Document:

Exhibit 10.1

 

DEBENTURE AND WARRANT PURCHASE AGREEMENT

 

THIS DEBENTURE AND WARRANT PURCHASE AGREEMENT (this “Agreement”)
is made as of November 14, 2008 by and among Microfluidics
International Corporation, a Delaware corporation (the “Company”),
and Global Strategic Partners, LLC, a
Delaware limited liability company (“Investor”)

 

THE PARTIES HEREBY AGREE AS FOLLOWS:

 

SECTION 1

 

DEFINITIONS

 

1.1        Definitions.  In addition to the terms defined elsewhere in
this Agreement, the following terms have the meanings indicated:

 

“Affiliate” means any Person
that, directly or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with a Person, as such terms are used
in and construed under Rule 144 under the Securities Act.

 

“Board”
means the board of directors of the Company.

 

“Closing” means the closing
of the purchase and sale of the Debenture and the Warrant pursuant to Section 3.1.

 

“Collateral”
has the meaning ascribed to such term in the Security Agreement.

 

“Collateral
Documents” means, collectively, the Security Agreement, any
other agreement pursuant to which the Company or any other Person provides a
Lien on its assets in favor of Investor, and all filings, documents and
agreements made or delivered pursuant thereto.

 

“Common Stock” means the
common stock of the Company.

 

“Debenture”
has the meaning set forth in Section 2.1.

 

“Disclosure Materials” has
the meaning set forth in Section 5.6.

 

“ERISA”
is the Employee Retirement Income Security Act of 1974, and its regulations.

 

“Event of
Default” has the meaning ascribed to such term in the
Debenture.

 

“Exchange Act” means the
Securities Exchange Act of 1934, as amended.

 

“GAAP”
means generally accepted principles of good accounting practice in the United
States, consistently applied.

 

“Governmental
Approval” is any consent, authorization, approval, order,
license, franchise, permit, certificate, accreditation, registration, filing or
notice, of, issued by, from or to, or other act by or in respect of, any
Governmental Authority.

 

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“Governmental
Authority” shall mean any federal, state, local or other
governmental department, commission, board, bureau, agency or other
instrumentality or authority, domestic or foreign, exercising executive,
legislative, judicial, regulatory or administrative authority or functions of
or pertaining to government.

 

“Indebtedness”
is (a) indebtedness for borrowed money or the deferred price of property
or services, such as reimbursement and other obligations for surety bonds and
letters of credit, (b) obligations evidenced by notes, bonds, debentures
or similar instruments, (c) capital lease obligations and (d) Contingent
Obligations.

 

“Lien”
shall mean any security interest, mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), claim or other
priority or preferential arrangement of any kind or nature whatsoever (other
than a financing statement filed by a lessor in respect of an operating lease
not intended as security).

 

 “Material Adverse Effect” means (i) a
material and adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, condition (financial or otherwise) or prospects
of the Company and the Subsidiaries, taken as a whole on a consolidated basis,
or (iii) a material and adverse impairment of the Company’s ability to
perform fully on a timely basis its obligations under any of the Transaction
Documents.

 

“Obligations”
shall have the meaning ascribed to such term in the Security Agreement.

 

“Organic
Document” means, relative to any Person, its articles or
certificate of incorporation, or certificate of limited partnership or formation,
its bylaws, partnership or operating agreement or other organizational
documents, and all stockholders agreements, voting trusts and similar
arrangements applicable to any of its capital stock, partnership interests or
other ownership interests.

 

“Permitted
Indebtedness” is: (i) the Company’s indebtedness under
the Debenture; (ii) Subordinated Debt, (iii) indebtedness to trade
creditors incurred in the ordinary course of business; and (iv) Indebtedness
secured by Permitted Liens.

 

“Permitted
Investments” are (i) marketable direct obligations
issued or unconditionally guaranteed by the United States or its agency or any
state maturing within 1 year from its acquisition, (ii) commercial paper
maturing no more than 1 year after its creation and having the highest rating
from either Standard & Poor’s Corporation or Moody’s Investors Service, Inc.,
(iii) certificates of deposit issued maturing no more than 1 year after
issue, and (iv) any other investments approved in writing by Investor.

 

“Permitted Liens” are (i) Liens
arising under this Agreement or other Transaction Documents; (ii) Liens
for taxes, fees, assessments or other government charges or levies, either not
delinquent or being contested in good faith and for which the Company maintains
adequate reserves on its books, if they have no priority over any of Investor’s
security interests; (iii) purchase money Liens securing no more than Fifty
Thousand Dollars ($50,000.00) in the aggregate amount outstanding (A) on
equipment acquired or held by the Company incurred for financing the
acquisition of the equipment, or (B) existing on equipment when acquired, if
the

 

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Lien is confined to the property and improvements and
the proceeds of the equipment; (iv) leases or subleases and non-exclusive
licenses or sublicenses granted in the ordinary course of the Company’s
business, if the leases, subleases, licenses and sublicenses permit
granting Investor a security interest; (v) Liens incurred in the
extension, renewal or refinancing of the indebtedness secured by Liens
described in (i) through (iv), but any extension, renewal or
replacement Lien must be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness may not increase; and (vi) senior liens securing no more than One
Million Dollars ($1,000,000) in the aggregate principal amount of indebtedness
in favor of one or more financial institutions granted for the purpose of
providing security for said financial institutions’ guaranties to customers of
the Company assuring repayment of customer deposits.

 

“Person” means any
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, or joint stock company.

 

“Proceeding” means an
action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened in writing.

 

“Registration
Rights Agreement” has the meaning set forth in Section 3.2(b).

 

“SEC Reports” has the
meaning set forth in Section 5.6.

 

“Securities”
means the Debenture, the Warrant, the Common Stock issuable upon exercise of
the Warrant and conversion of the Debenture.

 

“Securities Act” means the
Securities Act of 1933, as amended.

 

“Security
Agreement” has the meaning set forth in Section 3.2(a).

 

“Subordinated
Debt” is indebtedness incurred by the Company subordinated to
all of the Company’s now or hereafter indebtedness to Investor (pursuant to a
subordination, intercreditor, or other similar agreement in form and substance
satisfactory to Investor entered into between Investor and the other creditor),
on terms acceptable to Investor.

 

“Subsidiary”
shall mean, with respect to any Person (herein referred to as the “parent”), any
corporation, limited liability company, partnership, association or other
business entity (a) of which securities of other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary voting
power or more than 50% of the general partnership interests are, at the time
any determination is being made, owned, controlled or held by the parent, or (b) that
is, at any time any determination is made, otherwise Controlled by, the parent
or one or more Subsidiaries of the parent and one or more Subsidiaries of the
parent.

 

“Transaction
Documents” means this Agreement, the Collateral Documents,
the Debenture, the Warrant and any other and all other certificates, documents,
agreements and instruments delivered to Investor under or in connection with
this Agreement.

 

“Warrant”
has the meaning set forth in Section 2.2.

 

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SECTION 2

 

ISSUANCE
OF NOTES AND WARRANTS

 

2.1        Issuance
of Debenture.  Subject to the terms
and conditions of this Agreement, at the Closing (as defined below), the
Company shall issue and sell to Investor a debenture (the “Debenture”) in the
principal amount of $5,000,000 (the “Principal Amount”) against payment by
Investor to the Company of the Principal Amount, which shall be convertible
into up to 4,000,000 shares of Common Stock. 
The Debenture shall be in the form of Exhibit A attached
hereto.

 

2.2        Issuance
of Warrant.  Subject to the terms and
conditions of this Agreement, at the Closing, the Company shall issue to
Investor a warrant (the “Warrant”) in the form of Exhibit B
attached hereto, representing the right to purchase up to a number of shares of
Common Stock of the Company equal to 50% of the outstanding common stock on a
fully-diluted basis, less the number of shares of Common Stock into which the
Debenture is convertible. The Warrant shall have a term of the earlier to occur
of (i) seven (7) years or (ii) the third (3rd) anniversary of the date
hereof in the event that the Company has retired Debenture on or before said
third (3rd)
anniversary.

 

SECTION 3

 

CLOSINGS

 

3.1        Closing.  The closing of the purchase and sale of the
Debenture and Warrant hereunder (the “Closing”) shall be held
at                            on
the date of this Agreement or at such other place and date as is mutually
agreeable to the Company and Investor (the “Closing Date”).

 

3.2        Conditions.  The obligation of Investor to purchase the
Debenture and Warrant on the date of the Closing shall be subject to the prior
or concurrent satisfaction of each of the conditions precedent set forth in
this Section 3.2.

 

(a)          Security
Agreement.  Investor shall have
received, executed and delivered by the Company a security agreement (the “Security
Agreement”) in the form attached hereto as Exhibit C.

 

(b)         Registration
Rights Agreement.  Investor shall
have received, executed and delivered by the Company a registration rights
agreement (the “Registration Rights Agreement”) in the form attached hereto as Exhibit D.

 

(c)          Resolutions,
etc.  Investor shall have received (i) a
certificate, dated the Closing Date, of an authorized signatory of the Company
as of the date of the Closing certifying (A) copies of the resolutions and
other actions taken or adopted by the Company authorizing the execution,
delivery and performance of the Transaction Documents to which the Company is a
party, and (B) copies of the Organic Documents of the Company (which shall also
be certified by the Secretary of State (or other appropriate Governmental Authority)
of the state in which the Company is organized or formed, (ii) a good
standing certificate with respect to the

 

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Company as of a date recently prior to the Closing
Date from the Secretary of the State (or other appropriate Governmental
Authority) of the state in which the Company is organized or formed, and (iii) evidence
of qualification of the Company to do business in each jurisdiction where the
nature of its properties of the conduct of its business requires it to be so
qualified to do business as of a recent date.

 

(d)         Collateral
Matters.  The Company shall have
delivered to Investor each of the following: 
(i) confirmation that all UCC-1 financing statements and other filings
necessary or appropriate in the opinion of Investor to perfect the security
interests of Investor in the Collateral have been accepted for filing; (ii) such
lien and judgment searches as the Investor have requested, and such termination
statements or other documents, as may be necessary to confirm that the
Collateral is subject to no other security interests in favor of any Persons
other than Permitted Liens (as defined in the Security Agreement); (iii) if
as of the date of the Closing any Collateral is located on any premises in
which any third party has an interest, such bailee agreement, subordination
agreement, landlord waiver agreement or collateral access agreement, as
applicable, duly executed by such third party, as Investor shall reasonably
request; and (iv) evidence that all other actions necessary or appropriate
in the reasonable opinion of Investor to perfect and protect the security
interests in the Collateral have been taken.

 

(e)          No
Contest, etc.  No claim, litigation,
arbitration, governmental investigation, injunction, order, proceeding or
inquiry shall be pending or threatened which: (i) seeks to enjoin or would
be reasonably be expected to materially delay, impose material limitations on,
or otherwise prevent the consummation of, or to recover any damages or obtain
relief as a result of, the transactions contemplated by or in connection with
the Transaction Documents; or (ii) would otherwise be adverse to any of
the parties hereto with respect to the transactions contemplated hereby.

 

(f)          Certificate
as to Completed Conditions, Warranties, No Default, etc.  Investor shall have received a certificate,
dated as of the date of the Closing, of an authorized signatory of the Company
to the effect that: (i) all conditions precedent set forth in this Section 2
have been satisfied or otherwise waived by Investor; (ii) all
representations and warranties set forth in Section 5 are true and
correct; (iii) all representations and warranties set forth in any other
documents entered into in connection herewith are true and correct; and (iv) no
Event of Default has occurred.

 

(g)         Certificate
as to Compliance with Requirements of Law. 
Investor shall have received a certificate, dated as of the date of the
Closing, of an authorized signatory of the Company to the effect that the Company
has obtained and maintains in full force and effect each and every consent,
approval, filing and registration by or with any Person, including, without
limitation, any Governmental Authority, necessary to authorize or permit the
execution, delivery or performance of the Transaction Documents, the issuance
of the Debenture and the Warrant (including any approval, consent, filing and
registration required under Federal or State securities laws except for filings
pursuant to Regulation D of the Securities Act, and applicable state
securities laws, which have been made or will be made in a timely manner), the
validity or enforceability thereof, or the consummation of the transactions
contemplated by the Transaction Documents.

 

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(h)         Other
Documents, Certificates, etc. 
Investor shall have received such other documents, certificates, or
other materials, as they may reasonably request from the Company.

 

(i)           Satisfactory
Legal Form.  All Transaction
Documents and other closing documents executed or submitted by or on behalf of
the Company or any other Person shall be satisfactory in form and substance to
Investor, and Investor shall have received such counterpart originals or such
certified or other copies of such Transaction Documents and other closing
documents, as Investor may request.  All
legal matters incident to the transactions contemplated by the Transaction
Documents shall be satisfactory to Investors.

 

3.3        Delivery.  At the Closing (i) Investor shall deliver
to the Company a check or wire transfer of immediately available funds in the
amount of the Principal Amount in the manner set forth on Schedule 3.3
(the “Funds Payment Schedule”), and (ii) the Company shall execute and
deliver to Investor the Debenture and the Warrant.  The Debenture and Warrant shall be a binding
obligation of the Company upon execution thereof by the Company and delivery
thereof to Investor.

 

SECTION 4

 

REPRESENTATIONS
AND WARRANTIES OF INVESTOR

 

Investor
hereby represents, warrants and covenants to the Company as follows:

 

4.1        Purchase
for Own Account.  Investor represents
that it is acquiring the Securities solely for investment for Investor’s own
account not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that Investor has no present intention of
selling, granting any participation in, or otherwise distributing the
same.  The acquisition by Investor of any
of the Securities shall constitute confirmation of the representation by Investor
that Investor does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the Securities.

 

4.2        Investment
Experience.  Investor represents that
it is an investor in securities of companies in the development stage and
acknowledges that it is able to fend for itself, can bear the economic risk of
its investment, and has such knowledge and experience in financial or business matters
that it is capable of evaluating the merits and risks of the investment in the
Securities.  Investor acknowledges that
any investment in the Securities involves a high degree of risk, and represents
that it is able, without materially impairing its financial condition, to hold
the Securities for an indefinite period of time and to suffer a complete loss
of its investment.

 

4.3        Accredited
Investor.  Investor represents that
it is an “accredited investor” within the meaning of Securities and Exchange Commission
(“SEC”) Rule 501 of Regulation D, as presently in effect,

 

4.4        Restrictions
on Transfer.  Investor understands
that the Securities are characterized as “restricted securities” under the
federal securities laws inasmuch as they are being acquired from the Company in
a transaction not involving a public offering and that under

 

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such laws and applicable regulations such securities
may be resold without registration under the Securities Act, only in certain
limited circumstances.  In this
connection, such Investor represents that it is familiar with SEC Rule 144,
as presently in effect, and understands the resale limitations imposed thereby
and by the Securities Act.

 

SECTION 5

 

REPRESENTATIONS
AND WARRANTIES OF THE COMPANY

 

The Company hereby represents and warrants to
Investor that:

 

5.1        Organization,
Good Standing and Qualification; Licenses. 
The Company and each of its Subsidiaries are duly organized, validly
existing and in good standing under the laws of Delaware and has all requisite
power and authority, and holds all governmental licenses, permits,
registrations and other approvals required under applicable law, to own and
hold under lease its property and to carry on its business as now conducted and
as proposed to be conducted, except where the failure to hold any such
licenses, permits, registrations and other approvals could not result in a
Material Adverse Effect.  Each of the
Company and each of its Subsidiaries is qualified to do business in each
jurisdiction where the nature of its properties of the conduct of its business
requires it to be so qualified to do business and where the failure so to
qualify could result in a Material Adverse Effect.

 

5.2        Authorization.  All action on the part of the Company
necessary for the authorization, execution and delivery of this Agreement, the
performance of all obligations of the Company hereunder, and the authorization,
issuance (or reservation for issuance), sale and delivery of the Securities,
has been taken or will be taken prior to the Closing.  Each of the Transaction Documents to which
the Company is a party constitutes the valid and legally binding obligation of
the Company, enforceable against the Company in accordance with its terms,
except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, and (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies.

 

5.3        Capitalization.  The aggregate number of shares and type of
all authorized, issued and outstanding classes of capital stock, options and
other securities of the Company (whether or not presently convertible into or
exercisable or exchangeable for shares of capital stock of the Company) is set
forth in Schedule 5.3 hereto. 
All outstanding shares of capital stock are duly authorized, validly
issued, fully paid and nonassessable and have been issued in compliance with
all applicable securities laws.  Except
as disclosed in Schedule 5.3
hereto, the Company has not issued any other options, warrants, script rights
to subscribe to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exercisable or
exchangeable for, or entered into any agreement giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock.  Except as set forth on Schedule 5.3
hereto, and except for customary adjustments as a result of stock dividends,
stock splits, combinations of shares, reorganizations, recapitalizations,
reclassifications or other similar events, there are no anti-dilution or price
adjustment provisions contained in any security issued by the Company (or

 

7

 

in any agreement of the Company providing rights to
security holders) and the issuance and sale of the Common Shares will not
obligate the Company to issue shares of Common Stock or other securities to any
Person (other than the Investors) and will not result in a right of any holder
of securities to adjust the exercise, conversion, exchange or reset price under
such securities.  To the knowledge of the
Company, except as specifically disclosed in SEC Reports or in Schedule 5.3
hereto, no Person or group of related Persons beneficially owns (as determined
pursuant to Rule 13d-3 under the Exchange Act), or has the right to
acquire, by agreement with or by obligation binding upon the Company,
beneficial ownership of in excess of 5% of the outstanding Common Stock.

 

5.4        Absence
of Required Consents; No Violations. 
No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any Governmental
Authority on the part of the Company is required in connection with the
consummation of the transactions contemplated by the Transaction Documents,
except for such filing(s) pursuant to applicable state securities laws as
may be necessary, which filings will be timely effected after the Closing, and
except for recordings or filings in connection with the perfection of the Liens
on the Collateral in favor of Investor. 
The Company is not in violation or default (i) of any provision of
its Organic Documents, or (ii) of any instrument, judgment, order, writ,
decree or contract to which it is a party or by which it is bound, or, to its
knowledge, of any provision of any federal or state statute, rule or
regulation which is, to the Company’s knowledge, applicable to the Company,
except in the case of this clause (ii) for such violations or defaults
which could not reasonably be expected to result in a Material Adverse
Effect.  The execution, delivery and
performance of the Transaction Documents and the consummation of the
transactions contemplated thereby will not result in any such violation or be
in conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument, judgment,
order, writ, decree or contract or an event that results in the creation of any
Lien upon any material assets of the Company or the suspension, revocation,
impairment, forfeiture or nonrenewal of any material permit, license,
authorization or approval applicable to the Company, its business or operations
or any of its assets or properties, except for such results which could not
reasonably be expected to result in a Material Adverse Effect.

 

5.5        Transaction
Documents.  All representations and
warranties of the Company contained in the other Transaction Documents and are
true and correct in all material respects as of the date hereof and as of the
date of the Closing.

 

5.6        SEC
Reports; Financial Statements.  The
Company has filed all reports required to be filed by it under the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof,
for the twelve months preceding the date hereof (the foregoing materials
(together with any materials filed by the Company under the Exchange Act,
whether or not required) being collectively referred to herein as the “SEC Reports” and, together with this
Agreement and the Schedules to this Agreement, the “Disclosure Materials”) on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior to
the expiration of any such extension. 
The Company has made available to Investor or its representatives true,
correct and complete copies of the SEC Documents not available on the EDGAR
system. As of their respective dates, the SEC Reports complied in all material
respects with the requirements of the Securities Act and the Exchange Act and
the rules and regulations of the Commission promulgated thereunder, and
none of the SEC Reports, when filed, contained any untrue

 

8

 

statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.  The financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing.  Such financial statements have
been prepared in accordance with GAAP applied on a consistent basis during the
periods involved, except as may be otherwise specified in such financial statements
or the notes thereto, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, year-end audit
adjustments.

 

5.7        Material
Changes.  Except as set forth in Schedule 5.7
since the date of the latest audited financial statements included within the
SEC Reports, except as specifically disclosed in the SEC Reports, (i) there
has been no event, occurrence or development that, individually or in the
aggregate, has had or that could reasonably be expected to result in a Material
Adverse Effect, (ii) the Company has not incurred any material liabilities
other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B) liabilities
not required to be reflected in the Company’s financial statements pursuant to
GAAP or required to be disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting or the identity of its
auditors, except as disclosed in its SEC Reports, (iv) the Company has not
declared or made any dividend or distribution of cash or other property to its
stockholders, in their capacities as such, or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock (except for
repurchases by the Company of shares of capital stock held by employees, officers,
directors, or consultants pursuant to an option of the Company to repurchase
such shares upon the termination of employment or services), and (v) the
Company has not issued any equity securities to any officer, director or
Affiliate, except pursuant to existing Company stock-based plans.

 

5.8        Absence
of Litigation.  Except as disclosed
in the Company’s SEC Reports, there is no action, suit, claim, or proceeding,
or, to the Company’s knowledge, inquiry or investigation, before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company, threatened against or affecting
the Company or any of its Subsidiaries that could, individually or in the
aggregate, have a Material Adverse Effect.

 

5.9        Offering.  Subject in part to the truth and accuracy of
Investor’s representations set forth in Section 4 of this
Agreement, the offer, sale and issuance of the Debentures and Warrants as
contemplated by this Agreement are exempt from the registration requirements of
the Act and will not result in a violation of the qualification or registration
requirements of the any applicable state securities laws, and neither the
Company nor any authorized agent acting on its behalf will take any action hereafter
that would cause the loss of such exemption.

 

5.10      Valid
Issuance of Common Stock.  The shares
of Common Stock issuable upon conversion of the Debentures and upon exercise of
the Warrant, when issued, sold and delivered in accordance with the terms of the
Debenture and Warrant for the consideration expressed therein, will be duly and
validly issued, fully paid, and nonassessable, and will be free of

 

9

 

restrictions on transfer other than restrictions on transfer
under this Agreement, and under applicable state and federal securities laws.

 

SECTION 6

 

COVENANTS

 

6.1        Affirmative
Covenants.  So long as any
indebtedness under the Debenture remains outstanding, the Company shall:

 

(a)        Government
Compliance.

 

(i)           The
Company shall maintain its and all its Subsidiaries’ legal existence and good
standing in their respective jurisdictions of formation and maintain
qualification in each jurisdiction in which the failure to so qualify would
reasonably be expected to have a Material Adverse Effect.  The Company shall comply, and have each
Subsidiary comply, with all laws, ordinances and regulations to which it is
subject, noncompliance with which could have a Material Adverse Effect;

 

(ii)          The
Company shall obtain all of the Governmental Approvals necessary for the
performance by the Company of its obligations under the Transaction Documents
to which it is a party and the grant of a security interest to Investor in all
of its property.  The Company shall
promptly provide copies of any such obtained Governmental Approvals to
Investor.

 

(b)        Reports.  The Company shall deliver to Investor (i) within
five (5) days of filing, all reports on Form 10-K, 10-Q and 8 K filed
with the SEC; and (ii) a prompt report of any legal actions pending or
threatened against the Company or any Subsidiary that could result in damages
or costs to the Company or any Subsidiary of One Hundred Thousand Dollars
($100,000.00) or more.

 

(c)        Inspection
of Collateral.  The Company shall
allow Investor to audit the Collateral at the Company’s expense, upon
reasonable notice to the Company.  After
the occurrence of an Event of Default, Investor may audit the Collateral at the
Company’s expense and at Investor’s sole and exclusive discretion and without
notification and authorization from the Company.

 

(d)        Taxes.  The Company shall make, and cause each
Subsidiary to make, timely payment of all federal, state, and local taxes or
assessments (other than taxes and assessments which the Company is contesting
in good faith, with adequate reserves maintained in accordance with GAAP) and
will deliver to Investor, on demand, appropriate certificates attesting to such
payments.

 

(e)        Insurance.  The Company shall keep its business and the
Collateral insured for risks and in amounts standard for companies in the
Company’s industry and location, and as Investor may reasonably request.  Insurance policies shall be in a form, with
companies, and in amounts that are satisfactory to Investor.  All property policies shall have a lender’s
loss payable endorsement showing Investor as the sole lender loss payee and
waive subrogation against

 

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Investor,
and all liability policies shall show, or have endorsements showing, Investor
as an additional insured.  All policies
(or the loss payable and additional insured endorsements) shall provide that
the insurer must give Investor at least twenty (20) days notice before
canceling, amending, or declining to renew its policy.  At Investor’s request, the Company shall
deliver certified copies of policies and evidence of all premium payments.
Proceeds payable under any policy shall, at Investor’s option, be payable to
Investor on account of the Obligations. 
Notwithstanding the foregoing, (a) so long as no Event of Default
has occurred and is continuing, the Company shall have the option of applying
the proceeds of any casualty policy up to Two Hundred Fifty Thousand Dollars
($250,000) in the aggregate toward the replacement or repair of destroyed or
damaged property; provided that any such replaced or repaired property (i) shall
be of equal or like value as the replaced or repaired Collateral and (ii) shall
be deemed Collateral in which Investor has been granted a first priority
security interest, and (b) after the occurrence and during the continuance
of an Event of Default, all proceeds payable under such casualty policy shall,
at the option of Investor, be payable to Investor on account of the
Obligations.  If the Company fails to
obtain insurance as required under this Section 6.1(e) or to pay any
amount or furnish any required proof of payment to third persons and Investor,
Investor may make all or part of such payment or obtain such insurance policies
required in this Section 6.1(e), and take any action under the policies
Investor deems prudent.

 

(f)         Accounts.  The Company shall identify to Investor, in
writing, any deposit or securities account opened by the Company or any
Subsidiary with any financial institution. 
In addition, for each such account that the Company or a Subsidiary
opens or maintains, the Company shall, at Investor’s request and option,
pursuant to an agreement in form and substance acceptable to Investor, cause
the depository bank or securities intermediary to agree that such account is
the collateral of Investor pursuant to the terms hereunder, which control
agreement may not be terminated without the prior written consent of
Investor.  The provisions of the previous
sentence shall not apply to deposit accounts exclusively used for payroll,
payroll taxes and other employee wage and benefit payments to or for the
benefit of the Company’s employees.

 

(g)        Inventory;
Returns.  The Company shall keep all
inventory in good and marketable condition, free from material defects.  Returns and allowances between the Company
and its account debtors shall follow the Company’s customary practices as they
exist as of the date hereof.  The Company
must promptly notify Investor of all returns, recoveries, disputes and claims
that involve more than Two Hundred Fifty Thousand Dollars ($250,000).

 

(h)        Litigation
Cooperation.  The Company shall make
available to Investor, without expense to Investor, the Company and its
officers, employees and agents and the Company’s books and records, to the extent
that Investor may deem them reasonably necessary to prosecute or defend any
third-party suit or proceeding instituted by or against the Company with
respect to any Collateral or relating to the Company.

 

(i)         Further
Assurances.  The Company shall execute
any further instruments and take further action as Investor reasonably requests
to perfect or continue Investor’s security interest in the Collateral or to
effect the purposes of the Transaction Documents.

 

11

 

6.2           Negative
Covenants.  So long as any
indebtedness under the Debenture remains outstanding, the Company shall not do
any of the following without the prior written consent of Investor:

 

(a)         Dispositions.  The Company shall not convey, sell, lease,
transfer, assign, or otherwise dispose of (collectively a “Transfer”), or
permit any of its Subsidiaries to Transfer, all or any part of its business or
property, except for Transfers (a) of inventory in the ordinary course of
business; (b) of worn-out or obsolete equipment; and (c) in
connection with Permitted Liens and Permitted Investments.

 

(b)         Notice
of Changes in Business Locations.  The
Company shall not, without at least thirty (30) days prior written notice to Investor:
(a) relocate its chief executive office, or add any new offices or
business locations, including warehouses 
(unless such new offices or business locations contain less than Five
Thousand Dollars ($5,000.00) in the Company’s assets or property), or (b) change
its jurisdiction of organization, or (c) change its organizational
structure or type, or (d) change its legal name, or (e) change any
organizational number (if any) assigned by its jurisdiction of organization.

 

(c)         Indebtedness.  The Company shall not create, incur, assume,
or be liable for any Indebtedness, or permit any Subsidiary to do so, other
than Permitted Indebtedness.

 

(d)         Encumbrance.  The Company shall not create, incur, allow,
or suffer any Lien on any of its property, or assign or convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries to do so, except for Permitted Liens, or permit any Collateral not
to be subject to the first priority security interest granted herein, or enter
into any agreement, document, instrument or other arrangement (except with or
in favor of Investor) with any Person which directly or indirectly prohibits or
has the effect of prohibiting the Company or any Subsidiary from assigning,
mortgaging, pledging, granting a security interest in or upon, or encumbering
any of the Company’s or any Subsidiary’s intellectual property, except as is
otherwise permitted in Section 6.2(a) hereof and the definition of “Permitted
Liens” herein.

 

(e)         Distributions;
Investments.  The Company shall not (a) directly
or indirectly acquire or own any Person, or make any Investment in any Person,
other than Permitted Investments, or permit any of its Subsidiaries to do so;
or (b) pay any dividends or make any distribution or payment or redeem,
retire or purchase any capital stock.

 

(f)          Transactions
with Affiliates.  The Company shall
not directly or indirectly enter into or permit to exist any material
transaction with any Affiliate of the Company, except for transactions that are
in the ordinary course of the Company’s business, upon fair and reasonable
terms that are no less favorable to the Company than would be obtained in an
arm’s length transaction with a non-affiliated Person.

 

(g)         Compliance.  The Company shall not become an “investment
company” or a company controlled by an “investment company”, under the
Investment Company Act of 1940, as amended, or undertake as one of its
important activities extending credit to purchase or carry margin stock (as
defined in Regulation U of the Board of Governors of the Federal Reserve
System), or use the proceeds from the Debenture for that purpose; fail to meet
the minimum

 

12

 

funding requirements of ERISA, permit a Reportable
Event or Prohibited Transaction, each as defined in ERISA, to occur; fail to
comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation could reasonably be expected to have a material
adverse effect on the Company’s business, or permit any of its Subsidiaries to
do so; withdraw or permit any Subsidiary to withdraw from participation in,
permit partial or complete termination of, or permit the occurrence of any
other event with respect to, any present pension, profit sharing and deferred
compensation plan which could reasonably be expected to result in any liability
of the Company, including any liability to the Pension Benefit Guaranty
Corporation or its successors or any other governmental agency.

 

6.3           Board
Representation.

 

(a)           Until
the third (3rd) anniversary of this Agreement, at any election of directors of the Board either at a meeting of the
stockholders or by written consent, the Company shall nominate at least one (1) person
specified by Investor to serve on the Board and the Company shall use its best efforts to cause the
election of such person to its Board.

 

(b)           If
at any time Investor exercises any portion of the Warrant, at any election of directors of the Board either at a meeting of the
stockholders or by written consent, the Company shall nominate such additional persons designated by Investor
as may be necessary to cause Investor’s representation on the Board to be
proportional to Investor’s stockholdings in the Company and  the Company shall
use its best efforts to cause the election of such persons to its Board.  As an illustration, and without limiting the
application of the foregoing provisions, if the authorized number of directors
to serve on the Board is fixed at five (5) directors and Investor has exercised
the Warrant such that it holds 40% of outstanding Common Stock, then Investor shall
be entitled to nominate two (2) persons to serve on the Board and the
Company agrees to use its best efforts to cause the election of such nominees
to the Board.

 

6.4           Authorization of Common Stock;
Reservation of Common Stock.  The Company
shall amend its Certificate of Incorporation at its next Annual Meeting of the
Stockholders, which meeting shall be held no later than June 30, 2009, to
increase its duly authorized shares of Common Stock by such number as would be required for the Company to fulfill its
obligations in full under the Transaction Documents, including, for the
avoidance of doubt, the authorization of a number of shares of Common Stock
required for Investor to exercise in full its right to purchase up to 50% of
the Company’s outstanding Common Stock as contemplated under Section 1 of
the Warrant.  The failure to so amend the
Company’s Certification of Incorporation as contemplated in the prior sentence
shall be a material breach of this Agreement.  Thereafter, the Company shall maintain a reserve from its duly authorized shares of
Common Stock for issuance pursuant to the Transaction Documents in such amount
as may be required to fulfill its obligations in full under the Transaction
Documents.  In the event that at any time
thereafter the then authorized shares of Common Stock are insufficient for the
Company to satisfy its obligations in full under the Transaction Documents, the
Company shall promptly take such actions as may be required to increase the
number of authorized shares.

 

6.5           Form S-3
Eligibility.  The Company is
currently eligible to register the resale of the Common Stock issuable upon the
conversion of the Debenture and the exercise of the Warrant on Form S-3
promulgated under the Securities Act, and the Company hereby covenants 

 

13

 

and agrees to use its reasonable best efforts to
maintain its eligibility to use Form S-3 until the registration statement
covering the resale of the Common Stock shall have been filed with, and
declared effective by, the SEC.

 

6.6           Participation
Right.  Subject to the terms and
conditions specified in this Section 6.6, the Company hereby grants to Investor
a right to participate in future sales by the Company of shares of, or
securities convertible into or exchangeable or exercisable for any shares of,
any class of its capital stock (the “Equity Securities”).  Each time the Company proposes to offer any
Equity Securities, the Company shall first offer to Investor the right to
purchase five percent (5%) of such Equity Securities (the “Offered Securities”)
in accordance with the following provisions:

 

(a)           The
Company shall deliver a notice in accordance with Section 7.6 (the “Notice”)
to Investor stating (i) its bona fide intention to offer such Equity
Securities, (ii) the number of Offered Securities, and (iii) the
price and terms upon which it proposes to offer such Equity Securities.

 

(b)           By
written notification received by the Company, within twenty (20) calendar days
after receipt of the Notice, Investor may elect to purchase or obtain, at the
price and on the terms specified in the Notice, all or a portion of the Offered
Securities.

 

(c)           If
all Offered Securities that Investor is entitled to obtain pursuant to Section 6.6
are not elected to be obtained as provided in Section 6.6(b) hereof,
the Company may, during the ninety (90) day period following the expiration of
the period provided in Section 6.6(b) hereof, offer the remaining
unsubscribed portion of such Offered Securities to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than those
specified in the Notice.  If the Company
does not enter into an agreement for the sale of the Offered Securities within
such period, or if such agreement is not consummated within sixty (60) days of
the execution thereof, the right provided hereunder shall be deemed to be
revived and such Offered Securities shall not be offered unless first reoffered
to Investor in accordance herewith.

 

(d)           The
participation right in this Section 6.6 shall not be applicable to:

 

(i)            the
issuance of shares of securities pursuant to a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter referred to as “Common Stock
Equivalents”) without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock Equivalents (including
the additional shares of Common Stock issuable upon conversion or exercise thereof);

 

(ii)           the
issuance of shares of Common Stock or options therefor to employees,
consultants, officers, directors or vendors (if in transactions with primarily
non-financing purposes) of the Company directly or pursuant to a stock option
plan or restricted stock purchase plan approved by the stockholders and the
Board;

 

14

 

(iii)          the
issuance of shares of Common Stock pursuant to the conversion or exercise of
convertible or exercisable securities outstanding as of the date hereof or
subsequently issued pursuant to this Section 6.6;

 

(iv)          the
issuance of shares of Common Stock in connection with a bona fide business
acquisition of or by the Company, whether by merger, consolidation, sale of
assets, sale or exchange of stock or otherwise, each as approved by the Board;

 

(v)           the
issuance or sale of stock, warrants or other securities or rights to persons or
entities with which the Company has business relationships provided such
issuances are for other than primarily equity financing purposes and provided
that at the time of any such issuance, the aggregate of such issuance and
similar issuances in the preceding twelve month period do not exceed five
percent (5%)of the then outstanding Common Stock of the Company (assuming full
conversion and exercise of all convertible and exercisable securities), unless
approved by the Board; or

 

(vi)          shares
of Common Stock issued or issuable in connection with any transaction where
such securities so issued are exempted from the right of first offer in this Section 6.6
with the prior written consent of Investor.

 

(e)           The
participation right set forth in this Section 6.6 shall expire at anytime
following the third (3rd) anniversary of the date of the
Debenture that Investor does not hold at least five percent (5%) of the Company’s
outstanding Common Stock.

 

SECTION 7

 

MISCELLANEOUS

 

7.1           Survival
of Representations, Warranties and Covenants.  The warranties, representations and covenants
of the Company and Investor contained in or made pursuant to this Agreement
shall survive the execution and delivery of this Agreement and the Closing and
shall in no way be affected by any investigation of the subject matter thereof
made by or on behalf of the Investor or the Company.

 

7.2           Successors
and Assigns.  Except as otherwise
provided therein, the terms and conditions of this Agreement and the other
Transaction Documents shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties (including transferees of any
Securities); provided, however, that neither party may assign or
transfer its rights or obligations hereunder or under the other Transaction Documents
without the prior
written consent of the other party except to (i) its Affiliates or (ii) an
entity that is the successor to substantially all of the business or assets of
the assigning party relating to the performance of this Agreement.  The Securities shall be freely transferable,
without restriction, subject to compliance with applicable securities
laws.  Nothing in this Agreement, express
or implied, is intended to confer upon any party other than the parties hereto
or their respective successors and assigns any rights, remedies, obligations,
or liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.

 

15

 

7.3           Governing
Law; Venue; Jury Trial Waiver.  This
Agreement is to be construed in accordance with and governed by the laws of the
State of New York.  The Company hereby
agrees that any legal action or proceeding against it with respect to this
Agreement or any of the other Transaction Documents may be brought in the
courts of the State of California or of the United States of America for the
Southern District of California as Investor may elect, and, by execution and
delivery hereof, the Company accepts and consents for itself and in respect of
its property, generally and unconditionally, the jurisdiction of the aforesaid
courts and agrees that such jurisdiction shall be exclusive, unless waived by Investor
in writing, with respect to any action or proceeding brought by the Company
against the Investor.  The Company
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such
a court has been brought in an inconvenient forum.  Nothing herein shall affect the right of Investor
to bring proceedings against the Company in the courts of any other
jurisdiction.  INVESTOR AND THE COMPANY
HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT
OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER TRANSACTION
DOCUMENT.  THIS PROVISION IS A MATERIAL
INDUCEMENT FOR INVESTOR ENTERING INTO THIS AGREEMENT.

 

7.4           Counterparts.  This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

 

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

 

7.6           Notices.  Except as may be otherwise provided herein,
all notices, requests, waivers and other communications made pursuant to this
Agreement shall be in writing and shall be conclusively deemed to have been
duly given (a) when hand delivered to the other party; (b) when sent
by facsimile to the number set forth below if sent between 8:00 a.m. and
5:00 p.m. recipient’s local time on a Business Day, or on the next Business
Day if sent by facsimile to the number set forth below if sent other than
between 8:00 a.m. and 5:00 p.m. recipient’s local time on a Business Day; (c) three
Business Days after deposit in the U.S. mail with first class or certified mail
receipt requested postage prepaid and addressed to the other party at the
address set forth below; or (d) the next Business Day after deposit with a
national overnight delivery service, postage prepaid, addressed to the parties
as set forth below with next Business Day delivery guaranteed, provided that
the sending party receives a confirmation of delivery from the delivery service
provider.  Each Person making a
communication hereunder by facsimile shall promptly confirm by telephone to the
Person to whom such communication was addressed each communication made by it
by facsimile pursuant hereto but the absence of such confirmation shall not
affect the validity of any such communication. 
A party may change or supplement the addresses given above, or designate
additional addresses, for purposes of this Section 7.6 by giving the other
party written notice of the new address in the manner set forth above.

 

7.7           Amendments
and Waivers.  Any term of this
Agreement may be amended and the observance of any term of this Agreement may
be waived (either generally or in a particular

 

16

 

instance and either retroactively or prospectively), only
if such amendment, modification or waiver is in writing and only with the
written consent of the Company and Investor. 
Any amendment or waiver effected in accordance with this section shall
be binding upon each holder of any Securities acquired under this Agreement at
the time outstanding (including securities into which such Securities are
convertible), each future holder of all such Securities, and the Company.

 

7.8           Severability.  If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.

 

7.9           Expenses.  Each party shall pay all of its own costs and
expenses (including attorneys’ fees and disbursements) that it incurs with
respect to the negotiation, execution and delivery of this Agreement.  If the Company incurs Indebtedness in favor of one
or more financial institutions for said financial institutions’ guaranties to
customers of the Company assuring repayment of customer deposits as permitted
in subsection (vi) of the definition of “Permitted Liens,” then the
Company shall pay all expenses incurred by Investor in connection with such
transaction, including its costs and reasonable attorneys’ fees.

 

7.10         Indemnification.  In further consideration of Investor’s
execution and delivery, or acceptance, of the Transaction Documents and
acquiring the Securities thereunder and in addition to all of the Company’s
other obligations under the Transaction Documents, the Company shall defend,
protect, indemnify and hold harmless Investor and its shareholders, partners,
members, officers, directors, employees and direct or indirect investors and
any of the foregoing Persons’ agents or other representatives (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the “Indemnitees”) from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including attorneys’ fees and
disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a
result of, or arising out of, or relating to (i) any misrepresentation or
breach of any representation or warranty made by the Company in the Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby, (ii) any breach of any covenant, agreement or obligation of the
Company contained in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby, or (iii) any cause
of action, suit or claim brought or made against such Indemnitee by a third
party (including for these purposes a derivative action brought on behalf of the
Company) and arising out of or resulting from (A) the execution, delivery,
performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, or (B) the
status of such Purchaser or holder of the Securities as an investor in the
Company pursuant to the transactions contemplated by the Transaction
Documents.  To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.

 

17

 

7.11         Register.  The Company shall maintain at its principal
executive offices a register for the Securities, in which the Company shall
record the name and address of the person in whose name the Securities have
been issued (including the name and address of each transferee) and the amount
of the Securities held by such person. 
The Company shall keep the register open and available during business
hours for inspection by Investor or their legal representatives upon prior
written notice.

 

7.12         Interpretation.  In this Agreement and the other Transaction
Documents, except to the extent the context otherwise requires:  (i) any reference in this Agreement or
other Transaction Document to a Section, a Schedule or an Exhibit is
a reference to a Section thereof, a schedule thereto or an exhibit thereto,
respectively, and to a subsection thereof or a clause thereof is, unless
otherwise stated, a reference to a subsection or a clause of the Section or
subsection in which the reference appears; (ii) the words “hereof,” “herein,”
“hereto,” “hereunder” and the like mean and refer to this Agreement or other
Transaction Document as a whole and not merely to the specific Section,
subsection, paragraph or clause in which the respective word appears; (iii) the
meaning of defined terms shall be equally applicable to both the singular and
plural forms of the terms defined; (iv) references to agreements and other
contractual instruments shall be deemed to include all subsequent amendments
and other modifications thereto; (v) references to statutes or regulations
are to be construed as including all statutory and regulatory provisions
consolidating, amending or replacing the statute or regulation referred to; and
(vi) the captions and headings are for convenience of reference only and
shall not affect the construction of this Agreement or other Transaction
Document.

 

7.13         Further
Assurances.  Each party agrees to
cooperate fully with the other parties and to execute such further instruments,
documents and agreements and to give such further written assurance as may be
reasonably requested by any other party to evidence and reflect the
transactions described in this Agreement and the other Transaction Documents
and contemplated hereby and thereby and to carry into effect the intents and
purposes of this Agreement and the other Transaction Documents.

 

7.14         Entire
Agreement.  This Agreement and the
documents referred to herein constitute the entire agreement among the parties
with respect to the subject matter hereof and no party shall be liable or bound
to any other party in any manner by any warranties, representations or
covenants except as specifically set forth herein or therein.

 

7.15         Publicity. 
Without the prior consent of the other party, each party shall not, and
shall cause its directors, officers, employees and representatives not to, make
any public statement or press release with respect to the terms of the
Transactional Document; provided, however, that if a disclosure is required by
law, the party required to make such disclosure shall give the other party
reasonable advance notice of any such disclosure and shall cooperate with the
other party in protecting against any such disclosure and/or narrowing the
scope of such disclosure.

 

*              *              *

 

18

 

IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  Microfluidics
  International Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Michael C.
  Ferrara

  
	
   

  	
   

  	
   

  
	
   

  	
  Name: 

  	
  Michael C.
  Ferrara

  
	
   

  	
   

  	
   

  
	
   

  	
  Title: 

  	
  President &
  CEO

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
  Microfluidics
  International Corporation

  
	
   

  	
  30 Ossipee
  Street

  
	
   

  	
  Newton, MA
  02464-9101

  
	
   

  	
  Facsimile:

  

 

S-1

 

	
   

  	
  Global
  Strategic Partners, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Bruce Wendel

  
	
   

  	
   

  	
   

  
	
   

  	
  Name: 

  	
  Bruce Wendel

  
	
   

  	
   

  	
   

  
	
   

  	
  Title: 

  	
  Authorized
  Person

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
  As set forth on
  Schedule A

  

 

 

EXHIBIT A

 

Form of Debenture

 

 

NEITHER THIS CONVERTIBLE
DEBENTURE, NOR THE SHARES ISSUABLE UPON CONVERSIONS HEREOF, HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”) AND ACCORDINGLY MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION ACCEPTABLE TO THE COMPANY.

 

CONVERTIBLE
DEBENTURE

 

	
  $5,000,000.00

  	
   

  	
  November 14,
  2008

  

 

FOR VALUE
RECEIVED, the undersigned, Microfluidics
International Corporation, a corporation duly formed under the laws
of the State of Delaware (the “Issuer”), hereby unconditionally promises to pay
to the order of Global Strategic Partners, LLC (the
“Holder”), in lawful money of the United States of America and in immediately
available funds, the principal sum of FIVE MILLION AND 00/100 DOLLARS
($5,000,000.00) on the Maturity Date (as hereinafter defined), together with
interest thereon calculated and payable as provided below.  This Debenture is being issued pursuant to
the terms of the Debenture and Warrant Purchase Agreement dated as of November 14,
2008 (the “Agreement”).

 

1.             Interest on the outstanding
principal amount of this Convertible Debenture (this “Debenture”) shall be
computed on the basis of twelve 30-day months in a 360-day year and shall be
payable quarterly in arrears.  The
principal of this Debenture shall bear interest at the rate of nine percent
(9%) per annum, or if less, at the highest rate permitted by applicable
law.  All accrued but unpaid interest on
the principal amount of this Debenture shall be due and payable in cash on the
first business day of each calendar quarter (each an “Interest Payment Date”).

 

2.             The
outstanding principal amount of this Debenture and all accrued and unpaid
interest thereon shall be due and payable on (i) November 14, 2015 or
(ii) the acceleration of the maturity of this Debenture by the Holder upon
the occurrence of an Even of Default (as defined below) (such earlier date, the
“Maturity Date”).

 

3.             On
the Maturity Date, any Interest Payment Date prior thereto or a Change of
Control Event (as defined below), at the written election of the Holder and
upon three (3) business days’ notice to the Issuer, all or any portion of
the outstanding principal amount of this Debenture may be converted (the “Conversion”)
into that number of shares of the Issuer’s common stock, par value $.01 per
share (the “Common Stock”) equal to the quotient of:  (i) the outstanding principal amount of
this Debenture, divided by (ii) $1.25 (the “Conversion Price”), rounded to
the nearest share.  Upon the Conversion,
all or any portion of the accrued and unpaid interest on the outstanding
principal of this Debenture to be converted as provided herein shall become
immediately due and payable which amount may be payable in the form of such 

 

 

securities in accordance with the formula set forth
above.  The Issuer shall use its best
efforts to amend its Certificate of Incorporation at its next Annual Meeting of
the Stockholders, which meeting shall be held no later than June 30, 2009,
to increase its duly authorized shares of Common Stock by such number as would
be required for the Issuer to fulfill its obligations in full upon conversion
of this Debenture and the exercise of the Warrant (as such term is defined in
the Agreement).  The Holder shall not
have any voting rights or other rights as a shareholder of the Issuer under
this Debenture prior to the Conversion.

 

4.             At
any time that this Debenture is outstanding, the Issuer agrees to use its best
efforts to cause the election to its Board of Directors of at least one person
designated by the Holder, and such additional persons designated by the Holder
as may be necessary to cause the Holder’s representation on the Board of Directors
of the Issuer to be proportional to the Holder’s stockholdings in the
Issuer.  As an illustration, and without
limiting the application of the foregoing provision, if the Issuer has a five
person Board of Directors the Issuer shall be entitled to have its designee
elected to the Board of Directors until such time as this Debenture has been
retired in full; and, at such time as the Holder acquires 40% or more of the
Common Stock of the Issuer, the Issuer agrees to use its best efforts to cause
the election of a second (2nd) designee of the Holder to the Issuer’s Board of
Directors.

 

5.             Immediately
following the date hereof the Issuer shall exercise its best efforts to cause
all of the shares of Common Stock issuable upon Conversion hereof to be
registered with the Securities and Exchange Commission.

 

6.             Notwithstanding
anything in this Debenture to the contrary, should an Event of Default, as such
term is defined herein, occur and be continuing, interest on the outstanding
principal amount of this Debenture and unpaid interest shall be increased by
two percent (2%) per annum, or if less, at the highest rate permitted by
applicable law. And the outstanding balance of the principal amount, including
unpaid interest, shall continue to accrue interest from the date of such Event
of Default at such interest rate until such Event of Default is cured or
waived.  For purposes of this Debenture,
each of the following events shall constitute an Event of Default:

 

(i)            The
Issuer shall default in the payment of principal of or interest on this
Debenture after the same becomes due and payable, whether at the Maturity Date
or at a date fixed for the payment of any installment or prepayment thereof or
otherwise, and such default shall remain uncured for five (5) business days
after notice thereof to Issuer;

 

(ii)           default
shall occur in the observance or performance of any covenant, obligation or
agreement of the Issuer under this Debenture, the Agreement, the Security
Agreement (as that term is defined in the Agreement) or any other agreement
pursuant to which the Issuer or any other person provides a guaranty or a lien
on its assets in favor of the Holder and such default shall continue uncured
for a period of fifteen (15) days after the Issuer knew or should have known, exercising
reasonable diligence, of the event or circumstances giving rise to such
default;

 

(iii)          any
representation, warranty or certification made by the Issuer herein or in the
Agreement or the Security Agreement in any certificate, report, document, agreement
or 

 

 

instrument delivered
pursuant to any provision hereof or thereof shall prove to have been false or
incorrect in any material, respect on the date or dates as of which made (any
such falsity being a “Representation Default”) and, to the extent the event or
circumstances giving rise to such Representation Default is amenable to being
cured such that the Representation Default would no longer exist, such
Representation Default shall continue uncured for a period of fifteen (15) days
after the Issuer knew or should have known, exercising reasonable diligence, of
the event or circumstances giving rise to such Representation Default;

 

(iv)          the
Issuer shall (A) apply for or consent to the appointment of a receiver,
trustee, custodian or liquidator of itself or any part of its property, (B) become
subject to the appointment of a receiver, trustee, custodian or liquidator for
itself or any part of its property if such appointment is not terminated or
dismissed within thirty (30) days, (C) make an assignment for the benefit
of creditors, (D) fail generally, or admit in writing to its inability, to
pay its debts as they become due, (E) institute any proceedings under the
United States Bankruptcy Code or any other federal or state bankruptcy,
reorganization, receivership, insolvency or other similar law affecting the
rights of creditors generally, or file a petition or answer seeking
reorganization or an arrangement with creditors to take advantage of any
insolvency law, or file an answer admitting the material allegations of a
bankruptcy, reorganization or insolvency petition filed against it, or (F) become
subject to any involuntary proceedings under the United States Bankruptcy Code
or any other federal or state bankruptcy, reorganization, receivership, insolvency
or other similar law affecting the rights of creditors generally, or have an
order for relief entered against it in any proceeding under the United States
Bankruptcy Code;

 

(v)           the
Issuer shall not have amended
its Certificate of Incorporation on or before June 30, 2009 to increase
its duly authorized shares of Common Stock by such number as would be required for the Issuer to fulfill its
obligations in full under this Debenture and the Warrant issuable under the
Agreement; or

 

(vi)          Any
of the following occurs (each a “Change of Control Event”):  (A) a sale, lease or other disposition
of all or substantially all of the assets of Issuer; (B) a merger,
consolidation, reorganization, sale of shares by Issuer or share exchange or
sale of shares by the stockholders of Issuer, or other similar transaction or
series of related transactions, which results in Issuer’s stockholders
immediately prior to such transaction holding less than fifty percent (50%) of
the voting power of the outstanding securities of the surviving, continuing or
purchasing entity (other than by Holder’s exercise of the Warrant); or (C) the
direct or indirect acquisition by any person or related group of persons (other
than the Holder or an acquisition from or by the Issuer or by a Issuer-sponsored
employee benefit plan or by a person that directly or indirectly controls, is
controlled by, or is under common control with, the Issuer) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated pursuant to the
Securities Exchange Act of 1934, as amended) of securities possessing more than
fifty percent (50%) of the total combined voting power of the Issuer’s
outstanding securities.

 

7.             Notwithstanding
anything in this Debenture to the contrary, in case an Event of Default shall
occur, payment of this Debenture shall be accelerated and the entire unpaid
principal amount of this Debenture, and all accrued and unpaid interest
thereon, shall become immediately due and payable in full.  Upon the occurrence of an actual or deemed
entry of an 

 

 

order for relief with respect to the Issuer under the
United States Bankruptcy Code, then all indebtedness under this Debenture shall
automatically be due immediately without notice of any kind.  Holder shall also have any other rights which
Holder may have been afforded under any contract or agreement at any time and
any other rights which Holder may have pursuant to applicable law.  Holder may exercise any and all of its
remedies under the Security Agreement contemporaneously or separately from the
exercise of any other remedies hereunder or under applicable law.

 

8.             Payment
of the principal and interest on this Debenture shall be made in money of the
United States of America which at the time of payment is legal tender for the
payment of public and private debts, by wire transfer in immediately available
funds to such account as the Holder shall from time to time have designated to
the Issuer in writing, or, if requested by the Holder, by certified or back
cashier’s check payable to the Holder, mailed to the Holder at the address set
forth herein, or such other address as shall be designated in writing by the
Holder to the Issuer.

 

9.             Any
and all payments made by the Issuer in respect of this Debenture shall be
applied first to payment of the fees and charges due under this Debenture,
second to payment of accrued and unpaid interest, and then to payment of the
outstanding principal amount of this Debenture.

 

10.           All
calculations and applications of amounts due on any date, whether by
acceleration or otherwise, shall be made by the Holder, and the Issuer agrees
that all such calculations and applications shall be conclusive and binding
absent manifest error.

 

11.           The
Issuer may, at its option, upon thirty (30) days’ advance written notice to the
Holder, prepay all of the principal balance of this Debenture, without penalty
or premium, together with accrued and unpaid interest through the date of
prepayment.  Any prepayment must occur on
a regularly scheduled Interest Payment Date. 
The Issuer’s right to prepay this Debenture is subject to the right of
the Holder to convert this Debenture as contemplated herein.

 

12.           This
Debenture is secured by all assets, property rights and interests of the Issuer
and shall be senior to all other indebtedness of the Issuer, except for certain
bank guarantees up to an aggregate amount of one million dollars ($1,000,000),
as required by certain customers of the Issuer in accordance with the Security
Agreement.

 

13.           The
Issuer hereby waives presentment, notice of dishonor, protest and notice of
protest, and any or all other notices or demands in connection with the
delivery, acceptance, performance, default, endorsement or guarantee of this
Debenture.

 

14.           In
case any principal of or interest on this Debenture is not paid when due, or
any other Event of Default shall occur, the Issuer shall be liable for, and
agrees to pay, in addition to principal and interest hereunder, all costs of
enforcement and collection of this Debenture incurred by the Holder, including,
without limitation, reasonable attorney’s fees, disbursements and court
costs.  In addition, if an Event of
Default shall occur, the Issuer shall pay all reasonable attorney’s fees and
disbursements incurred by the Holder in obtaining advice as to its rights and
remedies in connection with such default.

 

 

15.           All
communications under this Debenture shall be in writing and shall be personally
delivered or sent prepaid by first class registered or certified mail with
return receipt requested, or by recognized overnight delivery service to the
respective addresses set forth below (or such other addresses as may be
furnished in writing by the Holder and the Issuer).

 

(a) 
To the Issuer:

 

Microfluidics
International Corporation

30 Ossipee Street

Newton,
Massachusetts   02464-9101

Attention:  President

 

(b)  To the Holder:

 

at such address set forth
on Schedule I hereto

 

16.           Subject
to applicable securities laws, this Debenture and the rights and obligations
evidenced hereby shall inure to the benefit of and be binding upon the
successors of the parties hereto; provided, however, that neither
party may assign or transfer its rights or obligations hereunder without the prior written consent of
the other party except to (i) its Affiliates or (ii) an entity
that is the successor to substantially all of the business or assets of the
assigning party relating to the performance of this Agreement.

 

17.           This
Debenture may be modified or amended or the provisions hereof waived only with
the written consent of the Holder and the Issuer.

 

18.           This
Debenture shall be governed by and construed in accordance with the laws of the
State of Delaware applicable to instruments made and to be performed wholly
within that state.  If any provision of
this Debenture is held to be illegal or unenforceable for any reason
whatsoever, such illegality or unenforceability shall not affect the validity
of any other provision of this Debenture.

 

19.           EACH OF THE ISSUER AND THE
HOLDER AGREES THAT ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT
OF THIS DEBENTURE MAY BE INITIATED AND PROSECUTED IN THE STATE OR FEDERAL
COURTS, AS THE CASE MAY BE, LOCATED IN THE COMMONWEALTH OF
MASSACHUSETTS.  EACH OF THE ISSUER AND
THE HOLDER CONSENTS TO AND SUBMITS TO THE EXERCISE OF JURISDICTION OVER ITS
PERSON BY ANY SUCH COURT HAVING JURISDICTION OVER THE SUBJECT MATTER, WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH
SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE HOLDER AT ITS
ADDRESS SET FORTH ABOVE, AND TO THE ISSUER AT ITS ADDRESS SET FORTH BELOW OR TO
ANY OTHER ADDRESS AS MAY APPEAR IN THE HOLDER’S RECORDS AS THE ADDRESS OF
THE ISSUER.

 

 

IN ANY ACTION,
SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS DEBENTURE, EACH OF THE
HOLDER AND THE ISSUER WAIVES TRIAL BY JURY, AND THE ISSUER ALSO WAIVES (I) ANY
OBJECTION BASED ON FORUM NON CONVENIENS OR VENUE AND (II) ANY CLAIM FOR
CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES.

 

 

IN WITNESS
WHEREOF, the Issuer has caused this Debenture to be duly executed and delivered.

 

 

	
   

  	
  Microfluidics International
  Corporation 

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Michael C. Ferrara,
  President and Chief Executive Officer

  

 

 

Schedule
I

 

Address for Notice Purposes:

 

Global
Strategic Partners, LLC

11755
Wilshire Blvd., Suite 2000

Los
Angeles, CA 90025

Attention:
Charles Kim

Telephone:
310-405-7431

Facsimile:
310-998-8553

ckim@abraxisbio.com

 

 

EXHIBIT B

 

Form of Warrant

 

 

NEITHER THIS WARRANT, NOR
THE SHARES ISSUABLE UPON EXERCISE HEREOF, HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”)
AND ACCORDINGLY MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION ACCEPTABLE TO THE COMPANY.

 

COMMON STOCK PURCHASE WARRANT

 

Warrant to Purchase Shares of Common Stock of

 

Microfluidics International
Corporation

 

This COMMON STOCK
PURCHASE WARRANT (this “Warrant”) certifies that, for value received, Global Strategic Partners, LLC (“GSP”) is entitled to
purchase from Microfluidics International Corporation,
a Delaware corporation (the “Company”), that number of shares (the “Warrant
Shares”) of the Company’s common stock, par value $.01 per share (the “Common
Stock”) that, when combined with the Common Stock issuable upon the conversion
of the entire principal balance of the Debenture (as defined below), constitutes
a total of up to fifty percent (50%) of the total number shares of the Company’s
Common Stock then outstanding on a fully diluted basis, all upon the terms and
subject to the limitations hereinafter set forth.  This Warrant has been issued contemporaneously
with the sale by the Company to GSP of the Company’s 9% Convertible Debenture
(the “Debenture”) in the principal amount of Five Million Dollars ($5,000,000).

 

1.                                       Exercise
of Warrant.  This Warrant shall be
exercisable in two tranches hereinafter referred to as the “Tranche One
Exercise” and the “Tranche Two Exercise”.

 

(a)                                  Tranche
One Exercise.  The aggregate number
of Warrant Shares that may be purchased pursuant to one or more Tranche One
Exercises of this Warrant (the “Tranche One Maximum”) shall be that number of
whole shares of the Common Stock calculated to equal (or exceed by no more than
one whole share):  (a) forty percent
(40%) of the total number of shares of the Company’s Common Stock then
outstanding on a fully diluted basis, minus (b) that number of shares of
the Company’s Common Stock that GSP is or was entitled to acquire (or has
theretofore acquired) upon exercise of the conversion privilege of the
Debenture.  Notwithstanding the previous
sentence, if all or any portion of the principal amount of the Debenture has
been prepaid by the Company prior to the third anniversary of the date of the
Debenture, then the Tranche One Maximum shall also include a number of shares
of the Company’s Common Stock equal 

 

 

to (x) the
amount of the Debenture’s principal amount that was so repaid by the third
anniversary of the date of the Debenture divided by (y) 1.25 (the “Prepayment
Shares”).

 

Tranche One
Exercises of this Warrant may be made at any time, and from time to time, on or
before 5:00 P.M. EST on the Termination Date (as defined below) by the
tender to the Company of:  (i) a
Tranche One Notice of Exercise form annexed hereto as Exhibit A
duly executed and (ii) receipt by the Company of the Tranche One Exercise
Price (as hereinafter defined) of the Warrant Shares thereby purchased in
immediately available funds.

 

The Tranche One
Exercise Price shall be two dollars ($2.00) per share, subject to adjustment as
described in Sections 8 and 9 hereof.

 

(b)                                 Tranche
Two Exercise.  The aggregate number
of Warrant Shares that may be purchased pursuant to one or more Tranche Two
Exercises of this Warrant (the “Tranche Two Maximum”) shall be that number of
whole shares of the Common Stock calculated to at least equal (or exceed by no
more than one whole share):  (a) fifty
percent (50%) of the total number of shares of the Company’s Common Stock then
outstanding on a fully diluted basis, minus (b) the total number of shares
of the Company’s Common Stock that GSP is or was entitled to acquire (or has
theretofore acquired) upon: (i) exercise of the conversion privilege of
the Debenture, and (ii) the Tranche One Exercise, plus (c) the
Prepayment Shares.  No Tranche Two
Exercise may be made unless and until the full number of shares exercisable
pursuant to Tranche One Exercises have been purchased.

 

Tranche Two
Exercises of this Warrant may be made at any time, and from time to time, on or
before 5:00 P.M. EST on the Termination Date (as defined below) by the
tender to the Company of:  (i) a
Tranche Two Notice of Exercise form annexed hereto as Exhibit B
duly executed and (ii) receipt by the Company of the Tranche Two Exercise
Price (as hereinafter defined) of the Warrant Shares thereby purchased in
immediately available funds.

 

The Tranche Two
Exercise Price shall be three dollars ($3.00) per share, subject to adjustment
as described in Sections 8 and 9 hereof.

 

(c)                                  Termination
Date.  Subject to the other
conditions stated herein, this Warrant shall expire and be of no further force
or effect on the earlier to occur of:  (i) the
seventh (7th)
anniversary of the date hereof, (ii) the third (3rd) anniversary of the date hereof in the
event that the Company has retired the Debenture on or before said third (3rd) anniversary, or (iii) such
time as GSP has acquired fifty percent (50%) of the total number of shares of
the Company’s Common Stock then outstanding on a fully diluted basis.

 

(d)                                 Payment
for Shares.  The aggregate purchase
price for Warrant Shares being purchased hereunder may be paid either (i) by
cash or wire transfer of immediately available funds, (ii) by surrender of
a number of Warrant Shares which have a fair market value equal to the
aggregate purchase price of the Warrant Shares being purchased (“Net 

 

 

Issuance”) as
determined herein, or (iii) any combination of the foregoing.  If GSP elects the Net Issuance method of
payment, the Company shall issue to GSP upon exercise a number of shares of
Warrant Shares determined in accordance with the following formula (to the extent
that GSP is exercising this Warrant with respect to Warrant Shares received in
connection with both Tranche One and Tranche Two, the following formula shall
be applied separately with respect to each Tranche):

 

	
  X=

  	
  Y(A-B)

  
	
  A

  

 

	
  where:

  	
  X =

  	
  the number of Warrant
  Shares to be issued to GSP;

  
	
   

  	
   

  	
   

  
	
   

  	
  Y =

  	
  the number of Warrant
  Shares with respect to which GSP is exercising its purchase rights under this
  Warrant;

  
	
   

  	
   

  	
   

  
	
   

  	
  A =

  	
  the fair market value
  of one (1) share of the Warrant Shares on the date of exercise; and

  
	
   

  	
   

  	
   

  
	
   

  	
  B =

  	
  the applicable Tranche
  exercise price.

  

 

No fractional
shares arising out of the above formula for determining the number of shares to
be issued to GSP shall be issued, and the Company shall in lieu thereof make
payment to GSP of cash in the amount of such fraction multiplied by the fair
market value of one (1) share of the Warrant Shares on the date of
exercise.  For purposes of the above
calculation, the fair market value of one (1) share of the Warrant Shares
shall mean (a) if the Common Stock is then traded on a securities exchange,
the average of the closing prices of such Common Stock on such exchange over
the thirty (30) calendar day period (or portion thereof) ending three (3) days
prior to the date of exercise, multiplied by the number of shares of Common
Stock into which each share of the Warrant Shares is then convertible, (b) if
the Common Stock is then regularly traded over-the-counter, the average of the
closing sale prices or secondarily the closing bid of such Common Stock over
the thirty (30) calendar day period (or portion thereof) ending three (3) days
prior to the date of exercise, multiplied by the number of shares of Common
Stock into which each share of the Warrant Shares is then convertible, or (c) if
there is no active public market for the Common Stock, the fair market value of
one share of the Warrant Shares as determined in good faith by GSP and the
Company.

 

(e)                                  Issuance
of Certificates.  Upon completing any
Tranche One Exercise or any Tranche Two Exercise, GSP shall be entitled to
receive a certificate for the number of Warrant Shares so purchased within
three (3) trading days after the date on which this Warrant shall have
been exercised as aforesaid.

 

2.                                       Fractional
Shares.  This Warrant shall b
exercisable for whole numbers of Warrant Shares, and no fractional shares shall
be issued upon the exercise of this Warrant.

 

3.                                       Closing
of Books.  The Company will not close
its stockholder books or records in any manner which prevents the timely
exercise of this Warrant, pursuant to the terms hereof.

 

 

4.                                       Rights
as Shareholder.  This Warrant does
not entitle GSP to any voting rights or other rights as a shareholder of the
Company prior to an effective exercise.

 

5.                                       Loss,
Theft, Destruction or Mutilation of Warrant.  The Company covenants that upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant or any stock certificate relating to
the Warrant Shares, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it (which, in the case of the Warrant,
shall not include the posting of any bond), and upon surrender and cancellation
of such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor in lieu of such
Warrant or stock certificate.

 

6.                                       Authorization
of Shares.  The Company covenants
that all Warrant Shares that may be issued upon the exercise of the purchase
rights represented by this Warrant will be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges in respect of
the issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).  To
the extent that the Company does not at any time have the number of shares of
its Common Stock authorized for issuance sufficient to satisfy the number of
Warrant Shares exercisable hereunder, the Company shall use its best efforts to
amend its Certificate of Incorporation at its next Annual Meeting of the Stockholders,
which meeting shall be held no later than June 30, 2009, to increase its
duly authorized shares of Common Stock by such number as would be sufficient to permit GSP to exercise this Warrant in
full and exercise its conversion rights in the Debenture.

 

7.                                       Saturdays,
Sundays, Holidays, etc.  If the
Termination Date, or any other date for the taking of any action or the
expiration of any right granted herein shall be a Saturday, Sunday or a legal
holiday, then such action may be taken or such right may be exercised on the
next succeeding day not a Saturday, Sunday or legal holiday (a “Business Day”).

 

8.                                       Adjustments
of Exercise Price and Number/Kind of Warrant Shares.  The number and kind of securities purchasable
upon exercise of this Warrant and the Exercise Price shall be subject to
adjustment from time to time upon the happening of any of the following.  In case the Company shall:  (i) pay a dividend in shares of Common
Stock or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common
Stock into a greater number of shares, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue
any shares of its capital stock in a reclassification of the Common Stock, then
the number and kind of securities purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that GSP shall be entitled to
receive the number and kind of securities of the Company (the “Adjusted Warrant
Shares”) which it would have owned or have been entitled to receive had this
Warrant been exercised in advance thereof. 
Upon each such adjustment, GSP shall thereafter be entitled to purchase
the number of Adjusted Warrant Shares at the Tranche One Exercise Price or the
Tranche Two Exercise Price per Adjusted Warrant Share obtained by multiplying
such exercise price in effect immediately prior to such adjustment by the
number of Warrant Shares purchasable pursuant hereto immediately prior to such
adjustment and dividing by the number of Adjusted Warrant Shares resulting from
such adjustment.  An adjustment made
pursuant to this paragraph shall 

 

 

become effective immediately after the effective date
of such event retroactive to the record date, if any, for such event.

 

9.                                       Reorganization,
Reclassification, Merger, Consolidation or Disposition of Assets.  In case the Company shall reorganize its
capital, reclassify its capital stock, consolidate or merge with or into
another corporation (where the Company is not the surviving corporation or
where there is a change in or distribution with respect to the Common Stock of
the Company), or sell, transfer or otherwise dispose of all or substantially
all its property, assets or business to another corporation and, pursuant to
the terms of such reorganization, reclassification, merger, consolidation or
disposition of assets, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or property of
any nature whatsoever (including warrants or other subscription or purchase
rights) in addition to or in lieu of common stock of the successor or acquiring
corporation (“Other Property”), are to be
received by or distributed to the holders of Common Stock of the Company, then
GSP shall have the right thereafter to receive, at the option of GSP, upon
exercise of this Warrant, the number of shares of Common Stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a GSP of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event.  In case
of any such reorganization, reclassification, merger, consolidation or
disposition of assets, the successor or acquiring corporation (if other than
the Company) shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and all the obligations and liabilities
hereunder, subject to such modifications as may be deemed appropriate (as
determined in good faith by resolution of the Board of Directors of the
Company) in order to provide for adjustments of Warrant Shares for which this
Warrant is exercisable which shall be as nearly equivalent as practicable to
the adjustments provided for in this Section 9.  For purposes of this Section 9, “common
stock of the successor or acquiring corporation” shall include stock of such
corporation of any class which is not preferred as to dividends or assets over
any other class of stock of such corporation and which is not subject to
redemption and shall also include any evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable for any
such stock, either immediately or upon the arrival of a specified date or the
happening of a specified event and any warrants or other rights to subscribe
for or purchase any such stock.  The
foregoing provisions of this Section 9 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.

 

10.                                 Notice
of Adjustment.  Whenever the number
of Warrant Shares or number or kind of securities or other property purchasable
upon the exercise of this Warrant or the Exercise Price is adjusted pursuant to
Sections 8 or 9 herein, the Company shall give notice thereof to GSP, which
notice shall state the number of Warrant Shares (and other securities or
property) purchasable upon the exercise of this Warrant and the Exercise Price
of such Warrant Shares (and other securities or property) after such
adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was made.

 

 

11.                                 Notice
of Corporate Action.  If at any time:

 

(a)                                  the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend or other distribution, or any right to
subscribe for or purchase any evidences of its indebtedness, any shares of
stock of any class or any other securities or property, or to receive any other
right, or

 

(b)                                 there
shall be any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger of the Company with, or any sale, transfer or other disposition of all
or substantially all the property, assets or business of the Company to,
another corporation, or

 

(c)                                  there
shall be a voluntary or involuntary dissolution, liquidation or winding up of
the Company;

 

then, in any one or more
of such cases (but not in such cases if the rights of GSP or holders of Common
Stock will not be materially affected thereby, as for example in the case of a
merger to effect a change of domicile), the Company shall give to GSP (i) at
least 20 days’ prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii) in
the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least
20 days’ prior written notice of the date when the same shall take place.  Such notice in accordance with the foregoing
clause also shall specify:  (i) the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Warrant Shares or Adjusted Warrant Shares for
securities or other property deliverable upon such disposition, dissolution,
liquidation or winding up.  Each such
written notice shall be sufficiently given if addressed to GSP at the last
address of GSP appearing on the books of the Company and delivered in
accordance with Section 12(c).

 

12.                                 Miscellaneous.

 

(a)                                  Jurisdiction.  This Warrant shall constitute a contract
under the laws of the State of Delaware without regard to its conflict of law,
principles or rules.

 

(b)                                 Nonwaiver
and Expenses.  No course of dealing
or any delay or failure to exercise any right hereunder on the part of GSP
shall operate as a waiver of such right or otherwise prejudice GSP’s rights,
powers or remedies, notwithstanding all rights hereunder terminate on the
Termination Date.  If the Company
willfully and knowingly fails to comply with any provision of this Warrant,
which results in any material damages to GSP, the Company shall pay to GSP such
amounts as shall be sufficient to cover any costs and expenses including, but
not limited to, reasonable attorneys’ fees, including 

 

 

those of appellate
proceedings, incurred by GSP in collecting any amounts due pursuant hereto or
in otherwise enforcing any of its rights, powers or remedies hereunder.

 

(c)                                  Notices.  Any notice, request or other document
required or permitted to be given or delivered by one party to the other shall
be delivered in accordance with the notice provisions of the Debenture.

 

(d)                                 Limitation
of Liability.  No provision hereof,
in the absence of any affirmative action by GSP to exercise this Warrant or
purchase Warrant Shares, and no enumeration herein of the rights or privileges
of GSP, shall give rise to any liability of GSP for the purchase price of any
Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.

 

(e)                                  Remedies.  GSP, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant.  The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Warrant and hereby agrees to waive the defense
in any action for specific performance that a remedy at law would be adequate.

 

(f)                                    Successors
and Assigns.  Subject to applicable securities laws, this Warrant and the rights and
obligations evidenced hereby shall inure to the benefit of and be binding upon
the successors of the parties hereto; provided, however, that neither party may
assign or transfer its rights or obligations hereunder without the prior
written consent of the other party except to (i) its Affiliates or (ii) an
entity that is the successor to substantially all of the business or assets of
the assigning party relating to the performance of this Agreement.

 

(g)                                 Amendment.  This Warrant may be modified or amended or
the provisions hereof waived with the written consent of the Company and GSP.

 

(h)                                 Severability.  Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.

 

(i)                                     Headings;
Dollar Figures.  The headings used in
this Warrant are for convenience of reference only and shall not, for any
purpose, be deemed a part of this Warrant. 
All figures expressed in dollars shall be deemed to refer to U.S.
dollars.

 

 

IN WITNESS
WHEREOF, the Company has caused this Warrant to be executed by its officer
thereunto duly authorized.

 

Dated:  November 14, 2008

 

	
   

  	
  MICROFLUIDICS
  INTERNATIONAL CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Michael C. Ferrara,
  President and Chief Executive Officer

  

 

 

Exhibit A

 

TRANCHE ONE NOTICE OF EXERCISE

 

To:                              Microfluidics
International Corporation

 

(1)                                  The
undersigned hereby elects to exercise to purchase Warrant Shares of
Microfluidics International Corporation issuable pursuant to the Tranche One
Exercise provisions of that certain Common Stock Purchase Warrant to which this
notice was attached and tenders herewith payment of the exercise price,
together with all applicable transfer taxes if any, therefor.

 

(2)                                  The
number of Warrant Shares to be purchased pursuant to this Notice shall be                 .  The purchase price for said Warrant Shares
shall be equal to such number of Warrant Shares multiplied by $2.00 per Warrant
Share (subject to adjustment to such price per Warrant Share as provided in
Sections 8 or 9 of the Common Stock Purchase Warrant).  The Purchase Price has been paid, in
immediately available funds, to the Company contemporaneously with the delivery
of this Notice.

 

(3)                                  Please
deliver the certificate for the Warrant Shares to the following:

 

	
   

  	
                                                                       

  	
   

  
	
   

  	
                                                                       

  	
   

  
	
   

  	
                                                                       

  	
   

  

 

 

	
   

  	
  GLOBAL STRATEGIC
  PARTNERS, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  Dated:

  	
   

  
					

 

 

Exhibit B

 

TRANCHE TWO NOTICE OF EXERCISE

 

To:                              Microfluidics
International Corporation

 

(1)                                  The
undersigned hereby elects to exercise to purchase Warrant Shares of
Microfluidics International Corporation issuable pursuant to the Tranche Two
Exercise provisions of that certain Common Stock Purchase Warrant to which this
notice was attached and tenders herewith payment of the exercise price,
together with all applicable transfer taxes if any, therefor.

 

(2)                                  The
number of Warrant Shares to be purchased pursuant to this Notice shall be                .  The purchase price for said Warrant Shares
shall be equal to such number of Warrant Shares multiplied by $3.00 per Warrant
Share (subject to adjustment to such price per Warrant Share as provided in
Sections 8 or 9 of the Common Stock Purchase Warrant).  The Purchase Price has been paid, in
immediately available funds, to the Company contemporaneously with the delivery
of this Notice.

 

(3)                                                          Please
deliver the certificate for the Warrant Shares to the following:

 

	
   

  	
                                                                       

  	
   

  
	
   

  	
                                                                       

  	
   

  
	
   

  	
                                                                       

  	
   

  

 

 

	
   

  	
  GLOBAL STRATEGIC
  PARTNERS, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  Dated:

  	
   

  
					

 

 

EXHIBIT C

 

Form of Security
Agreement

 

 

EXECUTION VERSION

 

SECURITY
AGREEMENT

 

THIS
SECURITY AGREEMENT (this “Agreement”), dated as of November 14,
2008, is made between MICROFLUIDICS INTERNATIONAL CORPORATION, a Delaware
corporation (“Debtor”), and GLOBAL STRATEGIC PARTNERS, LLC, a Delaware
limited liability company (“Secured Party”).

 

Debtor
and Secured Party hereby agree as follows:

 

SECTION 1            Definitions; Interpretation.

 

(a)           All capitalized terms used in this
Agreement and not otherwise defined herein shall have the meanings assigned to
them in the Debenture and Warrant Purchase Agreement or in the Debenture, as
the context may require.

 

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

 

“Collateral”
has the meaning set forth in Section 2.

 

“Debenture”
means that certain Convertible Debenture in the aggregate principal amount of
$5,000,000, dated as of November 14, 2008 and made by Debtor in favor of
Secured Party, as amended, modified, renewed, extended or replaced from time to
time.

 

“Debenture
and Warrant Purchase Agreement” means that certain Debenture and Warrant
Purchase Agreement, of even date herewith, between Debtor and Secured Party, as
amended, modified, renewed, extended or replaced from time to time.

 

“Documents”
means this Agreement, the Debenture and Warrant Purchase Agreement, the
Debenture, the Warrant and all other certificates, documents, agreements and
instruments delivered to Secured Party under the foregoing agreements or in
connection with the Obligations.

 

“Event
of Default” has the meaning set forth in Section 7.

 

“Guarantor
Security Agreement” means that certain Guarantor Security Agreement, of
near or even date herewith, between Microfluidics Corporation, a Delaware
corporation, and Secured Party.

 

“Lien”
means any mortgage, deed of trust, pledge, security interest, assignment,
deposit arrangement, charge or encumbrance, lien, or other type of preferential
arrangement.

 

“Obligations”
means the indebtedness, liabilities and other obligations of Debtor to Secured
Party under or in connection with this Agreement, the Debenture and Warrant
Purchase Agreement, the Debenture and the other Documents, including, without
limitation, all unpaid principal of the Debenture, all interest accrued
thereon, all fees and all other amounts payable by Debtor to Secured Party
thereunder or in connection with any Document, whether now existing 

 

 

or hereafter arising, and whether due or to become
due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, and including interest that accrues after the commencement by or
against Debtor of any bankruptcy or insolvency proceeding naming such Person as
the debtor in such proceeding.

 

“Partnership
and LLC Collateral” has the meaning set forth in Section 5.

 

“Permitted
Lien” has the meaning set forth in the Debenture and Warrant Purchase
Agreement.

 

“Person”
means an individual, corporation, partnership, joint venture, trust,
unincorporated organization, governmental agency or authority, or any other
entity of whatever nature.

 

“Pledged
Collateral” means Debtor’s (i) investment property and (ii) Partnership
and LLC Collateral, including any ownership interests in any subsidiaries of
Debtor.

 

“Pledged
Collateral Agreements” means any shareholders agreement, operating
agreement, partnership agreement, voting trust, proxy agreement or other
agreement or understanding with respect to any Pledged Collateral.

 

 “UCC” means the Uniform Commercial Code
as the same may, from time to time, be in effect in the State of New York.

 

“Warrant”
means that certain Common Stock Purchase Warrant, dated as of November 14,
2008, executed by Debtor in favor of Secured Party, as amended, modified,
renewed, extended or replaced from time to time.

 

(c)           Where
applicable and except as otherwise defined herein, terms used in this Agreement
shall have the meanings assigned to them in the UCC.

 

(d)           In
this Agreement, (i) the meaning of defined terms shall be equally
applicable to both the singular and plural forms of the terms defined; and (ii) the
captions and headings are for convenience of reference only and shall not
affect the construction of this Agreement.

 

SECTION 2            Security Interest.  As security for the payment and performance
of the Obligations, Debtor hereby grants to Secured Party a security interest
in all of Debtor’s right, title and interest in, to and under all of its
personal property, wherever located and whether now existing or owned or
hereafter acquired or arising, including all accounts, chattel paper,
commercial tort claims, deposit accounts, documents, equipment (including all
fixtures), general intangibles, instruments, inventory, investment property,
letter-of-credit rights, other goods, money and all products, proceeds and
supporting obligations of any and all of the foregoing (collectively, the “Collateral”).  This Agreement shall create a continuing
security interest in the Collateral which shall remain in effect until
terminated in accordance with Section 18 hereof.  Anything herein to the contrary
notwithstanding, in no event shall the Collateral include, and Debtor shall not
be deemed to have granted a security interest in, any of Debtor’s right, title
or interest in any of the outstanding voting capital stock or other ownership
interests of a Controlled 

 

 

Foreign Corporation (as defined below) in excess of
65% of the voting power of all classes of capital stock or other ownership
interests of such Controlled Foreign Corporation entitled to vote; provided
that (A) immediately upon the amendment of the Internal Revenue Code to
allow the pledge of a greater percentage of the voting power of capital stock
or other ownership interests in a Controlled Foreign Corporation without
adverse tax consequences, the Collateral shall include, and Debtor shall be
deemed to have granted a security interest in, such greater percentage of
capital stock or other ownership interests of each Controlled Foreign
Corporation; and (B) if no adverse tax consequences to Debtor shall arise
or exist in connection with the pledge of any Controlled Foreign Corporation,
the Collateral shall include, and Debtor shall be deemed to have granted a
security interest in, such Controlled Foreign Corporation.  As used herein, “Controlled Foreign
Corporation” shall mean a “controlled foreign corporation” as defined in
the Internal Revenue Code.

 

SECTION 3            Financing Statements and other
Action.

 

(a)           Debtor
hereby authorizes Secured Party to file at any time and from time to time any
financing statements describing the Collateral, and Debtor shall execute and
deliver to Secured Party, and Debtor hereby authorizes Secured Party to file
(with or without Debtor’s signature), at any time and from time to time, all
amendments to financing statements, assignments, continuation financing
statements, termination statements, account control agreements, and other
documents and instruments, in form reasonably satisfactory to Secured Party, as
Secured Party may reasonably request, to perfect and continue perfected,
maintain the priority of or provide notice of the security interest of Secured
Party in the Collateral and to accomplish the purposes of this Agreement.  Without limiting the generality of the
foregoing, Debtor ratifies and authorizes the filing by Secured Party of any
financing statements filed prior to the date hereof.

 

(b)           Debtor
will join with Secured Party in notifying any third party who has possession of
any Collateral of Secured Party’s security interest therein and in obtaining an
acknowledgment from the third party that it is holding the Collateral for the
benefit of Secured Party.

 

(c)           Within
30 days after the date hereof (or such later date as shall be consented to by
Secured Party), Debtor shall cause (i) any depository institution at which
Debtor maintains any deposit account to execute a deposit account control
agreement, in form and substance reasonably satisfactory to Secured Party,
establishing Secured Party’s “control” over such depository account for
purposes of UCC Article 9 and (ii) any securities intermediary or
other Person with which Debtor maintains any securities account containing any
investment property of Debtor to execute a securities account control
agreement, in form and substance reasonably satisfactory to Secured Party,
establishing Secured Party’s “control” over such securities account for
purposes of UCC Article 9.

 

(d)           Upon
request of Secured Party, Debtor (i) shall cause certificates to be issued
in respect of any uncertificated Pledged Collateral, (ii) shall exchange
certificated Pledged Collateral for certificates of larger or smaller
denominations, and (iii) shall cause any securities intermediaries to show
on their books that Secured Party is the entitlement holder with respect to any
Pledged Collateral.

 

 

(e)           Debtor
will not create any chattel paper without placing a legend on the chattel paper
acceptable to Secured Party indicating that Secured Party has a security
interest in the chattel paper.

 

SECTION 4            Representations and Warranties.  Debtor represents and warrants to secured
party that:

 

(a)           Debtor
is duly organized, validly existing and in good standing under the law of the
jurisdiction of its organization and has all requisite power and authority to
execute, deliver and perform its obligations under the Documents.

 

(b)           The
execution, delivery and performance by Debtor of the Documents have been duly
authorized by all necessary action of Debtor, and the Documents constitute the
legal, valid and binding obligations of Debtor, enforceable against Debtor in
accordance with their respective terms.

 

(c)           No
authorization, consent, approval, license, exemption of, or filing or
registration with, any governmental authority or agency, or approval or consent
of any other Person, is required for the due execution, delivery or performance
by Debtor of the Documents, except for any filings necessary to perfect any
Liens on any Collateral.

 

(d)           Debtor’s
chief executive office and principal place of business (as of the date of this
Agreement) is located at the address set forth in Schedule 1; Debtor’s
jurisdiction of organization and organizational identification number are set
forth in Schedule 1; Debtor’s exact legal name is as set forth in
the first paragraph of this Agreement; and all other locations where Debtor
conducts business or Collateral is kept (as of the date of this Agreement) are
set forth in Schedule 2.

 

(e)           Debtor
has rights in or the power to transfer the Collateral, and Debtor is the sole
and complete owner of the Collateral, free from any Lien other than Permitted
Liens.

 

(f)            All
of Debtor’s U.S. and foreign patents and patent applications, copyrights
(whether or not registered), applications for copyright, trademarks, service
marks, trade names and domain names (whether registered or unregistered), and
applications for registration of such trademarks, service marks, trade names
and domain names, are set forth in Schedule 2.

 

(g)           No
control agreements exist with respect to any Collateral other than control
agreements in favor of Secured Party.

 

(h)           The
names and addresses of all financial institutions and other Persons at which
Debtor maintains its deposit and securities accounts, and the account numbers
and account names of such accounts, are set forth in Schedule 1.

 

(i)            Schedule
3 lists Debtor’s ownership interests in each of its subsidiaries as of the
date hereof.

 

 

(j)            Debtor
is and will be the legal record and beneficial owner of all Pledged Collateral,
and has and will have good and marketable title thereto, subject to the Lien of
Secured Party therein.

 

(k)           Except
as disclosed in writing to Secured Party, there are no Pledged Collateral
Agreements which affect or relate to the voting or giving of written consents
with respect to any of the Pledged Collateral. 
Each Pledged Collateral Agreement contains the entire agreement between
the parties thereto with respect to the subject matter thereof, has not been
amended or modified, and is in full force and effect in accordance with its
terms.  To the best knowledge of Debtor,
there exists no material violation or material default under any Pledged
Collateral Agreement by Debtor or the other parties thereto.  Debtor has not knowingly waived or released
any of its material rights under or otherwise consented to a material departure
from the terms and provisions of any Pledged Collateral Agreement.

 

(l)            Debtor
is an “operating company” in that (i) it primarily engages, wholly or
substantially in the production or sale, or the research or development, of a
product or service other than the investment of capital, (ii) it is not an
individual or sole proprietorship, (iii) it is not an entity with no
specific business plan or purpose and its business plan is not to engage in a
merger or acquisition with an unidentified company or companies or other entity
or person, and (iv) it intends to use the proceeds from the Debenture
issued by and purchased from it solely for the operation of Debtor’s business
and uses other than personal, family, or household purposes.  Debtor’s board of directors, in the exercise
of its fiduciary duties, has approved the Debenture and the transactions
contemplated by the Documents based upon a reasonable belief that the Debenture
is appropriate for Debtor after reasonable inquiry concerning Debtor’s
financing objectives and financial situation. .

 

(m)          Debtor
has no commercial tort claims except as set forth in Schedule 1.

 

SECTION 5            Covenants.  So long as any of the obligations remain
unsatisfied, debtor agrees that:

 

(a)           Debtor
shall appear in and defend any action, suit or proceeding which may affect to a
material extent its title to, or right or interest in, or Secured Party’s right
or interest in, the Collateral, and shall do and perform all reasonable acts
that may be necessary and appropriate to maintain, preserve and protect the
Collateral.

 

(b)           Debtor
shall comply in all material respects with all laws, regulations and
ordinances, and all policies of insurance, relating in a material way to the
possession, operation, maintenance and control of the Collateral.

 

(c)           Debtor
shall give prompt written notice to Secured Party (and in any event not later
than 30 days following any change described below in this subsection) of:  (i) any change in the location of Debtor’s
chief executive office or principal place of business; (ii) any change in
the locations set forth in Schedule 1; (iii) any change in its
name; (iv) any
changes in its identity or structure in any manner which might make any
financing statement filed hereunder incorrect or misleading; (v) any
change in its registration as an organization (or any new such registration);
or (vi) any change in its jurisdiction of organization; provided
that Debtor shall not 

 

 

locate any
Collateral outside of the United States nor shall Debtor change its
jurisdiction of organization to a jurisdiction outside of the United States.

 

(d)           Debtor
shall carry and maintain in full force and effect, at its own expense and with
financially sound and reputable insurance companies, insurance with respect to
the Collateral 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 Debtor operates.  Within 30 days after the date hereof (or such
later date as shall be consented to by Secured Party), Debtor shall cause such
insurance on the Collateral to name Secured Party as additional insured and as
loss payee and Debtor shall furnish Secured Party from time to time with full
information as to the insurance carried by it and, if so requested, copies of
all such insurance policies.  Debtor
shall also furnish to Secured Party from time to time upon the request of
Secured Party a certificate of Debtor’s insurance broker or other
insurance specialist stating that all premiums then due on the policies
relating to insurance on the Collateral have been paid and that such policies are
in full force and effect.  All insurance
policies required under this subsection (d) shall provide that they
shall not be terminated or cancelled nor shall any such policy be materially
changed without at least 20 days’ prior written notice to Debtor and Secured
Party.  Receipt of notice of termination
or cancellation of any such insurance policies or reduction of coverages or
amounts thereunder shall entitle Secured Party to renew any such policies,
cause the coverages and amounts thereof to be maintained at levels required
pursuant to the first sentence of this subsection (d) or otherwise to
obtain similar insurance in place of such policies, in each case at the expense
of Debtor.

 

(e)           All
insurance policies shall provide that any losses payable thereunder be payable
directly to Secured Party unless written authority to the contrary is obtained.
In the event that Debtor shall receive any proceeds of any insurance (other
than in respect of third party liability insurance) it shall immediately cause
such proceeds to be paid over to Secured Party. 
If the Collateral shall be materially damaged or destroyed, in whole or
in part, by fire or other casualty, Debtor shall give prompt notice thereof to
Secured Party.  Additionally, Debtor
shall in any event promptly give Secured Party notice of all reports made to
insurance companies in respect of any claim in excess of $100,000.  No settlement on account of any loss covered
by insurance shall be made for less than insured value without the consent of
Secured Party.  Provided that no Event of
Default then exists, Secured Party shall apply all or any portion of such
insurance proceeds to Debtor to be applied to the replacement and/or
restoration of damaged or destroyed property, equipment, inventory, etc.

 

(f)            Debtor
shall keep the Collateral free of all Liens except Permitted Liens.

 

(g)           Debtor
shall pay and discharge all taxes, fees, assessments and governmental charges
or levies imposed upon it with respect to the Collateral prior to the date on
which penalties attach thereto, except to the extent such taxes, fees,
assessments or governmental charges or levies are being contested in good faith
by appropriate proceedings.

 

(h)           Debtor
shall maintain and preserve its legal existence, its rights to transact
business and all other rights, franchises and privileges necessary or desirable
in the normal course of its business and operations and the ownership of the
Collateral, except in connection 

 

 

with any
transactions expressly permitted by the Debenture and Warrant Purchase
Agreement, the Debenture or any other Document.

 

(i)            If
and when Debtor shall obtain rights to any new patents, trademarks, service
marks, trade names, domain names or copyrights, or otherwise acquire or become
entitled to the benefit of, or apply for registration of, any of the foregoing,
Debtor (i) shall promptly notify Secured Party thereof and (ii) hereby
authorizes Secured Party to modify, amend, or supplement Schedule 2
and from time to time to include any of the foregoing and make all necessary or
appropriate filings with respect thereto.

 

(j)            Without
limiting the generality of subsection (i), Debtor shall not register with the
U.S. Copyright Office any unregistered copyrights (whether in existence on the
date hereof or thereafter acquired, arising, or developed) unless Debtor
provides Secured Party with written notice of its intent to register such
copyrights not less than 30 days prior to the date of the proposed
registration.

 

(k)           Debtor
will use commercially reasonable efforts to obtain, within 30 days after the
date hereof (or such later date as shall be consented to by Secured Party),
from each Person from whom Debtor leases any premises, and from each other
Person at whose premises any Collateral is at any time present (including any
bailee, warehouseman or similar Person), any such collateral access,
subordination, landlord waiver, bailment, consent and estoppel agreements as
Secured Party may require, in form typically executed in Massachusetts by
landlords.

 

(l)            Debtor
shall comply with all of its obligations under any Pledged Collateral
Agreements to which it is a party and shall enforce all of its rights
thereunder. (ii) Debtor will take all actions necessary to cause each
Pledged Collateral Agreement relating to Collateral consisting of any and all
limited, limited liability and general partnership interests and limited
liability company interests of any type or nature (“Partnership and LLC
Collateral”) to provide specifically at all times that: (A) the
Partnership and LLC Collateral shall be securities and shall be governed by Article 8
of the applicable Uniform Commercial Code; (B) each certificate of
membership or partnership representing the Partnership and LLC Collateral shall
bear a legend to the effect that such membership interest or partnership
interest is a security and is governed by Article 8 of the applicable
Uniform Commercial Code; and (C) no consent of any member, manager,
partner or other Person shall be a condition to the admission as a member or
partner of any transferee that acquires ownership of the Partnership and LLC
Collateral as a result of the exercise by Secured Party of any remedy hereunder
or under applicable law. (iii) Debtor shall not vote to enable or take any
other action to amend or terminate, or waive compliance with any of the
terms of, any Pledged Collateral Agreement, certificate or articles of
incorporation, bylaws or other organizational documents, or otherwise cast any
vote or grant or give any consent, waiver or ratification in respect of the
Pledged Collateral, in any way that materially changes the rights of Debtor
with respect to any Pledged Collateral in a manner adverse to the Secured Party
or that adversely affects the validity, perfection or priority of Secured Party’s
security interest therein.

 

(m)          In
the event that Debtor acquires rights in any subsidiary after the date hereof,
it shall deliver to Secured Party a completed supplement to Schedule 3,
reflecting such new subsidiary. 
Notwithstanding the foregoing, it is understood and agreed that the
security interest 

 

 

of Secured Party
shall attach to any such subsidiary immediately upon Debtor’s acquisition of
rights therein and shall not be affected by the failure of Debtor to deliver
any such supplement to Schedule 3.

 

(n)           Debtor
shall give Secured Party immediate notice if Debtor shall at any time hold or
acquire any commercial tort claim.

 

SECTION 6            Rights of Secured Party;
Authorization; Appointment.

 

(a)           At
the request of Secured Party, upon the occurrence and during the continuance of
any Event of Default, all remittances received by Debtor in respect of its
accounts and other rights to payment shall be held in trust for Secured Party
and, in accordance with Secured Party’s instructions, remitted to Secured Party
or deposited to an account of Secured Party in the form received (with any
necessary endorsements or instruments of assignment or transfer).

 

(b)           At
the request of Secured Party, upon the occurrence and during the continuance of
any Event of Default, Secured Party shall be entitled to receive all
distributions and payments of any nature with respect to any Pledged Collateral
or instrument Collateral, and all such distributions or payments received by
Debtor shall be held in trust for Secured Party and, in accordance with Secured
Party’s instructions, remitted to Secured Party or deposited to an account
designated by Secured Party in the form received (with any necessary
endorsements or instruments of assignment or transfer).  Further, upon the occurrence and during the
continuance of any Event of Default any such distributions and payments with
respect to any Pledged Collateral held in any securities account shall be held
and retained in such securities account, in each case as part of the Collateral
hereunder, and Secured Party shall have the right, following prior written
notice to the Debtor, to vote and to give consents, ratifications and waivers
with respect to any Pledged Collateral and instruments, and to exercise all
rights of conversion, exchange, subscription or any other rights, privileges or
options pertaining thereto, as if Secured Party were the absolute owner
thereof; provided that Secured Party shall have no duty to exercise any
of the foregoing rights afforded to it and shall not be responsible to the
Debtor or any other Person for any failure to do so or delay in doing so.

 

(c)           Secured
Party shall have the right to, in the name of Debtor, or in the name of Secured
Party or otherwise, upon notice to but without the requirement of assent by
Debtor, and Debtor hereby constitutes and appoints Secured Party (and any of
Secured Party’s officers, employees or agents designated by Secured Party) as
Debtor’s true and lawful attorney-in-fact, with full power and authority to: (i) sign and file any of the financing statements and
other documents and instruments which must be executed or filed to perfect or
continue perfected, maintain the priority of or provide notice of Secured Party’s
security interest in the Collateral; (ii) assert,
adjust, sue for, compromise or release any claims under any policies of
insurance; (iii) give notices of control, default or exclusivity (or
similar notices) under any account control agreement or similar agreement with
respect to exercising control over deposit accounts or securities accounts; and
(iv) execute any and all such other documents
and instruments, and do any and all acts and things for and on behalf of
Debtor, which Secured Party may deem reasonably necessary or advisable to
maintain, protect, realize upon and preserve the Collateral and Secured Party’s
security interest therein and to accomplish the purposes of this Agreement.

 

 

Secured Party
agrees that, except upon and during the continuance of an Event of Default, it
shall not exercise the power of attorney, or any rights granted to Secured
Party, pursuant to clauses (ii), (iii) and (iv).  The foregoing power of attorney is coupled
with an interest and irrevocable so long as the Obligations have not been paid
and performed in full.  Debtor hereby
ratifies, to the extent permitted by law, all that Secured Party shall lawfully
and in good faith do or cause to be done by virtue of and in compliance with
this Section 6.

 

SECTION 7            Events
of Default.  Any of the following
events which shall occur and be continuing shall constitute an “Event of
Default”:

 

(a)           An “Event
of Default” (as defined in the Debenture) shall have occurred under the
Debenture or an “Event of Default” (as defined in the Guarantor Security
Agreement) shall have occurred under the Guarantor Security Agreement.

 

(b)           Any
representation or warranty by Debtor under or in connection with this Agreement
shall prove to have been incorrect in any material respect when made or deemed
made.

 

(c)           Debtor
shall fail to perform or observe in any material respect any other term, covenant
or agreement contained in this Agreement on its part to be performed or
observed and any such failure shall remain unremedied for a period of 15 days
after the earlier of (i) the date on which Debtor obtains knowledge of
such failure and (ii) the date on which Secured Party notifies Debtor of
such failure in accordance with the notice provisions set forth herein.

 

(d)           Debtor
shall admit in writing its inability to, or shall fail generally or be
generally unable to, pay its debts (including its payrolls) as such debts
become due, or shall make a general assignment for the benefit of creditors; or
Debtor shall file a voluntary petition in bankruptcy or a petition or answer
seeking reorganization, to effect a plan or other arrangement with creditors or
any other relief under the Bankruptcy Reform Act of 1978, as amended or
recodified from time to time (the “Bankruptcy Code”) or under any other
state or federal law relating to bankruptcy or reorganization granting relief
to debtors, whether now or hereafter in effect, or shall file an answer
admitting the jurisdiction of the court and the material allegations of any
involuntary petition filed against Debtor pursuant to the Bankruptcy Code or
any such other state or federal law; or Debtor shall be adjudicated a bankrupt,
or shall apply for or consent to the appointment of any custodian, receiver or
trustee for all or any substantial part of Debtor’s property, or shall take any
action to authorize any of the actions set forth above in this paragraph; or an
involuntary petition seeking any of the relief specified in this paragraph
shall be filed against Debtor; or any order for relief shall be entered against
Debtor in any involuntary proceeding under the Bankruptcy Code or any such
other state or federal law referred to in this subsection (d).

 

(e)           Debtor
shall (i) liquidate, wind up or dissolve (or suffer any liquidation,
wind-up or dissolution), except to the extent expressly permitted by the
Documents, (ii) suspend its operations other than in the ordinary course
of business, or (iii) take any action to authorize any of the actions or
events set forth above in this subsection (e).

 

(f)            Any
material impairment in the priority of Secured Party’s Lien hereunder.

 

 

(g)           Any
levy upon, seizure or attachment of any of the Collateral which shall not have
been rescinded or withdrawn.

 

(h)           Any
loss, theft or substantial damage to, or destruction of, any material portion
of the Collateral (unless within 10 days after the occurrence of any such
event, Debtor furnishes to Secured Party evidence satisfactory to Secured Party
that the amount of any such loss, theft, damage to or destruction of the
Collateral is fully insured under policies naming Secured Party as an
additional named insured or loss payee).

 

SECTION 8            Remedies.

 

(a)           Upon
the occurrence and during the continuance of any Event of Default, Secured
Party may declare any of the Obligations to be immediately due and payable and
shall have, in addition to all other rights and remedies granted to it in this
Agreement, the Debenture, the Debenture and Warrant Purchase Agreement or any
other Document, all rights and remedies of a secured party under the UCC and
other applicable laws.  Without limiting
the generality of the foregoing, (i) Secured Party may peaceably and without
notice enter any premises of Debtor, take possession of any the Collateral,
remove or dispose of all or part of the Collateral on any premises of such
Debtor or elsewhere, or, in the case of equipment, render it nonfunctional, and
otherwise collect, receive, appropriate and realize upon all or any part of the
Collateral, and demand, give receipt for, settle, renew, extend, exchange,
compromise, adjust, or sue for all or any part of the Collateral, as Secured
Party may determine; (ii) Secured Party may require any Debtor to assemble
all or any part of the Collateral and make it available to Secured Party at any
place and time designated by Secured Party; (iii) Secured Party may secure
the appointment of a receiver of the Collateral or any part thereof (to the
extent and in the manner provided by applicable law); (iv) Secured Party
may sell, resell, lease, use, assign, license, sublicense, transfer or
otherwise dispose of any or all of the Collateral in its then condition or
following any commercially reasonable preparation or processing (utilizing in
connection therewith any of Debtor’s assets, without charge or liability to
Secured Party therefor) at public or private sale, by one or more contracts, in
one or more parcels, at the same or different times, for cash or credit, or for
future delivery without assumption of any credit risk, all as Secured Party
deems advisable; provided, however, that Debtor shall be credited
with the net proceeds of sale only when such proceeds are finally collected by
Secured Party.  Debtor recognizes that
Secured Party may be unable to make a public sale of any or all of the Pledged
Collateral, by reason of prohibitions contained in applicable securities laws
or otherwise, and expressly agrees that a private sale to a restricted group of
purchasers for investment and not with a view to any distribution thereof shall
be considered a commercially reasonable sale. 
Secured Party shall have the right upon any such public sale, and, to
the extent permitted by law, upon any such private sale, to purchase the whole
or any part of the Collateral so sold, free of any right or equity of
redemption, which right or equity of redemption Debtor hereby releases, to the
extent permitted by law.  Secured Party
shall give Debtor such notice of any private or public sales as may be required
by the UCC or other applicable law.

 

(b)           For
the purpose of enabling Secured Party to exercise its rights and remedies under
this Section 8 or otherwise in connection with this Agreement,
Debtor hereby grants to Secured Party an irrevocable, non-exclusive and
assignable license (exercisable without payment 

 

 

or royalty or
other compensation to Debtor) to use, license or sublicense any intellectual
property Collateral.

 

(c)           Secured
Party shall not have any obligation to clean up or otherwise prepare the
Collateral for sale.  Secured Party has
no obligation to attempt to satisfy the Obligations by collecting them from any
other Person liable for them, and Secured Party may release, modify or waive
any Collateral provided by any other Person to secure any of the Obligations,
all without affecting Secured Party’s rights against Debtor.  Debtor waives any right it may have to
require Secured Party to pursue any third Person for any of the
Obligations.  Secured Party may comply
with any applicable state or federal law requirements in connection with a
disposition of the Collateral and compliance will not be considered adversely
to affect the commercial reasonableness of any sale of the Collateral.  Secured Party may sell the Collateral without
giving any warranties as to the Collateral. 
Secured Party may specifically disclaim any warranties of title or the
like.  This procedure will not be considered
adversely to affect the commercial reasonableness of any sale of the Collateral.  If Secured Party sells any of the Collateral
upon credit, Debtor will be credited only with payments actually made by the
purchaser, received by Secured Party and applied to the indebtedness of the
purchaser.  In the event the purchaser
fails to pay for the Collateral, Secured Party may resell the Collateral and
Debtor shall be credited with the proceeds of the sale.

 

(d)           To
the extent Debtor uses the proceeds of any of the Obligations to purchase
Collateral, Debtor’s repayment of the Obligations shall apply on a “first-in,
first-out” basis so that the portion of the Obligations used to purchase a
particular item of Collateral shall be paid in the chronological order the
Debtor purchased the Collateral.

 

(e)           The
cash proceeds actually received from the sale or other disposition or
collection of Collateral, and any other amounts received in respect of the
Collateral the application of which is not otherwise provided for herein, shall
be applied first, to the payment of the reasonable costs and expenses of
Secured Party in exercising or enforcing its rights hereunder and in collecting
or attempting to collect any of the Collateral, and to the payment of all other
amounts payable to Secured Party pursuant to Section 12 hereof; and
second, to the payment of the Obligations.  Any surplus thereof which exists after
payment and performance in full of the Obligations shall be promptly paid over
to Debtor or otherwise disposed of in accordance with the UCC or other applicable
law.  Debtor shall remain liable to
Secured Party for any deficiency which exists after any sale or other
disposition or collection of Collateral.

 

SECTION 9            Certain Waivers.  Debtor waives, to the fullest extent
permitted by law, (i) any right of redemption with respect to the
Collateral, whether before or after sale hereunder, and all rights, if any, of
marshalling of the Collateral or other collateral or security for the
Obligations; (ii) any right to require Secured Party (A) to proceed
against any Person, (B) to exhaust any other collateral or security for
any of the Obligations, (C) to pursue any remedy in Secured Party’s power,
or (D) to make or give any presentments, demands for performance, notices
of nonperformance, protests, notices of protests or notices of dishonor in
connection with any of the Collateral; and (iii) all claims, damages, and
demands against Secured Party arising out of the repossession, retention, sale
or application of the proceeds of any sale of the Collateral.

 

 

SECTION 10          Notices.  All notices or other communications hereunder
shall be in writing (including by facsimile transmission or by email) and
mailed (by certified or registered mail), sent or delivered to the respective
parties hereto at or to their respective addresses or email addresses set forth
below their names on the signature pages hereof (or, in the case of
Secured Party, to the address or email address set forth on Schedule 4
hereto), or at or to such other address or email address as shall be designated
by any party in a written notice to the other parties hereto.  All such notices and communications shall be
effective (i) if delivered by hand, sent by certified or registered mail
or sent by an overnight courier service, when received; and (ii) if sent
by electronic mail, when sent. 
Electronic mail may be used only for routine communications, such as
distribution of informational documents or documents for execution by the
parties thereto, and may not be used for any other purpose, including for purposes
of delivering any notice of the occurrence of an Event of Default.

 

SECTION 11          No Waiver; Cumulative
Remedies.  No failure on the part of
Secured Party to exercise, and no delay in exercising, any right, remedy, power
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right, remedy, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege.  The rights and
remedies under this Agreement are cumulative and not exclusive of any rights,
remedies, powers and privileges that may otherwise be available to Secured
Party.

 

SECTION 12          Costs and Expenses;
Indemnification.

 

(a)           Debtor
agrees to pay on demand: (i) all reasonable title, appraisal, survey,
audit, consulting, search, recording, filing and similar costs, fees and
expenses incurred or sustained by Secured Party in connection with this
Agreement or the Collateral (exclusive of attorneys fees); and (ii) all
costs and expenses of Secured Party, and the fees and disbursements of counsel,
in connection with the enforcement or attempted enforcement of, and
preservation of any rights or interests under, this Agreement, including in any
out-of-court workout or other refinancing or restructuring or in any bankruptcy
case, and the protection, sale or collection of, or other realization upon, any
of the Collateral, including all expenses of taking, collecting, holding,
sorting, handling, preparing for sale, selling, or the like, and other such
expenses of sales and collections of Collateral.

 

(b)           Debtor
hereby agrees to indemnify Secured Party, any affiliate thereof, and their
respective directors, officers, employees, agents, counsel and other advisors
(each an “Indemnified Person”) against, and hold each of them harmless
from, any and all liabilities, obligations, losses, claims, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever, including the reasonable fees and disbursements of counsel
to an Indemnified Person, which may be imposed on or incurred by any
Indemnified Person, or asserted against any Indemnified Person by any third
party or by Debtor, in any way relating to or arising out of, in connection
with, or as a result of (i) the execution or delivery of this Agreement or
any agreement or instrument contemplated hereby, the performance by the parties
hereto of their respective obligations hereunder or thereunder, the
transactions contemplated hereby or the Collateral, or (ii) any actual or
prospective claim, litigation, investigation or proceeding relating to any of
the foregoing, whether based on contract, tort or any other theory, whether
brought by a third party or by Debtor (the “Indemnified Liabilities”); 

 

 

provided
that Debtor shall not be liable to any Indemnified Person for any portion of
such Indemnified Liabilities to the extent they are found by a final decision
of a court of competent jurisdiction to have resulted from such Indemnified
Person’s gross negligence or willful misconduct.  If and to the extent that the foregoing
indemnification is for any reason held unenforceable, Debtor agrees to make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.

 

(c)           Any
amounts payable to Secured Party under this Section 12 or otherwise
under this Agreement if not paid upon demand shall bear interest from the date
of such demand until paid in full, at the default rate of interest set forth in
the Documents.

 

SECTION 13          Binding Effect.  This Agreement shall be binding upon, inure
to the benefit of and be enforceable by Debtor, Secured Party and their
respective successors and assigns and shall bind any Person who becomes bound
as a debtor to this Agreement.

 

SECTION 14          Governing Law;
Submission to Jurisdiction; Waiver of Right to Jury Trial; Forum Non
Conveniens; Etc.

 

(a)           Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW YORK APPLICABLE TO INSTRUMENTS
MADE AND TO BE PERFORMED WHOLLY WITHIN THAT STATE, EXCEPT AS REQUIRED BY
MANDATORY PROVISIONS OF LAW AND TO THE EXTENT THE VALIDITY OR PERFECTION OF THE
SECURITY INTERESTS HEREUNDER, OR THE REMEDIES HEREUNDER, IN RESPECT OF ANY
COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN NEW YORK.

 

(b)           Submission to
Jurisdiction.  EACH OF DEBTOR AND
SECURED PARTY AGREES THAT ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR
ARISING OUT OF THIS AGREEMENT MAY BE INITIATED AND PROSECUTED IN THE STATE
OR FEDERAL COURTS, AS THE CASE MAY BE, LOCATED IN NEW YORK.  EACH OF DEBTOR AND SECURED PARTY CONSENTS TO
AND SUBMITS TO THE EXERCISE OF JURISDICTION OVER ITS PERSON BY ANY SUCH COURT
HAVING JURISDICTION OVER THE SUBJECT MATTER HEREOF, WAIVES PERSONAL SERVICE OF
ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE
MADE BY REGISTERED MAIL DIRECTED TO SUCH PERSON AT ITS ADDRESS SET FORTH BELOW.

 

(c)           Waiver of Right to
Jury Trial; Forum Non Conveniens; Etc. 
IN ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS
AGREEMENT, EACH OF DEBTOR AND SECURED PARTY WAIVES TRIAL BY JURY, AND DEBTOR
ALSO WAIVES (I) ANY OBJECTION BASED ON FORUM NON CONVENIENS OR VENUE AND (II) ANY
CLAIM FOR CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES.

 

SECTION 15          Entire Agreement;
Amendment.  This Agreement, together
with the other Documents, contains the entire agreement of the parties with
respect to the subject matter hereof and shall not be amended except by the
written agreement of the parties.

 

 

SECTION 16          Severability.  Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under all applicable laws and regulations. 
If, however, any provision of this Agreement shall be prohibited by or
invalid under any such law or regulation in any jurisdiction, it shall, as to
such jurisdiction, be deemed modified to conform to the minimum requirements of
such law or regulation, or, if for any reason it is not deemed so modified, it
shall be ineffective and invalid only to the extent of such prohibition or
invalidity without affecting the remaining provisions of this Agreement, or the
validity or effectiveness of such provision in any other jurisdiction.

 

SECTION 17          Counterparts.  This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute but one and the same agreement.

 

SECTION 18          Termination.  Upon payment and performance in full of all
Obligations, the security interest created under this Agreement shall terminate
and Secured Party shall promptly execute and deliver to Debtor such documents
and instruments reasonably requested by Debtor as shall be necessary to
evidence termination of all security interests given by Debtor to Secured Party
hereunder

 

SECTION 19          Assignment.  This Agreement shall be binding on the
respective successors, and inure to the benefit of the respective permitted
assigns, of the parties hereto; provided, however, that neither
party shall assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of the other party, except
in connection with an assignment to (a) its Affiliates or (ii) an
entity that is the successor to substantially all of the business or assets of
the assigning party relating to the performance of this Agreement.

 

[remainder
of page intentionally left blank]

 

 

IN WITNESS WHEREOF, the
parties hereto have duly executed this Agreement, as of the date first above
written.

 

 

	
   

  	
  DEBTOR:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MICROFLUIDICS INTERNATIONAL

  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address for notices:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Microfluidics
  International Corporation

  
	
   

  	
  30 Ossipee Street

  
	
   

  	
  Newton, MA 02464-9101

  
	
   

  	
  Attn:

  	
  EVP, CFO and Treasurer

  
	
   

  	
  Tel:

  	
  (617) 969-5452

  
	
   

  	
  Email:

  	
  bleclair@mfics.com

  
				

 

 

	
   

  	
  SECURED PARTY:

  
	
   

  	
   

  
	
   

  	
  GLOBAL STRATEGIC PARTNERS, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Its:

  	
   

  

 

 

SCHEDULE 1

TO THE SECURITY AGREEMENT

 

1.             Jurisdiction
of Organization and Organizational Identification Number

 

Delaware

DE 2008386

 

2.             Chief
Executive Office and Principal Place of Business

 

30 Ossipee Street

Newton, MA 02464-9101

 

3.             Other
locations where Debtor conducts business or Collateral is kept

 

17971 Sky Park Circle, Bldg. 33, Suite B, Irvine, CA 92614

 

Edisonstr. 15

68623 Lampertheim, Germany

 

4.             Deposit
Accounts and Security Accounts

 

	
  Bank
  Name

  	
   

  	
  Description

  	
   

  	
  Account Number

  	
   

  
	
  Silicon Valley Bank

  	
   

  	
  Payroll

  	
   

  	
   

  	
   

  
	
  Silicon Valley Bank

  	
   

  	
  Operating

  	
   

  	
   

  	
   

  
	
  Silicon Valley Bank

  	
   

  	
  EXIM Cash Collateral
  (collection applied toward line of credit)

  	
   

  	
   

  	
   

  
	
  Silicon Valley Bank

  	
   

  	
  Domestic Cash
  Collateral (collection applied toward line of credit)

  	
   

  	
   

  	
   

  
	
  Silicon Valley Bank

  	
   

  	
  Controlled Disbursement

  	
   

  	
   

  	
   

  
	
  TD Banknorth

  	
   

  	
  Controlled Disbursement

  	
   

  	
   

  	
   

  
	
  TD Banknorth

  	
   

  	
  CD (held as Bank
  guarantee for specific sales agreement)

  	
   

  	
   

  	
   

  
	
  TD Banknorth

  	
   

  	
  CD (held as Bank
  guarantee for specific sales agreement)

  	
   

  	
   

  	
   

  
	
  TD Banknorth

  	
   

  	
  Operating

  	
   

  	
   

  	
   

  
	
  TD Banknorth

  	
   

  	
  Payroll

  	
   

  	
   

  	
   

  
	
  TD Banknorth

  	
   

  	
  Employee Cafeteria Plan
  Fund

  	
   

  	
   

  	
   

  
	
  TD Banknorth

  	
   

  	
  Credit Card
  Transactions

  	
   

  	
   

  	
   

  
	
  Bank of America

  	
   

  	
  Operating

  	
   

  	
   

  	
   

  
	
  Deutsche Bank

  	
   

  	
  Operating/Foreign
  Currency (EURO)

  	
   

  	
   

  	
   

  

 

1

 

5.             Commercial
Tort Claims

 

None.

 

2

 

SCHEDULE
2

TO THE SECURITY AGREEMENT

 

1.             Patents and Patent
Applications.

 

PATENTS
 & PATENT APPLICATIONS

 

	
  1.

  	
   

  	
  U.S.
  Patent No.

  	
   

  	
  : 6,159,442

  
	
   

  	
   

  	
  Date of Patent

  	
   

  	
  :
  December 12, 2000

  
	
   

  	
   

  	
  Inventor(s)

  	
   

  	
  :
  Jeffrey Thumm, Michael Lento, Jerome Higgins, David King, David Ginter, and
  Laurent Kieken

  
	
   

  	
   

  	
  Assigned to

  	
   

  	
  :
  MFIC Corporation

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
  Use of Multiple Stream High Pressure Mixer/Reactor

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  U.S.
  Patent No.

  	
   

  	
  : 6,221,332 B1

  
	
   

  	
   

  	
  Date of Patent

  	
   

  	
  :
  April 24, 2001

  
	
   

  	
   

  	
  Inventor(s)

  	
   

  	
  :
  Jeffrey Thumm, Michael Lento, Jerome Higgins

  
	
   

  	
   

  	
  Assigned to

  	
   

  	
  :
  Microfluidics International Corporation (MFIC)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
  Multiple Stream High Pressure Mixer/Reactor

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  European
  Patent No.

  	
   

  	
  : EP 1 011 856 B1

  
	
   

  	
   

  	
  Date of Patent

  	
   

  	
  :
  September 4, 2003

  
	
   

  	
   

  	
  Inventor(s)

  	
   

  	
  :
  Jeffrey Thumm, Michael Lento, Jerome Higgins, King, David Ginter, Mark and
  Kieken, Laurent

  
	
   

  	
   

  	
  Assigned to

  	
   

  	
  :
  Microfluidics International Corporation / Catalytica Advanced
  Technologies, Inc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
  Multiple Stream High Pressure Mixer/Reactor

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  Canadian
  Patent Appln. No.

  	
   

  	
  : 2,229,284

  
	
   

  	
   

  	
  Date of Patent Appln.

  	
   

  	
  :
  August 5, 1998

  
	
   

  	
   

  	
  Inventor(s)

  	
   

  	
  :
  Jeffrey Thumm, Michael Lento, Jerome Higgins, King, David Ginter, Mark and
  Kieken, Laurent

  
	
   

  	
   

  	
  Assigned to

  	
   

  	
  :
  Microfluidics International Corporation / Catalytica Advanced
  Technologies, Inc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
  Multiple Stream High Pressure Mixer/Reactor

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  U.S.
  Patent Appln. No.

  	
   

  	
  : 12/108,245

  
	
   

  	
   

  	
  Date of Patent Appln.

  	
   

  	
  :
  April 23, 2008

  
	
   

  	
   

  	
  Inventor(s)

  	
   

  	
  :
  Thomai Panagiotou, Steven Mesite and Robert J. Fisher

  
	
   

  	
   

  	
  Assigned to

  	
   

  	
  :
  MFIC Corporation

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
  Apparatus
  And Methods For Nanoparticle Generation and Process Intensification of
  Transport and Reaction Systems

  
									

 

1

 

2.             Copyrights and
Copyright Applications.

 

None.

 

2

 

3.             Trademarks, Service Marks and Trade Names and
Trademark, Service Mark and Trade Name Applications.

 

TRADEMARKS
/ COPYRIGHTS/ WEBSITES-DOMAIN NAMES/Internet Brands

 

TRADEMARKS
AND TRADEMARK APPLICATIONS

 

	
  Trademark

  	
   

  	
  Status

  	
   

  	
  Registration #

  	
   

  	
  Date Filed

  	
   

  	
  Date/Reg.

  	
   

  	
  Owner

  	
   

  
	
  BECAUSE
  THE STAKES COULDN’T BE HIGHER

  	
   

  	
  Application filed

  	
   

  	
  S/N 77567749

  	
   

  	
  09/11/08

  	
   

  	
   

  	
   

  	
  Microfluidics
  International Corporation

  	
   

  
	
  INNOVATE
  WITH US

  	
   

  	
  Application filed

  	
   

  	
  S/N 77540208

  	
   

  	
  08/06/08

  	
   

  	
   

  	
   

  	
  Microfluidics
  International Corporation

  	
   

  

 

WEBSITES

 

http://www.mficcorp.com/

and
related pages

 

http://www.microfluidicscorp.com/

and
related pages

 

http://www.mixerequipment.com/

and
related pages

 

URLs &
Domain Names

 

www.mficcorp.com

www.microfluidicscorp.com

www.mixerequipment.com

www.microfluidizer.us

www.microfluidicscorp.com.tw

www.microfluidicscorp.tw

www.microfluidizer.com.tw

www.microfluidizer.net.tw

www.mfics.com.tw

www.mfics.tw

www.microfluidicscorp.hk

   
www.microfluidizer.hk

www.mfics.hk

www.mfics.cn

www.mfics.com.cn

www.microfluidicscorp.org.cn

www.microfluidizer.org.cn

www.mfics.org.cn

www.microfluidicscorp.net.cn

www.microfluidizer.net.cn

www.mfics.net.cn

www.microfluidicscorp.asia

www.microfluidizer.asia

 

3

 

www.mfics.com.asia

www.mficcorp.com

www.microfluidicscorp.com

www.microfluidizer.us

www.mixerequipment.com

www.submicronparticles.com

www.tinyparticles.com

www.disruptcells.com

www.particlereduction.com

www.microfluidicsnanoemulsions.com

www.microfluidicsnanodispersions.com

www.microfluidicsnanoparticles.com

www.microfluidizer.net

 

Internet
Brand Names

Microfluidicscorp

Mfics

Microfluidizer

 

4

 

SCHEDULE 3

TO THE SECURITY AGREEMENT

 

SUBSIDIARIES

 

1.                                       Interests
in each limited liability company that is a subsidiary of Debtor as follows:

 

	
  Subsidiary

  	
   

  	
  Number of Units

  	
   

  	
  Date of Issuance of Units

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  None

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

2.                                       Interests
in each general partnership, limited partnership, limited liability partnership
or other partnership that is a subsidiary of Debtor as follows:

 

	
  Subsidiary

  	
   

  	
  Type of

  Partnership Interest

  (e.g., general,

  limited)

  	
   

  	
  Date of Issuance

  or Formation

  	
   

  	
  Number of Units or

  Other Ownership

  Interests

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  None

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

3.                                       Capital
stock of each corporate subsidiary of Debtor, and the stock certificates with
respect thereto, as follows:

 

	
  Subsidiary

  	
   

  	
  Certificate No.

  	
   

  	
  Certificate Date

  	
   

  	
  No. and Class

  of Shares

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Microfluidics Corporation

  	
   

  	
  1A

  	
   

  	
  November 14, 2008

  	
   

  	
  500 shares of common stock
  ($.01 par value)

  	
   

  

 

1

 

SCHEDULE 4

 

Global Strategic
Partners, LLC

11755 Wilshire Blvd., Suite 2000

Los Angeles, CA 90025

Attn:  Charles Kim

Tel:  (310) 405-7431

Fax:  (310) 998-8553

Email:  ckim@abraxisbio.com

 

1

 

EXHIBIT D

 

Form of Registration
Rights Agreement

 

 

REGISTRATION RIGHTS AGREEMENT

 

THIS
REGISTRATION RIGHTS AGREEMENT is made as of November 14, 2008, by and
among Microfluidics International Corporation, a Delaware corporation (the “Company”),
and Global Strategic Partners, LLC, a Delaware limited liability company (the “Investor”).

 

This Agreement
is made pursuant to a certain Debenture and Warrant Purchase Agreement dated as
of the date hereof by and among the Company and Investor (the “Purchase
Agreement”).  The execution of this
Agreement is a condition to the closing of the transactions contemplated by the
Purchase Agreement.

 

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

 

1.                                       REGISTRATION
STATEMENTS.

 

(a)                                  Shelf
Registration.

 

(i)                                     The
Company shall, on or before the date which is 20 days after the Closing Date,
prepare and file with the Commission under the Securities Act a Registration
Statement on Form S-3 (except if the Company is not then eligible to
register for resale the Registrable Common Shares on Form S-3, in which
case such registration shall be on another appropriate form in accordance with
the Securities Act and the Exchange Act and as consented to by the Investor) for
sale of the Registrable Securities by the Investor on a delayed or continuous
basis under Rule 415 of the Securities Act, and shall use its best efforts
to cause such Registration Statement to be declared effective at the earliest
practicable date, but in no event later than the 120th day after the Closing Date.  The Company shall at its own expense, subject
to Section 1(a)(iv), ensure the availability of a Prospectus meeting the
requirements of Section 10(a) of the Securities Act and shall take
any and all other actions necessary in order to ensure the ability of the
holders of all of the Registrable Securities to effect a resale of their
Registrable Securities, for such period as the Company is obligated to maintain
the effectiveness of a Registration Statement pursuant to Section 1(a)(ii).

 

(ii)                                  The
Company shall use its best efforts to cause any such Registration Statement
described in Section 1(a)(i) to remain effective (or, if required by
applicable law, to cause another Registration Statement with respect to the
Registrable Securities to become and remain effective) until the earliest to
occur of: (i) such time as all the Registrable Securities have been sold
by the Investor; (ii) such time as all the Registrable Securities held by
the Investor could be sold under Rule 144 of the Securities Act during any
90-day period without restriction (including without limitation as to volume by
each holder thereof); and (iii) the date which is two years after the
Effective Date.

 

(iii)                               The
Company shall, at all times during the Registration Period, subject to Section 1(a)(iv),
promptly: (A) file such amendments to the Registration Statement 

 

 

and the
Prospectus, file such documents as may be required to be incorporated by
reference in any of such documents, and take all other actions as may be
necessary to ensure to the holders of Registrable Securities the ability to
effect the public resale of their Registrable Securities (including without
limitation taking any actions necessary to ensure the availability of a
Prospectus meeting the requirements of Section 10(a) of the
Securities Act) continuously through the Registration Period; and (B) provide
each holder of Registrable Securities copies of any documents prepared pursuant
to Section 1(a)(iv)(A) promptly after such preparation.

 

(iv)                              The
Company may suspend the effectiveness of any Registration Statement filed
pursuant to this Section 1(a) if, in its reasonable judgment, (A) maintaining
the effectiveness of such Registration Statement at such time would materially
adversely affect a proposed financing, reorganization or recapitalization of
the Company, or pending negotiations relating to a merger, consolidation,
acquisition or similar transaction involving the Company; or (B) financial
statements meeting the requirements of Regulation S-X are not available at such
time because of any such pending proposal or negotiations; provided, however,
that the right of the Company pursuant to this subsection (iv) to
suspend the effectiveness of the Registration Statement shall not extend for
more than 30 consecutive days for any single suspension event and may not be
exercised more than twice during any period of 12 consecutive months; and
provided, further, that the Company shall give to each holder of Registrable Securities
prior written notice of such suspension.

 

(b)                                 Amendments.  Upon the occurrence of any event that would
cause any Registration Statement (i) to contain a material misstatement or
omission or (ii) not to be effective and usable for resale of Registrable Securities
during the period that such Registration Statement is required to be effective
and usable, the Company shall promptly file an amendment to the Registration
Statement, in the case of clause (i), correcting any such misstatement or
omission, and in the case of either clause (i) or (ii), using its best
efforts to cause such amendment to be declared effective and such Registration
Statement to become usable as soon as practicable thereafter.

 

(c)                                  Representation
and Warranty.  The Company represents
and warrants to the Investor that (i) the Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein), at the time it is first filed with the SEC, at the time it is ordered
effective by the SEC and at all times during which it is required to be
effective hereunder (and each such amendment and supplement at the time it is
filed with the SEC and at all times during which it is available for use in
connection with the offer and sale of the Registrable Securities) shall not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading and (ii) the Prospectus, at the time the Registration
Statement is declared effective by the SEC and at all times, subject to Section 1(a)(iv) hereof,
that the Prospectus is required by this to be available for use by any Investor
and, in accordance with this Agreement, any Investor is entitled to sell
Registrable Securities pursuant to the Prospectus, shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.

 

 

2.                                       REGISTRATION
PROCEDURES.

 

In connection
with any Registration Statement and subject to the provisions of Section 1,
the Company shall use its best efforts to effect such registration to permit
the sale of the Registrable Securities being sold in accordance with the
intended method or methods of distribution thereof, and pursuant thereto the
Company shall as expeditiously as possible:

 

(a)                                  prepare
and file with the Commission a Registration Statement relating to the
registration on Form S-3 under the Securities Act, which form shall be
available for the sale of the Registrable Securities being sold in accordance
with the intended method or methods of distribution thereof, and use its best
efforts to cause such Registration Statement to become effective and approved
by such governmental agencies or authorities as may be necessary to enable the
selling holders to consummate the disposition of such Registrable Securities;

 

(b)                                 prepare
and file with the Commission such amendments and supplements to such
Registration Statement and the Prospectus used in connection with such
Registration Statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such registration statement;

 

(c)                                  advise
the holders of the Registrable Securities promptly (and in any event within one
Business Day, by e-mail, fax or other type of communication) and, if requested
by such Persons, confirm such advice in writing:

 

(i)                                     when
the Prospectus or any Prospectus supplement or post-effective amendment has
been filed, and, with respect to the Registration Statement or any
post-effective amendment thereto, when the same has become effective;

 

(ii)                                  of
the existence of any fact and the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any document incorporated
by reference therein untrue, or that requires the making of any additions to or
changes in the Registration Statement or the Prospectus in order to make the
statements therein not misleading; and

 

(iii)                               of
the issuance by the Commission of any stop order or other order suspending the
effectiveness of the Registration Statement, or any order issued by any state
securities commission or other regulatory authority suspending the
qualification or exemption from qualification of such Registrable Securities
under state securities or “blue sky” laws. 
If at any time the Company shall receive any such stop order suspending
the effectiveness of the Registration Statement, or any such order from a state
securities commission or other regulatory authority, the Company shall use its
best efforts to obtain the withdrawal or lifting of such order at the earliest possible
time.

 

(d)                                 deliver
to each holder of the Registrable Securities, without charge, as many copies of
the Prospectus and any amendment or supplement thereto as such Persons may
reasonably request; the Company consents to the use of the Prospectus and any
amendment or supplement thereto by each of the holders of the Registrable
Securities in connection with the 

 

 

offering and
the sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto;

 

(e)                                  prior
to any public offering of Registrable Securities, cooperate with the holders of
the Registrable Securities and their respective counsel in connection with the
registration and qualification of the Registrable Securities under the
securities or “blue sky” laws of such jurisdictions as the holders of the
Registrable Securities may reasonably request and do any and all other acts or
things necessary or advisable to enable the disposition in such jurisdictions
of the Registrable Securities covered by the Registration Statement;

 

(f)                                    use
its best efforts to cause the Registrable Securities covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the seller
or sellers thereof to consummate the disposition of such Registrable
Securities;

 

(g)                                 if
any fact or event contemplated by clause (c)(ii) above shall exist or have
occurred, prepare a supplement or post-effective amendment to the Registration
Statement or related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of Registrable Securities, the Prospectus will not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading;

 

(h)                                 make
available for inspection during normal business hours by a representative of
the holders of the Registrable Securities, and any attorney, accountant or
other professional retained by such holders, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company’s officers, directors and employees to supply all information
reasonably requested by any such holder, attorney, accountant or other
professional in connection with such Registration Statement subsequent to the
filing thereof and prior to its effectiveness, except that the aforementioned
advisors may be required to sign a confidentiality agreement containing
customary terms and exceptions;

 

(i)                                     otherwise
use its best efforts to comply with all applicable rules and regulations
of the Commission;

 

(j)                                     use
its best efforts to cause all Registrable Securities to be listed on each
securities exchange or market, if any, on which equity securities issued by the
Company are then listed; and

 

(k)                                  use
its best efforts to take all other steps necessary to effect the registration
of the Registrable Securities contemplated hereby.

 

It shall be a
condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable
Securities of the Investor that the Investor shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the intended
method of disposition of the Registrable Securities held by it as shall be
reasonably required to effect the registration of such Registrable 

 

 

Securities and shall execute such documents in connection with such
registration as the Company may reasonably request.

 

Each holder of
the Registrable Securities agrees by acquisition of such Registrable Securities
that, upon receipt of any notice from the Company of the existence of any fact
of the kind described in Section 2(c)(ii), or notice of a stop order or
suspension described in Section 2(c)(iii), such holder shall forthwith
discontinue disposition of Registrable Securities and cease to use the
Prospectus in use under such Registration Statement.  The Company shall, as promptly as
practicable, provide each holder with copies of the supplemented or amended
Prospectus contemplated by Section 2(g), or advise the holders in writing
that the use of the Prospectus may be resumed, and promptly provide each holder
with copies of any additional or supplemental filings which are incorporated by
reference in the Prospectus.  If so
directed by the Company, each such holder shall deliver to the Company (at the
Company’s expense) all copies, other than permanent file copies then in such
holder’s possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice.

 

3.                                       REGISTRATION
EXPENSES.  All expenses incident to
the Company’s performance of or compliance with this Agreement shall be borne
by the Company, regardless of whether a Registration Statement becomes
effective, including without limitation:

 

(a)                                  all
registration and filing fees and expenses;

 

(b)                                 fees
and expenses of compliance with federal securities and state “blue sky” or
securities laws;

 

(c)                                  expenses
of printing (including printing certificates for the Registrable Securities and
Prospectuses), messenger and delivery services and telephone;

 

(d)                                 all
application and filing fees in connection with listing the Registrable
Securities on a national securities exchange or automated quotation system
pursuant to the requirements hereof;

 

(e)                                  all
fees and disbursements of counsel of the Company and independent certified
public accountants of the Company (including the expenses of any special audit
and “cold comfort” letters required by or incident to such performance);

 

(f)                                    the
reasonable fees and disbursements of one counsel for the holders; and

 

(g)                                 any
reasonable out-of-pocket expenses of the holders of the Registrable Securities
(or the agents who manage their accounts); provided, however, that the
Investor  shall be responsible for paying
the underwriting commissions or brokerage fees, and taxes of any kind
(including, without limitation, transfer taxes) applicable to any disposition,
sale or transfer of the Registrable Securities and provided further that the
Company shall not be responsible for any legal, accounting or other expenses
incurred by the Investor in connection with the Registration Statement.

 

 

The Company
shall, in any event, bear its internal expenses (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, rating agency fees and the
fees and expenses of any Person, including special experts, retained by the
Company.

 

In addition, notwithstanding anything to the contrary contained herein,
the Company shall pay all of the Investor’s costs and expenses (including
reasonable legal fees) incurred in connection with the enforcement of the
rights of the Investor hereunder.

 

4.                                       INDEMNIFICATION.

 

(a)                                  The
Company agrees to indemnify and hold harmless each holder of the Registrable
Securities and each Person, if any, who controls such holder within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act
from and against any and all losses, claims, damages, liabilities and expenses
(including, without limiting the foregoing but subject to Section 4(c),the
reasonable legal and other expenses incurred in connection with any action,
suit or proceeding or any claim asserted) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except insofar as such losses,
claims, damages, liabilities or expenses are caused by an untrue statement or
omission contained in information relating to such holder, furnished to the
Company in writing by such holder expressly for use therein.

 

(b)                                 As
a condition to the inclusion of its Registrable Securities in any Registration
Statement pursuant to this Agreement, each holder thereof shall furnish to the
Company in writing, promptly after receipt of a request therefor, such
information as the Company may reasonably request for use in connection with
any Registration Statement, Prospectus or preliminary prospectus (including
such completed and executed questionnaires as the Company may reasonably
request) and agrees to indemnify and hold harmless, severally and not jointly,
the Company and its directors, its officers who sign such Registration
Statement, and any Person controlling the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act to the same extent
as the indemnity from the Company to each holder and Persons controlling such
holder, but only to the extent of losses, claims, damages, liabilities or
expenses caused by an untrue statement or an omission contained in information
relating to such holder furnished in writing by such holder expressly for use
in such Registration Statement or the Prospectus or any preliminary prospectus
included therein, and of which none of the Company, its directors, officers or
Affiliates has any actual or constructive knowledge independent of such holder;
provided, however, that such holder of Registrable Securities shall not be
liable in any such case to the extent that the holder has furnished in writing
to the Company prior to the filing of any such Registration Statement,
Prospectus or preliminary prospectus information expressly for use in such
Registration Statement, Prospectus or preliminary prospectus which corrected or
made not misleading information previously furnished to the Company, and the
Company failed to include such information therein. In case any action 

 

 

shall be
brought against the Company, any of its directors, any such officer, or any
such controlling Person based on the Registration Statement, the Prospectus or
any preliminary prospectus and in respect of which indemnity may be sought
against one or more of the holders, such holders shall have the rights and
duties given to the Company by Section 4(c) (except that if the
Company as provided in Section 4(c) shall have assumed the defense
thereof such holders shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof but the fees and
expenses of such counsel shall be at such holder’s expense unless the
conditions in clauses (i), (ii) or (iii) of Section 4(c) shall
apply) and the Company and its directors, any such officers, and any such
controlling Person shall have the rights and duties given to the holders by Section 4(c).
In no event shall the aggregate liability of any selling holder hereunder,
together with any liability for contribution under Section 4(d), be
greater than the net proceeds (i.e., proceeds net of underwriting discounts,
fees, commissions and any other expenses payable by such selling holder)
received by such holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.

 

(c)                                  In
case any action or proceeding (including any governmental or regulatory
investigation or proceeding) shall be brought against any current or former
holder of the Registrable Securities or any Person controlling such holder,
with respect to which indemnity may be sought against the Company pursuant to Section 4(a),
such holder or such Person controlling such holder shall promptly notify the
Company in writing and the Company shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such holder and payment of
all fees and expenses relating thereto. 
Such holder and such Persons controlling such holder shall have the
right to employ separate counsel in any such action or proceeding and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at such holder’s expense unless (i) the employment of such counsel
has been specifically authorized in writing by the Company, (ii) the
Company has not assumed the defense and employed counsel reasonably
satisfactory to such holder within 15 days after notice of any such action or
proceeding, or (iii) the named parties to any such action or
proceeding(including any impleaded parties) include both such holder or any
Person controlling such holder and the Company and such holder or any Person
controlling such holder shall have been advised by such counsel that there may be
one or more legal defenses available to such holder or Person controlling such
holder that are different from or additional to those available to the Company
and, in the reasonable opinion of counsel to such holder or Person controlling
such holder, could not be asserted by the Company’s counsel without creating a
conflict of interest (in which case the Company shall not have the right to
assume the defense of such action or proceeding on behalf of such holder or
controlling Person, it being understood, however, that the Company shall not,
in connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (in addition to all local counsel
which is necessary, in the good faith opinion of both counsel for the
indemnifying party and counsel for the indemnified party in order to adequately
represent the indemnified parties) for all such holders and controlling
Persons, which firm shall be designated in writing by the holders of a majority
of the Registrable Securities currently or formerly held by such holders and
that all such fees and expenses shall be promptly reimbursed as they are
incurred upon written request and presentation of invoices). The Company shall
not be liable for any settlement of any such action effected without the
written consent of the Company (which 

 

 

consent shall
not be unreasonably withheld or delayed), but if settled with the written
consent of the Company or if there is a final judgment for the plaintiff, the
Company agrees to indemnify and hold harmless such holder and all Persons
controlling such holder from and against any loss or liability by reason of
such settlement or judgment. The Company shall not, without the prior written
consent of the holder, effect any settlement of any pending or threatened
proceeding in respect of which any holder or any Person controlling such holder
is a party (or a potential party) and indemnity has been sought hereunder by
such holder or any Person controlling such holder unless such settlement
includes an unconditional release of such holder or such controlling Person
from all liability on claims that are the subject matter of such proceeding.

 

(d)                                 If
the indemnification provided for in this Section 4 is unavailable to an
indemnified party under paragraphs (a), (b) or (c) hereof in respect
of any losses, claims, damages, liabilities or expenses referred to therein,
then each indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities and expenses in such proportion
as is appropriate to reflect the relative fault of the Company on the one hand
and such holders on the other hand in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations.  The relative fault of the Company on the one
hand and such holders on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the Company on the one hand or by such holders on the other hand
and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.  The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or expenses shall
be deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.

 

(e)                                  The
Company and the holders of the Registrable Securities agree that it would not
be just and equitable if contribution pursuant to this Section 4 were
determined by a pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to in subsection
(d) above.  The amount paid or
payable by an indemnified party as a result of the losses, claims, damages, liabilities
and expenses referred to in subsection (d) above shall be deemed to
include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating any claim or defending any such action, suit or proceeding.  Notwithstanding any other provision of this
Agreement, no holder of the Registrable Securities shall be required to
contribute an amount greater than the net proceeds received by such holder with
respect to the sale of Registrable Securities giving rise to any
indemnification or contribution obligation under this Section 4.  No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.

 

 

5.                                       RULE
144.  The Company agrees with each
holder of Registrable Securities to:

 

(a)           comply with the
requirements of Rule 144(c) under the Securities Act with respect to
current public information about the Company;

 

(b)           use its best efforts
to file with the Commission in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act (at any
time it is subject to such reporting requirements); and

 

(c)           furnish to any
holder of Registrable Securities upon request (i) a written statement by
the Company as to its compliance with the requirements of said Rule 144(c) and
the reporting requirements of the Securities Act and the Exchange Act (at any
time it is subject to such reporting requirements), (ii) a copy of the
most recent annual or quarterly report of the Company, and (iii) such
other reports and documents of the Company as such holder may reasonably
request to avail itself of any similar rule or regulation of the
Commission allowing it to sell any such securities without registration.

 

6.             DEFINITIONS.

 

(a)           Definitions.  Unless the context otherwise requires, the
terms hereinafter set forth when used herein shall have the following meanings
and the following definitions shall be equally applicable to both the singular
and plural forms of any of the terms herein defined.

 

“Affiliate”
means, as to any Person, a Person which directly or indirectly through one or
more intermediaries controls, or is controlled by, or is under common control
with, the first Person.  The term “control”
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting stock, through an investment advisory or other fiduciary
arrangement, by contract or otherwise, and the term “controlled” shall have a
correlative meaning.

 

“Agreement”
means this Registration Rights Agreement and all Schedules hereto.

 

“Business
Day” means any day other than a Saturday, Sunday or other day on which
banks in Boston are required by law to close or are customarily closed.

 

“Closing
Date” means the “Closing Date” under the Purchase Agreement.

 

“Commission”
means the Securities and Exchange Commission as from time to time constituted,
created under the Exchange Act, or, if at any time after the execution of this
Agreement such Commission is not existing and performing the duties now
assigned to it under the Exchange Act, then the Person performing such duties
at such time.

 

“Common
Stock” means any stock of any class of the Company which has no preference
in respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Company and which is
not subject to redemption by the Company.

 

“Company”
has the meaning assigned in the first paragraph of this Agreement.

 

 

“Effective
Date” means the date the Registration Statement is declared effective by
the Commission.

 

“Exchange
Act” means the Securities Exchange Act of 1934, as amended.

 

“Investor”
has the meaning assigned in the first paragraph of this Agreement, and includes
any of its successors or permitted assignees of any of their rights hereunder
that hold Registrable Securities.

 

“Person”
means any natural person, corporation, partnership, limited liability company,
trust or unincorporated organization, incorporated government, government
agency or political subdivision thereof.

 

“Prospectus”
means the prospectus included in a Registration Statement, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.

 

“Registrable
Securities” means (a) all shares of Common Stock issuable upon the
conversion of the Debenture and Warrant (as both of such terms are defined in
the Purchase Agreement) and (b) any shares of capital stock issued or
issuable, from time to time, upon any reclassification, share combination,
share subdivision, stock split, share dividend, merger, consolidation or
similar transaction or event or otherwise as a distribution on, in exchange for
or with respect to any of the foregoing, in each case held at the relevant time
by an Investor.  As to any particular
securities, such securities will cease to be Registrable Securities when (i) they
have been transferred in a public offering registered under the Securities Act,
(ii) they have been transferred in a sale made through a broker, dealer or
market-maker pursuant to Rule 144 under the Securities Act or (iii) the
holder thereof is able to sell all of such securities under Rule 144 under
the Securities Act during any 90-day period without restriction (including
without limitation, as to volume by the holder thereof).

 

“Registration
Period” means the period from and after the Effective Date until the time
determined by Section 1(a)(ii) hereof.

 

“Registration
Statement” means any registration statement of the Company relating to the
registration for resale of Registrable Securities, including any registration
statement filed pursuant to the provisions of this Agreement, including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.

 

“Securities
Act” means the Securities Act of 1933, as amended.

 

7.             MISCELLANEOUS.

 

(a)           Remedies.  Each holder of the Registrable Securities, in
addition to being entitled to exercise all rights provided herein, and granted
by law, including recovery of damages, shall be entitled to specific
performance of its rights under this Agreement. 
The 

 

 

Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Agreement and hereby
agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.

 

(b)           No Inconsistent
Agreements.  The Company shall not,
on or after the date of this Agreement, enter into any agreement with respect to
its securities that is inconsistent with the rights granted to such holders of
the Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof.  The rights granted to
the holders hereunder do not in any way conflict with and are not inconsistent
with the rights granted to the holders of the Company’s securities under any
other agreements.

 

(c)           Amendments and
Waivers.  The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given without the written consent of the Company
and the Investor.

 

(d)           Notices.  Except as may be otherwise provided herein,
all notices, requests, waivers and other communications made pursuant to this
Agreement shall be in writing and shall be conclusively deemed to have been
duly given (a) when hand delivered to the other party; (b) when sent
by facsimile to the number set forth below if sent between 8:00 a.m. and
5:00 p.m. recipient’s local time on a business day, or on the next
business day if sent by facsimile to the number set forth below if sent other
than between 8:00 a.m. and 5:00 p.m. recipient’s local time on a
business day; (c) three business days after deposit in the U.S. mail with
first class or certified mail receipt requested postage prepaid and addressed
to the other party at the address set forth below; or (d) the next
business day after deposit with a national overnight delivery service, postage
prepaid, addressed to the parties as set forth below with next business day
delivery guaranteed, provided that the sending party receives a confirmation of
delivery from the delivery service provider. 
Each person making a communication hereunder by facsimile shall promptly
confirm by telephone to the person to whom such communication was addressed
each communication made by it by facsimile pursuant hereto but the absence of
such confirmation shall not affect the validity of any such communication.  A party may change or supplement the
addresses given above, or designate additional addresses, for purposes of this Section 7(d)
by giving the other party written notice of the new address in the manner set
forth above.

 

(e)           Successors and
Assigns.  This Agreement shall inure
to the benefit of and be binding upon the successors and permitted assigns of
the Company and the Investor.  The rights
and obligations of the Investor under this Agreement shall be automatically
assigned by the Investor to any transferee of all or any portion of the
Investor’s Registrable Securities who is a Permitted Transferee (as defined
below); provided, however, that within a reasonable time after the transfer, (i) the
Company is provided notice of the transfer including the name and address of
the transferee and the number of Registrable Securities transferred; and (ii) that
such transferee agrees in writing to be bound by the terms of this
Agreement.  (For purposes of this “Agreement,
a “Permitted Transferee” shall mean any Person who (a) is an “accredited
investor,” as that term is defined in Rule 501(a) of Regulation D and
(b) is a transferee of the Registrable Securities as 

 

 

permitted
under the securities laws of the United States). Upon any transfer permitted by
this Section 8(e), the Company shall be obligated to such transferee to
perform all of its covenants under this Agreement as if such transferee were an
Investor.

 

(f)            Counterparts.  This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

 

(g)           Governing Law.  All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by and construed and enforced in accordance with
the laws of the State of Delaware without regard to the principles of conflicts
of laws thereof.

 

(h)           Severability.  Should any part of this Agreement for any reason
be declared invalid, such decision shall not affect the validity of any
remaining portion, which remaining portion shall remain in force and effect as
if this Agreement had been executed with the invalid portion thereof eliminated
and it is hereby declared the intention of the parties hereto that they would
have executed the remaining portion of this Agreement without including therein
any such part, parts, or portion which may, for any reason, be hereafter
declared invalid.

 

(i)            Captions.  The descriptive headings of the various
Sections or parts of this Agreement are for convenience only and shall not
affect the meaning or construction of any of the provisions hereof.

 

(j)            Waiver of Jury
Trial.  EACH OF THE COMPANY AND THE
INVESTOR WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN
CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

 

(k)           Entire Agreement.  This Agreement and the documents referred to
herein constitute the entire agreement among the parties with respect to the
subject matter hereof and no party shall be liable or bound to any other party
in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein.

 

[Remainder
of this page intentionally left blank]

 

 

IN WITNESS
WHEREOF, each of the parties hereto has executed this Agreement, or caused this
Agreement to be duly executed on its behalf, as of the date first written.

 

	
   

  	
   

  	
  Microfluidics International Corporation,

  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

S-1

 

	
   

  	
   

  	
  Global Strategic Partners, LLC,
  a

  Delaware limited liability company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

 

SCHEDULE A

 

INVESTOR

 

Global Strategic Partners, LLC

11755 Wilshire Blvd., Suite 2000

Los Angeles, CA 90025

Atten:  Charles Kim, Acting
General Counsel

Facsimile: (310) 998-8553

Email: ckim@abraxisbio.com

 

 

SCHEDULE 3.3

 

Funds Payment Schedule

 

[Payoff of the
existing line of credit, with the balance to the Company]Exhibit
10.2

 

AMENDMENT NO. 1 TO

DEBENTURE AND WARRANT PURCHASE AGREEMENT

and

AMENDMENT NO. 1 TO

CONVERTIBLE DEBENTURE

 

THIS AMENDMENT NO. 1 TO THE DEBENTURE AND NOTE
PURCHASE AGREEMENT AND AMENDENT NO. 1 THE CONVERTIBLE DEBENTURE (the “Amendment”)
is made effective as of the 17th day of November, 2008, by and between
Microfluidics International Corporation, a Delaware corporation (the “Company”),
and Global Strategic Partners, LLC , a Delaware limited liability company (the “Investor”).

 

RECITALS

 

WHEREAS, the Company and Investor entered into a
Debenture and Warrant Purchase Agreement dated as of November 14, 2008
(the “Purchase Agreement”) whereby the Investor purchased a $5,000,000
convertible debenture (the “Debenture”) and a warrant to purchase common stock
of the Company (the “Warrant”); and

 

WHEREAS, the Company and the Investor would like to
amend the Purchase Agreement and Debenture as provided herein.

 

NOW, THEREFORE, in consideration of the mutual
promises and covenants set forth herein, the Investor and the Company hereby
agree that the Purchase Agreement and the Debenture shall be amended as set
forth herein, and the parties hereto further agree as follows:

 

1.                                      Definitions.
Except as otherwise provided herein, capitalized terms used in this Amendment
shall have the meanings set forth in the Purchase Agreement.

 

2.                                      Amendments.

 

2.1                                 Amendment to Purchase Agreement. Section 6.3 of the
Purchase Agreement is hereby amended in its entirety to read as follows:

 

“6.3                           Board
Representation; Observer Rights.

 

(a)                                  Until
the third (3rd)
anniversary of this Agreement, at any election of directors of the Board either at a
meeting of the stockholders or by written consent, the Company shall, if so
requested by Investor, nominate one (1) person specified by Investor to
serve on the Board and the Company shall use its best efforts to cause
the election of such person to its Board.

 

(b)                                 If
at any time Investor exercises any portion of the Warrant, at any election of
directors of the Board either at a meeting of the stockholders or by written
consent, the Company shall, if so requested by Investor, nominate such persons
designated by Investor as may be necessary to cause Investor’s representation
on the

 

1

 

Board to be proportional to Investor’s stockholdings
in the Company and  the Company shall use its best efforts to cause
the election of such persons to its Board. As an illustration, and without
limiting the application of the foregoing provisions, if the authorized number
of directors to serve on the Board is fixed at five (5) directors and
Investor has exercised the Warrant such that it holds 40% of outstanding Common
Stock, then Investor shall be entitled to nominate two (2) persons to
serve on the Board and the Company agrees to use its best efforts to cause the
election of such nominees to the Board.

 

(c)                                  The
Company shall give the Investor at least thirty (30) days’ written notice prior
to the mailing of any proxy statement or written consent to its stockholders in
connection with the election of directors in order to permit the Investor to
exercise its rights under this Section 6.3.

 

(d)                                 To
the extent that the Investor is entitled to nominate a director to serve on the
Board pursuant to this Section 6.3 and does not so exercise such right,
the Company shall invite a representative of the Investor, to be determined by
the Investor in its sole discretion, to attend all meetings of the Board in a
nonvoting observer capacity and, in this respect, shall give such representative
copies of all notices, minutes, consents and all other materials that it
provides to the directors; provided, however, that such representative agrees
in writing to hold in confidence and trust and to act in a fiduciary manner
with respect to all information so provided; and, provided further, that the
Company reserves the right to withhold any information and to exclude such
representative from any meeting or portion thereof if access to such
information or attendance at such meeting could adversely affect the
attorney-client privilege between the Company and its counsel.”

 

2.2                                 Amendment to Debenture. Section 4 of the Debenture is
hereby deleted and of no further effect.

 

3.                                      Terms
of Agreement and Debenture. Except as
expressly modified hereby, all terms, conditions and provisions of the Purchase
Agreement and the Debenture shall continue in full force and effect.

 

4.                                      Conflicting
Terms. In the event of any inconsistency or
conflict between the Purchase Agreement and the Debenture, on the one hand, and
this Amendment, on the other hand, the terms, conditions and provisions of this
Amendment shall govern and control.

 

5.                                      Entire
Agreement. This Amendment and the Purchase
Agreement (and the schedules and exhibits thereto, including but not limited to
the Debenture) constitute the entire and exclusive agreement between the
parties with respect to the subject matter hereof and thereof.

 

2

 

IN WITNESS WHEREOF, the parties have executed this
Amendment as of the date first above written.

 

	
   

  	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Microfluidics International Corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Michael C. Ferrara

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Michael
  C. Ferrara

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  CEO

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  INVESTOR:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Global Strategic Partners, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Bruce Wendel

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Bruce
  Wendel

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  EVP,
  Corp. Dev.

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