Exhibit 10.62

 

PLACEMENT AGENCY AGREEMENT

 

February 13, 2004

 

Casimir Capital L.P

100 Broadway, 11th Floor

New York, NY 10005

Attention:  Richard Sands, President

 

Ladies and Gentlemen:

 

MFIC Corporation, a Delaware corporation (the “Company”), hereby confirms its
agreement (the “Agreement”) with Casimir Capital L.P., a Delaware corporation
(the “Placement Agent”), as follows:

 

1.             Offering.

 

(a)           The Company will offer investment units to accredited investors
(the “Offering”), each unit (a “Unit”) consisting of (i) one (1) share (“Share”)
of common stock, par value $.01 per share, of the Company (the “Common Stock”)
and (ii) one (1) three-year warrant (the “Warrant”) to purchase one-half of a
share of Common Stock.  The offering price per Unit shall be equal to 85% of the
average VWAP (as defined below) of the Common Stock over the twenty (20) trading
days immediately prior to each closing of the sale of Units (a “Closing”).  The
exercise price of the Warrants shall be equal to such offering price per Unit at
each applicable Closing. The Warrants shall have full-ratchet antidilution
provisions excluding shares issuable upon the conversion or exercise of options,
warrants or other convertible securities outstanding as of the date hereof or
options hereafter issued pursuant to the Company’s employee stock option plans
or director stock option plans as presently in effect.  The total amount of
gross proceeds from the sale of Units in the Private Placement shall be a
minimum of $2,000,000 (the “Minimum Amount”) and a maximum of $5,000,000 (the
“Maximum Amount”). The Shares, together with the Warrants shall be referred to
herein as the “Securities”.  All share prices, exercise prices and conversion
prices should be assumed to be proportionally adjusted to reflect stock splits,
stock dividends, recapitalizations and the like.

 

As used herein, “VWAP” shall mean for any date, the price determined by the
first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a principal trading market or the OTC Bulletin Board, the
daily volume weighted average price of the Common Stock for such date (or the
nearest preceding date) on the primary trading market (including the OTC
Bulletin Board) on which the Common Stock is then listed or quoted as reported
by Bloomberg Financial L.P. (based on a trading day from 9:30 a.m. Eastern Time
to 4:02 p.m. Eastern Time) using the VAP function; (b) if the Common Stock is
not then listed or quoted

 

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on a principal trading market or the OTC Bulletin Board and if prices for the
Common Stock are then reported in the “Pink Sheets” published by the National
Quotation Bureau Incorporated (or a similar organization or agency succeeding to
its functions of reporting prices), the most recent bid price per share of the
Common Stock so reported; or (c) in all other cases, the fair market value of a
share of Common Stock as determined by a nationally recognized-independent
appraiser selected in good faith by the Placement Agent.

 

(b)           The Units will be offered on a reasonable efforts basis for a
period of 60 days from the date that the Memorandum (as defined in Section 1(d))
is first sent to prospective investors (the “Commencement Date”), which period
may be extended by the mutual written agreement of the Company and the Placement
Agent for up to an additional 30 days (the “Offering Period”).  The date on
which the Offering shall terminate shall be referred to as the “Termination
Date.”

 

(c)           The minimum subscription for Units shall be $75,000, however, the
Placement Agent and the Company may, in their discretion, accept less than the
minimum subscription amount; provided, however, that the Placement Agent shall
not tender to the Company and the Company shall not accept subscriptions from,
or sell Units to, any persons or entities that do not qualify as (or are not
reasonably believed to be) “accredited investors,” as such term is defined in
Rule 501 of Regulation D promulgated under Section 4(2) of the Securities Act of
1933, as amended (the “Act”).

 

(d)           The Offering will be made by the Placement Agent on behalf of the
Company solely pursuant to the Memorandum, which at all times will be in form
and substance reasonably acceptable to the Placement Agent and its counsel and
contain such legends and other information as the Placement Agent and its
counsel may, from time to time, reasonably deem necessary and desirable to be
set forth therein.  “Memorandum” as used in this Agreement means the Company’s
Confidential Private Placement Memorandum, inclusive of all exhibits, and any
and all amendments, supplements and appendices thereto and other
Company-approved documents that the Placement Agent may use on the Company’s
behalf to sell the Units.  Unless otherwise defined, each term used in this
Agreement will have the same meaning as shall be set forth in the Memorandum.

 

2.       Representations and Warranties.  The Company hereby represents and
warrants to the Placement Agent that each of the following shall be true in all
respects as of the date hereof and, as applicable, on and as of the date of the
Memorandum as if made on and as of the date hereof:

 

(a)           The Memorandum will be, and as of the date of the Memorandum has
been, diligently prepared by the Company, at its sole cost, in conformity with
all applicable laws, and will be in compliance with Regulation D as promulgated
under Section 4(2) of the Act (“Regulation D”), the Act and the requirements of
all other rules and regulations (the “Regulations”) of the Securities and
Exchange Commission (the “SEC”) relating to offerings of the type contemplated
by the Offering, and the applicable securities laws and the rules and
regulations of those jurisdictions wherein the Units are to be offered and sold,
excluding foreign jurisdictions.  The Units will be offered and sold pursuant to
the registration exemption provided by Regulation D and Section 4(2)

 

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and/or Section 4(6) of the Act as a transaction not involving a public offering
and the requirements of any other applicable state securities laws and the
respective rules and regulations thereunder in those United States jurisdictions
in which the Placement Agent notifies the Company that the Units are being
offered for sale.  The Memorandum will describe all material aspects, including
attendant risks, of an investment in the Company.  The Company has not taken nor
will it take any action that conflicts with the conditions and requirements of,
or that would make unavailable with respect to the Offering, the exemption(s)
from registration available pursuant to Regulation D or Section 4(2) and/or
Section 4(6) of the Act and knows of no reason why any such exemption would be
otherwise unavailable to it.  Neither the Company nor its affiliates has been
subject to any order, judgment or decree of any court or governmental authority
of competent jurisdiction temporarily, preliminarily or permanently enjoining
such person for failing to comply with Section 503 of Regulation D.

 

(b)           The Memorandum will not, and as of the date of the Memorandum does
not, include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.  None of the statements, documents, certificates or other items
prepared or supplied by the Company with respect to the transactions
contemplated hereby contains or will contain an untrue statement of a material
fact or omits a material fact necessary to make the statements contained therein
not misleading.  There is no fact that the Company has not disclosed to the
Placement Agent and its counsel in writing and of which the Company is aware
that materially and adversely affects or could materially and adversely affect
the business, prospects, financial condition, operations, assets or affairs of
the Company or any of its subsidiaries.

 

(c)           The Company is a corporation duly organized, validly existing and
in good standing under the laws of Delaware.  The Company has no subsidiaries
and does not have an equity interest in any other firm, partnership, association
or other entity other than Microfluidics Corporation, a Delaware corporation
(the “Active Subsidiary”) and MediControl Corporation, a Delaware corporation
(“MediControl”).  MediControl is inactive and does not have any outstanding
liabilities or obligations, except for liabilities or obligations that could not
have a material adverse effect on the Company.  The Company owns all of the
outstanding capital stock of its subsidiaries.  The Company is duly qualified to
transact business as a foreign corporation and is in good standing under the
laws of each jurisdiction where the location of its properties or the conduct of
its business makes such qualification necessary, except where the failure to be
so qualified would not have a material adverse effect on the Company or its
business.  As of the date of the First Closing, the Active Subsidiary will be
duly qualified to transact business as a foreign corporation and will be in good
standing under the laws of each jurisdiction where the location of its
properties or the conduct of its business makes such qualification necessary,
except where the failure to be so qualified would not have a material adverse
effect on the Active Subsidiary or its business.

 

(d)           The Company and its Active Subsidiary have all requisite power and
authority (corporate and other) to conduct its business as presently conducted
and as proposed to be conducted (described in the Memorandum).  The Company has
all requisite power and authority (corporate and other) to enter into and
perform its obligations under this Agreement and the other agreements

 

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contemplated hereby, the Securities and by the Memorandum (collectively, the
“Transaction Documents”) and to issue, sell and deliver the Units and the shares
of Common Stock issuable upon exercise of the Warrants (the “Conversion
Shares”).  The execution and delivery of each of the Transaction Documents has
been duly authorized by all necessary corporate action.  This Agreement has been
duly executed and delivered and constitutes, and each of the other Transaction
Documents, upon due execution and delivery, will constitute, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms.

 

(e)           None of the execution and delivery of, or performance by the
Company under, any of the Transaction Documents or the consummation of the
transactions herein or therein contemplated conflicts with or violates, or will
result in the creation or imposition of, any lien, charge or other encumbrance
upon any of the assets of the Company or its Active Subsidiary under any
agreement or other instrument to which the Company or its Active Subsidiary is a
party or by which the Company, its Active Subsidiary or their respective assets
may be bound, any term of the charter or by-laws of the Company or its Active
Subsidiary, or any license, permit, judgment, decree, order, statute, rule or
regulation applicable to the Company, its Active Subsidiary or any of their
respective assets.

 

(f)            The Company will have the authorized and outstanding capital
stock set forth under the heading “Capitalization” in the Memorandum.  Except as
set forth in the Memorandum, all outstanding shares of capital stock of the
Company and its Active Subsidiary are duly authorized, validly issued and
outstanding, fully paid and nonassessable.  Except as set forth in the
Memorandum: (i) there are no outstanding options, stock subscription agreements,
warrants or other rights permitting or requiring the Company or others to
purchase or acquire any shares of capital stock, or other equity securities of
the Company or its Active Subsidiary, or to pay any dividend or make any other
distribution in respect thereof; (ii) there are no securities issued or
outstanding that are convertible into or exchangeable for any of the foregoing
and there are no contracts, commitments or understandings, whether or not in
writing, to issue or grant any such option, warrant, right or convertible or
exchangeable security; (iii) no shares of stock or other securities of the
Company or its Active Subsidiary are reserved for issuance for any purpose;
(iv) there are no voting trusts or other contracts, commitments, understandings,
arrangements or restrictions of any kind with respect to the ownership, voting
or transfer of shares of stock or other securities of the Company, including
without limitation, any preemptive rights, rights of first refusal, proxies or
similar rights; and (v) no person holds a right to require the Company or its
Active Subsidiary to register any securities of the Company under the Act or to
participate in any such registration.  The issued and outstanding shares of
capital stock of the Company conform to all statements in relation thereto
contained in the Memorandum and the Memorandum describes all material terms and
conditions thereof.  All issuances by the Company and its Active Subsidiary of
their respective securities were at the time of their issuance either (i) exempt
from registration under the Act and any applicable state securities laws or (ii)
appropriately registered.

 

(g)           The Shares, the Warrants, the Conversion Shares and the Agent’s
Warrants (as defined in Section 3(e) hereof) have been duly authorized and, when
issued and delivered against payment

 

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therefor as provided in the Transaction Documents, will be validly issued, fully
paid and nonassessable and will be free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through the Company other
than as provided in the Transaction Documents.  No holder of any of the
Securities, the Conversion Shares or the Agent’s Securities (as defined in
Section 3(e) hereof) will be subject to personal liability solely by reason of
being such a holder and, except as set forth in the Memorandum, none of the
Securities, the Conversion Shares or the Agent’s Securities is subject to
preemptive or similar rights of any securityholder of the Company, nor will the
issuance of such securities trigger an adjustment under the antidilution or
exercise rights of any holders of any outstanding shares of capital stock,
options, warrants or other rights to acquire any securities of the Company.  A
sufficient number of authorized but unissued shares of Common Stock has been
reserved for issuance upon exercise of the Warrants and the exercise of the
Agent’s Warrants.

 

(h)           No consent, authorization or filing of or with any court or
governmental authority is required in connection with the issuance of the
Securities, the Conversion Shares or the Agent’s Securities (as defined in
Section 3(e) hereof) or the consummation of the transactions contemplated herein
or in the other Transaction Documents, except for required filings with the SEC,
if any, and applicable “blue sky” or state securities commissions relating
specifically to the Offering (all of which will be duly made on a timely basis).

 

(i)            Except as set forth in the Memorandum, the financial statements,
together with the related notes thereto, of the Company included or incorporated
by reference in the Memorandum are true and complete and present fairly, in all
material respects, the financial position of the Company and its Active
Subsidiary as of the respective dates specified and the results of its
operations and changes in financial position for the respective periods covered
thereby.  Such financial statements and related notes were prepared in
accordance with U.S. generally accepted accounting principles (“GAAP”) applied
on a consistent basis throughout the periods indicated and except that the
unaudited financial statements omit full notes, and except for normal year-end
adjustments.  Except as set forth in such financial statements or in the
Memorandum, the Company and its Active Subsidiary have no material liabilities
of any kind, whether accrued, absolute, contingent or otherwise or entered into
any material transactions or commitments.  The other financial and statistical
information with respect to the Company and its Active Subsidiary included in
the Memorandum present fairly the information shown therein on a basis
consistent with the financial statements of the Company and its Active
Subsidiary included in the Memorandum.  The Company does not know of any facts,
circumstances or conditions (or any state of facts, circumstances or conditions
which management of the Company has concluded could give rise thereto) that
could materially adversely affect its business, operations, earnings or
prospects that have not been fully disclosed in the Memorandum.

 

(j)            The conduct of business by the Company and its Active Subsidiary
as presently and proposed to be conducted is not subject to continuing
oversight, supervision, regulation or examination by any governmental official
or body of the United States or any other jurisdiction wherein the Company or
its Active Subsidiary conducts or proposes to conduct such business, except as
described in the Memorandum or except such regulation as is applicable to
commercial

 

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enterprises generally.  Except as set forth in the Memorandum, all material
licenses, permits, approvals, government authorizations, leases, contracts and
agreements referred to in the Memorandum, along with all other material
licenses, permits, approvals, leases, governmental authorizations or contracts
to which the Company or its Active Subsidiary is a party, have been obtained and
are valid and in full force and effect and neither the Company, its Active
Subsidiary nor, to the knowledge of the Company, any other party is in default
thereunder, and to the knowledge of the Company, no event has occurred which
with the passage of time or the giving of notice, or both, would constitute a
default thereunder except for a default which would not have a material adverse
effect on the Company.  Except as described in the Memorandum, all material
licenses, permits, approvals or governmental authorizations necessary to permit
the Company and its Active Subsidiary to conduct their business have been
obtained and are outstanding and will be outstanding on each Closing Date, and
the Company and its Active Subsidiary, as applicable, are in all material
respects complying therewith.  Future legislation or administrative action,
which cannot be accurately predicted, may result in adverse government
regulation.  For example, H.R. 3162 enacted on October 21, 2001 (the “Patriot
Act”) and other governmental regulation may impose export restrictions on sale
of equipment or transfer of technology to certain countries or groups.  There
can be no assurance that sales of the Company’s equipment will not be impacted
by such legislation or designation. Depending upon which countries and sales may
be designated for trade restriction such action could have a material adverse
effect on the Company’s business, financial condition, or results of
operations.  Also, certain agreements that may be entered into by the Company
involving exclusive license rights may also be subject to national or
supranational antitrust regulatory control, the effect of which cannot be
predicted.  There are no proceedings pending, or to the knowledge of the Company
threatened, seeking to cancel, terminate or limit such licenses, approvals or
permits.

 

(k)           Except as disclosed in the Memorandum, no default by the Company
or, to the best knowledge of the Company, any other party exists in the due
performance under any material agreement to which the Company or its Active
Subsidiary is a party or to which any of its assets is subject (collectively,
the “Company Agreements”).  The Company Agreements disclosed in the Memorandum
are the only material agreements to which the Company or its Active Subsidiary
are bound or by which their assets are subject, are accurately and fairly
described in the Memorandum and are in full force and effect in accordance with
their respective terms.

 

(l)            Except as set forth in the Memorandum, there are no actions,
proceedings, claims or investigations, before or by any court or governmental
authority (or any state of facts which management of the Company has concluded
could give rise thereto) pending or, to the best knowledge of the Company,
threatened, against the Company or its Active Subsidiary, or involving their
assets or, to the knowledge of the Company, involving any of their officers or
directors which, if determined adversely to the Company, its Active Subsidiary
or such officer or director, could result in any material adverse change in the
condition (financial or otherwise) or prospects of the Company or adversely
affect the transactions contemplated by this Agreement or the other Transaction
Documents or the enforceability thereof.

 

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(m)          Neither the Company nor its Active Subsidiary are in violation of:
(i) their charter or by-laws; (ii) any indenture, mortgage, deed of trust, note
or other agreement or instrument to which the Company or its Active Subsidiary
is a party or by which it is or may be bound or to which any of their respective
assets may be subject; (iii) any statute, rule or regulation currently
applicable to the Company or its Active Subsidiary; or (iv) any judgment, decree
or order applicable to the Company or its Active Subsidiary, which violation or
violations individually, or in the aggregate, would result in any material
adverse change in the condition (financial or otherwise) or prospects of the
Company.

 

(n)           Except as set forth in the Memorandum, neither the Company nor its
Active Subsidiary own any real property in fee simple, and the Company and its
Active Subsidiary has good and marketable title to all property (personal,
tangible and intangible) owned by it, free and clear of all security interests,
liens and encumbrances.

 

(o)           The Company or its Active Subsidiary owns all right, title and
interest in, or possesses adequate and enforceable rights to use, all patents,
patent applications, trademarks, trade names, service marks, copyrights, rights,
licenses, franchises, trade secrets, confidential information, processes,
formulations, software and source and object codes reasonably necessary for the
conduct of its business, except as otherwise described in the Memorandum
(collectively, the “Intangibles”).  To the best knowledge of the Company,
neither the Company not its Active Subsidiary has infringed upon the rights of
others with respect to the Intangibles, nor does the Company have any reason to
believe it or its Active Subsidiary has infringed upon the rights of others with
respect to the Intangibles; neither the Company not its Active Subsidiary has
received notice that they have or may have infringed or are infringing upon the
rights of others with respect to the Intangibles, or any notice of conflict with
the asserted rights of others with respect to the Intangibles that could,
individually or in the aggregate, materially and adversely affect the business,
condition (financial or otherwise) or prospects of the Company and its Active
Subsidiary, taken as a whole.  Except as set forth in the Memorandum, to the
best knowledge of the Company, no others have infringed or are infringing upon
the Intangibles.

 

(p)           Except as set forth in the Memorandum and as may otherwise be
contemplated therein, the Company and its Active Subsidiary have operated their
business diligently and only in the ordinary course as theretofore conducted and
since the date of the financial statements disclosed in the Memorandum there has
been no: (i) material adverse change in the business condition (financial or
otherwise) or prospects of the Company and its Active Subsidiary;
(ii) transaction otherwise than in the ordinary course of business;
(iii) issuance of any securities (debt or equity) or any rights to acquire any
such securities; (iv) damage, loss or destruction, whether or not covered by
insurance, with respect to any asset or property of the Company or its Active
Subsidiary; or (v) agreement to permit any of the foregoing.

 

(q)           The Company and its Active Subsidiary have filed, on a timely
basis, each Federal, state, local and foreign tax return which is required to be
filed by it, or has requested an extension therefor and has paid all taxes and
all related assessments, penalties and interest to the extent that the same have
become due.

 

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(r)            The Company is not obligated to pay, and has not obligated the
Placement Agent to pay, a finder’s or origination fee in connection with the
Offering and agrees to indemnify the Placement Agent from any such claim made by
any other person.  The Company has not offered for sale or solicited offers to
purchase the Units except for negotiations with the Placement Agent.  Except as
set forth in the Memorandum, as of the commencement of the Offering, no other
person has any right to participate in any offer, sale or distribution of the
Company’s securities to which the Placement Agent’s rights, described herein,
shall apply.

 

(s)           The Company and its Active Subsidiary have and will maintain
appropriate casualty and liability insurance coverage, in scope and amounts
reasonable and customary for similar businesses.

 

(t)            As of their respective filing dates, the Company’s filings with
the SEC were true and correct in all material respects.

 

3.             Placement Agent Appointment and Compensation.

 

(a)           In accordance with the terms hereof, the Company hereby appoints
the Placement Agent and its selected dealers, as its exclusive agent in
connection with the Offering.  The Company acknowledges that the Placement Agent
may use selected dealers and sub agents to fulfill its agency hereunder provided
that such dealers and sub agents are provided that such dealers and sub-agents
are in good standing with the National Association of Securities Dealers, Inc.
(the “NASD”) and are compensated solely by the Placement Agent.  Except as
expressly stated herein, the Company has not and will not make, or permit to be
made, any offers or sales of the Units other than through the Placement Agent
without the Placement Agent’s prior written consent.  The Placement Agent has no
obligation to purchase any of the Units.  The agency of the Placement Agent
hereunder shall continue until the earlier of the Termination Date or the Final
Closing (as defined in Section 4(c) hereof).

 

(b)           The Company will cause to be delivered to the Placement Agent
copies of the Memorandum and has consented, and hereby consents, to the use of
such copies for the purposes permitted by the Act and applicable securities
laws, and hereby authorizes the Placement Agent and its agents, employees and
selected dealers to use the Memorandum in connection with the sale of the Units
until the Termination Date, and no other person or entity is or will be
authorized to give any information or make any representations other than those
contained in the Memorandum or to use any offering materials other than those
contained in the Memorandum in connection with the sale of the Units.  The
Company will provide at its own expense such quantities of the Memorandum and
other documents and instruments relating to the Offering as the Placement Agent
may reasonably request.

 

(c)           The Company will cooperate with the Placement Agent by making
available to its representatives such information as may be requested in making
a reasonable investigation of the Company and its affairs and shall provide
reasonable access to senior executive employees as shall be reasonably
requested.

 

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(d)           The Company shall pay to the Placement Agent a placement fee equal
to eight percent (8%) of the aggregate gross purchase price of all Units paid
for at each Closing (the “Placement Agent’s Fee”).  In addition, the Company
shall pay all expenses set forth in Section 5(i) hereof.  The Placement Agent’s
Fee and the expenses set forth in Section 5(i) hereof will be deducted from the
gross proceeds of the Units sold at each Closing, as set forth in Section 4
hereof.  The Placement Agent shall direct all such amounts to be paid directly
from the escrow account established pursuant to Section 4(b) hereof.

 

(e)           As additional compensation hereunder, at each Closing, the Company
shall sell to the Placement Agent or its designees, for nominal consideration,
warrants to purchase the number of shares of Common Stock equal to ten percent
(10%) of the Shares and Conversion Shares underlying the Warrants purchased at
each Closing (the “Agent’s Warrants”), at an exercise price per share equal to
105% of the exercise price per share of the Warrants issued at the applicable
Closing.  The shares of Common Stock underlying the Agent’s Warrants shall be
referred to collectively herein as the “Agent’s Shares” and, together with the
Agent’s Warrants, as the “Agent’s Securities”.  The Agent’s Warrants shall be
exercisable until five years after their date of issuance.  The holders of the
Agent’s Securities shall have registration rights equivalent to those granted to
the holders of Units.  Prior to the First Closing, the Company and Placement
Agent shall agree to the form of Agent’s Warrant, which shall contain such terms
and other customary provisions including cashless exercise and full ratchet
anti-dilution provisions (excluding shares issuable upon conversion or exercise
of options, warrants, or other convertible securities outstanding as of the date
hereof or options hereafter issued pursuant to the Company’s employee stock
option plans or director stock option plans presently in effect) in form and
substance reasonably satisfactory to the Placement Agent and the Company.

 

(f)            Provided that the Placement Agent has identified the investors or
parties that it contacted in connection with the Offering, in the event any
investor or party contacted by the Placement Agent in connection with the
Offering subsequently invests in or provides other consideration to the Company
at any time within eighteen (18) months from the later of the Termination Date
or the final Closing of the Offering (the “Final Closing”), the Company shall
pay to the Placement Agent cash and warrant compensation with respect to such
investment or consideration equal to that which is set forth herein with respect
to the Offering, except where the Company can demonstrate to the Placement
Agent’s reasonable satisfaction that payment of such compensation would violate
the rules of the NASD or any state or federal authority. Within five says
following the execution hereof, the Company shall provide a list of parties (the
“Company Investors”) with whom it has already discussed an equity or debt
investment in the Company and whose investment shall not result in any fee or
compensation payable to the Placement Agent pursuant to this Section 3(f),
unless mutually agreed upon in advance between the Company and the Placement
Agent.  Notwithstanding the foregoing sentence, the Placement Agent shall be
entitled to its fees, expenses and compensation with respect to Company
Investors that participate in the Offering.

 

(g)           The Company shall pay to the Placement Agent cash and warrant
compensation equal to that which is set forth herein with respect to the
following: (i) proceeds from investments through private offerings by the
Company made within 18 months after the Final Closing of the Offering

 

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by investors who participated in the Offering; and (ii) proceeds from
investments through private offerings by the Company made within 12 months after
the Final Closing of the Offering by investors who subscribed to and sought to
participate in the Offering but were rejected by the Company, except where the
Company can demonstrate to the Placement Agent’s reasonable satisfaction that
payment of such compensation would violate the rules of the NASD or any state or
federal authority.

 

4.             Subscription and Closing Procedures.

 

(a)           Each prospective purchaser will be required to complete and
execute one original signature page for the Subscription Agreement in the form
annexed to the Memorandum and the accredited investor certification attached
thereto, which will be forwarded or delivered to the Placement Agent at the
Placement Agent’s offices at the address set forth in Section 11 hereof,
together with the subscriber’s check or good funds in the full amount of the
purchase price per Unit for the number of Units desired to be purchased.

 

(b)           All funds for subscriptions received from the Offering will be
promptly forwarded by the Placement Agent or the Company, if received by it, to
and deposited in an escrow account (the “Escrow Account”) with Signature Bank
acting as escrow agent (the “Escrow Agent”) established for the purpose of
holding subscription funds prior to a Closing. All such funds for subscriptions
will be held in the Escrow Account pursuant to the terms of the escrow agreement
with respect thereto among the Company, the Placement Agent and the Escrow
Agent.  The Company will pay all fees related to the establishment and
maintenance of the Escrow Account.  The Placement Agent or the Company can
reject any subscriptions for any reason.  Subject to the receipt of such
subscriptions for the Minimum Amount, the Company will either accept or reject
the Subscription Agreements in a timely fashion and at each Closing will
countersign the Subscription Agreements and provide copies of such agreements to
the Placement Agent.  The Company will give written notice to the Placement
Agent of its acceptance or rejection of each subscription.  The Company, or the
Placement Agent on the Company’s behalf, will promptly return to subscribers
incomplete, improperly completed, improperly executed and rejected subscriptions
and give written notice thereof to the Placement Agent upon such return.

 

(c)           If subscriptions for at least the Minimum Amount have been
accepted prior to the Termination Date, the funds therefor have been collected
by the Escrow Agent and all of the conditions set forth elsewhere in this
Agreement are fulfilled, a closing shall be held promptly with respect to that
portion of the Units sold (the “First Closing”).  Thereafter, the remaining
Units will continue to be offered and sold until the Termination Date. 
Additional Closings may from time to time be conducted at times mutually
agreeable with respect to the additional Units sold, with the Final Closing to
occur within ten (10) days after the earlier of the Termination Date or the sale
of all Units offered.  Delivery of payment for the accepted subscriptions from
the funds held in the Escrow Account will be made at each Closing at the
Placement Agent’s offices against delivery by the Company of the Securities
comprising the Units at the address set forth in Section 11 hereof (or at such
other place as may be mutually agreed upon between the Company and the Placement
Agent), net of amounts due to the Placement Agent and Blue Sky counsel pursuant
to Section 5(i)

 

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hereof as of such Closing.  Executed Securities and the Agent’s Warrants will be
in such authorized denominations and issued in such names as the Placement Agent
may request on or before the second full business day prior to the date of each
Closing (“Closing Date”), and will be made available to the Placement Agent for
review and packaging at the Placement Agent’s office at least one full business
day prior thereto.

 

(d)           If Subscription Agreements for the Minimum Amount have not been
received and accepted by the Company on or before the Termination Date for any
reason, the Offering will be terminated, no Units will be sold, and the Escrow
Agent will, at the request of the Placement Agent, cause all monies received
from subscribers for the Units to be promptly returned to such subscribers
without interest, penalty, expense or deduction.

 

5.             Further Covenants.  The Company hereby covenants and agrees that:

 

(a)           Except with the prior written consent of the Placement Agent, the
Company shall not, at any time prior to the Final Closing, take any action that
would cause any of the representations and warranties made by it in this
Agreement not to be complete and correct on and as of each Closing Date with the
same force and effect as if such representations and warranties had been made on
and as of each such date.

 

(b)           If, at any time prior to the Final Closing, any event shall occur
that does or may reasonably be expected to materially affect the Company or as a
result of which it might become necessary to amend or supplement the Memorandum
so that the representations and warranties herein and therein remain true, or in
case it shall, in the reasonable opinion of counsel to the Placement Agent, be
necessary to amend or supplement the Memorandum to comply with Regulation D or
any other applicable securities laws or regulations, the Company will promptly
notify the Placement Agent and shall, at its sole cost, prepare and furnish to
the Placement Agent copies of appropriate amendments and/or supplements in such
quantities as the Placement Agent may request.  The Company will not at any
time, whether before or after the Final Closing, prepare or use any amendment or
supplement to the Memorandum of which the Placement Agent will not previously
have been advised and furnished with a copy, or to which the Placement Agent or
its counsel will have objected in writing or orally (confirmed in writing within
24 hours), or which is not in compliance with the Act, the Regulations and other
applicable securities laws.  As soon as the Company is advised thereof, the
Company will advise the Placement Agent and its counsel, and confirm the advice
in writing, of any order preventing or suspending the use of the Memorandum, or
the suspension of the qualification or registration of the Units for offering or
the suspension of any exemption for such qualification or registration of the
Units for offering in any jurisdiction, or of the institution or threatened
institution of any proceedings for any of such purposes, and the Company will
use its best efforts to prevent the issuance of any such order, judgment or
decree, and, if issued, to obtain as soon as reasonably possible the lifting
thereof.

 

(c)           The Company shall comply with the Act, the Regulations, the
Securities Exchange Act of 1934, as amended (the “1934 Act”), and the rules and
regulations thereunder, all applicable state securities laws and the rules and
regulations thereunder in the states in which the Placement

 

11

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Agent’s Blue Sky counsel has advised the Placement Agent that the Units are
qualified or registered for sale or exempt from such qualification or
registration, so as to permit the continuance of the sales of the Units, and
will file with the SEC, and shall promptly thereafter forward to the Placement
Agent, any and all reports on Form D as are required.

 

(d)           The Company shall use its reasonable best efforts to qualify the
Units for sale (or seek exemption therefrom) under the securities laws of such
jurisdictions in the United States as the Placement Agent shall designate, and
the Company will (through Blue Sky counsel) make such applications and furnish
information as may be required for such purposes.  The Company will, from time
to time, prepare and file such statements and reports as are or may be required
to continue such qualifications in effect for so long a period as the Placement
Agent may reasonably request.

 

(e)           The Company shall place a legend on the certificates representing
the Securities issued to subscribers stating that the securities evidenced
thereby have not been registered under the Act or applicable state securities
laws, setting forth or referring to the applicable restrictions on
transferability and sale of such securities under the Act and applicable state
laws.

 

(f)            The Company shall apply the net proceeds from the sale of the
Units to fund its working capital requirements and/or for such other purposes as
shall be specifically described under “Use of Proceeds” in the Memorandum.  The
net proceeds shall not be used to repay indebtedness to or pay bonuses or other
extraordinary or deferred compensation to current executive officers or
principal shareholders of the Company, or to repurchase or redeem any
securities, except that it is hereby understood and agreed that up to $75,000 of
subordinated debt may be paid from the net proceeds of the Offering to two
individuals who are principal shareholders but who are not directors, officers
or employees of the Company.

 

(g)           During the Offering Period, the Company shall make available for
review by prospective purchasers of the Units during normal business hours at
the Company’s offices, upon their request, copies of the Company Agreements to
the extent that such disclosure shall not violate any obligation on the part of
the Company to maintain the confidentiality thereof and shall afford each
prospective purchaser of Units the opportunity to ask questions of and receive
answers from an officer of the Company concerning the terms and conditions of
the Offering and the opportunity to obtain such other additional information
necessary to verify the accuracy of the Memorandum to the extent it possesses
such information or can acquire it without unreasonable expense.

 

(h)           Except with the prior written consent of the Placement Agent or as
set forth in the Memorandum with respect to the issuance of Units, the Company
shall not, at any time prior to the earlier of the Final Closing or the
Termination Date, engage in or commit to engage in any transaction outside the
ordinary course of business, including, without limitation, the incurrence of
material indebtedness (except for the substitution of a senior lender and loan
facility under terms no less favorable than existing terms with the Company’s
current lender upon the satisfaction of all liabilities and obligations owed to
such current lender); materially change its business or operations as shall be
described in the Memorandum; dispose of any material assets or make any

 

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material acquisition; or issue, agree to issue or set aside for issuance any
securities (debt or equity) or any right to acquire such securities, except as
shall be contemplated by the Memorandum.

 

(i)            Whether or not the transactions contemplated hereby are
consummated, or this Agreement is terminated, the Company hereby agrees to pay
all fees, costs and expenses incident hereto and to the Offering, including,
without limitation, those in connection with (i) preparing, distributing and
binding the Memorandum and any and all amendments and/or supplements thereto,
fees for bound volumes and any and all agreements, contracts and other documents
related hereto and thereto; (ii) the authorization, issuance, transfer and
delivery of the Shares, the Warrants, Conversion Shares, the Agent’s Shares and
the Agent’s Warrants, including, without limitation, fees and expenses of any
transfer agent or registrar; (iii) the fees and expenses of the Escrow Agent
(subject to Section 4(b) hereof); (iv) all fees and expenses of legal,
accounting and other advisers to the Company; (v) all filing fees, costs and
legal fees and expenses for Blue Sky services and related filings with respect
to Blue Sky exemptions and qualifications, including legal fees of $3,000 for
the first ten states and $450 per state thereafter, $3,000 of which shall be
paid to the Placement Agent’s counsel upon execution of this Agreement for legal
fees in connection with obtaining Blue Sky exemptions, up to a maximum of
$10,000 (the “Blue Sky Fees”) (notwithstanding the foregoing $10,000 cap on Blue
Sky Fees, the Placement Agent shall in no way be responsible for any such filing
fees, costs and legal fees and expenses for Blue Sky services and related
filings with respect to Blue Sky exemptions and qualifications); and
(vi) subject to Section 9 hereof, a nonaccountable expense allowance (“Placement
Agent Expenses”) relating to expenses incurred by the Placement Agent in
connection with the Offering (including, without limitation, travel and related
expenses and fees and expenses of legal, accounting and other advisers to the
Placement Agent) equal to 3% of aggregate gross purchase price of the Units
sold, to be deducted from the gross proceeds from the sale of Units at each
Closing, less a good faith advance of $20,000 to cover up front expenses to be
incurred by the Placement Agent which has been paid by the Company, receipt of
which is hereby acknowledged by the Placement Agent.

 

(j)            Until the Termination Date, neither the Company nor any person or
entity acting on its behalf will negotiate or enter into any agreement with any
other placement agent or underwriter with respect to a private or public
offering of the Company’s or any subsidiary’s debt or equity securities. 
Neither the Company nor anyone acting on its behalf will, until the Termination
Date, without the prior written consent of the Placement Agent, offer for sale
to, or solicit offers to subscribe for Units or other securities of the Company
from, or otherwise approach or negotiate in respect thereof with, any other
person.

 

(k)           At each Closing Date, (i) the independent auditors for the Company
shall have provided a “comfort letter” concerning the Company’s financial
statements in the form customarily provided by Brown & Brown, LLP in connection
with securities offerings by its audit clients and (ii) the chief executive
officer and chief financial officer of the Company shall have provided
representations and warranties relating to the Company’s most recent quarterly
and year-to-date unaudited financial statements and internal financial controls,
similar to those to be included in the Company’s 2002 annual report on Form
10-KSB under the 1934 Act, and as required by the Sarbanes-Oxley Act of 2002.

 

13

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(l)            The Company shall use its best efforts to file a Registration
Statement on Form SB-2 or another appropriate registration document under the
Securities Act of 1933, as amended, for resale of the shares of Common Stock
included in the Units, and the Common Stock underlying the Warrants and the
Placement Agent Warrants, as soon as possible following the Final Closing, and
in any event, not later than 30 days following the Final Closing.  The Company
shall use its best efforts to cause the effectiveness of such Registration
Statement on or before ninety (90) days after the Final Closing.  If the
Registration Statement has not been filed within the said 30-day period or does
not become effective on or before 90 days after the Final Closing (120 days in
the event of a “full review” by the SEC), the Company shall pay to each investor
an amount in cash, as liquidated damages and not as a penalty, equal to 1.0% per
month of the subscription amount paid by such investor for the Units until the
filing or effectiveness of the Registration Statement, as applicable. If the
Company fails to pay any liquidated damages pursuant to this Section in full
within seven days after the date payable, the Company will pay interest thereon
at a rate of 15% per annum (or such lesser maximum amount that is permitted to
be paid by applicable law) to each investor, accruing daily from the date such
liquidated damages are due until such amounts, plus all such interest thereon,
are paid in full. The liquidated damages pursuant to the terms hereof shall
apply on a pro-rata basis for any portion of a month prior to the filing or
effectiveness of the Registration Statement, as applicable.

 

6.             Conditions of Placement Agent’s Obligations.  The obligations of
the Placement Agent hereunder are subject to the fulfillment, at or before each
Closing, of the following additional conditions:

 

(a)           Each of the representations and warranties of the Company shall be
true and correct when made on the date hereof and on and as of each Closing Date
as though made on and as of each Closing Date.

 

(b)           The Company shall have performed and complied with all agreements,
covenants and conditions required to be performed and complied with by it under
the Transaction Documents at or before each Closing.

 

(c)           No order suspending the use of the Memorandum or enjoining the
offering or sale of the Units shall have been issued, and no proceedings for
that purpose or a similar purpose shall have been initiated or pending, or, to
the best of the Company’s knowledge, are contemplated or threatened.

 

(d)           As of the date of the Memorandum, the Company will have an
authorized and outstanding capitalization as described in the Memorandum.  Prior
to the Final Closing, no additional securities will be issued by the Company,
including but not limited to shares, options, stock subscription agreements or
warrants to purchase shares of the Company or any other obligation to issue
shares or other securities of the Company, without the prior written consent of
the Placement Agent.  Notwithstanding the preceding sentence, the Company may
issue (i) compensatory option grants to employees and consultants in the
ordinary course of business pursuant to option plans presently in effect, (ii)
shares of its Common Stock upon exercise of outstanding options or warrants or

 

14

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conversion of outstanding convertible securities and (iii) securities included
in the Units sold in the Offering and the Agent’s Warrants.

 

(e)           The Placement Agent shall have received certificates of the chief
financial officer of the Company, dated as of each Closing Date, certifying on
behalf of the Company, in such detail as Placement Agent may reasonably request,
as to the fulfillment of the conditions set forth in subparagraphs (a), (b), (c)
and (d) above.

 

(f)            The Company shall have delivered to the Placement Agent (i) a
currently dated good standing certificate from the Secretary of State of
Delaware and each jurisdiction in which the Company is qualified to do business
as a foreign corporation, and (ii) certified resolutions of the Company’s Board
of Directors approving this Agreement and the other Transaction Documents, and
the transactions and agreements contemplated by this Agreement and the other
Transaction Documents.

 

(g)           On or prior to the date hereof and at each Closing, the chief
executive officer and chief financial officer of the Company shall have provided
a certificate to the Placement Agent confirming on behalf of the Company that
there have been no undisclosed material and adverse changes in the business
condition (financial or otherwise) or prospects of the Company from the date of
the latest financial statements included in the Memorandum, the absence of
undisclosed liabilities and such other matters relating to the financial
condition and prospects of the Company that the Placement Agent may reasonably
request.

 

(h)           At each Closing, the Company shall (i) pay to the Placement Agent
the Placement Agent’s Fee in respect of all Units sold at such Closing, (ii) pay
all fees, costs and expenses set forth in Section 5(i) hereof, and (iii) execute
and deliver to the Placement Agent the Agent’s Warrants in an amount
proportional to the Units sold at such Closing.

 

(i)            There shall have been delivered to the Placement Agent a signed
opinion of counsel to the Company Gadsby Hannah, LLP (“Company Counsel”),
subject to usual and customary limitations, assumptions and caveats (including
without limitation, exclusion of any opinion regarding the securities or “blue
sky” laws of any of the several states, a public policy exclusion as to
enforceability, and reliance as to factual matters on certifications of the
Company’s executive officers and as to legal matters with respect to opinion
(xi) set forth in Exhibit A, in part on the certifications of the Company’s
general counsel) dated as of each Closing Date, in substantially the form
attached hereto as Exhibit A.

 

(j)            All actions taken at or prior to each Closing and related
documentation in connection with the authorization, issuance and sale of the
Units and the Agent’s Warrants will be reasonably satisfactory in form and
substance to the Placement Agent and its counsel, and such counsel shall have
been furnished with all such documents, certificates and opinions as they may
reasonably request upon reasonable prior notice in connection with the
transactions contemplated hereby.

 

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(k)           The Placement Agent shall be satisfied with the results of its due
diligence investigation of the Company.

 

7.             Indemnification.

 

(a)           The Company will (i) indemnify and hold harmless the Placement
Agent, its selected dealers and their respective officers, directors, employees
and each person, if any, who controls the Placement Agent within the meaning of
the Act and such selected dealers (each an “Indemnitee”) against, and pay or
reimburse each Indemnitee for, any and all losses, claims, damages, liabilities
or expenses whatsoever (or actions or proceedings or investigations in respect
thereof), joint or several (which will, for all purposes of this Agreement,
include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys’ fees, including appeals), to which
any Indemnitee may become subject, under the Act or otherwise, in connection
with the offer and sale of the Units, whether such losses, claims, damages,
liabilities or expenses shall result from any claim of any Indemnitee or any
third party; and (ii) reimburse each Indemnitee for any legal or other expenses
reasonably incurred in connection with investigating or defending against any
such loss, claim, action, proceeding or investigation; provided, however, that
the Company will not be liable in any such case to the extent that any such
claim, damage or liability results directly and primarily from (A) an untrue
statement or alleged untrue statement of a material fact made in the Memorandum,
or an omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, in
reliance upon and in conformity with written information furnished to the
Company by the Placement Agent or any such controlling persons specifically for
use in the preparation thereof, or (B) any violations by the Placement Agent of
the Act or state securities laws which does not result from a violation thereof
or a breach hereafter by the Company or any of its affiliates.  In addition to
the foregoing agreement to indemnify and reimburse, the Company will indemnify
and hold harmless each Indemnitee against any and all losses, claims, damages,
liabilities or expenses whatsoever (or actions or proceedings or investigations
in respect thereof), joint or several (which shall for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all reasonable attorneys’ fees, including appeals) to which
any Indemnitee may become subject insofar as such costs, expenses, losses,
claims, damages or liabilities arise out of or are based upon the claim of any
person or entity that he or it is entitled to broker’s or finder’s fees from any
Indemnitee in connection with the Offering.

 

(b)           The Placement Agent will indemnify and hold harmless the Company,
its officers, directors, employees and each person, if any, who controls the
Company within the meaning of the Act against, and pay or reimburse any such
person for, any and all losses, claims, damages or liabilities or expenses
whatsoever (or actions, proceedings or investigations in respect thereof) to
which the Company or any such person may become subject under the Act or
otherwise, whether such losses, claims, damages, liabilities or expenses (or
actions, proceedings or investigations in respect thereof) shall result from any
claim of the Company, any of its officers, directors, employees, agents, any
person who controls the Company within the meaning of the Act or any third
party, insofar as such losses, claims, damages or liabilities are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Memorandum but only

 

16

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with reference to information contained in the Memorandum relating to the
Placement Agent, or an omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, if made or omitted in reliance upon and in conformity with
written information furnished to the Company by the Placement Agent or any such
controlling persons, specifically for use in the preparation thereof or (ii)
acts or omissions by selected dealers or sub-agents of the Placement Agent.  The
Placement Agent will reimburse the Company or any such person for any legal or
other expenses reasonably incurred in connection with investigating or defending
against any such loss, claim, damage, liability or action, proceeding or
investigation to which such indemnity obligation applies.  Notwithstanding the
foregoing, in no event shall the Placement Agent’s indemnification obligation
hereunder exceed the amount of the Placement Agent’s Fees actually received by
it.

 

(c)           Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, claim, proceeding or
investigation (“Action”), such indemnified party, if a claim in respect thereof
is to be made against the indemnifying party under this Section 7, will notify
the indemnifying party of the commencement thereof, but the omission to so
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party under this Section 7 unless the indemnifying
party has been substantially prejudiced by such omission.  The indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party, to assume the defense thereof subject
to the provisions herein stated, with counsel reasonably satisfactory to such
indemnified party.  The indemnified party will have the right to employ separate
counsel in any such Action and to participate in the defense thereof, but the
fees and expenses of such counsel will not be at the expense of the indemnifying
party if the indemnifying party has assumed the defense of the Action with
counsel reasonably satisfactory to the indemnified party; provided, however,
that if the indemnified party shall be requested by the indemnifying party to
participate in the defense thereof or shall have concluded in good faith and
specifically notified the indemnifying party either that there may be specific
defenses available to it which are different from or additional to those
available to the indemnifying party or that such Action involves or could have a
material adverse effect upon it with respect to matters beyond the scope of the
indemnity agreements contained in this Agreement, then the counsel representing
it, to the extent made necessary by such defenses, shall have the right to
direct such defenses of such Action on its behalf and in such case the
reasonable fees and expenses of such counsel in connection with any such
participation or defenses shall be paid by the indemnifying party.  No
settlement of any Action against an indemnified party will be made without the
consent of the indemnifying party and the indemnified party, which consent shall
not be unreasonably withheld or delayed in light of all factors of importance to
such party and no indemnifying party shall be liable to indemnify any person for
any settlement of any such claim effected without such indemnifying party’s
consent.

 

8.             Contribution.  To provide for just and equitable contribution, if
(i) an indemnified party makes a claim for indemnification pursuant to Section 7
hereof and it is finally determined, by a judgment, order or decree not subject
to further appeal that such claims for indemnification may not be enforced, even
though this Agreement expressly provides for indemnification in such case; or
(ii) any indemnified or indemnifying party seeks contribution under the Act, the
1934 Act, or

 

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otherwise, then each indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company on the one hand and the Placement Agent on the other in connection with
the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses (or actions in respect thereof), as well as any other
relevant equitable considerations.  The relative benefits received by the
Company on the one hand and the Placement Agent on the other shall be deemed to
be in the same proportion as the total net proceeds from the Offering (before
deducting expenses) received by the Company bear to the total commissions and
fees received by the Placement Agent.  The relative fault, in the case of an
untrue statement, alleged untrue statement, omission or alleged omission will be
determined by, among other things, whether such statement, alleged statement,
omission or alleged omission relates to information supplied by the Company or
by the Placement Agent, and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement, alleged
statement, omission or alleged omission.  The Company and the Placement Agent
agree that it would be unjust and inequitable if the respective obligations of
the Company and the Placement Agent for contribution were determined by pro rata
allocation of the aggregate losses, liabilities, claims, damages and expenses or
by any other method or allocation that does not reflect the equitable
considerations referred to in this Section 8.  No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation.  For purposes of this Section 8, each person, if any, who
controls the Placement Agent within the meaning of the Act will have the same
rights to contribution as the Placement Agent, and each person, if any, who
controls the Company within the meaning of the Act will have the same rights to
contribution as the Company, subject in each case to the provisions of this
Section 8.  Anything in this Section 8 to the contrary notwithstanding, no party
will be liable for contribution with respect to the settlement of any claim or
action effected without its written consent.  This Section 8 is intended to
supersede, to the extent permitted by law, any right to contribution under the
Act, the 1934 Act or otherwise available.

 

9.             Termination.

 

(a)           (I) The Offering may be terminated by the Placement Agent at any
time prior to the expiration of the Offering Period in the event that (i) any of
the representations or warranties of the Company contained herein shall have
been false or misleading in any material respect when made or deemed made,
(ii) the Company shall have failed to perform any of its material obligations
hereunder, (iii) the Company shall have determined for any reason not to
continue with the Offering or (iv) the Placement Agent shall determine in its
sole discretion, reasonably exercised, that it is reasonably likely that any of
the conditions to Closing set forth herein will not, or cannot, be satisfied. 
In the event of any such termination occasioned by or arising out of or in
connection with the matters set forth in clauses (i)-(iii) above, or occasioned
by or arising out of or in connection with a matter set forth in clause (iv)
above due to any material breach or failure hereunder on the part of the
Company, the Placement Agent shall be entitled to receive, an amount equal to
the sum of: (A) any Placement Agent’s Fees to which the Placement Agent is
entitled pursuant to Section 3(d) hereof earned through the Termination Date,
(B) an amount equal to three percent (3%) of the aggregate purchase price per
Unit of all Units sold in the Offering (deeming,

 

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for this purpose, all Units offered as having been sold), less any amounts
theretofore paid in respect of Placement Agent Expenses, and all unpaid Blue Sky
Fees and other expenses set forth in Section 5(i) hereof and (C) all amounts
that may become payable pursuant to Section 3(f) hereof.  If the Offering is not
completed because the Placement Agent prevents its completion (except where the
Placement Agent does so because of a material breach by the Company of a
material covenant, representation or warranty contained herein or in the
Memorandum which the Company fails to cure within ten (10) business days of
receipt of written notice from the Placement Agent) or the Company terminates
the Offering because of failure of the Commencement Date to occur within 10 days
from the date hereof, the Placement Agent shall retain the $20,000 previously
paid to the Placement Agent.  If the Company prevents completion of the Offering
(except where the Company does so because of a material breach by the Placement
Agent of a material covenant, representation or warranty contained herein which
the Placement Agent fails to cure within ten (10) business days of receipt of
written notice from the Company), the Company’s liability for the Placement
Agent’s expenses shall be equal to 3% of the Maximum Amount to cover the
Placement Agent’s expenses and efforts.  Notwithstanding the foregoing, in the
event the Company completes one or more private offerings of its securities
within one year after the Company prevents the completion of the Offering
(except where the Company does so because of a material breach by the Placement
Agent of a material covenant, representation or warranty contained herein which
the Placement Agent fails to cure within ten (10) business days of receipt of
written notice from the Company), the Company shall also pay the Placement Agent
an investment banking fee equal to five percent (5%) of the total consideration
received by the Company in connection with such sales of securities, up to a
maximum fee of $100,000 except where the Company can demonstrate to the
Placement Agent’s reasonable satisfaction that payment of such compensation
would violate the rules of the NASD or any state or federal authority.  The
Company shall not have any liability to the Placement Agent under the preceding
sentence unless the Placement Agent obtains subscriptions for the Minimum
Offering prior to expiration of the Offering Period.

 

(II)           This Offering may be terminated by the Placement Agent by notice
to the Company at any time if, in the sole judgment of the Placement Agent, the
Offering or the sale or the payment for or the delivery of the Units is rendered
impracticable or inadvisable because (i) additional material governmental
restrictions not in force and effect on the date hereof shall have been imposed
upon trading in securities generally, or minimum or maximum prices shall have
been generally established on the New York Stock Exchange, or trading in
securities generally on such exchange shall have been suspended or a general
banking moratorium shall have been established by federal or New York State
authorities, (ii) a war, major hostilities, terrorist or similar activity, act
of God or other calamity shall have occurred, (iii) of a material adverse change
in the condition (financial or otherwise) of the Company, its business or
business prospects or (iv) the Placement Agent, in its sole discretion, shall be
dissatisfied with the results of its due diligence investigation.

 

(b)           This Offering may be terminated by the Company at any time prior
to the Termination Date in the event that the Placement Agent shall have failed
to perform any of its material obligations hereunder.  In the event of any
termination by the Company pursuant to this paragraph, the Placement Agent shall
be entitled to receive all amounts as may be due under any indemnity or
contribution obligation provided herein or any other Transaction Document, at
law or otherwise.

 

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On such Termination Date, the Company shall pay all unpaid Blue Sky Fees and
other expenses set forth in Section 5(i) hereof.

 

(c)           Upon any such termination, the Escrow Agent will, at the request
of the Placement Agent, cause all money received in respect of subscriptions for
Units not sold to be promptly returned to such subscribers without interest,
penalty, expense or deduction.  Any interest earned thereon shall be applied
first to the payment of amounts, if any, due to the Escrow Agent and next to the
payment of any amounts payable to the Placement Agent hereunder which remain
unpaid.

 

10.           Survival.

 

(a)           The obligations of the parties to pay any costs and expenses
hereunder and to provide indemnification and contribution as provided herein
shall survive any termination hereunder.

 

(b)           The respective indemnities, agreements, representations,
warranties and other statements of the Company set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of, and regardless of any access to
information by, the Company or the Placement Agent, or any of their officers or
directors or any controlling person thereof, and will survive the sale of the
Units.

 

11.           Notices.  All communications hereunder will be in writing and,
except as otherwise expressly provided herein or after notice by one party to
the other of a change of address, if sent to the Placement Agent, will be
mailed, delivered or telefaxed and confirmed to Casimir Capital L.P., 100
Broadway, 11th Floor, New York, NY 10005, Attention: Matthew McGovern, Telefax
number 212-798-1399, with a copy to Feldman Weinstein LLP, 420 Lexington Avenue,
New York, New York 10170, Attention: David N. Feldman, Esq., Telefax number
(212) 997-4242, and if sent to the Company, will be mailed, delivered or
telefaxed and confirmed to MFIC Corporation, 30 Ossipee Road, Newton, MA  02464,
Attention: Jack M. Swig, Esquire, Telefax number (617) 965-1213, with a copy to
Jeffrey S. Stoler, Esq., Gadsby Hannah, LLP, 225 Franklin Street, Boston, MA 
02110, Telefax number (617) 204-8011.

 

12.  APPLICABLE LAW, COSTS, ETC.  THIS AGREEMENT WILL BE GOVERNED BY, CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.  ALL CONTROVERSIES,
THAT ARISE BETWEEN THE PARTIES CONCERNING THIS AGREEMENT, SHALL BE EXCLUSIVELY
DETERMINED BY ARBITRATION PURSUANT TO THE RULES THEN PERTAINING TO THE AMERICAN
ARBITRATION ASSOCIATION (THE “AAA”) IN NEW YORK COUNTY, NEW YORK.  HEARINGS WITH
REGARD TO SUCH DISPUTE SHALL BE HELD EXCLUSIVELY AT THE OFFICES OF THE AAA IN
THE CITY OF NEW YORK AND JUDGMENT UPON ANY AWARD RENDERED PURSUANT THERETO MAY
BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION.  ANY DECISION RENDERED BY THE
AAA SHALL BE FINAL AND BINDING. SERVICE OF PROCESS MAY BE MADE UPON THE COMPANY
BY MAILING A COPY THEREOF TO IT, BY CERTIFIED OR REGISTERED MAIL, AT ITS

 

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ADDRESS TO BE USED FOR THE GIVING OF NOTICES UNDER THIS AGREEMENT.  THE COMPANY
AND THE PLACEMENT AGENT EACH HEREBY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY
DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY.

 

13.  Confidentiality.  The Company hereby agrees to hold confidential the
identities of the purchasers in the Offering and shall not disclose their names
and addresses without the prior written consent of the Placement Agent, unless
required by law.  The Company hereby consents to the granting of an injunction
against it by any court of competent jurisdiction to enjoin it from violating
the foregoing confidentiality provisions.  The Company hereby agrees that the
Placement Agent will not have an adequate remedy at law in the event that the
Company breaches these confidentiality provisions contained herein, and that the
Placement Agent will suffer irreparable damage and injury as a result of any
such breach.  Resort to such equitable relief shall not, however, be construed
to be a waiver of any other rights or remedies which the Placement Agent may
have.

 

14.  Miscellaneous.  No provision of this Agreement may be changed or terminated
except by a writing signed by the party or parties to be charged therewith. 
Unless expressly so provided, no party to this Agreement will be liable for the
performance of any other party’s obligations hereunder.  Any party hereto may
waive compliance by the other with any of the terms, provisions and conditions
set forth herein; provided, however, that any such waiver shall be in writing
specifically setting forth those provisions waived thereby.  No such waiver
shall be deemed to constitute or imply waiver of any other term, provision or
condition of this Agreement.  This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns.  Except
with respect to the use of selected dealers and sub-agents by the Placement
Agent, neither party may assign this Agreement or any rights or obligations
hereunder without the prior written consent of the other party, which consent
shall not be unreasonably withheld.  This Agreement may be executed in
counterparts, each of which shall be deemed an original and all of which shall
constitute a single agreement.  If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefore, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

 

15.  Entire Agreement.  This Agreement together with any other agreement
referred to herein contains the entire Agreement between the parties hereto and
is intended to supersede all prior agreements between the parties with respect
to the Units purchased hereunder and the subject matter hereof.

 

[SIGNATURE PAGE FOLLOWS]

 

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If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this Agreement, whereupon it will become a binding
agreement between the Company and the Placement Agent in accordance with its
terms.

 

 

Very truly yours,

 

 

 

MFIC CORPORATION

 

 

 

 

 

By:

 

 

 

Name:

 

Title:

 

 

 

 

 

Accepted and agreed to this

 

      day of                          , 2004.

 

 

 

 

 

CASIMIR CAPITAL L.P.

 

 

 

 

 

By:

 

 

 

Name:

 

Title:

 

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EXHIBIT A

 

FORM OF LEGAL OPINION

 

The phrase “Transaction Documents,” whenever it is used in this letter, means
(a) the Placement Agency Agreement dated as of                        , 2004 by
and among MFIC Corporation (the “Company”) and Casimir Capital LP (the
“Placement Agent”) (such agreement, the “Placement Agency Agreement”), (b) the
Placement Agent Warrant dated as of                        , 2004, by and among
the Company and the Placement Agent (the “Placement Agent Warrant”) and (c) the
Subscription Agreement, dated as of                       , 2004, by and among
the Company and each investor signatory thereto (such investors, the “Investors”
and such agreement, the “Subscription Agreement”), and all other documents
executed in connection with (a)-(c).  All capitalized terms used in this letter
have the respective meanings set forth in the Placement Agency Agreement unless
otherwise defined herein.

 

(i)            The Company has been organized as a corporation and is validly
existing and in corporate good standing under the laws of the State of Delaware,
has full corporate power and authority to own, lease and operate its properties
and conduct its business as described in the Memorandum and is duly qualified as
a foreign corporation for the transaction of business and is in good standing in
each jurisdiction where the conduct of its business makes such qualification
necessary, except where the failure to so qualify would not have a material
adverse effect upon the business (as currently conducted), financial condition
or results of operation of the Company (a “Material Adverse Effect”).

 

(ii)           The Company has the full corporate power and authority to execute
and deliver the Transaction Documents and all other agreements, documents and
certificates contemplated thereby and to perform its obligations thereunder. 
The execution, delivery and performance thereof and thereunder has been duly
authorized by all necessary corporate action.  Each of the Transaction Documents
has been duly executed and delivered on behalf of the Company, and constitutes
legal, valid and binding obligations of the Company, enforceable against it in
accordance with its terms except as such enforceability may be limited by public
policy considerations, applicable bankruptcy, insolvency or laws affecting
creditor’s rights or remedies and general principles of equity.

 

(iii)          The Company has an authorized and outstanding capital stock as
set forth in the Memorandum.  The Units, the components thereof, Conversion
Shares and the Agent’s Shares have been duly authorized, and when duly and
validly delivered and paid for pursuant to the terms of the Transaction
Documents will be validly issued, fully paid and nonassessable.  Except as set
forth in the Confidential Private Placement Memorandum (the “Memorandum”), the
issuance of the Units, the components thereof, Conversion Shares or the Agent’s
Securities are not subject to statutory, or to our knowledge, contractual or
other preemptive rights of any stockholder of the

 

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Company.  The Units, the components thereof, Conversion Shares and the Agent’s
Securities conform in all material respects to all statements in relation
thereto contained in the Memorandum.  A sufficient number of authorized but
unissued shares of Common Stock have been reserved for issuance upon conversion
or exercise of the components of the Units and exercise of the Agent’s Warrants.

 

(iv)          None of the execution and delivery of, or performance by the
Company under, any of the Transaction Documents or the consummation of the
transactions therein contemplated, will conflict with or violate (a) any term of
the charter or by-laws of the Company, (b) any statute, rule, regulation or
ordinance applicable to the Company, or (c) any permit, judgment, decree, or
order known to such counsel which is applicable to the Company or any of its
assets, properties or businesses.

 

(v)           To our knowledge, none of the execution and delivery of, or
performance by the Company under, any of the Transaction Documents or the
consummation of the transactions therein contemplated, will conflict with or
result in the creation or imposition of, any lien, charge or other encumbrance
upon any of the properties or assets of the Company pursuant to the terms of any
material indenture, mortgage, deed of trust, note, material license, agreement
or other instrument known to such counsel to which the Company is a party or by
which the Company may be bound or to which any of its assets, properties or
businesses is or may be subject.

 

(vi)          To our knowledge, no consent, approval, authorization, order,
registration or qualification of or with any court or regulatory, administrative
or governmental agency, body or authority of the United States of America or any
political subdivision thereof is required on behalf of the Company in connection
with the issuance or sale of the Units or the Agent’s Warrants except for
required filings with the United States Securities and Exchange Commission and
applicable “Blue Sky” or state securities commissions relating specifically to
the Offering.

 

(vii)         To our knowledge, except as set forth in the Memorandum, there are
no legal or regulatory, administrative or governmental charges, actions, suits,
proceedings, claims, hearings or investigations, before or by any court,
governmental authority, or instrumentality pending or threatened against the
Company, or involving its assets or properties or any of its officers or
directors which, if determined adversely to the Company, could have a Material
Adverse Effect on the Company or adversely affect any of the transactions
contemplated by the Transaction Documents or the validity or enforceability
thereof.

 

(viii)        To our knowledge, the Company is not in material violation or
breach of: (i) its charter or by-laws, (ii) any material indenture, mortgage,
deed of trust, note or other agreement or instrument to which the Company is a
party or by which it is or may be bound or to which any of its assets,
properties or businesses may be subject; or (iii) any judgment, decree or order
applicable to the Company which violation or violations individually, or in the
aggregate, might result in any Material Adverse Effect in the condition
(financial or otherwise), or prospects of the Company.

 

(ix)           To our knowledge, the Company has obtained all authorizations,
approvals, licenses,

 

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permits, franchises and orders of and from all governmental officials and bodies
to own or lease and operate its assets and properties (the “Authorizations”) and
to conduct its business as currently conducted as described in the Memorandum;
all of such Authorizations are to the best of our knowledge in full force and
effect and there are, to the knowledge of such counsel no proceedings pending or
threatened seeking to cancel or terminate such Authorizations.

 

(x)            We have participated in the preparation of the Memorandum and in
conferences with officers and other representatives of the Company, at which
such conferences the contents of the Memorandum and related matters were
discussed, and based upon those conferences and upon such counsel’s
participation in the preparation of the Memorandum, and any amendment or
supplement thereto (other than the financial statements, including supporting
schedules and other financial and statistical information derived therefrom), we
are not specifically aware that the Memorandum contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements therein not misleading with respect to all material contracts of the
Company filed as exhibits to the Company’s filings with the Securities and
Exchange Commission.

 

(xi)           Based on a certificate from a duly authorized officer of the
Company as to certain factual matters annexed hereto and assuming that the Units
were sold only to “accredited investors” (as defined in Rule 501 of Regulation
D) and the Placement Agent complied in all material respects with Regulation D
and requirements of Section 4(2) that are applicable to it, (i) such sales were
made in conformity in all material respects with the requirements of Sections
4(2) of the Act and Regulation D and (ii) the issuance of the Units in
accordance with the Memorandum is exempt from registration under the Securities
Act of 1933, as amended.

 

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