**Exhibit 10.62**

 

PLACEMENT AGENCY AGREEMENT

 

February 13, 2004

 

CasimirCapital L.P

100Broadway, 11th Floor

NewYork, NY 10005

Attention:  Richard Sands, President

 

Ladies and Gentlemen:

 

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

 

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”) ofcommon 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 shareof Common Stock.  The offering price perUnit shall be equal to 85% of the average VWAP (as defined below) of the CommonStock over the twenty (20) trading days immediately prior to each closing ofthe sale of Units (a “Closing”).  Theexercise price of the Warrants shall be equal to such offering price per Unitat each applicable Closing. The Warrants shall have full-ratchet antidilutionprovisions excluding shares issuable upon the conversion or exercise of options, warrants or other convertiblesecurities outstanding as of the date hereof or options hereafter issuedpursuant to the Company’s employee stock option plans or director stock optionplans as presently in effect.  The total amount of grossproceeds 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 “MaximumAmount”). The Shares, together with the Warrants shall be referred toherein as the “Securities”.  All share prices, exercise prices andconversion prices should be assumed to be proportionally adjusted to reflectstock splits, stock dividends, recapitalizations and the like.

 

As used herein, “VWAP” shall mean for anydate, 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 marketor the OTC Bulletin Board, the daily volume weighted average price of theCommon Stock for such date (or the nearest preceding date) on the primarytrading market (including the OTC Bulletin Board) on which the Common Stock isthen listed or quoted as reported by Bloomberg Financial L.P. (based on atrading day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time) using theVAP function; (b) if the Common Stock is not then listed or quoted

 

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on a principal trading market or the OTCBulletin Board and if prices for the Common Stock are then reported in the“Pink Sheets” published by the National Quotation Bureau Incorporated (or asimilar organization or agency succeeding to its functions of reportingprices), 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 CommonStock as determined by a nationally recognized-independent appraiser selectedin good faith by the Placement Agent.

 

(b)           The Units will be offered on a reasonable efforts basis for a period of60 days from the date that the Memorandum (as defined in Section 1(d)) is firstsent to prospective investors (the “Commencement Date”), which period may beextended by the mutual written agreement of the Company and the Placement Agentfor up to an additional 30 days (the “Offering Period”).  The date on which the Offering shallterminate shall be referred to as the “Termination Date.”

 

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

 

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

 

2.       Representations andWarranties.  The Company herebyrepresents and warrants to the Placement Agent that each of the following shallbe true in all respects as of the date hereof and, as applicable, on and as ofthe 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 theCompany, at its sole cost, in conformity with all applicable laws, and will bein compliance with Regulation D as promulgated under Section 4(2) of the Act(“Regulation D”), the Act and the requirements of all other rules andregulations (the “Regulations”) of the Securities and Exchange Commission (the“SEC”) relating to offerings of the type contemplated by the Offering, and theapplicable securities laws and the rules and regulations of those jurisdictionswherein the Units are to be offered and sold, excluding foreignjurisdictions.  The Units will beoffered and sold pursuant to the registration exemption provided by RegulationD and Section 4(2)

 

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and/or Section 4(6) of the Actas a transaction not involving a public offering and the requirements of anyother applicable state securities laws and the respective rules and regulationsthereunder in those United States jurisdictions in which the Placement Agentnotifies the Company that the Units are being offered for sale.  The Memorandum will describe all materialaspects, including attendant risks, of an investment in the Company.  The Company has not taken nor will it takeany action that conflicts with the conditions and requirements of, or thatwould make unavailable with respect to the Offering, the exemption(s) fromregistration available pursuant to Regulation D or Section 4(2) and/or Section4(6) of the Act and knows of no reason why any such exemption would beotherwise unavailable to it.  Neitherthe Company nor its affiliates has been subject to any order, judgment ordecree of any court or governmental authority of competent jurisdictiontemporarily, preliminarily or permanently enjoining such person for failing tocomply with Section 503 of Regulation D.

 

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

 

(c)           The Company is acorporation duly organized, validly existing and in good standing under thelaws of Delaware.  The Company has nosubsidiaries 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, aDelaware corporation (“MediControl”). MediControl is inactive and does not have any outstanding liabilities orobligations, except for liabilities or obligations that could not have amaterial adverse effect on the Company. The Company owns all of the outstanding capital stock of its subsidiaries.  The Company is duly qualified to transactbusiness as a foreign corporation and is in good standing under the laws ofeach jurisdiction where the location of its properties or the conduct of itsbusiness makes such qualification necessary, except where the failure to be soqualified would not have a material adverse effect on the Company or itsbusiness.  As of the date of the FirstClosing, the Active Subsidiary will be duly qualified to transact business as aforeign corporation and will be in good standing under the laws of eachjurisdiction where the location of its properties or the conduct of itsbusiness makes such qualification necessary, except where the failure to be soqualified would not have a material adverse effect on the Active Subsidiary orits business.

 

(d)           The Company and itsActive 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 Companyhas all requisite power and authority (corporate and other) to enter into andperform its obligations under this Agreement and the other agreements

 

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contemplated hereby, theSecurities and by the Memorandum (collectively, the “Transaction Documents”)and to issue, sell and deliver the Units and the shares of Common Stockissuable upon exercise of the Warrants (the “Conversion Shares”).  The execution and delivery of each of theTransaction Documents has been duly authorized by all necessary corporateaction.  This Agreement has been dulyexecuted and delivered and constitutes, and each of the other TransactionDocuments, upon due execution and delivery, will constitute, valid and bindingobligations of the Company, enforceable against the Company in accordance withtheir respective terms.

 

(e)           None of the executionand delivery of, or performance by the Company under, any of the TransactionDocuments or the consummation of the transactions herein or therein contemplatedconflicts 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 orits Active Subsidiary under any agreement or other instrument to which theCompany or its Active Subsidiary is a party or by which the Company, its ActiveSubsidiary or their respective assets may be bound, any term of the charter orby-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 havethe 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 capitalstock of the Company and its Active Subsidiary are duly authorized, validlyissued and outstanding, fully paid and nonassessable.  Except as set forth in the Memorandum: (i) there are nooutstanding options, stock subscription agreements, warrants or other rightspermitting or requiring the Company or others to purchase or acquire any sharesof capital stock, or other equity securities of the Company or its ActiveSubsidiary, or to pay any dividend or make any other distribution in respectthereof; (ii) there are no securities issued or outstanding that areconvertible into or exchangeable for any of the foregoing and there are nocontracts, commitments or understandings, whether or not in writing, to issue orgrant any such option, warrant, right or convertible or exchangeable security;(iii) no shares of stock or other securities of the Company or its ActiveSubsidiary are reserved for issuance for any purpose; (iv) there are novoting trusts or other contracts, commitments, understandings, arrangements orrestrictions of any kind with respect to the ownership, voting or transfer ofshares of stock or other securities of the Company, including withoutlimitation, any preemptive rights, rights of first refusal, proxies or similarrights; and (v) no person holds a right to require the Company or itsActive Subsidiary to register any securities of the Company under the Act or toparticipate in any such registration. The issued and outstanding shares of capital stock of the Companyconform to all statements in relation thereto contained in the Memorandum andthe Memorandum describes all material terms and conditions thereof.  All issuances by the Company and its ActiveSubsidiary of their respective securities were at the time of their issuanceeither (i) exempt from registration under the Act and any applicable statesecurities laws or (ii) appropriately registered.

 

(g)           The Shares, theWarrants, the Conversion Shares and the Agent’s Warrants (as defined in Section3(e) hereof) have been duly authorized and, when issued and delivered againstpayment

 

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therefor as provided in theTransaction Documents, will be validly issued, fully paid and nonassessable andwill be free and clear of all liens, charges, restrictions, claims andencumbrances imposed by or through the Company other than as provided in theTransaction Documents.  No holder of anyof the Securities, the Conversion Shares or the Agent’s Securities (as definedin Section 3(e) hereof) will be subject to personal liability solely by reasonof being such a holder and, except as set forth in the Memorandum, none of theSecurities, the Conversion Shares or the Agent’s Securities is subject topreemptive or similar rights of any securityholder of the Company, nor will theissuance of such securities trigger an adjustment under the antidilution orexercise rights of any holders of any outstanding shares of capital stock,options, warrants or other rights to acquire any securities of theCompany.  A sufficient number ofauthorized but unissued shares of Common Stock has been reserved for issuanceupon 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 isrequired in connection with the issuance of the Securities, the ConversionShares or the Agent’s Securities (as defined in Section 3(e) hereof) or theconsummation of the transactions contemplated herein or in the otherTransaction Documents, except for required filings with the SEC, if any, andapplicable “blue sky” or state securities commissions relating specifically tothe Offering (all of which will be duly made on a timely basis).

 

(i)            Except as set forth inthe Memorandum, the financial statements, together with the related notesthereto, of the Company included or incorporated by reference in the Memorandumare true and complete and present fairly, in all material respects, thefinancial position of the Company and its Active Subsidiary as of therespective dates specified and the results of its operations and changes infinancial position for the respective periods covered thereby.  Such financial statements and related noteswere prepared in accordance with U.S. generally accepted accounting principles(“GAAP”) applied on a consistent basis throughout the periods indicated andexcept that the unaudited financial statements omit full notes, and except fornormal year-end adjustments.  Except asset forth in such financial statements or in the Memorandum, the Company andits Active Subsidiary have no material liabilities of any kind, whetheraccrued, absolute, contingent or otherwise or entered into any materialtransactions or commitments.  The otherfinancial and statistical information with respect to the Company and itsActive Subsidiary included in the Memorandum present fairly the informationshown therein on a basis consistent with the financial statements of theCompany 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 conditionswhich management of the Company has concluded could give rise thereto) that couldmaterially adversely affect its business, operations, earnings or prospectsthat have not been fully disclosed in the Memorandum.

 

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

 

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enterprises generally.  Except as set forth in the Memorandum, allmaterial licenses, permits, approvals, government authorizations, leases,contracts and agreements referred to in the Memorandum, along with all othermaterial licenses, permits, approvals, leases, governmental authorizations orcontracts to which the Company or its Active Subsidiary is a party, have beenobtained 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 isin default thereunder, and to the knowledge of the Company, no event hasoccurred which with the passage of time or the giving of notice, or both, wouldconstitute a default thereunder except for a default which would not have amaterial adverse effect on the Company. Except as described in the Memorandum, all material licenses, permits,approvals or governmental authorizations necessary to permit the Company andits Active Subsidiary to conduct their business have been obtained and areoutstanding and will be outstanding on each Closing Date, and the Company andits 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 governmentregulation.  For example, H.R. 3162enacted on October 21, 2001 (the “Patriot Act”) and other governmentalregulation may impose export restrictions on sale of equipment or transfer oftechnology to certain countries or groups. There can be no assurance that sales of the Company’s equipment will notbe impacted by such legislation or designation. Depending upon which countriesand sales may be designated for trade restriction such action could have amaterial adverse effect on the Company’s business, financial condition, orresults of operations.  Also, certainagreements that may be entered into by the Company involving exclusive licenserights may also be subject to national or supranational antitrust regulatorycontrol, the effect of which cannot be predicted.  There are no proceedings pending, or to the knowledge of theCompany threatened, seeking to cancel, terminate or limit such licenses,approvals or permits.

 

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

 

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

 

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(m)          Neither the Company norits Active Subsidiary are in violation of: (i) their charter or by-laws; (ii) anyindenture, mortgage, deed of trust, note or other agreement or instrument towhich the Company or its Active Subsidiary is a party or by which it is or maybe bound or to which any of their respective assets may be subject; (iii) anystatute, rule or regulation currently applicable to the Company or its ActiveSubsidiary; or (iv) any judgment, decree or order applicable to theCompany or its Active Subsidiary, which violation or violations individually,or in the aggregate, would result in any material adverse change in thecondition (financial or otherwise) or prospects of the Company.

 

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

 

(o)           The Company or itsActive Subsidiary owns all right, title and interest in, or possesses adequateand enforceable rights to use, all patents, patent applications, trademarks,trade names, service marks, copyrights, rights, licenses, franchises, tradesecrets, confidential information, processes, formulations, software and sourceand object codes reasonably necessary for the conduct of its business, exceptas 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 ofothers with respect to the Intangibles, nor does the Company have any reason tobelieve it or its Active Subsidiary has infringed upon the rights of otherswith respect to the Intangibles; neither the Company not its Active Subsidiaryhas received notice that they have or may have infringed or are infringing uponthe rights of others with respect to the Intangibles, or any notice of conflictwith 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 ActiveSubsidiary, taken as a whole.  Except asset forth in the Memorandum, to the best knowledge of the Company, no othershave infringed or are infringing upon the Intangibles.

 

(p)           Except as set forth inthe Memorandum and as may otherwise be contemplated therein, the Company andits Active Subsidiary have operated their business diligently and only in theordinary course as theretofore conducted and since the date of the financialstatements disclosed in the Memorandum there has been no: (i) materialadverse change in the business condition (financial or otherwise) or prospectsof the Company and its Active Subsidiary; (ii) transaction otherwise thanin the ordinary course of business; (iii) issuance of any securities (debtor equity) or any rights to acquire any such securities; (iv) damage, lossor destruction, whether or not covered by insurance, with respect to any assetor property of the Company or its Active Subsidiary; or (v) agreement topermit any of the foregoing.

 

(q)           The Company and itsActive Subsidiary have filed, on a timely basis, each Federal, state, local andforeign tax return which is required to be filed by it, or has requested anextension 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 notobligated to pay, and has not obligated the Placement Agent to pay, a finder’sor origination fee in connection with the Offering and agrees to indemnify thePlacement Agent from any such claim made by any other person.  The Company has not offered for sale orsolicited offers to purchase the Units except for negotiations with thePlacement Agent.  Except as set forth inthe Memorandum, as of the commencement of the Offering, no other person has anyright to participate in any offer, sale or distribution of the Company’ssecurities to which the Placement Agent’s rights, described herein, shallapply.

 

(s)           The Company and itsActive Subsidiary have and will maintain appropriate casualty and liabilityinsurance coverage, in scope and amounts reasonable and customary for similarbusinesses.

 

(t)            As of their respectivefiling dates, the Company’s filings with the SEC were true and correct in allmaterial respects.

 

3.             Placement AgentAppointment and Compensation.

 

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

 

(b)           The Company will cause tobe 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 bythe Act and applicable securities laws, and hereby authorizes the PlacementAgent and its agents, employees and selected dealers to use the Memorandum inconnection with the sale of the Units until the Termination Date, and no otherperson or entity is or will be authorized to give any information or make anyrepresentations other than those contained in the Memorandum or to use anyoffering materials other than those contained in the Memorandum in connectionwith the sale of the Units.  The Companywill provide at its own expense such quantities of the Memorandum and otherdocuments and instruments relating to the Offering as the Placement Agent mayreasonably request.

 

(c)           The Company willcooperate with the Placement Agent by making available to its representativessuch information as may be requested in making a reasonable investigation ofthe Company and its affairs and shall provide reasonable access to seniorexecutive employees as shall be reasonably requested.

 

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(d)           The Company shall payto the Placement Agent a placement fee equal to eight percent (8%) of theaggregate 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 expensesset forth in Section 5(i) hereof will be deducted from the gross proceeds ofthe Units sold at each Closing, as set forth in Section 4 hereof.  The Placement Agent shall direct all suchamounts to be paid directly from the escrow account established pursuant toSection 4(b) hereof.

 

(e)           As additionalcompensation hereunder, at each Closing, the Company shall sell to thePlacement Agent or its designees, for nominal consideration, warrants topurchase the number of shares of Common Stock equal to ten percent (10%) of theShares and Conversion Shares underlying the Warrants purchased at each Closing(the “Agent’s Warrants”), at an exercise price per share equal to 105% of theexercise price per share of the Warrants issued at the applicable Closing.  The shares of Common Stock underlying theAgent’s Warrants shall be referred to collectively herein as the “Agent’sShares” and, together with the Agent’s Warrants, as the “Agent’sSecurities”.  The Agent’s Warrants shallbe exercisable until five years after their date of issuance.  The holders of the Agent’s Securities shallhave registration rights equivalent to those granted to the holders ofUnits.  Prior to the First Closing, theCompany and Placement Agent shall agree to the form of Agent’s Warrant, whichshall contain such terms and other customary provisions including cashlessexercise and full ratchet anti-dilution provisions (excluding shares issuableupon conversion or exercise of options, warrants, or other convertiblesecurities outstanding as of the date hereof or options hereafter issuedpursuant to the Company’s employee stock option plans or director stock optionplans presently in effect) in form and substance reasonably satisfactory to thePlacement Agent and the Company.

 

(f)            Providedthat the Placement Agent has identified the investors or parties that itcontacted in connection with the Offering, in the event any investor or partycontacted by the Placement Agent in connection with the Offering subsequentlyinvests in or provides other consideration to the Company at any time withineighteen (18) months from the later of the Termination Date or the finalClosing of the Offering (the “Final Closing”), the Company shall pay to thePlacement Agent cash and warrant compensation with respect to such investment orconsideration equal to that which is set forth herein with respect to theOffering, except where the Company can demonstrate to the Placement Agent’sreasonable satisfaction that payment of such compensation would violate therules of the NASD or any state or federal authority. Within five says followingthe execution hereof, the Company shall provide a list of parties (the “CompanyInvestors”) with whom it has already discussed an equity or debt investment inthe Company and whose investment shall not result in any fee or compensationpayable to the Placement Agent pursuant to this Section 3(f), unless mutuallyagreed upon in advance between the Company and the Placement Agent.  Notwithstanding the foregoing sentence, thePlacement Agent shall be entitled to its fees, expenses and compensation withrespect to Company Investors that participate in the Offering.

 

(g)           TheCompany shall pay to the Placement Agent cash and warrant compensation equal tothat which is set forth herein with respect to the following: (i) proceeds frominvestments through private offerings by the Company made within 18 monthsafter the Final Closing of the Offering

 

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byinvestors who participated in the Offering; and (ii) proceeds from investmentsthrough private offerings by the Company made within 12 months after the FinalClosing of the Offering by investors who subscribed to and sought toparticipate in the Offering but were rejected by the Company, except where theCompany can demonstrate to the Placement Agent’s reasonable satisfaction thatpayment of such compensation would violate the rules of the NASD or any stateor federal authority.

 

4.             Subscription andClosing Procedures.

 

(a)           Each prospectivepurchaser will be required to complete and execute one original signature pagefor the Subscription Agreement in the form annexed to the Memorandum and theaccredited investor certification attached thereto, which will be forwarded ordelivered to the Placement Agent at the Placement Agent’s offices at theaddress set forth in Section 11 hereof, together with the subscriber’s check orgood funds in the full amount of the purchase price per Unit for the number ofUnits desired to be purchased.

 

(b)           All funds forsubscriptions received from the Offering will be promptly forwarded by thePlacement Agent or the Company, if received by it, to and deposited in anescrow account (the “Escrow Account”) with Signature Bank acting as escrowagent (the “Escrow Agent”) established for the purpose of holding subscriptionfunds prior to a Closing. All such funds for subscriptions will be held in theEscrow Account pursuant to the terms of the escrow agreement with respectthereto among the Company, the Placement Agent and the Escrow Agent.  The Company will pay all fees related to theestablishment and maintenance of the Escrow Account.  The Placement Agent or the Company can reject any subscriptionsfor any reason.  Subject to the receiptof such subscriptions for the Minimum Amount, the Company will either accept orreject the Subscription Agreements in a timely fashion and at each Closing willcountersign the Subscription Agreements and provide copies of such agreementsto the Placement Agent.  The Companywill give written notice to the Placement Agent of its acceptance or rejectionof each subscription.  The Company, orthe Placement Agent on the Company’s behalf, will promptly return tosubscribers incomplete, improperly completed, improperly executed and rejectedsubscriptions and give written notice thereof to the Placement Agent upon suchreturn.

 

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

 

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

 

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

 

5.             Further Covenants.  The Company hereby covenants and agreesthat:

 

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

 

(b)           If, at any time priorto the Final Closing, any event shall occur that does or may reasonably beexpected to materially affect the Company or as a result of which it mightbecome necessary to amend or supplement the Memorandum so that therepresentations and warranties herein and therein remain true, or in case itshall, in the reasonable opinion of counsel to the Placement Agent, benecessary to amend or supplement the Memorandum to comply with Regulation D orany other applicable securities laws or regulations, the Company will promptlynotify the Placement Agent and shall, at its sole cost, prepare and furnish tothe Placement Agent copies of appropriate amendments and/or supplements in suchquantities as the Placement Agent may request. The Company will not at any time, whether before or after the FinalClosing, prepare or use any amendment or supplement to the Memorandum of whichthe Placement Agent will not previously have been advised and furnished with acopy, or to which the Placement Agent or its counsel will have objected inwriting or orally (confirmed in writing within 24 hours), or which is not incompliance 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 theadvice in writing, of any order preventing or suspending the use of theMemorandum, or the suspension of the qualification or registration of the Unitsfor offering or the suspension of any exemption for such qualification orregistration of the Units for offering in any jurisdiction, or of theinstitution or threatened institution of any proceedings for any of suchpurposes, and the Company will use its best efforts to prevent the issuance ofany such order, judgment or decree, and, if issued, to obtain as soon asreasonably possible the lifting thereof.

 

(c)           The Company shallcomply with the Act, the Regulations, the Securities Exchange Act of 1934, asamended (the “1934 Act”), and the rules and regulations thereunder, allapplicable state securities laws and the rules and regulations thereunder inthe states in which the Placement

 

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Agent’s Blue Sky counsel hasadvised the Placement Agent that the Units are qualified or registered for saleor exempt from such qualification or registration, so as to permit thecontinuance of the sales of the Units, and will file with the SEC, and shallpromptly thereafter forward to the Placement Agent, any and all reports on FormD as are required.

 

(d)           The Company shall useits reasonable best efforts to qualify the Units for sale (or seek exemptiontherefrom) under the securities laws of such jurisdictions in the United Statesas the Placement Agent shall designate, and the Company will (through Blue Skycounsel) make such applications and furnish information as may be required forsuch purposes.  The Company will, fromtime to time, prepare and file such statements and reports as are or may berequired to continue such qualifications in effect for so long a period as thePlacement Agent may reasonably request.

 

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

 

(f)            The Company shallapply the net proceeds from the sale of the Units to fund its working capitalrequirements and/or for such other purposes as shall be specifically describedunder “Use of Proceeds” in the Memorandum. The net proceeds shall not be used to repay indebtedness to or paybonuses or other extraordinary or deferred compensation to current executiveofficers or principal shareholders of the Company, or to repurchase or redeemany 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 Offeringto two individuals who are principal shareholders but who are not directors,officers or employees of the Company.

 

(g)           During the OfferingPeriod, the Company shall make available for review by prospective purchasersof the Units during normal business hours at the Company’s offices, upon theirrequest, copies of the Company Agreements to the extent that such disclosureshall not violate any obligation on the part of the Company to maintain theconfidentiality thereof and shall afford each prospective purchaser of Unitsthe opportunity to ask questions of and receive answers from an officer of theCompany concerning the terms and conditions of the Offering and the opportunityto obtain such other additional information necessary to verify the accuracy ofthe Memorandum to the extent it possesses such information or can acquire itwithout unreasonable expense.

 

(h)           Except with the priorwritten consent of the Placement Agent or as set forth in the Memorandum withrespect to the issuance of Units, the Company shall not, at any time prior tothe earlier of the Final Closing or the Termination Date, engage in or committo engage in any transaction outside the ordinary course of business,including, without limitation, the incurrence of material indebtedness (exceptfor the substitution of a senior lender and loan facility under terms no lessfavorable than existing terms with the Company’s current lender upon thesatisfaction of all liabilities and obligations owed to such current lender);materially change its business or operations as shall be described in theMemorandum; 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 anyright to acquire such securities, except as shall be contemplated by theMemorandum.

 

(i)            Whether or not thetransactions contemplated hereby are consummated, or this Agreement isterminated, the Company hereby agrees to pay all fees, costs and expensesincident hereto and to the Offering, including, without limitation, those inconnection with (i) preparing, distributing and binding the Memorandum andany and all amendments and/or supplements thereto, fees for bound volumes andany and all agreements, contracts and other documents related hereto andthereto; (ii) the authorization, issuance, transfer and delivery of theShares, the Warrants, Conversion Shares, the Agent’s Shares and the Agent’sWarrants, including, without limitation, fees and expenses of any transferagent 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, costsand legal fees and expenses for Blue Sky services and related filings withrespect 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 whichshall be paid to the Placement Agent’s counsel upon execution of this Agreementfor legal fees in connection with obtaining Blue Sky exemptions, up to amaximum of $10,000 (the “Blue Sky Fees”) (notwithstanding the foregoing $10,000cap on Blue Sky Fees, the Placement Agent shall in no way be responsible forany such filing fees, costs and legal fees and expenses for Blue Sky servicesand 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 PlacementAgent in connection with the Offering (including, without limitation, traveland related expenses and fees and expenses of legal, accounting and otheradvisers to the Placement Agent) equal to 3% of aggregate gross purchase priceof the Units sold, to be deducted from the gross proceeds from the sale ofUnits at each Closing, less a good faith advance of $20,000 to cover up frontexpenses to be incurred by the Placement Agent which has been paid by theCompany, receipt of which is hereby acknowledged by the Placement Agent.

 

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

 

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

 

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(l)            TheCompany shall use its best efforts to file a Registration Statement on FormSB-2 or another appropriate registration document under the Securities Act of1933, as amended, for resale of the shares of Common Stock included in theUnits, and the Common Stock underlying the Warrants and the Placement AgentWarrants, 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 effectivenessof such Registration Statement on or before ninety (90) days after the FinalClosing.  If the Registration Statementhas not been filed within the said 30-day period or does not become effectiveon 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, asliquidated damages and not as a penalty, equal to 1.0% per month of thesubscription amount paid by such investor for the Units until the filing oreffectiveness of the Registration Statement, as applicable. If the Companyfails to pay any liquidated damages pursuant to this Section in full withinseven days after the date payable, the Company will pay interest thereon at arate of 15% per annum (or such lesser maximum amount that is permitted to bepaid by applicable law) to each investor, accruing daily from the date suchliquidated damages are due until such amounts, plus all such interest thereon,are paid in full. The liquidated damages pursuant to the terms hereof shall applyon a pro-rata basis for any portion of a month prior to the filing oreffectiveness of the Registration Statement, as applicable.

 

6.             Conditions ofPlacement Agent’s Obligations.  Theobligations of the Placement Agent hereunder are subject to the fulfillment, ator before each Closing, of the following additional conditions:

 

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

 

(b)           The Company shall haveperformed and complied with all agreements, covenants and conditions requiredto be performed and complied with by it under the Transaction Documents at orbefore each Closing.

 

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

 

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

 

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conversionof outstanding convertible securities and (iii) securities included in theUnits sold in the Offering and the Agent’s Warrants.

 

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

 

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

 

(g)           On or prior to the datehereof and at each Closing, the chief executive officer and chief financialofficer of the Company shall have provided a certificate to the Placement Agentconfirming on behalf of the Company that there have been no undisclosedmaterial and adverse changes in the business condition (financial or otherwise)or prospects of the Company from the date of the latest financial statementsincluded in the Memorandum, the absence of undisclosed liabilities and suchother matters relating to the financial condition and prospects of the Companythat the Placement Agent may reasonably request.

 

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

 

(i)            There shall have beendelivered to the Placement Agent a signed opinion of counsel to the CompanyGadsby Hannah, LLP (“Company Counsel”), subject to usual and customarylimitations, assumptions and caveats (including without limitation, exclusionof any opinion regarding the securities or “blue sky” laws of any of the severalstates, a public policy exclusion asto enforceability, and reliance as to factual matters on certifications ofthe Company’s executive officers and as to legal matters with respect to opinion (xi) setforth in Exhibit A, in part on the certifications of theCompany’s general counsel) dated as of each Closing Date, insubstantially the form attached hereto as Exhibit A.

 

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

 

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(k)           The Placement Agentshall be satisfied with the results of its due diligence investigation of theCompany.

 

7.             Indemnification.

 

(a)           The Company will (i)indemnify and hold harmless the Placement Agent, its selected dealers and theirrespective officers, directors, employees and each person, if any, who controlsthe Placement Agent within the meaning of the Act and such selected dealers(each an “Indemnitee”) against, and pay or reimburse each Indemnitee for, anyand all losses, claims, damages, liabilities or expenses whatsoever (or actionsor proceedings or investigations in respect thereof), joint or several (which will,for all purposes of this Agreement, include, but not be limited to, allreasonable costs of defense and investigation and all reasonable attorneys’fees, including appeals), to which any Indemnitee may become subject, under theAct or otherwise, in connection with the offer and sale of the Units, whethersuch losses, claims, damages, liabilities or expenses shall result from anyclaim of any Indemnitee or any third party; and (ii) reimburse each Indemniteefor any legal or other expenses reasonably incurred in connection withinvestigating or defending against any such loss, claim, action, proceeding orinvestigation; provided, however, that the Company will not beliable in any such case to the extent that any such claim, damage or liabilityresults directly and primarily from (A) an untrue statement or alleged untruestatement of a material fact made in the Memorandum, or an omission or allegedomission to state therein a material fact required to be stated therein ornecessary to make the statements therein not misleading, in reliance upon andin conformity with written information furnished to the Company by thePlacement Agent or any such controlling persons specifically for use in thepreparation thereof, or (B) any violations by the Placement Agent of the Act orstate securities laws which does not result from a violation thereof or abreach hereafter by the Company or any of its affiliates.  In addition to the foregoing agreement toindemnify and reimburse, the Company will indemnify and hold harmless eachIndemnitee against any and all losses, claims, damages, liabilities or expenseswhatsoever (or actions or proceedings or investigations in respect thereof),joint or several (which shall for all purposes of this Agreement, include, butnot be limited to, all costs of defense and investigation and all reasonableattorneys’ fees, including appeals) to which any Indemnitee may become subjectinsofar as such costs, expenses, losses, claims, damages or liabilities ariseout of or are based upon the claim of any person or entity that he or it isentitled to broker’s or finder’s fees from any Indemnitee in connection withthe Offering.

 

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

 

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with reference to informationcontained in the Memorandum relating to the Placement Agent, or an omission oralleged omission to state therein a material fact required to be stated thereinor necessary to make the statements therein not misleading, if made or omittedin reliance upon and in conformity with written information furnished to theCompany by the Placement Agent or any such controlling persons, specificallyfor use in the preparation thereof or (ii) acts or omissions by selecteddealers or sub-agents of the Placement Agent. The Placement Agent will reimburse the Company or any such person forany legal or other expenses reasonably incurred in connection withinvestigating or defending against any such loss, claim, damage, liability oraction, proceeding or investigation to which such indemnity obligationapplies.  Notwithstanding the foregoing,in no event shall the Placement Agent’s indemnification obligation hereunderexceed the amount of the Placement Agent’s Fees actually received by it.

 

(c)           Promptly after receiptby an indemnified party under this Section 7 of notice of the commencement ofany action, claim, proceeding or investigation (“Action”), such indemnifiedparty, if a claim in respect thereof is to be made against the indemnifyingparty under this Section 7, will notify the indemnifying party of thecommencement thereof, but the omission to so notify the indemnifying party willnot relieve it from any liability which it may have to any indemnified partyunder this Section 7 unless the indemnifying party has been substantiallyprejudiced by such omission.  Theindemnifying party will be entitled to participate in, and, to the extent thatit may wish, jointly with any other indemnifying party, to assume the defensethereof subject to the provisions herein stated, with counsel reasonablysatisfactory to such indemnified party. The indemnified party will have the right to employ separate counsel inany such Action and to participate in the defense thereof, but the fees andexpenses of such counsel will not be at the expense of the indemnifying partyif the indemnifying party has assumed the defense of the Action with counselreasonably satisfactory to the indemnified party; provided,however,that if the indemnified party shall be requested by the indemnifying party toparticipate in the defense thereof or shall have concluded in good faith andspecifically notified the indemnifying party either that there may be specificdefenses available to it which are different from or additional to thoseavailable to the indemnifying party or that such Action involves or could havea material adverse effect upon it with respect to matters beyond the scope ofthe indemnity agreements contained in this Agreement, then the counselrepresenting it, to the extent made necessary by such defenses, shall have theright to direct such defenses of such Action on its behalf and in such case thereasonable fees and expenses of such counsel in connection with any suchparticipation or defenses shall be paid by the indemnifying party.  No settlement of any Action against anindemnified party will be made without the consent of the indemnifying partyand the indemnified party, which consent shall not be unreasonably withheld ordelayed in light of all factors of importance to such party and no indemnifyingparty shall be liable to indemnify any person for any settlement of any suchclaim effected without such indemnifying party’s consent.

 

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

 

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otherwise, then eachindemnifying party shall contribute to such amount paid or payable by suchindemnified party in such proportion as is appropriate to reflect not only suchrelative benefits but also the relative fault of the Company on the one handand the Placement Agent on the other in connection with the statements oromissions which resulted in such losses, claims, damages, liabilities orexpenses (or actions in respect thereof), as well as any other relevantequitable considerations.  The relativebenefits received by the Company on the one hand and the Placement Agent on theother shall be deemed to be in the same proportion as the total net proceedsfrom the Offering (before deducting expenses) received by the Company bear tothe total commissions and fees received by the Placement Agent.  The relative fault, in the case of an untruestatement, alleged untrue statement, omission or alleged omission will bedetermined by, among other things, whether such statement, alleged statement,omission or alleged omission relates to information supplied by the Company orby the Placement Agent, and the parties’ relative intent, knowledge, access toinformation and opportunity to correct or prevent such statement, allegedstatement, omission or alleged omission. The Company and the Placement Agent agree that it would be unjust andinequitable if the respective obligations of the Company and the PlacementAgent for contribution were determined by prorata allocation ofthe aggregate losses, liabilities, claims, damages and expenses or by any othermethod or allocation that does not reflect the equitable considerationsreferred to in this Section 8.  Noperson guilty of a fraudulent misrepresentation (within the meaning of Section11(f) of the Act) will be entitled to contribution from any person who is notguilty of such fraudulent misrepresentation. For purposes of this Section 8, each person, if any, who controls the PlacementAgent within the meaning of the Act will have the same rights to contributionas the Placement Agent, and each person, if any, who controls the Companywithin the meaning of the Act will have the same rights to contribution as theCompany, subject in each case to the provisions of this Section 8.  Anything in this Section 8 to the contrarynotwithstanding, no party will be liable for contribution with respect to thesettlement of any claim or action effected without its written consent.  This Section 8 is intended to supersede, tothe extent permitted by law, any right to contribution under the Act, the 1934Act or otherwise available.

 

9.             Termination.

 

(a)           (I) The Offering may beterminated by the Placement Agent at any time prior to the expiration of theOffering Period in the event that (i) any of the representations orwarranties of the Company contained herein shall have been false or misleadingin any material respect when made or deemed made, (ii) the Company shallhave failed to perform any of its material obligations hereunder, (iii) theCompany shall have determined for any reason not to continue with the Offeringor (iv) the Placement Agent shall determine in its sole discretion,reasonably exercised, that it is reasonably likely that any of the conditionsto Closing set forth herein will not, or cannot, be satisfied.  In the event of any such terminationoccasioned by or arising out of or in connection with the matters set forth inclauses (i)-(iii) above, or occasioned by or arising out of or in connectionwith a matter set forth in clause (iv) above due to any material breach orfailure hereunder on the part of the Company, the Placement Agent shall beentitled to receive, an amount equal to the sum of: (A) any PlacementAgent’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 threepercent (3%) of the aggregate purchase price per Unit of all Units sold in theOffering (deeming,

 

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for this purpose, all Unitsoffered as having been sold), less any amounts theretofore paid in respect ofPlacement Agent Expenses, and all unpaid Blue Sky Fees and other expenses setforth in Section 5(i) hereof and (C) all amounts that may become payablepursuant to Section 3(f) hereof.  If the Offering is not completed because thePlacement Agent prevents its completion (except where the Placement Agent doesso because of a material breach by the Company of a material covenant,representation or warranty contained herein or in the Memorandum which theCompany fails to cure within ten (10) business days of receipt of writtennotice from the Placement Agent) or the Company terminates the Offering becauseof failure of the Commencement Date to occur within 10 days from the datehereof, the Placement Agent shall retain the $20,000 previously paid to thePlacement Agent.  If the Companyprevents completion of the Offering (except where the Company does so becauseof a material breach by the Placement Agent of a material covenant,representation or warranty contained herein which the Placement Agent fails tocure within ten (10) business days of receipt of written notice from theCompany), the Company’s liability for the Placement Agent’s expenses shall beequal to 3% of the Maximum Amount to cover the Placement Agent’s expenses andefforts.  Notwithstanding the foregoing,in the event the Company completes one or more private offerings of itssecurities within one year after the Company prevents the completion of theOffering (except where the Company does so because of a material breach by thePlacement Agent of a material covenant, representation or warranty containedherein which the Placement Agent fails to cure within ten (10) business days ofreceipt of written notice from the Company), the Company shall also pay thePlacement Agent an investment banking fee equal to five percent (5%) of thetotal consideration received by the Company in connection with such sales ofsecurities, up to a maximum fee of $100,000 except where the Company candemonstrate to the Placement Agent’s reasonable satisfaction that payment ofsuch compensation would violate the rules of the NASD or any state or federalauthority.  The Company shall not have anyliability to the Placement Agent under the preceding sentence unless thePlacement Agent obtains subscriptions for the Minimum Offering prior toexpiration of the Offering Period.

 

(II)           ThisOffering may be terminated by the Placement Agent by notice to the Company atany time if, in the sole judgment of the Placement Agent, the Offering or thesale or the payment for or the delivery of the Units is rendered impracticableor inadvisable because (i) additional material governmental restrictions not inforce and effect on the date hereof shall have been imposed upon trading insecurities generally, or minimum or maximum prices shall have been generallyestablished on the New York Stock Exchange, or trading in securities generallyon such exchange shall have been suspended or a general banking moratoriumshall have been established by federal or New York State authorities, (ii) awar, major hostilities, terrorist or similar activity, act of God or othercalamity shall have occurred, (iii) of a material adverse change in thecondition (financial or otherwise) of the Company, its business or businessprospects or (iv) the Placement Agent, in its sole discretion, shall bedissatisfied with the results of its due diligence investigation.

 

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

 

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On such Termination Date, theCompany shall pay all unpaid Blue Sky Fees and other expenses set forth inSection 5(i) hereof.

 

(c)           Upon any suchtermination, the Escrow Agent will, at the request of the Placement Agent,cause all money received in respect of subscriptions for Units not sold to bepromptly returned to such subscribers without interest, penalty, expense ordeduction.  Any interest earned thereonshall be applied first to the payment of amounts, if any, due to the EscrowAgent and next to the payment of any amounts payable to the Placement Agenthereunder which remain unpaid.

 

10.           Survival.

 

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

 

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

 

11.           Notices.  All communications hereunder will be inwriting and, except as otherwise expressly provided herein or after notice byone 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, NewYork, NY 10005, Attention: Matthew McGovern, Telefax number212-798-1399, with a copy to Feldman Weinstein LLP, 420 Lexington Avenue, NewYork, New York 10170, Attention: David N. Feldman, Esq., Telefax number(212) 997-4242, and if sent to the Company, will be mailed, delivered ortelefaxed 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., GadsbyHannah, 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 YORKAPPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.  ALL CONTROVERSIES, THAT ARISE BETWEEN THEPARTIES CONCERNING THIS AGREEMENT, SHALL BE EXCLUSIVELY DETERMINED BYARBITRATION PURSUANT TO THE RULES THEN PERTAINING TO THE AMERICAN ARBITRATIONASSOCIATION (THE “AAA”) IN NEW YORK COUNTY, NEW YORK.  HEARINGS WITH REGARD TO SUCH DISPUTE SHALL BE HELD EXCLUSIVELY ATTHE OFFICES OF THE AAA IN THE CITY OF NEW YORK AND JUDGMENT UPON ANY AWARDRENDERED PURSUANT THERETO MAY BE ENTERED IN ANY COURT OF COMPETENTJURISDICTION.  ANY DECISION RENDERED BYTHE AAA SHALL BE FINAL AND BINDING. SERVICE OF PROCESS MAY BE MADE UPON THECOMPANY BY MAILING A COPY THEREOF TO IT, BY CERTIFIED OR REGISTERED MAIL, ATITS

 

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

 

13.  Confidentiality.  The Company hereby agrees to holdconfidential the identities of the purchasers in the Offering and shall notdisclose their names and addresses without the prior written consent of thePlacement Agent, unless required by law. The Company hereby consents to the granting of an injunction against itby any court of competent jurisdiction to enjoin it from violating theforegoing confidentiality provisions. The Company hereby agrees that the Placement Agent will not have anadequate remedy at law in the event that the Company breaches theseconfidentiality provisions contained herein, and that the Placement Agent willsuffer 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 thePlacement Agent may have.

 

14.  Miscellaneous.  No provision of this Agreement may bechanged or terminated except by a writing signed by the party or parties to becharged therewith.  Unless expressly soprovided, no party to this Agreement will be liable for the performance of anyother party’s obligations hereunder. Any party hereto may waive compliance by the other with any of theterms, provisions and conditions set forth herein; provided, however,that any such waiver shall be in writing specifically setting forth thoseprovisions waived thereby.  No suchwaiver 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 theparties and their successors and permitted assigns.  Except with respect to the use of selected dealers and sub-agentsby the Placement Agent, neither party may assign this Agreement or any rightsor 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 whichshall be deemed an original and all of which shall constitute a single agreement.  If any provision of this Agreement is heldto be invalid or unenforceable in any respect, the validity and enforceabilityof the remaining terms and provisions of this Agreement shall not in any way beaffected or impaired thereby and the parties will attempt to agree upon a validand enforceable provision that is a reasonable substitute therefore, and uponso agreeing, shall incorporate such substitute provision in this Agreement.

 

15.  Entire Agreement. This Agreement together with any other agreement referred to hereincontains the entire Agreement between the parties hereto and is intended tosupersede all prior agreements between the parties with respect to the Unitspurchased hereunder and the subject matter hereof.

 

[SIGNATURE PAGE FOLLOWS]

 

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If the foregoing is inaccordance with your understanding of our agreement, kindly sign and returnthis Agreement, whereupon it will become a binding agreement between theCompany 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 “TransactionDocuments,” whenever it is used in this letter, means (a) the Placement AgencyAgreement 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) thePlacement Agent Warrant dated as of                       ,2004, by and among the Company and the Placement Agent (the “Placement AgentWarrant”) and (c) the Subscription Agreement, dated asof                       ,2004, by and among the Company and each investor signatory thereto (suchinvestors, the “Investors” and such agreement, the “Subscription Agreement”),and all other documents executed in connection with (a)-(c).  All capitalized terms used in this letterhave the respective meanings set forth in the Placement Agency Agreement unlessotherwise defined herein.

 

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

 

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

 

(iii)          The Company has anauthorized 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 whenduly and validly delivered and paid for pursuant to the terms of theTransaction Documents will be validly issued, fully paid andnonassessable.  Except as set forth inthe Confidential Private Placement Memorandum (the “Memorandum”), the issuanceof the Units, the components thereof, Conversion Shares or the Agent’sSecurities are not subject to statutory, or to our knowledge, contractual orother 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 respectsto all statements in relation thereto contained in the Memorandum.  A sufficient number of authorized but unissuedshares of Common Stock have been reserved for issuance upon conversion orexercise of the components of the Units and exercise of the Agent’s Warrants.

 

(iv)          None of the executionand delivery of, or performance by the Company under, any of the TransactionDocuments or the consummation of the transactions therein contemplated, willconflict 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 isapplicable to the Company or any of its assets, properties or businesses.

 

(v)           To our knowledge, noneof the execution and delivery of, or performance by the Company under, any ofthe Transaction Documents or the consummation of the transactions thereincontemplated, will conflict with or result in the creation or imposition of,any lien, charge or other encumbrance upon any of the properties or assets ofthe Company pursuant to the terms of any material indenture, mortgage, deed oftrust, note, material license, agreement or other instrument known to suchcounsel to which the Company is a party or by which the Company may be bound orto which any of its assets, properties or businesses is or may be subject.

 

(vi)          To our knowledge, noconsent, approval, authorization, order, registration or qualification of orwith any court or regulatory, administrative or governmental agency, body orauthority of the United States of America or any political subdivision thereofis required on behalf of the Company in connection with the issuance or sale ofthe Units or the Agent’s Warrants except for required filings with the UnitedStates Securities and Exchange Commission and applicable “Blue Sky” or statesecurities commissions relating specifically to the Offering.

 

(vii)         To our knowledge, exceptas 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, orinstrumentality pending or threatened against the Company, or involving itsassets or properties or any of its officers or directors which, if determinedadversely to the Company, could have a Material Adverse Effect on the Companyor adversely affect any of the transactions contemplated by the TransactionDocuments or the validity or enforceability thereof.

 

(viii)        To our knowledge, theCompany 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 agreementor instrument to which the Company is a party or by which it is or may be boundor to which any of its assets, properties or businesses may be subject; or(iii) any judgment, decree or order applicable to the Company which violationor violations individually, or in the aggregate, might result in any MaterialAdverse Effect in the condition (financial or otherwise), or prospects of theCompany.

 

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

 

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

 

(x)            We have participatedin the preparation of the Memorandum and in conferences with officers and otherrepresentatives of the Company, at which such conferences the contents of the Memorandumand related matters were discussed, and based upon those conferences and uponsuch counsel’s participation in the preparation of the Memorandum, and anyamendment or supplement thereto (other than the financial statements, includingsupporting schedules and other financial and statistical information derivedtherefrom), we are not specifically aware that the Memorandum contains anyuntrue statement of a material fact or omits to state a material fact necessaryin order to make the statements therein not misleading with respect to allmaterial contracts of the Company filed as exhibits to the Company’s filingswith the Securities and Exchange Commission.

 

(xi)           Based on a certificatefrom a duly authorized officer of the Company as to certain factual mattersannexed hereto and assuming that the Units were sold only to “accreditedinvestors” (as defined in Rule 501 of Regulation D) and the Placement Agentcomplied in all material respects with Regulation D and requirements of Section4(2) that are applicable to it, (i) such sales were made in conformity in allmaterial respects with the requirements of Sections 4(2) of the Act andRegulation D and (ii) the issuance of the Units in accordance with theMemorandum is exempt from registration under the Securities Act of 1933, asamended.

 

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