Exhibit 10.1 - Exchange Agreement


    
      

      

    

     

     

     

     

     

     

     

     

     

     

     

    


    MARGO
      CARIBE, INC.

    


    6.5%
      CUMULATIVE CONVERTIBLE PREFERRED STOCK

    (LIQUIDATION
      PREFERENCE $250.00 PER SHARE)

     

     

    
      
        

      

    

     

     

    EXCHANGE
      AGREEMENT

    


    DATED
      AS OF MAY 25, 2007

     

     

     

     

     

     

     

     

     

     

     

     

     

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    


    TABLE
      OF CONTENT

    


    
      	 	 	
              Page

            
	
              ARTICLE
                1 - DEFINITIONS AND RULES OF CONSTRUCTION

            	
              1

            
	 	 	 
	
              SECTION
                1.1.

            	
              DEFINITIONS

            	
              1

            
	
              SECTION
                1.2.

            	
              RULES
                OF CONSTRUCTION

            	
              2

            
	 	 	 
	
              ARTICLE
                2 - EXCHANGE OF INDEBTEDNESS FOR SECURITIES; TERMS OF THE
                SECURITIES

            	
              2

            
	 	 
	
              SECTION
                2.1.

            	
              EXCHANGE
                OF INDEBTEDNESS FOR SECURITIES

            	
              2

            
	
              SECTION
                2.2.

            	
              TERMS
                OF THE SECURITIES

            	
              2

            
	 	 	 
	
              ARTICLE
                3 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY

            	
              3

            
	 	 
	
              SECTION
                3.1.

            	
              CORPORATE
                EXISTENCE; COMPLIANCE WITH LAW AND CONTRACTUAL OBLIGATIONS

            	
              3

            
	
              SECTION
                3.2.

            	
              CORPORATE
                POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS

            	
              3

            
	
              SECTION
                3.3.

            	
              NO
                LEGAL OR CONTRACTUAL BAR

            	
              3

            
	
              SECTION
                3.4.

            	
              NO
                MATERIAL LITIGATION

            	
              3

            
	
              SECTION
                3.5.

            	
              TAXES

            	
              3

            
	
              SECTION
                3.6.

            	
              INVESTMENT
                COMPANY ACT

            	
              3

            
	
              SECTION
                3.7.

            	
              USE
                OF PROCEEDS

            	
              3

            
	
              SECTION
                3.8.

            	
              SOLVENCY

            	
              3

            
	 	 
	
              ARTICLE
                4 - REPRESENTATIONS AND WARRANTIES OF THE SPECTORS

            	
              4

            
	 	 
	
              SECTION
                4.1.

            	
              PURCHASE
                FOR INVESTMENT; ACCREDITED INVESTOR

            	
              4

            
	
              SECTION
                4.2.

            	
              TRANSFEREES

            	
              5

            
	 	 
	
              ARTICLE
                5 - CONDITIONS PRECEDENT

            	
              6

            
	 	 
	
              SECTION
                5.1.

            	
              CONDITIONS
                PRECEDENT

            	
              6

            
	 	 
	
              ARTICLE
                6 - MISCELLANEOUS

            	
              6

            
	 	 
	
              SECTION
                6.1.

            	
              NOTICES

            	
              6

            
	
              SECTION
                6.2.

            	
              STATEMENTS
                OR OPINION

            	
              7

            
	
              SECTION
                6.3.

            	
              WHEN
                TREASURY SECURITIES DISREGARDED

            	
              7

            
	
              SECTION
                6.4.

            	
              LEGAL
                HOLIDAYS

            	
              7

            
	
              SECTION
                6.5.

            	
              GOVERNING
                LAW

            	
              7

            
	
              SECTION
                6.6.

            	
              SUCCESSORS

            	
              8

            
	
              SECTION
                6.7.

            	
              MULTIPLE
                ORIGINALS

            	
              8

            
	
              SECTION
                6.8.

            	
              TABLE
                OF CONTENTS; HEADINGS

            	
              8

            
	
              SECTION
                6.9.

            	
              SURVIVAL
                OF CERTAIN PROVISIONS

            	
              8

            


    

    


    


    


    


    


    


    


    


    
      
        
          
          

        

        
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    EXCHANGE
      AGREEMENT
      dated as
      of May 25, 2007, between MARGO
      CARIBE, INC,
      a
      Puerto Rico corporation (the “Company”), and Michael
      J. Spector and Margaret D. Spector
      (the
“Spectors”).

    


    WHEREAS,
      the
      Company has approximately $7,000,000 in outstanding indebtedness with the
      Spectors (the “Indebtedness”);

    


    WHEREAS,
      the
      parties have agreed to exchange the approximately $3,900,000 aggregate principal
      amount of indebtedness (the “Exchanged Indebtedness”) into 15,600 shares of the
      Company’s newly issued 6.5% Cumulative Convertible Preferred Stock (Liquidation
      Preference $250.00 per share) (the “Securities”);

    


    NOW
      THEREFORE,
      each
      party agrees as follows for the benefit of the other party and for the equal
      and
      ratable benefit of the Holders (as defined below) of the:

    


    ARTICLE
      1

    


    DEFINITIONS
      AND RULES OF CONSTRUCTION

    


    SECTION
      1.1.   DEFINITIONS

    


    “Act”
      means the Securities Act of 1933, as amended, or any similar federal statute
      then in effect.

    


    “Agreement”
      means this Agreement as amended or supplemented from time to time.

    


    “Board
      of
      Directors” means the Board of Directors of the Company or any committee thereof
      duly authorized to act on behalf of such Board.

    


    “Business
      Day” means any day that is not a Legal Holiday, as defined in Section 6.4
      hereof.

    


    “Capital
      Stock” means any and all shares, interests, rights to purchase, warrants,
      options, participations or other equivalents of or interests in (however
      designated) corporate stock, including any Preferred Stock.

    


    “Company”
      means the party named as such in this Agreement until a successor replaces
      it
      and, thereafter, includes the successor.

    


    “Contractual
      Obligation” shall mean, as to any Person, any provision of any security issued
      by such Person or of any agreement, instrument or undertaking to which such
      Person is a party or by which it or any of its property is bound.

    


    “Exchange
      Act” means the Securities Exchange Act of 1934, as amended, or any similar
      federal statute then in effect.

    


    “GAAP”
      shall mean generally accepted accounting principles in the United States of
      America in effect from time to time.

    


    “Governmental
      Authority” shall mean any nation or government, any state, commonwealth or other
      political subdivision or instrumentality thereof, and any entity exercising
      executive, legislative, judicial, regulatory or administrative functions of
      or
      pertaining to government.

    


    “Holder”
      or “Securityholder” means the person in whose name a Security is registered on
      the Registrar’s books.

    


    “Lien”
      means any mortgage, pledge, security interest, conditional sale or other title
      retention agreement or other similar lien.

    


    “Market
      Price” shall have the meaning set forth in the Certificate of
      Designation.

    


    “Material
      Adverse Effect” shall mean a material adverse effect with respect to (a) the
      business, operations or financial condition of the Company, (b) the ability
      of
      the Company to pay and perform its obligations hereunder and under the
      Securities, or (c) the validity or enforceability of this Agreement or the
      Securities or the rights and remedies of the Holders hereunder or
      thereunder.

    


    


    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    


    “Material
      Amount” means, at any time, ten percent (10%) of the Company’s consolidated
      stockholders’ equity, as set forth in the most recent annual or quarterly
      financial statements of the Company delivered to the Holders.

    


    “Officer”
      means the Chairman of the Board, the President, any Vice President or the
      Secretary of the Company.

    


    “Officers’
      Certificate” means a certificate signed by an Officer.

    


    “Opinion
      of Counsel” means a written opinion from legal counsel who is acceptable to the
      Holders. The counsel may be an employee of or counsel to the
      Company.

    


    “Person”
      means any individual, corporation, partnership, joint venture, association,
      joint-stock company, trust, unincorporated organization, government or any
      agency or political subdivision thereof or any other entity.

    


    “Requirements
      of Law” shall mean, as to any Person, the Articles or Certificate of
      Incorporation and By-laws or other organizational or governing documents of
      such
      Person, any law, treaty, rule or regulation, and any final and binding
      determination of an arbitrator or determination of a court or other Governmental
      Authority, in each case applicable to or binding upon such Person or any of
      its
      property or to which such Person or any of its property is subject.

    


    “Subsidiary”
      means any corporation, association, partnership or other business entity of
      which more than 50% of the total voting power of shares of Capital Stock or
      other interests (including partnership interests) entitled (without regard
      to
      the occurrence of any contingency) to vote in the election of directors,
      managers or trustees thereof is at the time owned or controlled, directly or
      indirectly, by (i) the Company, (ii) the Company and one or more Subsidiaries
      or
      (iii) one or more Subsidiaries.

    


    SECTION
      1.2.   RULES
      OF CONSTRUCTION
      Unless
      the context otherwise requires:

    


    
      	 	
              (1)

            	
              a
                term has the meaning assigned to
                it;

            


    

    


    
      	 	
              (2)

            	
              an
                accounting term not otherwise defined has the meaning assigned to
                it in
                accordance with GAAP;

            


    

    


    
      	 	
              (3)

            	
              “or”
                is not exclusive;

            


    

    


    
      	 	
              (4)

            	
              “including”
                means including, without limitation;
                and

            


    

    


    
      	 	
              (5)

            	
              words
                in the singular include the plural and words in the plural include
                the
                singular.

            


    

    


    ARTICLE
      2

    


    EXCHANGE
      OF INDEBTEDNESS FOR SECURITIES;

    TERMS
      OF THE SECURITIES

    


    SECTION
      2.1.   EXCHANGE
      OF INDEBTEDNESS
      FOR
      SECURITIES.
      On the
      closing dated of the exchange, which shall be a date mutually agreed by the
      parties after the satisfaction of the condition set forth in Section 5.1, the
      Company shall issue and deliver the Securities to the Spectors. Effective on
      such closing date, the obligations of the Company with respect to Exchanged
      Indebtedness shall terminate and cease to have any force and effect.


    


    SECTION
      2.2.   TERMS
      OF THE SECURITIES.
      On or
      prior to the closing date of the exchange, the Company shall file with the
      Department of State of Puerto Rico a Certificate of Designation in the Form
      of
Exhibit
      A
      (the
“Certificate of Designation”) creating the series of preferred stock
      constituting the Securities. The terms of Exhibit A, including the definitions
      contained therein, are incorporated herein by reference as if fully set forth
      herein.

    


    The
      Securities shall be substantially in the form of Exhibit
      B,
      which
      is hereby incorporated in and expressly made a part of this Agreement. The
      Securities may have notations, legends or endorsements required by law, stock
      exchange rule, agreements to which the Company is subject, if any, or usage
      (provided that any such notation, legend or endorsement is in a form acceptable
      to the Company). Each Security shall be dated the date of its
      issuance.

    


    


    
      
        
          
          

        

        
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    ARTICLE
      3

    


    REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY

    


    As
      an
      inducement to the Spectors to enter into this Agreement, the Company represents
      and warrants to the Spectors that:

    


    SECTION
      3.1.   CORPORATE
      EXISTENCE; COMPLIANCE WITH LAW AND CONTRACTUAL OBLIGATIONS.
      The
      Company (a) is duly organized, validly existing and in good standing as a
      corporation under the laws of the Commonwealth of Puerto Rico and in each
      jurisdiction where its ownership of property or conduct of business requires
      such qualification, except where the failure to be so qualified would not have
      a
      Material Adverse Effect; (b) has the corporate power and authority and the
      legal
      right to own and operate its property and to conduct business in the manner
      in
      which it does and proposes so to do; and (c) is not in violation of any
      Requirement of Law or any Contractual Obligation if such violation could have
      a
      Material Adverse Effect. 

    


    SECTION
      3.2.   CORPORATE
      POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
      The
      Company has the corporate power and authority to execute, deliver and perform
      this Agreement and the Securities and has taken all necessary corporate actions
      to authorize such execution, delivery and performance. This Agreement and the
      Securities, when issued, have been or will have been duly executed and delivered
      on behalf of the Company and constitute or will constitute legal, valid and
      binding obligations of the Company, enforceable against it in accordance with
      their respective terms, except as enforceability may be limited by applicable
      bankruptcy, insolvency and other similar laws affecting creditors’ rights
      generally and by general principles of equity.

    


    SECTION
      3.3.   NO
      LEGAL OR CONTRACTUAL BAR.
      The
      execution, delivery and performance of this Agreement and the Securities,
      including the use of the proceeds of the Securities, do not and will not (a)
      violate any Requirement of Law or any Contractual Obligation of the Company
      or
      any of its Subsidiaries, (b) require any license, consent, authorization,
      approval or any other action by, or any notice to or filing or registration
      with, any Governmental Authority or any other Person, other than the filing
      with
      the Secretary of State of the Commonwealth of Puerto Rico of a certified copy
      of
      the resolution of the Board of Directors approving the issuance of the
      Securities and the terms of this Agreement, or (c) result in the creation or
      imposition of any Lien on any asset of the Company or any of its Subsidiaries.
      

    


    SECTION
      3.4.   NO
      MATERIAL LITIGATION.
      Except
      as set forth on Schedule 3.4, no litigation, investigation or proceeding of
      or
      before any arbitrator or Governmental Authority is pending or, to the knowledge
      of the Company, threatened by or against the Company or any of its Subsidiaries,
      or against any of the Company’s or any such Subsidiary’s properties or revenues
      that, if adversely determined, could alone, or with any other litigation,
      investigation or proceeding, affect the business, financial condition or results
      of operations of the Company and its Subsidiaries, taken as a whole, in excess
      of a Material Amount or could have a Material Adverse Effect. 

    


    SECTION
      3.5.   TAXES.
      The
      Company and each of its Subsidiaries have filed or caused to be filed all tax
      returns that are required to be filed and have paid all taxes shown to be due
      and payable on such returns or on any assessments made against them or any
      of
      their property other than taxes and assessments that are being contested in
      good
      faith by appropriate proceedings and as to which the Company or such Subsidiary
      has established adequate reserves in conformance with GAAP. 

    


    SECTION
      3.6.   INVESTMENT
      COMPANY ACT.
      The
      Company is not an “investment company” within the meaning of the Investment
      Company Act of 1940, as amended, and is not controlled by any “investment
      company”. 

    


    SECTION
      3.7.   USE
      OF PROCEEDS.
      The
      proceeds of the Indebtedness were used by the Company for its general corporate
      purposes, including to finance its general working capital needs. 

    


    SECTION
      3.8.   SOLVENCY.
      The
      Company is able to pay its debts as they mature. The aggregate estimated fair
      market value of the Company’s assets is greater than the Company’s liabilities
      (including contingent, subordinated, unmatured and unliquidated liabilities
      and
      any and all obligations hereunder and under the Securities), respectively.
      The
      Company has capital sufficient to carry on the business and transactions in
      which it is engaged and all business and transactions in which it proposes
      to
      engage.

    


    


    
      
        
          
          

        

        
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    ARTICLE
      4

    


    REPRESENTATIONS
      AND WARRANTIES OF THE SPECTORS

    


    SECTION
      4.1.   PURCHASE
      FOR INVESTMENT; ACCREDITED INVESTOR. 

    


    (a)    The
      Spectors are purchasing the Securities for their own account and not with a
      view
      to, or for sale in connection with, the distribution thereof within the meaning
      of the Securities Act, provided that the Spectors have the right to dispose
      of
      the Securities, or any part thereof, if they deem it advisable to do so, either
      pursuant to a registration of the Securities under the Securities Act or
      pursuant to an applicable exemption from the registration requirements of the
      Securities Act. The Spectors understand that the Securities have not been
      registered under the Securities Act, the Puerto Rico Uniform Securities Act
      (“PRUSA”), or any other state or Commonwealth securities or blue sky laws and
      they understand and agree that the Securities may be resold only if registered
      pursuant to the provisions of the Securities Act or if an exemption from
      registration is available thereunder.

    


    (b)    The
      Spectors are “accredited investors” as defined in Rule 501 of Regulation
      D.

    


    (c)    The
      Spectors acknowledge that the Securities have not been registered under the
      Securities Act and may not be sold except as permitted below.

    


    (d)    The
      Spectors understand and agree that the Securities are being offered only in
      a
      transaction not involving any public offering within the meaning of the
      Securities Act, and that (A) if they decide to resell, pledge or otherwise
      transfer any Securities on which the legend set forth below appears, such
      Securities may be resold, pledged or transferred only (i) to the Company or
      a
      Subsidiary thereof, (ii) in a transaction entitled to an exemption from
      registration provided by Rule 144 under the Securities Act (if available),
      (iii)
      so long as the Securities are eligible for resale pursuant to Rule 144A, to
      a
      person whom the Spectors reasonably believe is a qualified institutional buyer
      that purchases for its own account or for the account of a qualified
      institutional buyer to whom notice is given that the resale, pledge or transfer
      is being made in reliance on Rule 144A, (iv) to an “Non U.S. Person” in an
“offshore transaction” pursuant to Regulation S under the Securities Act, (v)
      pursuant to an exemption from registration under the Securities Act to an
“accredited investor” within the meaning of subparagraph (a)(1), (2), (3) or (7)
      of Rule 501 under the Securities Act that is acquiring the Securities for its
      own account, or for the account of such an “accredited investor,” for investment
      purposes and not with a view to, or for offer or sale in connection with, any
      distribution in violation of the Securities Act, or (vi) pursuant to another
      available exemption from registration under the Securities Act, subject, in
      the
      case of clauses (v) or (vi), to the receipt by the Company of an Opinion of
      Counsel or such other evidence acceptable to the Company that such resale,
      pledge or transfer is exempt from the registration requirements of the
      Securities Act, or (vii) pursuant to an effective registration statement, and
      that (B) the Spectors will, and each subsequent purchaser of the Securities
      is
      required to, notify any purchaser of any Securities of the resale restrictions
      referred to in (c) above and to deliver to the transferee (other than a
      qualified institutional buyer) prior to sale a copy of the transfer restrictions
      hereinafter set forth (copies of which may be obtained from the Company). The
      Spectors understand that transfers of the Securities will be registered only
      if
      Securities are transferred in accordance with such transfer
      restrictions;

    


    (e)    The
      Spectors understand that the certificates evidencing Securities sold pursuant
      to
      the exemption from registration under the Securities Act contained in Regulation
      will, unless otherwise agreed by the Company, bear a legend substantially to
      the
      following effect:

    


    “THIS
      SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
      (THE “SECURITIES ACT”), OR UNDER THE PUERTO RICO UNIFORM SECURITIES ACT OR ANY
      OTHER STATE OR COMMONWEALTH OF PUERTO RICO SECURITIES LAWS. NEITHER THIS
      SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
      ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
      ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR
      NOT
      SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.

    


    


    
      
        
          
          

        

        
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    THE
      HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF MARGO
      CARIBE, INC. THAT (A) THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE
      TRANSFERRED OTHER THAN (1) TO MARGO CARIBE, INC. OR A SUBSIDIARY THEREOF, (2)
      IN
      A TRANSACTION ENTITLED TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
      UNDER THE SECURITIES ACT (IF AVAILABLE), (3) SO LONG AS THIS SECURITY IS
      ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (“RULE
      144A”), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
      INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN
      ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE
      IS
      GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON
      RULE 144A, (4) TO A “NON U.S. PERSON” IN AN “OFFSHORE TRANSACTION” PURSUANT TO
      REGULATION S UNDER THE SECURITIES ACT, (5) PURSUANT TO AN EXEMPTION FROM
      REGISTRATION UNDER THE SECURITIES ACT TO AN “ACCREDITED INVESTOR” WITHIN THE
      MEANING OF SUBPARAGRAPH (A) (1), (2), (3) OR (7) OF RULE 501 UNDER THE
      SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE
      ACCOUNT OF SUCH AN “ACCREDITED INVESTOR,” FOR INVESTMENT PURPOSES AND NOT WITH A
      VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION
      OF THE SECURITIES ACT, OR (6) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM
      REGISTRATION UNDER THE SECURITIES ACT, SUBJECT, IN THE CASE OF CLAUSES (5)
      OR
      (6), TO THE RECEIPT BY MARGO CARIBE, INC. OF AN OPINION OF COUNSEL OR SUCH
      OTHER
      EVIDENCE ACCEPTABLE TO MARGO CARIBE, INC. THAT SUCH RESALE, PLEDGE OR TRANSFER
      IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (7)
      PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND THAT (B) THE HOLDER WILL,
      AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY
      OF THE RESALE RESTRICTIONS REFERRED TO IN THE CERTIFICATE OF DESIGNATION FOR
      THE
      SECURITIES AND DELIVER TO THE TRANSFEREE (OTHER THAN A QUALIFIED INSTITUTIONAL
      BUYER) PRIOR TO THE SALE A COPY OF THE TRANSFER RESTRICTIONS APPLICABLE HERETO
      (COPIES OF WHICH MAY BE OBTAINED FROM MARGO CARIBE, INC.).

    


    IN
      CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND
      TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS MAY BE REQUIRED BY
      THE
      DECLARATION TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING
      RESTRICTIONS.”

    


    (f)    The
      Spectors (i) are able to fend for themselves in the transactions contemplated
      by
      this Agreement; (ii) have such knowledge and experience in financial and
      business matters as to be capable of evaluating the merits and risks of its
      prospective investment in the Securities; (iii) have the ability to bear the
      economic risks of its prospective investment and can afford the complete loss
      of
      such investment; and (iv) may be required to bear the financial risks of this
      investment for an indefinite period of time;

    


    (g)    It
      is
      understood that, in making certain of the representations set forth in this
      Agreement, the Company is relying, to the extent applicable, upon your
      representations set forth in this Section 4.1; and

    


    (h)    The
      Spectors have consulted with their own legal, regulatory, tax, business,
      investment, financial and accounting advisers in connection herewith to the
      extent they have deemed necessary, (ii) they have had a reasonable opportunity
      to ask questions of and receive answers from officers and representatives of
      the
      Company concerning its financial condition and results of operations and any
      other matter relevant to the purchase of the Securities, and any such questions
      have been answered to their satisfaction, (iii) they have had the opportunity
      to
      review all publicly available records and filings concerning the Company and
      its
      Subsidiaries and you have carefully reviewed such records and filings as they
      considered relevant to making an investment decision, and (iv) they have made
      their own investment decisions based upon their own judgment, due diligence
      and
      advice from such advisers as they have deemed necessary and not upon any view
      expressed by the Company.

    


    SECTION
      4.2.   TRANSFEREES.
      Any
      transferee of the Securities shall, by its acceptance of such Securities, be
      deemed to have made the same representations regarding the purchase of the
      Securities as the Spectors made pursuant to Section 4.1, above.

    


    


    
      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

    

    


    ARTICLE
      5

    


    CONDITIONS
      PRECEDENT

    


    SECTION
      5.1.  CONDITIONS
      PRECEDENT.
      It shall
      be a condition precedent to the exchange of the Exchanged Indebtedness for
      the
      Securities that the Spectors shall have received the following documents and
      that the following conditions shall have been satisfied:

    


    (a)    a
      certified copy of the resolution of the Board of Directors of the Company
      approving the execution, delivery and performance of this Agreement and the
      Securities and the transactions contemplated herein and therein;

    


    (b)    a
      certificate of an Officer certifying the names and true signatures of the
      Officers of the Company authorized to sign this Agreement and the Securities
      and
      the other documents required to be executed and delivered hereunder, in each
      case dated as of the date of exchange;

    


    (c)    a
      copy,
      stamped as filed with the Department of State of Puerto Rico, of the Certificate
      of Designation in the form of Exhibit A;

    


    (d)    a
      copy of
      the By-laws of the Company, certified by an Officer of the Company as of the
      date of exchange, as being accurate and complete;

     

    (e)    an
      Officer’s Certificate of the Company confirming compliance with the covenants
      and confirming the accuracy of the representations set forth herein as of the
      date of exchange;

    


    (f)    evidence
      satisfactory to the Spectors that all acts and conditions (including the
      obtaining of any necessary regulatory approvals and the making of any required
      filings, recordings or registrations) required to be done and performed and
      to
      have happened prior to the execution, delivery and performance of this Agreement
      and the Securities and to constitute the same legal, valid and binding
      obligations, enforceable in accordance with their respective terms, shall have
      been done and performed and shall have happened in due and strict compliance
      with all applicable laws;

    


    (g)    such
      other documents or legal opinions as the Spectors or its counsel may reasonably
      request, all in form and substance reasonably satisfactory to the
      Spectors;

    


    (h)    all
      documentation, including documentation for corporate and legal proceedings
      in
      connection with the transactions contemplated by this Agreement and the
      Securities, shall be reasonably satisfactory in form and substance to the
      Spectors and its counsel;

    


    (i)    the
      Company shall have paid all fees required to have been paid under this Agreement
      and the Securities;

    


    (j)    no
      default or Event of Default shall have occurred and be continuing;

    


    


    ARTICLE
      6

    


    MISCELLANEOUS

    


    SECTION
      6.1.   NOTICES.
      Any
      notice or communication shall be in writing and delivered in person or mailed
      by
      first-class mail addressed as follows:

    


    


    
      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

    

    


    If
      to the Company:

    


    Margo
      Caribe, Inc.

    ROAD
      690
      KILOMETER 5 8

    VEGA
      ALTA
      PR 00692

    


    Attention:
      Alison Witkovich

    


    Telephone:
      (787) 883-2570

    Telecopier:
      (787) 787-883-3244

    


    If
      to the Spectors:

     

    


    Telephone:
      (787) 

    Telecopier:
      (787) 

    


    The
      Company or the Spectors by notice to the other may designate additional or
      different addresses for subsequent notices or communications.

    


    Any
      notice or communication mailed to a Securityholder shall be mailed to the
      Securityholder at the Securityholder’s address as it appears on the registration
      books of the Registrar and shall be sufficiently given if so mailed within
      the
      time prescribed.

    


    Failure
      to mail a notice or communication to a Securityholder or any defect in it shall
      not affect its sufficiency with respect to other Securityholders. If a notice
      or
      communication is mailed in the manner provided above, it is duly given, whether
      or not the addressee receives it.

    


    SECTION
      6.2.   STATEMENTS
      OR OPINION.
      Each
      certificate or opinion with respect to compliance with a covenant or condition
      provided for in this Agreement shall include:

    


    
      	 	
              (1)

            	
              a
                statement that the person making such certificate or opinion has
                read such
                covenant or condition;

            


    

    


    
      	 	
              (2)

            	
              a
                brief statement as to the nature and scope of the examination or
                investigation upon which the statements or opinions contained in
                such
                certificate or opinion are based;

            


    

    


    
      	 	
              (3)

            	
              a
                statement that, in the opinion of such person, he has made such
                examination or investigation as is necessary to enable him to express
                an
                informed opinion as to whether or not such covenant or condition
                has been
                complied with; and

            


    

    


    
      	 	
              (4)

            	
              a
                statement as to whether or not, in the opinion of such person, such
                covenant or condition has been complied
                with.

            


    

    


    SECTION
      6.3.   WHEN
      TREASURY SECURITIES DISREGARDED.
      In
      determining whether the Holders of the required principal amount of Securities
      have concurred in any waiver or consent, Securities owned by the Company or
      by
      any person directly or indirectly controlling or controlled by or under direct
      or indirect common control with the Company shall be disregarded and deemed
      not
      to be outstanding. Also, subject to the foregoing, only Securities outstanding
      at the time shall be considered in any such determination.

    


    SECTION
      6.4.   LEGAL
      HOLIDAYS.
      A “Legal
      Holiday” is a Saturday, a Sunday or a day on which banking institutions are not
      normally open in the Commonwealth of Puerto Rico. If a payment date is a Legal
      Holiday, payment shall be made on the next succeeding day that is not a Legal
      Holiday, and no interest shall accrue for the intervening period. If a regular
      record date is a Legal Holiday, the record date shall not be affected.


    


    SECTION
      6.5.   GOVERNING
      LAW.
      This
      Agreement and the Securities shall be governed by, and construed in accordance
      with, the laws of the Commonwealth of Puerto Rico but without giving effect
      to
      applicable principles of conflicts of law to the extent that the application
      of
      the laws of another jurisdiction would be required thereby. 

    


    


    
      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

    

    


    SECTION
      6.6.   SUCCESSORS.
      All
      agreements of the Company in this Agreement and the Securities shall bind its
      successors. 

    


    SECTION
      6.7.   MULTIPLE
      ORIGINALS.
      The
      parties may sign any number of copies of this Agreement. Each signed copy shall
      be an original, but all of them together represent the same agreement. One
      signed copy is enough to prove this Agreement. 

    


    SECTION
      6.8.   TABLE
      OF CONTENTS; HEADINGS.
      The
      table of contents and headings of the Articles and Sections of this Agreement
      have been inserted for convenience of reference only, are not intended to be
      considered a part hereof and shall not modify or restrict any of the terms
      or
      provisions hereof. 

    


    SECTION
      6.9.   SURVIVAL
      OF CERTAIN PROVISIONS.
      The
      provisions set forth in Articles 1, 3, 4 and 6 shall survive the redemption
      or
      conversion of the Securities. All other covenants and provisions of the
      Agreement shall expire upon redemption or conversion of all the Securities,
      provided that rights or causes of action accrued prior to such payment or
      conversion shall survive.

    


    


    [SIGNATURE
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    IN
      WITNESS WHEREOF,
      the
      parties have caused this Agreement to be duly executed as of the date first
      written above.

    


    
      	 	
              MARGO
                CARIBE, INC.

            
	 	 	 
	 	 	 
	 	 	 
	 	
              By:

            	
               
                /s/ Alison
                Witkovich                                       
                

            
	 	
              Name:

            	
                   
                Alison Witkovich

            
	 	
              Title:

            	
                   
                Vice President and Chief Financial Officer

            
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	
               /s/
                Michael J.
                Spector                                                       
                

            
	  	
               Michael
                J. Spector

            
	 	 	 
	 	 	 
	 	
               /s/
                Margaret D.
                Spector                                                   
                

            
	 	
               Margaret
                D. Spector

            


    

    
 

     

     

     

     

     

     

     

     

     

     

     

     

     

     

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