<PAGE>

                                                                   EXHIBIT 10.29

                               SECURITY AGREEMENT

Inventory, Accounts,
Equipment and Other Property
-----------------------------------------------------------------

                                                      February 28, 2000

MFIC Corporation, a corporation organized under the laws of the State of
Delaware with a principal office at 30 Ossipee Road, Newton, Massachusetts 02464
(hereinafter, the "Borrower"), and National Bank of Canada, a Canadian chartered
bank, having a business address of One Federal Street, Boston, Massachusetts
02110, (hereinafter referred to as "Lender"), make this agreement in
consideration of the mutual covenants contained herein and benefits to be
derived herefrom.

ARTICLE 1. GRANT OF SECURITY INTEREST

      1-1. To secure the Borrower's prompt, punctual, and faithful performance
of all and each of the Borrower's Liabilities (as that term is defined herein)
to the Lender, the Borrower hereby grants to the Lender a continuing security
interest in and to the Lender, the following, and each item thereof, whether now
owned or now due, or in which the Borrower has an interest, or hereafter, at any
time in the future, acquired, arising, or to become due, or in which the
Borrower obtains an interest, and all products, proceeds, substitutions, and
accessions of or to any of the following (all of which, together with any other
property in which the Lender may in the future be granted a security interest
pursuant hereto, is referred to hereinafter as the "Collateral"):

            (a)   All Accounts and Accounts Receivable;

            (b)   All Inventory;

            (c)   All Contract Rights;

            (d)   All General Intangibles;

            (e)   All Equipment;

            (f)   All Goods;

            (g)   All Chattel Paper;

            (h)   All Fixtures;

            (i)   All books, records, and information relating to the Collateral
                  and/or to the operation of the Borrower's business, and all
                  rights of access to such books, records, and information, and
                  all property in which such books, records, and information are
                  stored, recorded, and maintained;

            (j)   All Investment Property, Instruments, Documents of Title,
                  Documents, Deposit Accounts, policies and certificates of
                  insurance, Securities, deposits, deposit accounts, money,
                  cash, or other property;
<PAGE>

            (k)   All federal, state, and local tax refunds and/or abatements to
                  which the Borrower is, or becomes entitled, no matter how or
                  when arising, including, but not limited to any loss carryback
                  tax refunds;

            (l)   All insurance proceeds, refunds, and premium rebates,
                  including, without limitation, proceeds of fire and credit
                  insurance, whether any of such proceeds, refunds, and premium
                  rebates, arise out of any of the foregoing (a through k), or
                  otherwise; and

            (m)   All liens, guaranties, rights, remedies, and privileges
                  pertaining to any of the foregoing (a through l) including the
                  right of stoppage in transit.

      1-2. The within grant of a security interest is in addition to, and
supplemental of, any security interest previously granted by the Borrower to the
Lender and shall continue in full force and effect applicable to all Liabilities
until this Agreement is specifically terminated in writing by a duly authorized
officer of the Lender.

      1-3. "Proceeds" include, without limitation, "Proceeds" as defined in the
Uniform Commercial Code as adopted in Massachusetts (hereinafter, "UCC") and
also insurance proceeds, and each type of property described in Sections 1-1(a)
through and including 1-1(l).

ARTICLE 2. CERTAIN DEFINITIONS

      As herein used, the following terms have the following meanings:

      2-1. "Liability" and "Liabilities" shall have the meaning set forth in the
Credit Agreement.

      2-2. "Credit Agreement" means that certain Revolving Credit and Term Loan
Agreement of even date herewith by and between the Borrower and the Lender, and
any extensions, renewals, substitutions, modifications, or replacements thereof.

      2-3. "Accounts" and "Accounts Receivable" include, without limitation,
"accounts" as defined in the UCC, and also all: accounts, accounts receivable,
notes, drafts, acceptances, and other forms of obligations and receivables and
rights to payment for credit extended and for goods sold or leased, or services
rendered, whether or not yet earned by performance; all Inventory which gave
rise thereto, and all rights associated with such Inventory, including the right
of stoppage in transit; all reclaimed, returned, rejected, or repossessed
Inventory (if any) the sale of which gave rise to any Account.


                                      -2-
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      2-4. "Inventory" includes, without limitation, "inventory" as defined in
the UCC and also all: goods, wares, merchandise, raw materials, work in process,
finished goods, and all packaging, advertising, shipping material and documents
related to any of the foregoing, and all labels, and other devices, names or
marks affixed or to be affixed thereto for identifying or selling the same, and
other personal property of every description held for sale or lease or furnished
or to be furnished under a contract or contracts of sale or service by the
Borrower, or used or consumed or to be used or consumed in the Borrower's
business, and all goods of said description which are in transit, and all
returned, repossessed and rejected goods of said description, and all such goods
of said description which are detained from or rejected for entry into the
United States, and all documents (whether or not negotiable) which represent any
of the foregoing.

      2-5. "Contract Rights" includes, without limitation, any right to payment
under a contract not yet earned by performance and not evidenced by an
instrument or Chattel Paper.

      2-6. "General Intangibles" includes, without limitation, "general
intangibles" as defined in the UCC; and also all: rights to payment for credit
extended; deposits; amounts due to the Borrower; credit memoranda in favor of
the Borrower; warranty claims; all means and vehicles of investment or hedging,
including, without limitation, options, warrants, and futures contracts;
records; customer lists; goodwill; causes of action; judgments; payments under
any settlement or other agreement; literary rights; rights to performance;
royalties; license fees; franchise fees; rights of admission; licenses;
franchises; permits, certificates of convenience and necessity, and similar
rights granted by any governmental authority; copyrights; trademarks,
tradenames, service marks, patents, patent applications, patents pending, and
other intellectual property; developmental ideas and concepts; proprietary
processes; blueprints; drawings; designs; diagrams, plans, reports, charts;
catalogs; manuals; technical data; computer programs, computer records, computer
software, rights of access to computer record service bureaus, service bureau
computer contracts, and computer data; proposals; costs estimates, and other
reproductions on paper, or otherwise, of any and all concepts or ideas, and any
matter related to, or connected with, the design, development, manufacture,
sale, marketing, leasing, or use of any or all property produced, sold, or
leased, by the Borrower or credit extended or services performed, by the
Borrower, whether intended for an individual customer or the general business of
the Borrower, or used or useful in connection with research by the Borrower.

      2-7. "Equipment" includes, without limitation, "equipment" as defined in
the UCC, and also all motor vehicles, rolling stock, machinery, office
equipment, plant equipment, tools, dies,


                                      -3-
<PAGE>

molds, store fixtures, furniture, and other goods, property, and assets which
are used and/or were purchased for use in the operation or furtherance of the
Borrower's business.

      2-8. "Goods", "Chattel Paper", "Instruments", "Documents of Title",
"Documents", "Investment Property", "Securities", "Fixtures", and "Account
Debtors" each has the same meaning respectively given that term in the UCC.

      2-9. "Receivables Collateral" refers to that portion of the Collateral
which consists of the Borrower's Accounts, Accounts Receivable, Contract Rights,
General Intangibles, Chattel Paper, Instruments, Investment Property, Documents
of Title, Deposit Accounts, Documents, Securities, letters of credit, and
Banker's acceptances, and any rights to payment now held or in which the
Borrower has an interest, or hereafter acquired, or in which the Borrower
obtains an interest.

      2-10. "Event of Default" shall have the meaning set forth in the Credit
Agreement.

      2-11. "Perfection Certificate" shall mean that certain Perfection
Certificate of even date herewith from the Borrower in favor of the Lender.

      2-11. Any and all other capitalized terms used herein and not otherwise
defined shall have the same meaning herein as in the Credit Agreement.

ARTICLE 3. REPRESENTATIONS, WARRANTIES AND COVENANTS

      3-1. The warranties and covenants set forth in the Credit Agreement are
specifically incorporated herein by reference. The Borrower shall pay when due
each Liability (or on demand if so payable) and promptly, punctually, and
faithfully shall perform each Liability.

      3-2.  (a) The Perfection Certificate, constitutes a listing of

                  (i) all trade names and trade styles under which the Borrower
      presently conducts or ever conducted its business;

                  (ii) all legal names and legal statuses (such as a corporation
      or partnership) under which the Borrower ever conducted its business;

                  (iii) all entities and/or persons with whom the Borrower ever
      consolidated or merged, or from whom the Borrower ever acquired in a
      single transaction or in a series of related transactions substantially
      all of such entity's or person's assets.


                                      -4-
<PAGE>

            (b) Except upon not less than twenty-one (21) days prior written
notice given the Lender, the Borrower will not undertake or commit to undertake
any action such that the results of that action, if undertaken prior to the date
of this Agreement, would have been reflected on the Perfection Certificate.

      3-3. The Collateral, and the books, records, and papers of Borrower
pertaining thereto, are kept and maintained solely at the principal executive
offices of Borrower stated above, and at those locations which are listed on the
Perfection Certificate, which Perfection Certificate includes all service
bureaus with which any such records are maintained. Except as provided for in
the Credit Agreement, the Collateral will not be removed from said principal
executive offices or those locations listed the Perfection Certificate.

      3-4. The Borrower authorizes the Lender to verify the Collateral or any
portion thereof, including verification with Account Debtors, and/or with the
Borrower's computer billing companies, collection agencies, and accountants and
to sign the name of the Borrower on any notice to the Borrower's Account Debtors
or on any notice relative to the verification of the Collateral.

      3-5. The Borrower shall have and maintain at all times insurance covering
such risks, in such amounts, containing such terms, in such forms, for such
periods, and written by such companies as may be satisfactory to the Lender. All
such insurance shall provide for a minimum of twenty (20) days' written notice
of cancellation to the Lender and all such insurance which covers the Collateral
shall include such endorsement in favor of the Lender as the Lender may specify,
including, without limitation, an endorsement which provides that the insurance,
to the extent of the Lender's interest therein, shall not be impaired or
invalidated, in whole or in part, by reason of any act or neglect of the
Borrower or by the failure of the Borrower to comply with any warranty or
condition of the policy. In the event of failure by the Borrower to provide and
maintain insurance as herein provided, the Lender may, at its option, provide
such insurance. The Borrower shall furnish to Lender certificates or other
evidence satisfactory to the Lender concerning compliance by the Borrower with
the foregoing insurance provisions. The Borrower shall advise the Lender of each
claim made by the Borrower under any policy of insurance which covers the
Collateral and will permit the Lender, at the Lender's option in each instance,
to the exclusion of the Borrower, provided, however, that an Event of Default
has occurred and is continuing, to conduct the adjustment of each such claim.
Originals of all such policies shall be delivered to and held by the Lender. The
Borrower hereby appoints the Lender as the Borrower's attorney exercisable after
the occurrence and continuation of an Event of Default to obtain, adjust,
settle, and cancel any insurance described in this section and


                                      -5-
<PAGE>

to endorse in favor of the Lender any and all drafts and other instruments with
respect to such insurance. The within appointment, being coupled with an
interest, is irrevocable until this Agreement is terminated by a written
instrument executed by a duly authorized officer of the Lender. The Lender shall
not be liable on account of any exercise pursuant to said power except for any
exercise in actual wilful misconduct, bad faith and gross negligence. The Lender
may apply any proceeds of such insurance against the Liabilities, whether or not
such have matured, in such order of application as the Lender may determine
provided, however, if no Event of Default has occurred and is continuing, such
insurance proceeds will be readvanced to the Borrower to make repairs and
replace the destroyed asset.

      3-6. The Borrower promptly shall pay, as they become due and payable, all
taxes and unemployment contributions and all other charges of any kind or nature
levied, assessed, or claimed against the Borrower or the Collateral by any
person or entity whose claim could result in a lien upon assets of the Borrower
or by any governmental authority, as provided for in the Credit Agreement;
properly shall exercise any trust responsibilities imposed upon the Borrower by
reason of withholding from employees' pay; and timely shall make all
contributions and other payments as may be required pursuant to any employee
benefit plan now or hereafter established by the Borrower. At its option, in the
event the Borrower has failed to do so, the Lender may, but shall not be
obligated to, pay any taxes, unemployment contributions, and any and all other
charges levied against or, assessed upon the Borrower or the Collateral by any
person or entity or governmental authority, and make any contributions or other
payments on account of the Borrower's employee benefit plan as the Lender, in
the Lender's discretion, may deem necessary or desirable to protect, maintain,
preserve, collect, or realize upon any or all of the Collateral or the value
thereof or any right or remedy pertaining thereto. Any such amount expended by
the Lender shall be added to the Liabilities.

      3-7. The Borrower shall not sell, offer to sell, lease, or otherwise
transfer or dispose of the Collateral or any part thereof or any interest
therein other than dispositions permitted under the Credit Agreement.

      3-8. The Borrower shall execute and deliver to the Lender such instruments
and shall do all such things from time to time hereafter as the Lender may
reasonably request to carry into effect the provisions and intent of this
Agreement, to protect and perfect the Lender's security interest in and to the
Collateral, and to comply with all applicable statutes and laws, and to
facilitate the collection and/or enforcement of Collateral. Contemporaneous with
the execution of this Security


                                      -6-
<PAGE>

Agreement, the Borrower shall execute all such instruments as may be required by
the Lender with respect to the perfection of the security interests granted
herein, including without limitation, financing statements in such form as the
Lender may determine and to be filed in accordance with the provisions of the
Uniform Commercial Code in such State or States as the Lender may determine, and
applications for notation of the Lender as lienholder, mortgagee, or the like,
on such certificates or similar instruments as may have been issued with respect
to the Borrower's ownership of one or more items of the Collateral. A carbon,
photographic, or other reproduction of this Agreement or of any financing
statement or other instrument executed pursuant to this Section shall be
sufficient for filing to perfect the security interests granted herein.

      3-9. Except as permitted pursuant to the Credit Agreement ,the Borrower
shall
            (a) keep the Collateral in good order and repair;

            (b) not waste or destroy or suffer the waste or destruction of the
      Collateral or any part thereof; and

            (c) not use any of the Collateral in violation of any policy of
      insurance thereon.

      3-10. The Borrower shall not indirectly do or cause to be done any act
which, if done directly by the Borrower, would breach any covenant contained
herein or in any other agreement between the Borrower and the Lender.

      3-11. The within representations, covenants, and warranties are in
addition to any others, previously, presently, or hereafter made by the Borrower
to or with the Lender in any other instrument, document, or agreement.

ARTICLE 4. COLLECTION OF ACCOUNTS, ACCOUNTS RECEIVABLE, CONTRACT RIGHTS AND
           OTHER COLLATERAL

      4-1. Whether or not any Liabilities are then outstanding, the Borrower
shall cause each of the Borrower's Account Debtors to forward all proceeds of
the Receivables Collateral directly to a lock box, blocked account, or similar
recipient designated by the Lender and over which the Lender has sole access and
control, all as more particularly provided for in the Credit Agreement.

      4-2. In the event that, notwithstanding the provisions of this Article,
the Borrower receives or otherwise has dominion and control of any Receivables
Collateral, or any proceeds thereof such Receivables Collateral and proceeds
thereof shall be held in trust by the Borrower for the Lender and


                                      -7-
<PAGE>

shall not be commingled with any of the Borrower's other funds or deposited in
any account of the Borrower other than as instructed by the Lender. The Borrower
shall immediately turn over such Receivables Collateral to the Lender in the
identical form received.

      4-3. The Lender shall apply all Receivables Collateral towards the
Liabilities in accordance with the provisions of the Credit Agreement.

      4-4. At any time after the occurrence of an Event of Default has occurred
hereunder,

            (a) The Lender may notify any of the Borrower's Account Debtors,
      either in the name of the Lender or the Borrower, to make payment directly
      to the Lender or such other address as may be specified by the Lender, and
      may advise any person of the Lender's security interest in and to the
      Collateral, and may collect directly from the obligors thereon, all
      amounts due on account of the Collateral; and

            (b) At the Lender's request, the Borrower will provide written
      notifications to any or all of the Borrower's Account Debtors concerning
      the Lender's security interest in the Collateral and will request that
      such Account Debtors forward payment thereof directly to the Lender.

      4-5. The Borrower hereby irrevocably constitutes and appoints the Lender
as the Borrower's true and lawful attorney, (exercisable after an Event of
Default has occurred hereunder and whether or not any notification has been
given to the Borrower's account debtors pursuant to Section 4-4, above), with
full power of substitution, to convert the Collateral into cash at the sole
risk, cost, and expense of the Borrower, but for the sole benefit of the Lender.
The rights and powers granted the Lender by the within appointment include but
are not limited to the right and power to:

            (a) prosecute, defend, compromise, or release any action relating to
      the Collateral;

            (b) sign change of address forms to change the address to which the
      Borrower's mail is to be sent as the Lender shall designate; receive and
      open the Borrower's mail; remove any Collateral therefrom and turn over
      such mail (other than such Collateral) either to the Borrower, or to any
      trustee in bankruptcy, receiver, assignee for the benefit of creditors of
      the Borrower, or other legal representative of the Borrower whom the
      Lender determines to be the appropriate person to whom to so turn over
      such mail;


                                      -8-
<PAGE>

            (c) endorse the name of the Borrower in favor of the Lender upon any
      and all checks, drafts, notes, acceptances, or other items or instruments;
      sign and endorse the name of the Borrower on, and receive as secured
      party, any of the Collateral, any invoices, schedules of Collateral,
      freight or express receipts, or bills of lading, storage receipts,
      warehouse receipts, or other documents of title of a same or different
      nature relating to the Collateral;

            (d) sign the name of the Borrower on any notice to the Borrower's
      Account Debtors or verification of the Receivables Collateral; sign the
      Borrower's name on any proof of claim in bankruptcy against Account
      Debtors, notices of lien, claims of mechanics liens, or assignments or
      releases of mechanics lien securing the Accounts;

            (e) take all such action as may be necessary to obtain the payment
      of any letter of credit of which the Borrower is a beneficiary;

            (f) repair, manufacture, assemble, complete, package, deliver, alter
      or supply goods, if any, necessary to fulfill in whole or in part the
      purchase order of any customer of the Borrower;

            (g) use, license, or transfer any or all General Intangibles of the
      Borrower;

            (h) sign and file or record any financing or other statement in
      order to perfect or protect the Lender's security interest in the
      Collateral.

      4-6. In connection with all powers of attorney included in this Agreement,
the Borrower hereby grants unto the Lender full power to do any and all things
necessary or appropriate in connection with the exercise of such powers as fully
and effectually as the Borrower might or could do, and hereby ratifying all that
said attorney shall do or cause to be done by virtue of this Agreement.

      4-7. The Lender shall not be obligated to do any of the acts or to
exercise any of the powers authorized herein, but if the Lender elects to do any
such act or to exercise any of such powers, it shall not be accountable for more
than it actually receives as a result of such exercise of power, and shall not
be responsible to the Borrower except for the Lender's actual wilful misconduct,
bad faith and gross negligence.

      4-8. All of the powers of attorney set forth in this Agreement shall not
be affected by any disability or incapacity suffered by the Borrower and shall
survive same. All powers conferred upon the Lender by this Agreement, being
coupled with an interest, shall be irrevocable until this Agreement is
terminated by a written instrument executed by a duly authorized officer of the
Lender.


                                      -9-
<PAGE>

ARTICLE 5. RIGHTS AND REMEDIES UPON DEFAULT

      In addition to all of the rights, remedies, powers, privileges, and
discretions which the Lender is provided prior to the occurrence of an Event of
Default, the Lender shall have the following rights and remedies upon the
occurrence of any Event of Default.

      5-1. Upon the occurrence of any Event of Default, as described above, and
at any time thereafter, the Lender shall have all of the rights and remedies of
a secured party upon default under the UCC, in addition to which the Lender
shall have all of the following rights and remedies:

            (a)   To collect the Receivables Collateral with or without the
                  taking of possession of any of the Collateral; and/or

            (b)   To take possession of all or any portion of the Collateral;
                  and/or

            (c)   To sell, lease, or otherwise dispose of any or all of the
                  Collateral, in its then condition or following such
                  preparation or processing as the Lender deems advisable and
                  with or without the taking of possession of any of the
                  Collateral.

            (d)   To apply the Receivables Collateral or the proceeds of the
                  Collateral towards (but not necessarily in complete
                  satisfaction of) the Liabilities.

      5-2. Any sale or other disposition of the Collateral may be at a
commercially reasonable public or private sale upon such terms and in such
manner as the Lender deems advisable, having due regard to compliance with any
statute or regulation which might affect, limit, or apply to the Lender's
disposition of the Collateral. The Lender may conduct any such sale or other
disposition of the Collateral upon the Borrower's premises. Unless the
Collateral is perishable or threatens to decline speedily in value, or is of a
type customarily sold on a recognized market (in which event the Lender shall
provide the Borrower with such notice as may be practicable under the
circumstances), the Lender shall give the Borrower ten (10) days prior written
notice of the date, time, and place of any proposed public sale, and of the date
after which any private sale or other disposition of the Collateral may be made.
The Lender may purchase the Collateral, or any portion of it at any sale held
under this Article.

      5-3. In connection with the Lender's exercise of the Lender's rights under
this Article, the Lender may enter upon, occupy, and use any premises owned or
occupied by the Borrower, and may exclude the Borrower from such premises or
portion thereof as may have been so entered upon,


                                      -10-
<PAGE>

occupied, or used by the Lender. The Lender shall not be required to remove any
of the Collateral from any such premises upon the Lender's taking possession
thereof, and may render any Collateral unusable to the Borrower. In no event
shall the Lender be liable to the Borrower for use or occupancy by the Lender of
any premises pursuant to this Article, nor for any charge (such as wages for the
Borrower's employees and utilities) incurred in connection with the Lender's
exercise of the Lender's Rights and Remedies.

      5-4. The Borrower hereby grants to the Lender a nonexclusive irrevocable
license to use, apply, and affix any trademark, tradename, logo, or the like in
which the Borrower now or hereafter has rights, such license being with respect
to the Lender's exercise of the rights hereunder including, without limitation,
in connection with any completion of the manufacture of Inventory or sale or
other disposition of Inventory.

      5-5. Upon the occurrence of any Event of Default, the Lender may require
the Borrower to assemble the Collateral and make it available to the Lender at
the Borrower's sole risk and expense at a place or places which are reasonably
convenient to both the Lender and Borrower.

      5-6. The rights, remedies, powers, privileges, and discretions of the
Lender hereunder (herein, the "Lender's Rights and Remedies") shall be
cumulative and not exclusive of any rights or remedies which it would otherwise
have. No delay or omission by the Lender in exercising or enforcing any of the
Lender's Rights and Remedies shall operate as, or constitute a waiver thereof.
No waiver by the Lender of any Event of Default or of any default under any
other agreement shall operate as a waiver of any other default hereunder or
under any other agreement. No single or partial exercise of any of the Lender's
Rights and Remedies, and no other agreement or transaction, of whatever nature
entered into between the Lender and the Borrower at any time, either express or
implied, shall preclude any other exercise of the Lender's Rights and Remedies.
No waiver by the Lender of any of the Lender's rights and remedies on any one
occasion shall be deemed a waiver on any subsequent occasion, nor shall it be
deemed a continuing waiver. All of the Lender's Rights and Remedies and all of
the Lender's rights, remedies, powers, privileges, and discretions under any
other agreement or transaction are cumulative, and not alternative or exclusive,
and may be exercised by the Lender at such time or times and in such order of
preference as the Lender in its sole discretion may determine. The Lender's
Rights and Remedies may be exercised without resort or regard to any other
source of satisfaction of the Liabilities.


                                      -11-
<PAGE>

ARTICLE 6. GENERAL

      6-1. The Borrower makes the following waivers knowingly, voluntarily, and
intentionally, and understands that the Lender, in the establishment and
maintenance of the Lender's relationship with the Borrower, is relying thereon.

            (a) The Borrower WAIVES notice of non-payment, demand, presentment,
protest, and all forms of demand and notice, both with respect to the
Liabilities and the Collateral.

            (b) The Borrower, if entitled to it, WAIVES the right to notice
and/or hearing prior to the exercise of any of the Lender's rights upon default.

            (c) THE BORROWER HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH
RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH
THIS AGREEMENT, THE NOTE, THE CREDIT AGREEMENT OR ANY OF THE OTHER DOCUMENTS,
INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION THEREWITH, ANY RIGHTS OR
OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND
OBLIGATIONS. EXCEPT TO THE EXTENT EXPRESSLY PROHIBITED BY LAW, THE BORROWER
HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER AGAINST NATIONAL BANK OF
CANADA (AND NOT ITS SUCCESSORS AND ASSIGNS) IN ANY LITIGATION REFERRED TO IN THE
PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR
ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. THE BORROWER (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE LENDER HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDER WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (B) ACKNOWLEDGES THAT THE
LENDER HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS TO WHICH THEY ARE PARTIES BY, AMONG OTHER THINGS, THE WAIVERS AND
CERTIFICATIONS CONTAINED HEREIN.

      6-2. The Lender shall have no duty as to the collection or protection of
the Collateral beyond the safe custody of such of the Collateral as may come
into the possession of the Lender and shall have no duty as to the preservation
of rights against prior parties or of any other rights pertaining thereto.


                                      -12-
<PAGE>

      6-3. All notices and other correspondence required pursuant to this
Agreement shall be in writing and shall delivered in accordance with Section 17
of the Credit Agreement.

      6-4. This Agreement shall be binding upon the Borrower and the Borrower's
representatives, successors, and assigns and shall inure to the benefit of the
Lender and its successors and assigns. In the event that the Lender assigns or
transfers its rights under this Agreement in accordance with the provisions of
the Credit Agreement, the assignee shall thereupon succeed to and become vested
with all rights, powers, privileges, and duties of the Lender hereunder and the
Lender shall thereupon be discharged and relieved from its duties and
obligations hereunder.

      6-5. Any determination that any provision of this Agreement or any
application thereof is invalid, illegal, or unenforceable in any respect in any
instance shall not affect the validity, legality, and enforceability of such
provision in any other instance, nor the validity, legality, or enforceability
of any other provision of this Agreement.

      6-6. This Agreement and all other instruments executed in connection
herewith incorporates all discussions and negotiations between the Borrower and
the Lender, either express or implied, concerning the matters included herein
and in such other instruments, any statute, custom, or usage to the contrary
notwithstanding. No such discussions or negotiations shall limit, modify, or
otherwise affect the provisions hereof. No such discussions or negotiations
shall limit, modify, or otherwise affect the provisions hereof. No modification,
amendment, or waiver of any provision of this Agreement or of any provision of
any other agreement between the Borrower and the Lender is effective unless
executed in writing by the party to be charged with such modification,
amendment, or waiver, and if such party be the Lender, then by a duly authorized
officer thereof.

      6-7. Without limiting the Borrower's obligations under Section 13 of the
Credit Agreement, the Borrower shall pay on demand all Costs of Collection and
all expenses of the Lender in connection with the preparation, execution, and
delivery of this Agreement and of any other documents and agreements between the
Borrower and the Lender, whether now existing or hereafter arising, and all
other expenses which may be incurred by the Lender in preparing, amending or
enforcing the terms and conditions of this Agreement and all other agreements,
instruments, and documents related thereto or otherwise with respect to the
Liabilities. The Borrower authorizes the Lender to pay all such expenses and,
without notice, to charge the same to any account of the Borrower with the
Lender.


                                      -13-
<PAGE>

      6-8. All amounts which the Lender may advance under this Agreement, shall
be a Liability, shall be repayable to the Lender with interest at the default
rate set forth in the Credit Agreement, on demand, and may be charged by the
Lender to any account which the Borrower maintains with the Lender.

      6-9. This Agreement and all other instruments, documents, and papers which
relate thereto which have been or may be hereinafter furnished the Lender may be
reproduced by the Lender by any photographic, photostatic, microfilm,
micro-card, miniature photographic, xerographic, or similar process, and the
Lender may destroy the original from which any document was so reproduced. Any
such reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made in the regular course of
business).

      6-10. This Agreement and all rights and obligations hereunder, including
matters of construction, validity and performance, shall be governed by the laws
of The Commonwealth of Massachusetts. The Borrower submits itself to the
jurisdiction of the Courts of said Commonwealth for all purposes with respect to
this Agreement and the Borrower's relationship with the Lender.

      6-11. Except for the willful misconduct, bad faith or gross negligence of
the Lender, the Borrower shall indemnify, defend, and hold the Lender harmless
of and from any claim brought or threatened against the Lender by the Borrower,
any guarantor or endorser of the Liabilities, or any other person (as well as
from attorneys' reasonable fees and expenses in connection therewith) on account
of the Lender's relationship with the Borrower or any other guarantor or
endorser of the Liabilities (each of which may be defended, compromised,
settled, or pursued by the Lender with counsel of the Lender's selection, but at
the expense of the Borrower). The within indemnification shall survive payment
of the Liabilities and/or any termination, release, or discharge executed by the
Lender in favor of the Borrower.

      6-12. This Agreement shall remain in full force and effect until
specifically terminated in writing by a duly authorized officer of the Lender.
Such termination by the Lender may be conditioned upon such further
indemnifications provided to the Lender by or on behalf of the Borrower as the
Lender may request. No termination pursuant to this Section 6-12 shall affect
the indemnification provided in Section 6-11, above.


                                      -14-
<PAGE>

      6-13. The failure by the Borrower to perform all and singular the
Borrower's obligations hereunder, will result in irreparable harm to the Lender
for which the Lender will have no adequate remedy at law. Consequently, such
obligations are specifically enforceable by the Lender.

      6-14. It is intended that

            (a) this Agreement take effect as a sealed instrument;

            (b) the security interests created by this Agreement attach to all
      of the Borrower's assets now owned or hereafter acquired which are capable
      of being subject to a security interest; and

            (c) the security interests created by this Agreement secure all
      Liabilities of the Borrower to the Lender, whether now existing or
      hereafter arising; and

            (d) all reasonable costs and expenses incurred by the Lender in
      connection with the Lender's relationship(s) with the Borrower shall be
      borne by the Borrower; and

            (e) the Lender's consent to any action of the Borrower which is
      prohibited unless such consent is given may be given or refused by the
      Lender in its sole discretion.


                                      -15-
<PAGE>

      6-15. The Borrower acknowledges having received a copy of the within
Agreement.


ATTEST:                             MFIC CORPORATION
                                        (Borrower)

/s/ Jack M. Swig                    By: /s/ Irwin J. Gruverman
-------------------------               -----------------------------------
                                    Title: Chairman and CEO
                                    Print Name: Irwin J. Gruverman


                                    NATIONAL BANK OF CANADA
                                            (Lender)

                                    By: /s/ A. Keith Broyles
                                        ------------------------------------
                                        Title: Vice President

                                    By: /s/ Leonard J. Pellecchia
                                        ------------------------------------
                                        Title: Vice President


                                      -16-