Borrower to endorse the
applicable Borrower’s name on any checks, notes, acceptances, drafts, money
orders or any other evidence of payment or proceeds of the Collateral which come
into the possession of the Purchaser or under the Purchaser’s control, at such
time or times as the Purchaser is required to do so in order to preserve its
rights under any Collateral Document, but at the cost and expense of the
Borrowers.  The power of attorney granted hereby shall constitute a
power coupled with an interest and shall be irrevocable.

       

      
        
          
          

        

        
          63

          
            

          

        

        
          
          

        

      

       

      14.           MISCELLANEOUS

       

      14.1           Survival of Representations
and Warranties; Purchaser Investigation.  All representations,
warranties, covenants and agreements of the Borrowers (or any one of them)
contained herein, or made in writing by or on behalf of them pursuant hereto or
in connection herewith, shall survive the execution and delivery of this
Agreement, the issuance and delivery of the Note, the repayment of the Note and
the due diligence or other investigation of the Borrowers and their Affiliates
made by and on behalf of the Purchaser for a period of one (1) year after
indefeasible payment in full of the Note and the PIK Notes.  The
Borrowers hereby agree that neither the Purchaser’s review of the books and
records or condition (financial or otherwise), business, assets, properties,
operations or prospects of any Person, nor any other due diligence investigation
conducted by or on behalf of the Purchaser, shall be deemed to modify the
representations and warranties of the Borrowers contained in this Agreement or
any other Investment Document or to constitute knowledge by the Purchaser of the
existence or absence of any facts or any other matters so as so reduce the
Purchaser’s right to rely on the accuracy of the representations and warranties
of the Borrowers contained in this Agreement or any other Investment
Document.

       

      14.2           Consent to
Amendments.  No amendment, supplement or other modification to
this Agreement or any other Investment Document shall be effective unless in
writing and signed by Holders holding in the aggregate 70% of the then
outstanding principal amount of the Note (the “Requisite Holders”),
and the Borrowers may not take any action herein prohibited, or omit to perform
any act herein required to be performed by them, unless the Borrowers shall have
obtained the prior written consent of the Requisite Holders to such action or
omission.  No course of dealing between the Borrowers, on the one
hand, and the Purchaser (or any successor or assignee thereof), on the other
hand, nor any delay in exercising any rights hereunder or under the Note, the
PIK Notes or any other Investment Document shall operate as a waiver of any
rights of the Purchaser (or any other Holder).  Notwithstanding the
foregoing, no amendment, supplement or modification shall be binding on any
Holder without that Holder’s express written consent if such amendment,
supplement or modification would (a) change the principal due or amount of
interest payable on the Note whether as a result of prepayment or at maturity;
(b) extend the time for payment of any Obligation; (c) release any
Borrower from any Obligations; (d) amend the provisions of this Section 14.2; or
(e) amend the terms of any defined term in Section 1 that
would have the effect of implementing an amendment otherwise prohibited by
clauses (a) through (d) hereof.

       

      14.3           Entire
Agreement.  This Agreement, together with the exhibits and the
Disclosure Schedules which are all incorporated herein by this reference and are
an integral part of this Agreement, the Note, any PIK Note, and the other
Investment Documents constitute the full and entire agreement and understanding
between and among the Purchaser and the Borrowers relating to the subject matter
hereof and thereof, and supersede all prior oral and written, and all
contemporaneous oral agreements and understandings relating to the subject
matter hereof.  If any words have been added or deleted in this
Agreement or any related document as compared to any prior draft thereof, this
Agreement and the related documents shall be construed without reference to such
prior drafts and no implication shall be made regarding any such additions or
deletions.

       

      
        
          
          

        

        
          64

          
            

          

        

        
          
          

        

      

       

      14.4           Severability.  Any
provision of this Agreement which 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 or affecting the validity or enforceability of such provisions
in any other jurisdiction.

       

      14.5           Successors and Assigns;
Assignments.  This Agreement shall inure to the benefit of, and
be binding upon, the parties and their respective successors and permitted
assigns.  No Borrower shall assign any of its rights and obligations
hereunder or any interest herein or therein without the prior written consent of
the Requisite Holders.  The Purchaser may, at any time and from time
to time without the consent of any Borrower, assign, transfer or delegate to one
or more Persons (each an “Assignee”) all or any
part of its right, title and interest in and to this Agreement and the other
Investment Documents, including, without limitation, all or any part of the
Obligations, subject to compliance with applicable federal and state securities
laws; provided,
however, that,
in any privately negotiated transaction involving a sale or assignment of any
such right, title or interest, the transferor shall obtain from the Assignee in
writing investment intent representations which would be customarily obtained in
transactions of such nature; and provided further, that the
Borrowers or the Purchaser, as applicable, shall continue to deal solely and
directly with the transferor in connection with any right, title or interest so
assigned until written notice of such assignment, together with payment
instructions, addresses and related information with respect to the Assignee,
shall have been given to the Borrowers and the Purchaser.

       

      14.6           Certain Agreements of the
Borrowers.  Each Borrower agrees that (a) it will use
reasonable best efforts to cooperate with the Purchaser in any manner reasonably
requested by the Purchaser to effect the sale of participation in or assignments
of any of the Investment Documents or any portion thereof or interest therein,
including, without limitation, assisting in the preparation of appropriate
disclosure documents and making members of management available at reasonable
times to meet with and answer questions of potential assignees and participants,
and (b) the Purchaser may disclose credit information regarding any
Borrower to any potential participant or assignee, provided that such potential
participant or assignee agrees to keep such information
confidential.

       

      14.7           Notices.  All
notices, requests, demands and other communications which are required or may be
given under this Agreement shall be in writing and shall be deemed to have been
duly given at the earliest of (a) the date received, (b) one (1) Business Day
after being sent by a nationally recognized overnight courier for next Business
Day delivery, with receipt acknowledged, or (c) five (5) Business Days
after being mailed, postage prepaid, by certified mail, return receipt
requested, addressed as follows:

       

      
        
          
          

        

        
          65

          
            

          

        

        
          
          

        

      

       

      If to the
Purchaser, to:

       

      Vintage
Capital Group, LLC

      11611 San
Vicente Boulevard, 10th Floor

      Los Angeles,
CA  90049

      
        	
              	
                Attention: 

              	
                Thomas
      Webster

              

      

      
        	
              	
                Telephone: 

              	
                (310)
      979-9090

              

      

      
        	
              	
                Telecopier: 

              	
                (310)
      207-0035

              

      

      
        	
              	
                E-Mail: 

              	
                twebster@vintage-vfm.com

              

      

       

      With a
copy to:

       

      Klee,
Tuchin, Bogdanoff & Stern LLP

      1999
Avenue of the Stars, 39th Floor

      Los Angeles,
CA  90067

      
        	
              	
                Attention: 

              	
                Ronn
      S. Davids

              

      

      
        	
              	
                Telephone: 

              	
                (310)
      407-4095

              

      

      
        	
              	
                Telecopier: 

              	
                (310)
      407-9090

              

      

      
        	
              	
                E-Mail: 

              	
                RDavids@ktbslaw.com

              

      

       

      If to any
Borrower, to:

       

      Caprius,
Inc.

      10 Forest
Avenue, Suite 220

      Paramus,
NJ  07652

      
        	
              	
                Attention: 

              	
                Dwight
      Morgan

              

      

      
        	
              	
                Telephone: 

              	
                (201)
      342-0900

              

      

      
        	
              	
                Telecopier: 

              	
                (866)
      405-4918

              

      

      
        	
              	
                E-Mail: 

              	
                dmorgan@mcmetech.com

              

      

       

      With a
copy to:

       

      Carter
Ledyard & Milburn LLP

      2 Wall
Street

      New York,
NY  10005

      
        	
              	
                Attention: 

              	
                Bruce
      A. Rich

              

      

      
        	
              	
                Telephone: 

              	
                (212)
      238-8895

              

      

      
        	
              	
                Telecopier: 

              	
                (212)
      732-3232

              

      

      
        	
              	
                E-Mail: 

              	
                rich@clm.com

              

      

       

      or at
such other address or addresses as the Purchaser or the Borrowers, as the case
may be, may specify by written notice given in accordance with this Section 14.7.

       

      14.8           Counterparts.  This
Agreement may be executed in two or more counterparts and by facsimile or PDF,
each of which shall be deemed, and as effective as, an original, but all of
which together shall constitute one instrument.

       

      
        
          
          

        

        
          66

          
            

          

        

        
          
          

        

      

       

      14.9           Governing
Law.  IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE (WITHOUT REGARD TO THE
CHOICE OF LAW OR CONFLICTS OF LAW PROVISIONS THEREOF) AND ANY APPLICABLE LAWS OF
THE UNITED STATES OF AMERICA.

       

      14.10           Limitation of
Liability.  No claim shall be made by any Borrower or any of
its or their Affiliates against the Purchaser, any of its Affiliates or any of
its respective partners, members, mangers, principals, directors, officers,
employees, agents, representatives, attorneys, accountants or advisors, for any
special, indirect, consequential, incidental or punitive damages in respect of
any claim for breach of contract or under any other theory of liability arising
out of or related to the transactions contemplated by this Agreement or any
other Investment Document, or any act, omission or event occurring in connection
therewith. Each of the Borrowers hereby waives, releases and agrees not to sue
upon any claim for such damages, whether or not accrued and whether or not known
or suspected to exist in its favor.

       

      14.11           Publicity.  The
Borrowers and their respective Affiliates will consult with the Purchaser before
issuing, and provide the Purchaser reasonably ample time and opportunity to
review and comment upon, and use reasonable efforts to agree on the form and
substance of, any press release or other public statement with respect to the
transactions contemplated by this Agreement, and shall not issue any such press
release or make such other public announcement prior to such consultation,
except as required under Applicable Laws.  The parties agree that any
press release to be issued with respect to the transactions contemplated by this
Agreement shall be in the form agreed to by the parties.  The
Borrowers hereby consent to the preparation and publication by the Purchaser of
an advertisement “tombstone” publicly disclosing the closing of the transactions
contemplated by this Agreement.

       

      14.12           Waiver of Trial by
Jury.  TO THE EXTENT PERMITTED AND ENFORCEABLE UNDER APPLICABLE
LAW, EACH OF THE BORROWERS AND THE PURCHASER HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION, SUIT,
COUNTERCLAIM OR OTHER PROCEEDING (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF, CONNECTED WITH OR RELATING TO THIS AGREEMENT, ANY OTHER
INVESTMENT DOCUMENT, THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, OR THE
ACTIONS OF THE PURCHASER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR
ENFORCEMENT THEREOF, REGARDLESS OF WHICH PARTY INITIATES SUCH ACTION OR
ACTIONS.

       

      14.13           Cumulative Effect; Conflict
of Terms.  The provisions of the Investment Documents are
hereby made cumulative with the provisions of this Agreement.  Except
as otherwise provided in any of the other Investment Documents by specific
reference to the applicable provision of this Agreement, if any provision
contained in this Agreement is in direct conflict with, or inconsistent with,
any provision in any of the other Investment Documents, the provision contained
in this Agreement shall govern and control.

       

      
        
          
          

        

        
          67

          
            

          

        

        
          
          

        

      

       

      14.14           Time of
Essence.  Time is of the essence of this Agreement, the Note,
the PIK Note, and the other Investment Documents and Collateral
Documents.

       

      14.15           Interpretation.  No
provision of this Agreement or any of the other Investment Documents or
Collateral Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured or
dictated such provision.

       

      14.16           Consent to
Forum.  AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED,
AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS
OF THE BORROWERS OR THE PURCHASER, EACH OF THE BORROWERS HEREBY CONSENTS AND
AGREES THAT THE SUPERIOR COURT OF LOS ANGELES COUNTY, CALIFORNIA, OR, AT
THE PURCHASER’S OPTION, THE UNITED STATES DISTRICT COURT FOR THE CENTRAL
DISTRICT OF CALIFORNIA, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE
ANY CLAIMS OR DISPUTES BETWEEN THE BORROWERS ON THE ONE HAND AND THE PURCHASER
ON THE OTHER HAND PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF
OR RELATED TO THIS AGREEMENT.  THE BORROWERS EXPRESSLY SUBMIT AND
CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND THE BORROWERS HEREBY WAIVE ANY OBJECTION WHICH THE BORROWERS MAY
HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS AND HEREBY CONSENT TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF
AS IS DEEMED APPROPRIATE BY SUCH COURT.  EACH BORROWER HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH BORROWER
AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE
DEEMED COMPLETED UPON THE EARLIER OF SUCH BORROWER’S ACTUAL RECEIPT THEREOF OR
FIVE (5) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE
PREPAID.  NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
AFFECT THE RIGHT OF THE PURCHASER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY THE PURCHASER OF ANY
JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS
AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR
JURISDICTION.

       

      
        
          
          

        

        
          68

          
            

          

        

        
          
          

        

      

       

      14.17           Judicial
Reference.  IN THE EVENT THE WAIVER PROVIDED IN SECTION 14.12 IS
DEEMED INEFFECTIVE, TO GIVE EFFECT TO THE PARTIES’ DESIRE THAT THEIR DISPUTES BE
RESOLVED BY A JUDGE OR RETIRED JUDGE APPLYING THE APPLICABLE LAW, THE PARTIES
AGREE TO REFER, FOR A COMPLETE AND FINAL ADJUDICATION, ANY AND ALL ISSUES OF
FACT OR LAW INVOLVED IN ANY LITIGATION OR PROCEEDING (INCLUDING, WITHOUT
LIMITATION, ALL DISCOVERY AND LAW AND MOTION MATTERS, PRETRIAL MOTIONS, TRIAL
MATTERS AND POST-TRIAL MOTIONS (E.G. MOTIONS FOR RECONSIDERATION, NEW TRIAL AND
TO TAX COSTS, ATTORNEY FEES, COSTS AND EXPENSES AND PREJUDGMENT INTEREST)) UP TO
AND INCLUDING FINAL JUDGMENT, BROUGHT TO RESOLVE ANY DISPUTE (WHETHER SOUNDING
IN CONTRACT, TORT, UNDER ANY STATUTE OR OTHERWISE) BETWEEN AND AMONG ANY OF THE
PARTIES HERETO, TO A JUDICIAL REFEREE WHO SHALL BE APPOINTED UNDER A GENERAL
REFERENCE PURSUANT TO CALIFORNIA CODE OF CIVIL PROCEDURE
SECTION 638.  THE REFEREE’S DECISION WOULD STAND AS THE DECISION
OF THE COURT, WITH JUDGMENT TO BE ENTERED ON HIS/HER STATEMENT OF DECISION IN
THE SAME MANNER AS IF THE ACTION HAD BEEN TRIED BY THE COURT.  THE
PARTIES HERETO SHALL SELECT A SINGLE NEUTRAL REFEREE, WHO SHALL BE A RETIRED
STATE OR FEDERAL JUDGE WITH AT LEAST FIVE YEARS OF JUDICIAL EXPERIENCE IN CIVIL
MATTERS.  IN THE EVENT THAT THE PARTIES HERETO CANNOT AGREE UPON A
REFEREE, THE REFEREE SHALL BE APPOINTED BY THE COURT.  WITHOUT
LIMITING OR AFFECTING ANY INDEMNITIES AVAILABLE TO THE PURCHASER, THE PURCHASER,
ON THE ONE HAND, AND THE BORROWERS, ON THE OTHER HAND, SHALL EQUALLY BEAR THE
FEES AND EXPENSES OF THE REFEREE (50% BY THE PURCHASER AND 50% BY THE BORROWERS)
UNLESS THE REFEREE OTHERWISE PROVIDES IN THE STATEMENT OF DECISION.

       

      
        
           

        

        
          69

          
            

          

        

        
           

        

      

      IN
WITNESS WHEREOF, the parties have caused this Securities Purchase and Sale
Agreement to be executed and delivered by their duly authorized representatives
as of the date first written above.

       

      
        
          
            	 	
                    
                      BORROWERS:

                       

                    

                    
                    

                    CAPRIUS,
      INC.

                  	 
	 	 	 	 
	
                     

                  	
                    By: 

                  	
                    
                      
                      

                      
                      
/s/Dwight Morgan 

                  	 
	 	 	
                    Name:
      Dwight Morgan

                    Title:
      Chief Executive
    Officer

                  	 
	 	 	 	 
	 	 	 	 
	 	
                    M.C.M.
      ENVIRONMENTAL TECHNOLOGIES, INC.

                  	 
	 	 	 	 
	 	
                    By: 

                  	
                    /s/Dwight Morgan 

                  	 
	 	 	
                    Name:
      Dwight Morgan

                    Title:
      Chief Executive
    Officer

                  	 
	 	 	 	 
	 	 	 	 
	 	
                    M.C.M.
      ENVIRONMENTAL TECHNOLOGIES LTD.

                  	 
	 	 	 	 
	 	
                    By: 

                  	
                    /s/George Aaron

                  	 
	 	 	
                    Name:
      George Aaron

                    Title:
      Chairman

                  	 
	 	 	 	 

          

          

            
              
                
                  [SIGNATURE
PAGE TO SECURITIES PURCHASE AND SALE AGREEMENT]

                  PAGE
1

                

                 

              

              
                
                

                
                  

                

              

              
                 

              

            

          

           

        

      

      
        	 	
                
                  PURCHASER:

                   

                

                
                

                VINTAGE
      CAPITAL GROUP, LLC

              	 
	 	 	 	 
	
                 

              	
                By:
      

              	
                
                  
                  

                  
                  
/s/Fred C. Sands

              	 
	 	 	
                Name:
      Fred C. Sands

                Title:
      Chairman

              	 
	 	 	 	 

      

    

     

    
      
        [SIGNATURE PAGE TO SECURITIES PURCHASE AND SALE
AGREEMENT]

        PAGE
2Unassociated Document

     

    
      
        Exhibit
10.2

        Execution
Version

      

    

    

      THE
SECURITY REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY APPLICABLE STATE
SECURITIES LAW AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE ASSIGNED EXCEPT IN COMPLIANCE WITH THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND THE REGISTRATION OR QUALIFICATION REQUIREMENTS OF SUCH STATE
SECURITIES LAWS, OR PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION AND
QUALIFICATION.

       

      SENIOR
SECURED PROMISSORY NOTE

       

      
        	 
      	
                September 16,
      2009

              

      

      

      FOR VALUE
RECEIVED, CAPRIUS, INC., a Delaware corporation (“Caprius”), M.C.M.
ENVIRONMENTAL TECHNOLOGIES, INC., a Delaware corporation (“M.C.M.”), and M.C.M.
ENVIRONMENTAL TECHNOLOGIES LTD., an Israeli corporation (“M.C.M. Israel”
and, together with Caprius and M.C.M., each a “Borrower” and,
collectively, the “Borrowers”), jointly
and severally hereby promise to pay to the order of VINTAGE CAPITAL GROUP, LLC,
a Delaware limited liability company (the “Purchaser”), or any
registered permitted assigns of the Purchaser (together with the Purchaser, the
“Holder”), the
aggregate principal amount of all Advances as shall have been funded in
accordance with the terms of the Purchase Agreement (as defined below) in
immediately available funds and in lawful money of the United States of America,
together with interest thereon, all as provided in this Senior Secured
Promissory Note (this “Note”).  This
Note is being issued in connection with the consummation of the transactions
contemplated by the Securities Purchase and Sale Agreement, dated of even date
herewith, among the Borrowers and the Purchaser (the “Purchase
Agreement”).  All capitalized terms used and not otherwise
defined in this Note shall have the meanings set forth in the Purchase
Agreement.

       

      1.           Payment of Interest; Default
Rate.

       

      (a)           So
long as no Event of Default shall have occurred and be continuing, the Borrowers
shall pay interest on the unpaid principal balance of, and accrued unpaid
interest on, this Note from the date hereof until fully paid as
follows:

       

      (i)           Interest.  Interest
on the outstanding principal balance of this Note shall be payable at a rate
equal to fourteen percent (14%) per annum by issuing additional senior notes of
like tenor, in an amount equal to 100% of the interest payment due on such
Interest Payment Date (as defined below), and including the same terms and other
provisions contained in this Note (including without limitation the interest
terms contained in this Section 1)
(each, a “PIK
Note”), with the principal amount of each such additional note equal to
the amount of such interest payment.  Any PIK Note not actually issued
shall be deemed issued on the applicable Interest Payment Date (as defined
below) and shall be payable in full on the Maturity Date, as provided in Section 2.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      (b)           If
any Event of Default shall occur and be continuing, then, in addition to the
rights and remedies available to the Holder under the Purchase Agreement, this
Note, and all applicable laws, the Borrowers shall pay interest in cash on the
unpaid principal balance of, accrued and unpaid interest on, and all other
amounts owing under this Note and the PIK Notes at a rate per annum equal to the
then applicable rate per annum, plus three percent (3%) (the “Default
Rate”).

       

      (c)           Interest
on this Note shall be payable monthly in arrears on the first Business Day of
each calendar month (or portion thereof), commencing on November 1, 2009
(each, an “Interest
Payment Date”) and continuing on the first Business Day of each calendar
month thereafter until all principal, interest and other amounts owing under
this Note are paid in full.  Interest shall be computed on the basis
of the actual number of days elapsed over a 360-day year, including the first
and the last day.

       

      2.           Payment of Principal;
Maturity Date.  The Borrowers agree jointly and severally to
pay in full (a) the entire outstanding principal balance of this Note and
the PIK Notes, (b) all accrued and unpaid interest on this Note and the PIK
Notes, and (c) all other unpaid amounts owing under this Note and the PIK
Notes, on December 16, 2010 (the “Maturity
Date”).  This Note may not be prepaid except as provided in
Section 3.

       

      3.           Prepayment.

       

      (a)           Except
as provided in Section 3(b),
the Borrowers shall not prepay all or any portion of the principal amount of
this Note at any time prior to the Maturity Date.

       

      (b)           Within
three (3) Business Days after any Disposition (as defined below) by any
Borrower or its Subsidiaries, the Borrowers shall prepay, without premium or
penalty, the outstanding principal amount of this Note in an amount equal to one
hundred percent (100%) of the proceeds of such Disposition, net of
reasonable costs and expenses actually incurred by such Borrower or its
Subsidiaries in connection therewith, to the extent such net proceeds exceed
Fifty Thousand Dollars ($50,000).  Nothing contained in this
Section 3
shall permit any Borrower or its Subsidiaries to make a Disposition of any
property other than as specifically permitted under the Purchase
Agreement.  As used in this Note, “Disposition” means
any transaction, or series of related transactions, pursuant to which any
Borrower or any of its Subsidiaries sells, assigns, transfers or otherwise
disposes of any property or asset (whether now owned or hereafter acquired) to
any other Person, in each case, whether or not the consideration therefor
consists of cash, securities or other assets owned by the acquiring Person,
excluding (A) any sales of Inventory in the ordinary course of business,
(B) transfers or other dispositions between and among the Borrowers and
their Subsidiaries to the extent permitted by the terms of the Purchase
Agreement, and (C) the transfer of leasehold interests to any lessor upon
the termination of such lease.

       

      (c)           Each
prepayment of principal shall be accompanied by the prepayment of accrued
interest to the date of such payment on the amount
prepaid.  Notwithstanding any provision to the contrary herein, any
payment, when made, shall be applied first to the payment of all accrued and
unpaid fees, expenses and costs under any Investment Document, next to the
payment of all interest and other amounts owed hereunder then accrued on the
unpaid balance of the principal and the balance of such payment, after paying
such interest and premiums, shall be applied in reduction of the unpaid balance
of the principal.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      4.           Security.  The
Borrowers’ due and punctual performance of this Note is secured by the
collateral pursuant to the Security Agreement and the Pledge
Agreement.

       

      5.           Manner of
Payment.  Payments of principal, interest and other amounts due
under this Note shall be made no later than 11:00 a.m. (Los Angeles time) on the
date when due and in lawful money of the United States of America and (by wire
transfer in funds immediately available at the place of payment or by check as
long as the funds are immediately available at such time on the due date of the
payment) to such account as the Holder may designate in writing to the Borrowers
from time to time (or such other place of payment as the Holder may designate in
writing).  All such payments shall be made without any deduction
whatsoever, including, without limitation, any deduction for set-off,
recoupment, counterclaim or taxes.  Any payments received after 11:00
a.m. (Los Angeles time) shall be deemed to have been received on the next
succeeding Business Day.  Any payments due hereunder which are due on
a day which is not a Business Day shall be payable on the immediately succeeding
Business Day, together with all accrued and unpaid interest through the due date
of payment.  All payments received shall be applied first to any costs
of collection or other accrued but unpaid fees, expenses and costs under any
Investment Document, next to accrued and unpaid interest payable in cash, next,
to accrued PIK Interest, next to principal on the PIK Notes, and last, to
principal on the Note.

       

      6.           Maximum Lawful Rate of
Interest.  The rate of interest payable under this Note shall
in no event exceed the maximum rate permissible under applicable
law.  If the rate of interest payable on this Note is ever reduced as
a result of this Section 6 and at
any time thereafter the maximum rate permitted under applicable law exceeds the
rate of interest provided for in this Note, then the rate provided for in this
Note shall be increased to the maximum rate provided for under applicable law
for such period as is required so that the total amount of interest received by
the Holder is that which would have been received by the Holder but for the
operation of the first sentence of this Section 6.

       

      7.           Waivers.  The
Borrowers hereby waive presentment for payment, demand and notice of demand,
protest, notice of protest and notice of dishonor, notice of nonpayment,
diligence and all other notices of any kind whatsoever to which they may be
entitled under applicable law or otherwise (except for notices to which the
Borrowers are expressly entitled under this Note) and, to the full extent
permitted by law, the right to plead any statute of limitations as a defense, in
any suit or collection proceeding brought against the Borrowers.  No
delay or omission on the part of the Holder in exercising any rights under this
Note shall operate as a waiver of such right or any other right.

       

      8.           Registration of
Notes.  The Borrowers shall maintain at its principal executive
office a register in which it shall register this Note, any assignments of this
Note or any other notes issued hereunder and any other notes issued upon
surrender hereof and thereof.  At the option of the Holder, this Note
may be exchanged for one or more new notes of like tenor in the principal
denominations requested by the Holder, and the Borrowers shall, within
five (5) Business Days after the surrender of this Note at Caprius’
principal executive offices, deliver to the Holder such new note or
notes.  In addition, each assignment of this Note, in whole or in
part, shall be registered on the register immediately following the surrender of
this Note at Caprius’ principal executive offices.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      9.           Persons Deemed Owners;
Participations.  Prior to due presentment in aggregate for
registration of any assignment, the Borrowers may treat the person or entity in
whose name any Note is registered as the owner and the Holder of such Note for
all purposes whatsoever, and the Borrowers shall not be affected by notice to
the contrary.  Subject to the preceding sentence, the Holder may grant
to any other person or entity (each, a “Participant”),
without the Borrowers’ consent, participations from time to time in this Note on
such terms and conditions as may be determined by the Holder in its sole and
absolute discretion, subject to applicable federal and state securities
laws.  Notwithstanding anything to the contrary contained herein or
otherwise, nothing in this Note, the Purchase Agreement or any related document
or otherwise shall confer upon a Participant any rights under the Purchase
Agreement or any related document, and the Holder shall retain all rights with
respect to the administration, waiver, amendment, collection and enforcement of,
compliance with and consent to the terms and provisions of this Note, the
Purchase Agreement and any other related document.

       

      10.           Assignment and
Transfer.  Subject to applicable law, the Purchaser may, at any
time and from time to time and without the consent of the Borrowers, assign or
transfer to one or more Persons or entities all or any portion of the principal
balance of this Note.

       

      11.           Loss, Theft, Destruction or
Mutilation of this Note.  Upon receipt of evidence reasonably
satisfactory to the Borrowers of the loss, theft, destruction or mutilation of
this Note and, in the case of any such loss, theft, destruction or mutilation,
upon receipt of an indemnity agreement or other indemnity reasonably
satisfactory to the Borrowers or, in the case of any such mutilation, upon
surrender and cancellation of such mutilated Note, the Borrowers shall issue and
deliver within five (5) business days a new Note, of like tenor, in lieu of
the lost, stolen, destroyed or mutilated Note.

       

      12.           Extension of
Time.  The Holder may, at its sole option, extend the time for
payment of this Note, postpone the enforcement hereof, or grant any other
indulgence without affecting or diminishing the Holder’s right to full recourse
against the Borrowers hereunder, which right is expressly
reserved.  Any such extension, postponement, waiver or other
indulgence shall only be effective if in writing and signed by the
Holder.

       

      13.           Governing
Law.  IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE (WITHOUT REGARD TO THE
CHOICE OF LAW OR CONFLICTS OF LAW PROVISIONS THEREOF) AND ANY APPLICABLE LAWS OF
THE UNITED STATES OF AMERICA.

       

      14.           Captions; Construction and
Interpretation.  The captions contained in this Note are for
convenience of reference only, do not constitute a part of this Note and are not
to be considered in construing or interpreting this Note.  The
Borrowers and the Holder have each been represented by counsel in the
negotiation and drafting of this Note, and neither any Borrower nor the Holder
nor their respective counsel shall be deemed the drafter of this Note for
purposes of construing the provisions of this Note.  All provisions of
this Note shall be construed in accordance with their fair meaning, and not
strictly for or against any Borrower or the Holder.

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      15.           Consent to California
Jurisdiction and Exclusive Jurisdiction of California
Courts.  AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED,
AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS
OF ANY BORROWER OR THE HOLDER, EACH BORROWER HEREBY CONSENTS AND AGREES THAT THE
STATE COURTS OF CALIFORNIA, OR, AT THE HOLDER’S OPTION, THE UNITED STATES
DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA, SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE BORROWERS
ON THE ONE HAND AND THE HOLDER ON THE OTHER HAND PERTAINING TO THIS NOTE OR TO
ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE.  EACH BORROWER
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
SUIT COMMENCED IN ANY SUCH COURT, AND EACH BORROWER HEREBY WAIVES ANY OBJECTION
WHICH SUCH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER
VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL
OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.  EACH
BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER
PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO ANY BORROWER AT THE ADDRESS SET FORTH IN THE PURCHASE AGREEMENT AND
THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH
BORROWER’S ACTUAL RECEIPT THEREOF OR THE NEXT BUSINESS DAY IF SENT BY A
NATIONALLY RECOGNIZED OVERNIGHT COURIER FOR NEXT BUSINESS DAY
DELIVERY.  NOTHING IN THIS NOTE SHALL BE DEEMED OR OPERATE TO AFFECT
THE RIGHT OF THE HOLDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW, OR TO PRECLUDE THE ENFORCEMENT BY THE HOLDER OF ANY JUDGMENT OR ORDER
OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS NOTE TO ENFORCE
SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.

       

      16.           Waiver of Jury
Trial.  TO THE FULLEST EXTENT PERMITTED UNDER APPLICABLE LAW,
EACH BORROWER AND THE HOLDER (BY ACCEPTANCE HEREOF) HEREBY WAIVES THE RIGHT TO A
TRIAL BY JURY IN ANY ACTION, SUIT OR OTHER PROCEEDING BROUGHT TO RESOLVE ANY
CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATING TO THIS NOTE, REGARDLESS
OF WHICH PARTY INITIATES SUCH ACTION, SUIT OR OTHER PROCEEDING.

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

         

      

      IN
WITNESS WHEREOF, the Borrowers have caused this Note to be executed and
delivered by their duly authorized representatives on the date first above
written.

       

      
        
          	 	

                  BORROWER:

                   

                  
                  

                  CAPRIUS,
      INC.,

                  a
      Delaware corporation

                	 
	 	 	 	 
	
                   

                	
                  By: 

                	

                  /s/Dwight Morgan 

                	 
	 	 	

                  Name:
      Dwight Morgan 

                    Title:
      Chief Executive
      Officer

                  

                	 
	 	 	 	 
	 	 	 	 
	 	

                  M.C.M.
      ENVIRONMENTAL TECHNOLOGIES, INC.,

                  a
      Delaware corporation

                	 
	 	 	 	 
	 	

                  By: 

                	

                  
                    
                    

                    
                    
/s/Dwight Morgan 

                	 
	 	 	

                  Name:
      Dwight Morgan

                  Title:
      Chief Executive
    Officer

                	 
	 	 	 	 
	 	 	 	 
	 	

                  M.C.M.
      ENVIRONMENTAL TECHNOLOGIES LTD.,

                  an
      Israeli corporation

                	 
	 	 	 	 
	 	

                  By: 

                	

                  
                    
                    

                    
                    
/s/George Aaron

                	 
	 	 	

                  Name:
      George Aaron

                  Title:
      Chairman

                	 
	 	 	 	 

        

      

       

      
        
          [SIGNATURE PAGE TO SENIOR SECURED PROMISSORY
NOTE]

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